Saturday, March 3, 2012

Recommendation for a Comprehensive Business Smell Test Model / Fraud Detection in order to detect the Bull Shit in businesses.

(P.S: This blog post may seem a bit naive; May not sound very technical at this moment. But remember, I have yet to take my advanced Finance course, LOL. And I have not completed all my MBA courses yet. Hopefully, in 6 months, I shall sound a lot more intelligent with my analysis and blog posts :)

I am a guy who keeps having thoughts flowing into my mind all the time. The thinking hat always on. When I do have a thought, I do a search engine check and see whether there is something already out there - related to what I am thinking about.

I thought of the words "Comprehensive Business Smell Test Model for Fraud Detection & Business Forensics" today. In my opinion, Business Smell Test should involve a Comprehensive methodology involving ALL departments to detect the B.S. in any organization. - Smell the Bull Shit that is going on. Identify it and weed it out.

Of course, we have Forensic accounting - to detect fraud after the event. That term is already popular. But the term - Business Forensics ---> A comprehensive model / package is not popular (After all, who will bell the cat? Who has the guts to challenge existing CEOs & Board of Directors. Which Management would like to lose control and be dissected / scrutinized. Of course, there are external auditors. But how good are they? How strict are they? How effective are they, in detecting the B.S.?).

But there should be more done to do the prevention and the detection - a universal model accepted by all business, with better conditions on GAAP / IFRS / Sarbanes Oxley and an even more comprehensive model, apart from just these - rather than energy spent on the post mortem and the forensics, AFTER the event. After all, a stitch in time, saves nine. In fact, each company should come out with its own version. Executives should need to take tests and certify from time to time that they are fit to lead, rather than just be entitled to rule.

Not every business is run perfectly. If they did, we would never have business problems, we would not have a recession, we would not need consultants, there would be no complaints or legal battles. Businesses are loaded with a lot of B.S. And this is due to many reasons:
  • Ignorance
  • Red tapism
  • Favouritism / Nepotism
  • Lack of merit based promotions / corporate structuring
  • Dependence on networks and loyalty, rather than ability and competence
  • Overconfidence
  • Arrogance
  • Too much dependence and pride on the past glory
  • Lack of foresight
  • Greed
  • Bribery
  • Dominance of a few, rather than a collective decision making / consensus
  • Corruption
  • Trying to get ahead using unfair means / unfair advantage
  • Trying to kill the competition using unfair means
  • Blatant copying of ideas / stealing of techlonogy
  • Too many Silos within businesses
  • Ganging up - Old boys clubs
  • Fear of losing control
  • lack of free flow of information
  • Manipulation of numbers
  • Accounting fraud to get better bonuses
  • Artificially trying to inflate stock prices / make gains
  • Incorrect / inflated vlauations
  • Insider information favouring a few
  • Racism
  • Nationalism / Patriotism & International (perceived or real) threats
  • And so on..
There must be definite ways to smell out the bull shit and fix things BEFORE the shit hits the fan. There should be a Comprehensive Smell Test Model before the need for Business Forensics after the event. Will do more research on this and post some blogs soon :)))

Here is a video about some ways to do Financial Analysis to detect trouble in a company:

And here is a video about Earnings Management ---> Cooking the books. How companies can be involved in fraud by manipulating the financial statements (hiding the Bull Shit; which is why I used the words "Smell Test" ---> to smell the bull shit :)


Gerry Som.

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