How to Tell If Someone Is Lying

How to Tell If Someone Is Lying

Most people lie from time to time. Some of these lies are little white lies intended to protect someone else’s feelings (“No, that shirt does not make you look fat!”). In other cases, these lies can be much more serious (like lying on a CV) or even sinister (covering up a crime).

People also like to believe that they are pretty good at detecting lies and folk wisdom suggests a wide variety of ways to root out dishonesty. Some of the most common: Liars tend to fidget and squirm. They won’t look you in the eye. They have shifty eyes when they are telling a lie. Research suggests that most of these notions are simply old wives tales.

Clearly, behavioral differences between honest and lying individuals are difficult to discriminate and measure. Many studies have shown that even trained investigators are remarkably poor at telling if someone is lying or telling the truth.

Several studies have shown that while individual signals and behaviors are useful indicators of deception, some of the ones most often linked to lying (such as eye movements) are among the worst predictors. So while body language can be a useful tool in the detection of lies, the key is to understand which signals to pay attention to.

Psychologists have also utilized research of body language and deception to help members of law enforcement distinguish between the truth and lies. Researchers at UCLA conducted studies on the subject in addition to analyzing 60 studies on deception in order to develop recommendations and training for law enforcement. The results of their research were published in the April 2016 issue of the American Journal of Forensic Psychiatry.

Here is what body language can (and cannot) tell you on how to actively root out lies, and why you should trust your instincts. A few of the potential red flags the researchers identified that might indicate that people are deceptive include:
• Being vague; offering few details
• Repeating questions before answering them
• Speaking in sentence fragments
• Failing to provide specific details when a story is challenged
• Grooming behaviors such as playing with hair or pressing fingers to lips

Lead researcher R. Edward Geiselman suggests that while detecting deception is never easy, quality training can improve a person’s ability to detect lies. “Without training, many people think they can detect deception, but their perceptions are unrelated to their actual ability. Quick, inadequate training sessions lead people to over-analyze and to do worse than if they go with their gut reactions.”

Research has also shown that people do tend to pay attention to many of the correct behavioral cues associated with deception. A 2001 meta-analysis by researchers Hartwig and Bond found that while people do rely on valid cues for detecting lies, the problem might lie with the weakness of these cues as deception indicators in the first place.

Some of the most accurate deception cues that people do pay attention to include:
• Being vague: If the speaker seems to intentionally leave out important details, it might be because they are lying.
• Vocal uncertainty: If the person seems unsure or insecure, they are more likely to be perceived as lying.
• Indifference: Shrugging, lack of expression, and a bored posture can be signs of lying since the person is trying to avoid conveying emotions and possible tells.
• Overthinking: If the individual seems to be thinking too hard to fill in the details of the story, it might be because they are deceiving you.

The lesson here is that while body language may be helpful, it is important to pay attention to the right signals. Experts suggest that relying too heavily on such signals may impair the ability to detect lies. Next, learn more about a more active approach to figuring out if someone is telling the truth.

Ask Them to Tell Their Story in Reverse

Lie detection is often seen as a passive process. People often assume that they can just observe the potential liar’s body language and facial expressions to spot obvious “tells.” While research has shown that this is a pretty bad way to detect lies, taking a more active approach to uncovering lies can yield better results.

Increasing the Mental Load Makes Lying More Difficult

Research suggests that asking people to report their stories in reverse order rather than chronological order can increase the accuracy of lie detection. The researchers suggest that the verbal and non-verbal cues that distinguish between lying and truth-telling become more apparent as cognitive load increases. In other words, lying is more mentally taxing than telling the truth. If you add even more cognitive complexity, behavioral cues may become more apparent.

Not only is telling a lie more cognitively demanding, but liars typically exert much more mental energy toward monitoring their behaviors and evaluating the responses of others. They are concerned with their credibility and ensuring that other people believe their stories. All this takes a considerable amount of effort, so if you throw in a difficult task (like relating their story in reverse order), cracks in the story and behavior tells might become easier to spot.

Finally, what’s the best way to spot a liar? The reality is that there is no universal, sure-fire sign that someone is lying. All of the signs, behaviors, and indicators that researchers have linked to lying are simply clues that might reveal whether a person is being forthright.

