If the Carlands' assertion that 40% of new venture failures may result from fraud is anywhere near correct, then we as entrepreneurs need to take a long, hard look at our business ethics, our internal controls, and our entire business plan before taking the plunge.
When I first glanced over the chapter on fraud, I compared it to the brewing business. I suppose that drinking a little straight off the tap can be construed as fraud, but what other problems could there be? I trust my business partner--we'll figure it out, right?
As I read on, I came to realize that the possibility for fraud may impact a small brewery much more often then the companies involved in the fraud cases seen on the news, like Enron, etc. What struck me and my business plan was the most common fraud case; an accounting clerk who handles everything related to finances. Neither I or my business partner understand accounting--someone would have to be hired, and the chance of the two of us simply trusting that person with finances would be great. In my opinion, what was just outlined here makes up the biggest reasons that fraud impacts the small business over the larger company by exponential amounts; too much trust, too little control.
Fraud can occur anywhere by anyone, and it is (unfortunately) very important to constantly monitor the jobs of your employees (and yourself) to make sure that the work environment does not begin to induce an environment of fraud. Entrepreneurs need to wear all the hats--ensuring that no one individual has all the keys to a potential fraud without having to collude with others. In a society where even the honest employee can fall down the "slippery slope of fraud," simply trusting others with important finances, solitary work shifts, purchasing decisions and others is naive and potentially damaging.
Technology is making tracking finances and theft easier by the day. Robust inventory/purchasing/sales systems can be purchased inexpensively and will transform a "fudgy" business environment into one of exact numbers and easily tracked processes. Besides helping a business function more efficiently, these are easy ways for owners to manage their employees' day to day habits. Controlling computer access through passwords and heirarchical levels not only secures the network, but establishes a perception in employees that their fraud may be tracked, cutting down on the possibility of ever committing fraud.
Perhaps most importantly, new hires and existing employees must know that the business owners do their jobs with integrity and care about the success of the company, not simply tax write-offs and beach houses on the company dime. A good ethical environment has a trickly down effect and will establish good morals throughout the company.
If businesses work hard to keep internal controls in place, to be wary of who they trust and how much power to give employees, and promote a healthy, ethical workplace, fraud will virtually disappear. Even in the beer business, where to taps are forever tempting, good habits will foster good businesses, and good businesses will create more success for all involved.
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Will,
ReplyDeleteYou make some interesting points in your post. You said, "Neither I or my business partner understand accounting" and later said, "Technology is making tracking finances and theft easier by the day." I think that understanding accounting/finance and technology are problem some of the most common weaknesses of entrepreneurs. Which gives me an idea - perhaps this would be a good entrepreneurial venture dealing only with new entrepreneurs. Anyway, I think you provided many goods that could be adopted to prevent fraud.
BTW, I like the looks of your site.
Jim