How Can Leaders Reduce Fraud And The Great Wall Of China Theory

There has been a lot of talk lately about ethics, governance, fraud...you name them, we have them. What then, is the Leader's role in reducing these kinds of risks in an organization?

Well, let us start with some basic insight:- ironically, Success is the root cause of risk. More success, more money, more fraud. So, the easiest way to reduce fraud is to reduce business.

Don't laugh. This is what most Finance and Human Resource people do, unintentionally. What do I mean? Well, some Heads of Finance/HR are so over zealous in reducing fraud-related risks (especially when the KPI for this is pegged at 80% of their performance), that they will do everything in their power to put in all kinds of ridiculous policies and procedures up to a point that it kills all the flexibility and success factors of a business.

What then should the Leader pay attention to when looking at Fraud and Ethics?

1. Price to Pay for Fraud/Risk Mitigation is almost always "Business Flexibility". Remember this.
   
2. Control and Growth have always had a reverse correlation effect. E.g. As a control, the more controls we put on foreign ownership, the less economic growth resulting from a loss of FDI.
   
3. Rules vs. Humanity/Motivation. The more rules we put in place, the less Humane a company becomes. This in turns reduce Motivation.
   
4. Most Leaders are not tackling the real root causes of fraud and ethics i.e. Motive & Opportunity i.e. Humans. Most managers spend more time in tweaking the procedures and rules instead of dealing with human issues
   
5. If an organization is focused on reducing Fraud thus giving more and more powers to Finance and Accounting vs. Sales/Marketing, guess who is in control of the business? Aren't you afraid?

So... what has the Great Wall of China got to do with anything? Well... almost everything. Many many many moons ago, China decided to build a great wall to keep the Mongolians out. They spent countless resources, time, effort, and lives in building this great, strong, long wall. However, it seems that the Mongolians could easily penetrate this wall using a simple powerful proven concept: BRIBE. You see, the Chinese spent so much time and money on the wall, they did not realize that their Gatekeepers were unmotivated, restless, poor, ill treated with no obvious career advancement opportunities. Any Mongolian soldier can bribe the Gatekeeper with USD5,000. And this Gatekeeper would happily accept the money and open the gates.

What is the moral of the story? Well..

1. Humans are the weakest link
   
2. Bad treatment of staff will lead to weak links i.e. making them easier to bribe, easier to con, etc;
   
3. Bad treatment arises from bad leaders who are insulting, makes staff lose face, deliver broken promises, publicly criticize staff, re-structure without communication etc.

Stop dealing with process. Stop issuing rules. Stop humiliating your people, and you can reduce fraud.

-TURD-

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