So the next time you are trying to gauge the veracity of an individual’s story, stop looking at the clichéd “lying signs” and learn how to spot more subtle behaviors that might be linked to deception. When necessary, take a more active approach by adding pressure and make telling the lie more mentally taxing by asking the speaker to relate the story in reverse order.

Finally, and perhaps most importantly, trust your instincts. You might have a great intuitive sense of honesty versus dishonesty, you just need to learn to heed those gut feelings.

Credit: www.verywell.com
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The Art of Thinking Clearly by Rolf Dobelli – Chapter 2

Chapter 2

DOES HARVARD MAKE YOU SMARTER?: Swimmer’s Body Illusion

Professional swimmers don’t have perfect bodies because they train extensively. Rather, they are good swimmers because of their physiques. How their bodies are designed is a factor for selection and not the result of their activities. Similarly, female models advertise cosmetics and thus, many female consumers believe that these products make you beautiful. But it is not the cosmetics that make these women model-like. Quite simply, the models are born attractive and only for this reason are they candidates for cosmetics advertising. As with the swimmers’

bodies, beauty is a factor for selection and not the result. For example, Harvard has the reputation of being a top university. Many highly successful people have studied there. Does this mean that Harvard is a good school? We don’t know. Perhaps the school is terrible, and it simply recruits the brightest students around.

 

Whenever we confuse selection factors with results, we fall prey to the swimmer’s body illusion.

 

Be wary when you are encouraged to strive for certain things – be it abs of steel, immaculate looks, a higher income, a long life, a particular demeanour or happiness. You might fall prey to the swimmer’s body illusion. Before you decide to take the plunge, look in the mirror – and be honest about what you see.

 

See also Halo Effect (ch. 38); Outcome Bias (ch. 20); Self-Selection Bias (ch. 47)

The Art of Thinking Clearly

The Art of Thinking Clearly by Rolf Dobelli

I will be serially doing abstracts of the marvelous Rolf Dobelli’s book, The Art of Thinking Clearly. I enjoyed the book. I ‘ll do a chapter at a time. I enjoyed the book. I ‘ll do a chapter at a time.

Chapter 1

WHY YOU SHOULD VISIT CEMETERIES: Survivorship Bias

In daily life, because triumph is made more visible than failure, we systematically overestimate our chances of succeeding. As an outsider, we succumb to an illusion, and we overlook how minuscule the probability of success really is. We are victims of Survivorship Bias, which simply means this: people systematically overestimate their chances of success.

We should guard against it by frequently visiting the graves of once-promising projects, investments, and careers. It is a sad walk, but one that should clear one’s mind.

Cash is Queen: Why Cash flow Matters

Cash is Queen: Why Cash flow Matters

In many of his works, the late great Peter Drucker posits that cash flow does matter more than profits. I tend to agree – to a certain extent. In this post, I want to show how cash flow can be more significant than profits, in some circumstances.

“It doesn’t matter how great your business model is, how profitable you are, or how many investors you have lined up,” wrote a contributor to The Platinum Wealth Newswire recently, “you won’t survive if you can’t manage your company’s cash.”

One can hardly argue with the above statement. In fact, a Google search of “What causes small businesses to fail” returns over a million results, the first ten of which are agreed on:

• Insufficient capital (money)
• Lack of experience.
• Poor location.
• Poor inventory management.
• Over-investment in fixed assets.
• Poor credit arrangements.
• Personal use of business funds.
• Unexpected growth.

In most instances, lack of capital is almost always at the top. This is what Investopedia has to say about the phenomenon:

“Of the vast number of small businesses that fail each year, nearly half of the entrepreneurs state a lack of funding or working capital is to blame. In most instances, a business owner is intimately aware of how much money is needed to keep operations running on a day-to-day basis, including funding payroll; paying fixed and varied overhead expenses such as rent and utilities; and ensuring outside vendors are paid on time. However, owners of failing companies are less in tune with how much revenue is generated by sales of products or services. This disconnect leads to funding shortfalls that quickly put a small business out of operation.”

