![]() There are plenty of advantages to working with family members, but you also need to watch for pitfalls. If such interventions don’t work, however, you and other family members may have no choice but to seek prosecution. An advisor may want to explain to the perpetrator the illegality and possible consequences of the fraudulent actions. If you discover a family member is committing fraud, consult with a trusted attorney or accountant. Sometimes families choose to save the fraudster from public scandal or punishment rather than maintain ethical professional standards. Even when legal action is an option, families rarely can bring themselves to pursue action against one of their own. ![]() ![]() This becomes much more difficult when collusion requires the assistance of an outsider.Īnother factor that makes preventing fraud in family businesses hard is how they tend to handle fraud incidents. In some extreme cases, members of all-family boards have been known to work together to bilk their companies. If your company is large enough to have a board of directors, it should include at least one outsider who’s strong enough to tell you things you may not want to hear. Audited financial statements from independent accountants protect the business and its stakeholders. Your family business should look outside its immediate circles of relatives and friends and retain professional advisors who can be objective when assessing the company. That’s why independent auditors and legal advisors are critical. Of course, the person in charge potentially could be the one defrauding the company. Sometimes family businesses need to hit the reset button and reestablish a hierarchy and process of authority while moving forward with the enterprise. It may be awkward to exercise authority over members of one’s own family, but someone needs to take charge if or when issues arise. One of the biggest obstacles to fraud prevention is simply acknowledging that someone in the family could be capable of initiating or overlooking unethical or illegal activities.īut like any other business, family enterprises should include internal controls that make fraud difficult to perpetrate. Why might family businesses be more vulnerable to fraud than other companies? For one thing, prevention efforts can be hampered by loyalty and affection. However, they may also potentially face higher fraud risks. Often defined as companies that are majority owned by a single family with two or more family members involved in their management, family businesses can be a significant source of wealth. Family businesses make up a huge percentage of companies in the United States and produce much of the country’s gross domestic product.
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