Trust and Fraud in Your Family Business

There are many benefits of working with a family you love and trust. However, sometimes trust-family-fraud collide. The trust family members have for each other is one of the things that could create some major problems that compromise the business’s finances and longevity because it only takes one person to damage or destroy a business you and your family have spent years building.

Accept the possibility

One of the biggest obstacles for family businesses is acknowledging that a family member would be capable of initiating or overlooking unethical or illegal activities. But like any other business, your family enterprise must make fraud difficult by establishing a system of checks and balances. It may be awkward for one family member to exercise authority over others, but someone needs to take charge if issues arise.

Of course, the person in charge potentially could be the one defrauding the company. That’s why independent auditors and attorneys are critical. Your family business should look outside its immediate circles to retain professional advisors who can be objective when assessing the company. In particular, audited financial statements from independent accountants protect your business and supply peace of mind to its stakeholders. And if your company is large enough to have a board of directors, whether formal or informal, it should include at least one outsider who’s strong enough to tell you things you may not want to hear.

Punish or perish

Another problem family businesses might face is what to do if they find that someone in the family has, indeed, defrauded the company. While legal action is an option, it’s one families rarely can bring themselves to pursue against one of their own — at least not at first.

If you find your business in that situation, ask a trusted advisor to explain to the perpetrator the illegality and possible consequences of the fraudulent actions. If such interventions don’t work, you and other family members may have no choice but to pursue legal action.

Avoid blind trust

Just as it’s more difficult to accept that the family closet is hiding a fraudster, it’s also harder to resist a loved one’s pleas for assistance. In worst cases, families may have to choose between maintaining ethical professional standards and saving a loved one from scandal or punishment.

The use of objective professional advisors can assist you in creating a culture of trust and accountability to help prevent a misguided family member from harming what should be a source of mutual prosperity. Contact us for more information.


How can we help?

  • Should be Empty:
  • Topic Name:

DISCLAIMER: This blog is provided for informational purposes only and is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant. Presentation of the information in this article does not create nor constitute an accountant-client relationship. While we use reasonable efforts to furnish accurate and up-to-date information, the evolving landscape surrounding these topics is supported by regulations or guidance that are subject to change.

We Value Your Privacy

This site may use cookies to store information on your computer. Some are essential to make our site work and others to improve the user experience. By using this site, you consent to the placement of these cookies and accept our privacy policy.