Indeed, once you compound the lack of cash with its poor management the pitfall grows considerably. Some studies found that up to 80% of businesses fail due to poor cash flow management skills.

We do, however, have to bear in mind that both cash flow and profits are crucial aspects of a business. For a business to be successful in the long term, it needs to generate profits while also operating with positive cash flow. I emphasise “long-term” because time frames are of the essence here. Let us, in broad language, define the terms:

Cash Flow
Cash flow is the inflow and outflow of money from a business. It is necessary for daily operations, taxes, purchasing inventory, and paying employees and operating costs. Cash includes cash equivalents.

Profit
Profit is the surplus after all expenses are deducted from revenue. Profit is the overall picture of a business and the basis on which tax is calculated.

Cash flow is not the same as profitability. A profitable business can still be unable to pay its bills. Similarly, just because a business is meeting all of its financial obligations, doesn’t mean it’s profitable. Profit is an accounting term, which really only exists on paper. Measuring profit is a very specific way of looking at a business. It doesn’t tell you a whole lot about how the business is getting by day-to-day.

Which One is More Important

It follows, therefore, that when determining which one is more important, it depends on the business and the circumstances. For example, a business may see a profit every month, but its money is tied up in hard assets or accounts receivable (debtors), and there is no cash to pay employees. Once a debt is paid or the business sees an influx of revenue, it starts to see positive cash flow again. In this example, cash flow is more important because it keeps the business running while still maintaining a profit. Alternately, a business may see increased revenue and cash flow, but there is a substantial amount of debt (with the attendant debt servicing burden) so the business does not make a profit.

The absence of a profit eventually has a declining effect on the cash flow. In this instance, a profit is more important. Another thing to remember when determining whether to focus on cash flow or profit is cash flow can be bought. A business owner can put up his or her personal assets as capital into the business or get a small business loan from a bank to keep the business running until it starts seeing cash flow again. The same cannot be said about profit.

For us to answer the question of which one is more important we have to, at this point, bring in the concept of the business life cycle. Let us turn over to the diagram below.

The business life cycle usually includes its birth or incorporation stage, its initial growth stage, its expansion stage as it becomes more widely known and moves into new markets, its mature operation stage, and its eventual decline as consumer interest in its products wane and key employees depart. At this stage, it will either re-invent itself or die.

According to the JP Morgan Institute, roughly a third of new businesses exit (or die) within their first two years; and half exit within their first five years. We have already looked at the leading causes of small businesses death.

Established businesses often have a buffer of extra cash to get them through shortfalls. Growing businesses often don’t because they are always reinvesting. Years with the biggest growth—including the first few years—are also the most challenging when it comes to cash flow. This is one of the reasons it’s so hard to get a new business off the ground. This is the stage when cash is king and getting good at managing cash flow is one of the best things you can do for your business.

Since the majority of businesses do not exist beyond six years, it is, therefore, safe to surmise that the majority of businesses in any economy are small businesses. Most of these will be in the startup or incorporation, initial growth, and expansion stages. As we have seen, these are the stages when cash flow management is paramount. In a nutshell, your business may be healthy, have a great profit margin, and your staff may be motivated and great at their jobs. But if you don’t have cash at the right time to pay for your operations and your debts, you may be in trouble.

The Zimbabwe Situation

In a 2016 interview with Standard Business, Confederation of Zimbabwe Industries (CZI) president, Mr Busisa Moyo said the manufacturing and commercial sectors were low on inventories because foreign suppliers were cutting back on raw material delivery to Zimbabwe and in some cases taking legal action as local companies failed to pay for supplies due to the prevailing cash crisis in the country.

In 2017, a KPMG poll found that cash challenges have had a significant impact on Zimbabwean businesses. That was when, according to the Reserve Bank of Zimbabwe, cash circulation in the formal sector had reduced to 1.4% of total deposits in the banking sector. During KPMG’s Audit Committee Forum held in July 2017, a quick poll of more than 100 business executives was conducted. Seventy-six percent of the participants said their businesses had experienced a significant negative impact as a result of cash shortages.

Zimbabwe relies on imports as the country’s manufacturing sector is not producing much due to lack of working capital, high production costs, low capacity utilisation levels as well as obsolete equipment. Between 2009 and 2016 Zimbabwe imported products worth over $20 billion.

