Fraud in the family business

Research suggests that family businesses may be more vulnerable to fraud. Prevention efforts can be hampered by loyalty and affection. For example, it can be awkward to exercise authority over one’s family members, which is essential to carrying out most internal controls. Also, even when legal action is an option, families rarely want to pursue action against one of their own. Sometimes families choose instead to save the fraudster from public scandal or punishment. To counter such impulses, family businesses should rely on the advice of outside advisors and include at least one nonfamily member on their board.