Is your business leaking revenue?

No matter what stage your business is in there is always a risk that revenue is leaking. If you are a startup, the pressures to acquire and retain customers may lead you to engage in business practices that greatly increase your overall risk. If you are past the startup stage your business may have outgrown the basic processes you established to get it up and running. If you are a long established business you may have been lulled into business practices that are just not efficient and therefore are costing you money you should not have to spend. Or, (scarier) you may have employees or vendors that are taking advantage or outright stealing from you. It is always a good idea to take time to evaluate what you are doing and how it is being done to be sure that you are not leaking revenue.

Purchasing:
Are you really getting the best deal on the recurring expenses that are necessary to run your business? Have you analyzed the cost of supplies, mail, phone services over time? Do you know what it would cost you to move an office should the rent rise too much? Does your bank provide the services you need at a price that is competitive? Are you paying too much for credit card services?

Processes:
Are there processes that are too centralized giving one person a lot of control with little oversight? Is there someone who never seems to be able to take time off and who never shares the processes they do with others? Some assume it is a way to promote job security, but it is also a warning sign of potential fraud. Have you taken time to talk to the people who actually do the tasks within a given process? Chances are they have a lot of ideas on how to do it more efficiently. What kind of reporting do you do? Can you measure any of the processes you do?

These are just a few basic things you can do to get a sense of your revenue risk. I would be delighted to learn more about your business and the challenges that may make these things hard to do. Send me a note!

Freakonomics

I picked up "Freakonomics" this week and was surprised to see so many fraud related items in the first few chapters of the book. The story on cheating teachers was not news. Anyone with kids in school knows that there is a great temptation on the part of teachers to "teach to the test". It is the classic warning about taking care to pick what you measure carefully because it will drive behavior (sometimes the wrong behavior).

The story that I thought was most interesting was the one about the guy who quit his job to sell bagels to offices. Their assertion in the book is that there is no meaninful data on white collar crime(I am not sure that is true). The authors use the bagel man as a way to analyze this problem. Since he did business on the honor system and kept incredibly detailed records he was able to track company honesty. Some of the interetsting things he learned:

1. Weather: The worse the weather the more people cheat the bagel man.
2. Holidays: The Christmas holiday produces a 2% drop in payments.
3. Morale:The healthier the work environment the more honest they are.
4. Power:The higher up in the organization the person is the more likely they are to cheat.

I am interested in feedback:

1. Are you more inclined to cheat at work(through cutting out early or other slacker behavior) when your boss is a jerk?
2. What specific issues make it hardest to be honest at work?

Eliot Spitzer

If you have ever wondered about the value of internal controls, then take a look at the case against Eliot Spitzer. As a former prosecuter he is quite familiar with the Office of the Controller of the Currency's requirement that banks submit Suspicious Activity Reports for transactions that look suspicious and are over $5,000 or any transaction over $25,000. It appears that this requirement is what ended up exposing the crime.

He is likely to be charged under a statute called "structuring" where a person initiates a series of financial transactions designed to obscure the purpose of payments.

He was caught in the very net he used to catch others as a prosecuter. The FBI suspected that he was taking bribes and was surprised to discover the prostitution ring.

Processes designed to uncover fraud work even when people who know how they work try to work around them.

The mother of the problem

If you were required to read Beowulf in school you may recall how he was contracted by the king of a neighboring village to come and kill a monster who had been praying on the community. Beowulf does this, but quickly realizes that if he is to solve the problem completely he has to kill the mother of the monster. Killing the mother proves to be much harder, but necessary for the safety of the village.

A recent Linkedin question had me thinking about this. The question had to do with how to get an organization to adopt an internal control program. It would be easy to simply impose the program on the organization , but clearly its effectiveness would be questionable. In this instance the "mother of the beast" is the organization's cultural state. If the larger and more fundamental issues of common purpose, and morale are not dealt with effectively (and which might be driving the organization's resistance) the internal control program might reduce some of the risk, but it risks creating an environment more susceptible to fraud, and creating an even bigger more difficult problem to solve.

Internal controls are effective in managing risk in a business no matter how bad the environment, but they are much more effective if they are executed inside of a healthy organization.

Corporate Social Responsibility

In the January 17th issue of the Economist they tackle the issue of Corporate Social Responsibility (link below). For some this sounds like the same old cynical public relations campaign dressed in environmentally friendly and low carbon footprint clothing. It is true that there is a PR aspect to the idea of jumping on the "green" band wagon. However, there are a growing number of companies taking it seriously.

The emerging work force has a more sensative social conscience and is making career choices based on a company's social responsibility track record. Companies are also discovering that making volunteer opportunities available to employees adds to their job satisfaction.

Practically speaking, happy employees are more productive and less likely to steal from their employers. Companies that behave ethically do enjoy a reputation that aids their growth.


http://www.economist.com/opinion/displaystory.cfm?story_id=10491077

Identity Fraud 45.3B in America

Identity fraud is declining, (claims are down 11% from last year) in America but it is still staggering.

Most Common Victims:
Age: 24-34
Race: African American
Income: $100,000.00 plus

Tips:

1. Put a fraud alert on your credit report. This prevents anyone from opening a credit account without first contacting you.
2. Keep your information private: especially on-line and over the phone.

Average cost to repair Credit: $691.00

See the article by Jonathan Stempel below for the complete story.
http://www.reuters.com/article/rbssFinancialServicesAndRealEstateNews/idUSN1161861220080211

Its that time again

Every year at this time I have to find a time to get a physical exam. It is not my favorite activity on earth but as I age it is just prudent and proactive to do so. If everything ends up being OK then it is worth the time. If something comes up, it is even more worth it since I know that my regular exams reduce the likelyhood of an issue being too big to solve.

It is a good idea to do the same thing in your business. It is not as unpleasant as a physical and can end up improving your bottom line. If it turns out your business is operating as efficiently as possible then you have the satisfaction of knowing that. If not, it gives you the opportunity to make the changes early so you have the remainder of the year to reap the benefits.