What this all amount to is that if cash was king in general, in Zimbabwe it is an all-powerful emperor.

General Causes of Cash flow problems

I want to categorize the sources of cash flow problems into four categories as shown in the diagram below; namely, economic conditions within the country, lack of cash flow management know-how, errors and fraud within the cash flow channel.

Of these four categories, one is exogenous (caused by factors outside the organism, organisation or system) while the other three are endogenous (caused by factors inside the organism, organisation or system). While there is little that an entrepreneur can do to end cash shortages within the economy, there is a lot that one can do to mitigate their effects. The endogenous factors, on the other hand, are squarely within the purview of every businessperson – these are the essence of entrepreneurship.

Let us look at each of these categories in turn.

1. Economic Conditions

All the measures that a business person can take to address internal cash flow problems will go a long way in mitigating the effects of the liquidity challenges within the economy. This would include the use of non-traditional transacting systems such as barter exchange.

2. Lack of Knowledge
“My people are destroyed for lack of knowledge. Because you have rejected knowledge, I also reject you as my priests; because you have ignored the law of your God, I also will ignore your children.” Hosea 4:6

Need I say more? Save to add that a flagrant lack of knowledge in some instances is akin to actively rejecting it! There are many ways one can avail himself or herself of knowledge. Here are just but a few – online courses, business coaching clinics and business classes. Learning does not end when one leaves school.

Here are some of the major causes of cash flow problems arising out of poor cash flow management skills.

i. Declining Sales and/or Declining Gross Profit Margins

a) Declining Sales

  • Declining sales have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability (remember profit feeds cash and vice versa).
  • This typically occurs when economic conditions deteriorate, there is an increase in competition from global competitors, new competitors enter your market or your industry declines.
  • As sales decline, your overheads will probably remain unchanged so net profit decreases rapidly.
  • The table below vividly demonstrates the devastating effect of declining sales.

The table shows the disconcerting feature of a 20% decline in sales inviting a whopping 140% fall in net profit, i.e. a net loss of $2.

b) Declining Gross Profit Margins

  • Declining gross profit margins have a devastating effect on your cash flow as a relatively small decline can cause a massive reduction in your profitability.
  • Typically occurs when there is pressure on sales.

ii. Your Business Is Unprofitable

  • Simply put, you are spending more than you are charging to provide your customers with goods or services. For example, for every $1,000 you charge your customer you are spending $1,050! That is for every $1,000,000 you earn you are spending $1,050,000!
  • Inevitably your losses will accumulate to the point of having to borrow more money just to stay in business. But eventually you will come to the point where it is neither wise nor possible to borrow more money and you will have to sell your business, close it down, liquidate it, or someone else will liquidate it for you, for example, creditors.
  • A much better solution is to take immediate action to restructure your business to generate strong and sustainable profits; this will probably require a very experienced business turnaround specialist to guide you through this process.

Main causes of lack of profitability include:

  • A flawed business model.
  • An underperforming business; your sales & marketing and/or operations are not working like clockwork.
  • Lack of understanding of financial statements.
  • Lack of accurate and timely financial statements.
  • Lack of familiarity with KPI’s (Key Performance Indicators) and strict monitoring of them
  • Low gross profit margins due to high direct costs and/or not charging enough for your products/services and/or extreme competitive industry pressures.
  • Poor performance and lack of productivity of staff.
  • Poor processes, many errors/defects.
  • Poor stock purchasing and management.
  • Excessive overheads.
  • Excessive interest and/or vehicle and equipment (fixed assets) finance commitments.
  • Poor credit approval of customers and poor debtor collection management practices resulting in high bad debts experience.
  • Undisciplined spending.

iii. You Have a Natural Negative Cash Flow Business Model: Examples include:

  • You sell on credit terms, 30, 60, or even 90-day terms, but you have to pay your payroll, rent, overheads, etc. weeks, if not months before you are paid by your customers. And your payment terms with your suppliers are shorter than the payment terms you have given your customers.
  • You carry imported stock which you have paid for weeks or months before it lands in your warehouse.
  • You are paid by way of progress claims for which you also provide credit so you receive payment long after you have paid your direct factory expenses or subcontractors and materials expenses. Furthermore, retention payments are withheld by your head contractors or by your customers.

There are ways to address every one of these circumstances which involve redesigning your business model and also using appropriate means of financing, many of which are still available, even if you are already in financial distress.

iv. Excessive Debt and Capital Expenditure and/or Excessive Personal Drawings/Benefits

  • High repayments due to excessive debt and/or repayment of loans over too short a period. This especially applies to vehicle and equipment loans and lease repayments which are typically structured over relatively short terms with low or nil balloon or residual values.
  • Capital expenditure funded out of cash flow instead of being financed over the useful life of the asset, which puts pressure on cash flow.
  • Funding purchase of personal property, assets or the repayments on these properties far beyond the capacity of your business to sustain these payments as well as meeting the ongoing payment of all business expenses within normal trading terms, including taxes and superannuation (pension fund).
  • Excessive living and lifestyle expenses.

v. Poor Stock or Poor Credit and Debtor Management

  • Poor stock management, such as carrying stock that doesn’t sell through, carrying excessive levels of stock, not clearing discontinued or obsolete stock, poor demand planning, undisciplined purchasing habits, or a poor stock management system to name a few.
  • Poor credit management, that is no or poor credit approval processes before providing customers with credit which will sooner or later result in bad debt write-offs and in the worst cases will result in failure of the business.
  • Poor debtor management which includes lack of disciplined collection of debts due by customers, allowing continued credit when customers have not paid their bills within company credit terms, and lack of regular reconciling of debtors accounts.

3. Fraud and Error within the Cash flow Channel

“To err is human”. The ancillary of this quote from Alexander Pope goes “to forgive, divine.” Unfortunately, fraudsters and cash flow errors are not in the business of forgiving! Whereas error is an unintentional blunder, fraud, on the other hand, is a well thought out plan to steal and deceive. We use the term “fraud” as a generic term which includes all surprise, trick, thievery, cunning and unfair ways by which another is cheated. The question then is, if all people tend to make mistakes (when they are under stress, pressure, unwell, inattentive, etc.), while some tend to be dishonest, what do we do about it? The answer is, of cause, internal controls. In any organisation, the cost of internal control and compliance with financial, accounting as well as regulatory requirements is a necessary cost of operation. An appropriate system of internal control should neither be costly nor onerous.

The main internal control principles include:

  • Establish responsibilities. Every staff member should know what they are supposed to do; tasks do not have to slip between two people.
  • Maintain adequate records. This includes a complete set of accounting records as well as those required by law and regulations.
  • A comprehensive company policies and procedures manual covering all departments within your organization will become your “bible” for the company. A relevant facet of the manual is the Code of Ethics, incorporating a ‘Fraud Ethics Policy which will incorporate:

o The process and methodology for performing ‘Fraud Vulnerability Reviews’;
o The development and roll-out of a ‘Fraud Response Plan’, including the implementation of a ‘Whistle Blower’ fraud reporting facility;
o The roll-out of a Fraud Awareness program for all staff;
o The process of performing regular fraud detection reviews, thereby limiting your exposure to fraud losses.

  • Segregation of duties. This is indispensable in a system of internal control. The rationale for segregation of duties is that the work of one employee should, without a duplication of effort, provide a reliable basis for evaluating the work of another employee. There are two common applications of this principle:
    a. The responsibility for related activities should be assigned to different individuals.
    b. The responsibility for record keeping for an asset should be separate from the physical custody of an asset.
  • Screening and employee rotation. Procedures for the hiring of new employees should not be left to chance. Proper background checks should be done. Wherever possible and appropriate, employees should change jobs within the organisation as a matter of policy. Many fraud schemes are detected this way.
  • Use technological controls. By eliminating the use of paper-based processes and limiting human interface in transactions, computers can aid internal control. However, there should be general and application controls around the technology itself. One of the first steps that we would take to design or improve internal control in small business is to ensure that each team member has access only to the applications and data needed to carry out their job responsibilities. Starting with the computer and network, ensure that each person has a unique username and password that is used to log on each day.
  • Perform regular independent reviews. This is a primary management responsibility: Watching over the shoulders of subordinates is not necessarily eavesdropping.
  • Insure assets by bonding key employees. Consider agreements (such as a fidelity bond) under which a bonding or insurance company guarantees payment of a specified sum as damages, in the event one or more of the employees covered in the bond cause financial loss to the insured employer. Se my previous post on fidelity bond here.

Summary

Profit is of course what most people are in business for. It’s an easy measure of ‘success’, and without profits, it would be impossible to secure finance, attract investors, or grow operations. However, in order to achieve this profit in the first place, businesses must first align the timing of their cash used, with the timing of their cash received. That is, they need to shore up a steady cash flow.

However, the profit trap can be an easy one for anyone to fall into. Below are three reasons it can pay to spend less time focusing on your bottom line and more on observing and shoring up steady cash flow.

1. Focusing on cash flow can highlight operational issues

Movements in cash flow can sometimes indicate operational, as opposed to sales-related, issues. As an example, what may appear to be a quiet month revenue-wise might actually be a large number of clients neglecting to pay on time. Those same clients may all decide to pay at once in the following month, making it appear that revenue is back on track when in actual fact it’s just that your cash flow is out of balance. In this case, these cash flow movements highlight a need to implement systems that ensure more steady payments from clients.

2. Growth becomes more manageable

Growth should be the Holy Grail for most business owners. Expanding your offering’s reach through investment in new locations, R&D, or new staff can all help to boost future profits. And if you are able to understand what your net cash position is, you will be better positioned to make more informed decisions to grow your business. Decisions on factors such as staffing, office space, leases, and even business structure all become far clearer with a clear understanding of your business’s cash flow.

3. Debt becomes cheaper and easier to manage

Your business may be healthy, have a great profit margin, and your staff may be motivated and great at their jobs. But if you don’t have cash at the right time to pay your debts, you may be in trouble.
Debt obviously becomes more expensive if you’re unable to pay on time, with late fees and overdrafts adding up. This can also cause unnecessary stress for the business owner. But with steady cash flow, a business manager can plan for debt repayments, and make better decisions regarding how much debt to take on.

Finally, remember to safeguard your hard earned cash: The cost of internal control and compliance with financial, accounting as well as regulatory requirements is a necessary cost of doing business.


Caleb address

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Reference
https://business.google.com/dashboard/l/14873898238558312677
https://platinumwealth.co.za/insights/business/cash-is-king-why-cash-flow-matters-more-than-profits/
https://www.jpmorganchase.com/corporate/institute/small-business-longevity.htm
http://www.businessturnaround.net.au/the-5-main-causes-of-cash-flow-problems
https://www.accountantsdaily.com.au/columns/9285-why-cash-flow-can-be-more-important-than-profit
https://5whaudit.wordpress.com/2011/10/17/what-is-fidelity-guarantee-insurance/

© Caleb Mutsumba

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Why are Mergers & Acquisitions not Succeeding?

Why Do Mergers & Acquisitions Fail?

“Mergers and Acquisitions is a mug’s game”, according to Roger Martin (Martin, R. L. (2016). M&A: The One Thing You Need to get Right. Harvard Business Review, June, p.42-48.) “in which typically 70%-90% of acquisitions are abysmal failures. Why is this so? The answer is surprisingly simple: Companies that focus on what they are going to get from an acquisition are less likely to succeed than those that focus on what they have to give to it.”

I liked Roger’s expose – it is a masterpiece. He cites many examples of failures of major mega-mergers and lays the blame squarely at the door of corporate greed. He says that mergers and acquisitions movers have tended to be more of the ‘what are we going to get from this?’ sort. Of cause, whenever each party to a relationship is solely motivated by a “what’s in it for me” attitude, the chances of the union ever succeeding are next to zero.

Greed and its Cousin

I, however, would want to add another angle to that of corporate greed, something that on closer observation may indeed be related to self-indulgence: It may, in fact, be a cousin. It is called Due Diligence, or rather the lack thereof. We all do some form of due diligence evaluation when we envisage going into a relationship of any kind. We ask ourselves “can I jump into bed with this fellow or with this group?” What we do to answer this sort of question is indeed a due diligence exercise: we scratch our heads; ask friends, we even spend a few sleepless nights ruminating over it. How deep and wide and formally we mull over it will depend on how life impacting the envisaged union is anticipated to be. There are reasons why we may not be inclined to be thorough in our musings. We have already touched on one reason – greed. There is a host of other reasons, such as lust and many such urges. But what is due diligence in a corporate environment?

Here are four takes from businessdictionary.com
1. General: Measure of prudence, responsibility, and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.
2. Business: Duty of a firm’s directors and officers to act prudently in evaluating associated risks in all transactions.
3. Investing: Duty of the investor to gather necessary information on actual or potential risks involved in an investment.
4. Negotiating: Duty of each party to confirm each other’s expectations and understandings, and to independently verify the abilities of the other to fulfil the conditions and requirements of the agreement.
In short, it is what a reasonable and prudent person should mull over before going into a relationship or association with another person or group. Here I am using the term “person” in its broad, corporate legal sense to include body corporates. In certain business transactions due diligence is mandated by law; such as the ‘know your customer’ rules in anti-money laundering regulations in banking.

In our bid, therefore, to fare better than the sad statistics and examples that Roger cite in his brilliant article, we are enjoined to delve into our own psychology, our motivation and, throughout the process, ask ourselves whether we are being reasonable and prudent enough. Questioning our own motives may not be as easy as it sounds – it’s easier to spot the devil outside than the one inside. That is why businesspeople, investors and negotiators hire professional due diligence experts to do it for them.

Who are Due Diligence Professionals?

Now, who are these due diligence professionals? The short answer to this lingering question is that they should be professionals knowledgeable and experienced in performing due diligence audits or investigations in the particular field of the target. In the sphere of business, accountants/auditors (including forensic auditors), corporate lawyers and other such corporate practitioners are often the professionals of choice. These experts are required by their professions to be objective in their work and to be not only independent but to be seen to be independent of the party or subject under review. Objectivity and independence are therefore essential requirements for a due diligence investigation. This suggests that the professional will conduct a pre-assignment acceptance due diligence exercise on themselves to ascertain that they meet the strict requirement of independence.
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Caleb Mutsumba
Forensic Audit Consultant
Mobile / WhatsApp: +263 712 620287 +263 772 466540
Skype: caleb.mutsumba
LinkedIn:- http://zw.linkedin.com/in/calebmutsumba
Blog: – https://5whaudit.wordpress.com/
Twitter:- @Caleb_Mutsumba
Email:- calebmutsumba@gmail.com

When feelings are aroused, research shows that the logical parts of our brain are suppressed

When feelings are aroused, research shows that the logical parts of our brain are suppressed. The stronger we feel, the weaker we think.

In my several years as a Forensic Auditor investigating fraud and all manner of malfeasance and bad faith at work, I have had to work with both the law and the justice delivery system (dictionary definition of forensic is “of or to do with the law courts”). Whereas the law is an ass, our justice delivery system deserves another Dickens to express it.

Long story short, when there is a fraud at work the employer is caught between Labour laws and the suspect’s lawyers; the employer can be forgiven for feeling like the malefactor.

This is the time you need a steady hand to guide you through the labyrinth. You have to get it right from the beginning.

The Practical Aspects of the Fight against Corruption

The fight against corruption is indeed a cardinal one for any society. Corruption at any level and by any other name is undeniably corrosive. It is the trademark of any retrogressive society. Every sane person knows it. That is why every leader, even those who seem to benefit from it, condemn it by day, even as they condone it by night. In 2015 then President Mugabe pronounced “zero tolerance to the scourge of corruption” even as Zimbabwe continued its descent on the global corruption scale. Today, similar declarations abound.

How do we tell the difference? How do we tell the real fight from the adulterated; reality from fake? Though the tune and the dance seem different from those of yesteryear, can the man in the street know for certain that now is the era of belling the cat? What’s the benchmark? After all, the picture for ages has been something like this:

Namely, the arrest of some political figure followed by a less dramatic acquittal, typically after a long time of an on-and-off-and-on-again appearance at this and that Court. This has had the regrettable result of the public having to question the bona fides of the allegations.

In practical terms, what is the fight against corruption? What does it entail? Talking about the establishment of special Corruption Courts, Justice, Legal and Parliamentary Affairs Minister Ziyambi Ziyambi said the courts would have no sacred cows. “We are going down to the roots of corruption,” he said. “No stone will be left unturned; even the so-called big fish who sometimes get away with corruption will be pursued. Further, these courts will ensure all corruption cases are dealt with expeditiously. There will be a united effort (my emphasis) among the NPA, JSC, Attorney-General’s Office, Zimbabwe Anti-Corruption Commission and police; and crack teams will be assembled where necessary.” (The Herald. 5 February 2018)

Needless to say, the fight against corruption is both proactive (preventative) and reactive. While the former is quiet and more effective, the latter is noisy, complex and costly. In the same Herald article, Zimbabwe Law Society president Mr Misheck Hogwe said that “It should be understood that corruption is one of the most complex crimes and needs a systematic approach” Indeed it should.

I did ask what the benchmark was. Let us have my take on that. To me it is the implementation of the last in the minister’s above sentences: a bona fide united front in this fashion:

While public debates of allegations, arrests, prosecutions and outcomes make all sorts of headlines and get official attention as well as funding, investigations only whimper in the background. Yet it goes without saying that successful outcomes are a result of resourceful investigations and astute prosecutorial work. On the same token, the allegation from which all this chain of events arises has to be well-founded. Let us look at each of these events in turn.

Allegation

What is the test criterion of a well-founded allegation? The long and short answer to this is that it should be free of malice. Whether the allegation is raised out of mere suspicion of wrongdoing, it should be well-founded, sound, logical and substantiated. This places the onus of evaluating a suspicion on the person raising the allegation. Many unsubstantiated allegations of corruption have found their way into the justice system, to the detriment of the integrity of the system.

Investigation

An investigation is an exercise to establish the truth. An investigation cannot create a case out of no case. Perpetrators of fraud and corruption will go to great length to conceal their crimes. It is the responsibility of the investigation to establish, not only the what, where, when, how and the who, but also ascertain the evidence thereof. Corruption is indeed a complex crime and it calls for an equally multifaceted investigative approach. This calls for directing attention to what is good and useful for uncovering the evidence and ignoring the rest.

The term “public-private partnership” has become quite popular in our political discourse. In this country, however, the practice has yet to find traction in the field of criminal investigations. In many countries the practice is a matter of cause. Modern fraud investigations will encompass a wide range of disciplines, including computer forensics, data/digital/ financial analytics, social mapping and so on. Experts in these investigative disciplines may not be found in the public sector. Many, if not most, are in private organisations and universities. Public-private partnership is therefore critical for successful outcomes.

Prosecution

In public discourse, prosecution is most often taken to be the low hanging fruit. It is where the most heat and noise come from. When the outcome is an acquittal it is the prosecution which often gets the rap. But, from what we have looked at above, the slap may not always be justified. When the case is politically sensitive talk of “persecution by prosecution” ensues. Just like an investigator, a prosecutor cannot create a case out of no case. Besides going to great length to conceal their crimes, perpetrators of fraud and corruption often create war chests to hire the best legal teams to defend them should they be caught. Public-private partnership in prosecution is therefore equally important for successful outcomes. Many “expert witnesses” may not be in the public sector.

Trial

An independent judiciary is of cause the icing on the cake. All players in the preceding stages are going to play their roles in good faith when they know that there is going to be a free and fair trial at the end of it all.

Conclusion

Finally, we have to keep in mind that the fight against fraud and corruption is an all embracing campaign, not merely uncoordinated battles. It should encompass both proactive and reactive measures. While the reactive actions of allegation, investigation, prosecution and trial generate heat and sound, the real test of a corrupt free society is in the proactive arena. How does society view corruption? Is a corrupt person ostracized reminiscent of a child molester? If not, why and what should be done? There may not be any easy answers. But one thing is certain: Corruption should be made to be abhorred through socialization and education.


Caleb Mutsumba
Forensic Audit Consultant
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