Talking of Enterprise Financial Risk Control in Terms of Business Investigation 

In recent years, domestic companies develop faster and expand more aggressively. However, financial risk in enterprises happens frequently due to lagged management. In order to enhance market competitive abilities and speed up the development with quality, precautions and defence must be taken into financial risk.  

The financial risk needs defence both inside and outside. The external financial risk comes from investment link, while the elusion of internal financial risk mainly depends on establishing consummate internal control system. 

Investment risk is the financial risk during the external operations of the enterprises, and also the primary risk in all the operations as well as the source of loss and failure of many enterprises. In economic activities, risks exist all the time. What we can do is to defend and minimize the risks. To forestall is better than to amend, while the first step for forestalling is to conduct due diligence investigation on the potential partners, clients or competitors before the risks happened. In this way, the risks and blindnessof investment can be cut down and the lapses can be avoided in decision-making, hence the enterprises remain invincible in fierce market competition. Therefore, business investigation in western countries is compared to “the conqueror of commercial fraud” and it is also the fact. Steele has such an example. In June 2000, an enterprise planned to cooperate with two real estate companies in city A, but it had little idea about them. Then Steele accepted this assignment to conduct comprehensive due diligence investigation. Steele’s investigators immediately went to city A to conduct field investigation. One week later, the credit status of two real estate companies became clear with a detailed report. According as the report, the leadership of the enterprise became clear in mind about the choice between the two companies. The leadership’s consciousness of defending risks is worshipful. Through due diligence investigation, the facts of the cooperators and investment target (including investment environment) become clear, by which credit status is judged as well as regarded as the evidence for deciding investment or cooperation. Consequently, the investment risk is minimized and the hidden trouble of financial risk is also eliminated. 

The internal control system established for defending internal financial risk includes not only setting up control system of account and financial affairs. To establish control system of the staff is also important in defending financial risk. According to our statistics, in recent two years, the cases in which company damages were caused by human resource risk take up 40% of the total cases of our company, which is in increasing trend by comparison with what happened two years ago. Because of the incomplete social credit system, weak social information record and unmerited management, enterprises seldom establish internal regulations to supervise and defend moral risk. By reason of lacking internal training system of the enterprise, the staff lacks necessary professional morality and quality. The instances above bring hidden trouble to the enterprises. However, enterprises sometimes have no consciousness of defending human resource risk. They passively take measures after the damages become facts. As a result, it costs a lot to save the damages and too many indirect damages cannot be estimated. Accordingly, Steele has set up human resource risk control system, including prevention system before the event, monitoring system during the event and solution system after the event. This helps the enterprises defend the financial risk brought by the potential bad morality of the staff. And as a matter of fact, the great achievement has been made in practice. 

At present, credit system in China has not shaped maturely as in western developed countries. The channels to know the investment objects are limited for enterprises, which probably face a business trap in front of a business opportunity. The greatest risk is that the enterprise does not wake up to the existent risk. Prevention before the event is the guarantee for the prosperous development of the enterprise, while company training is the best way to bring up this consciousness. At present, there are various ways of company training in China, such as the internal training of financial risk control oriented to satraps and employees in different levels, or the relevant training conducted by the external professional companies invited by the enterprise. Steele frequently does the trainings of financial risk control for enterprises. We once held due diligence investigation seminars for the leadership of enterprises to bring them practical trainings. Our experts also held investment risk control and due diligence investigation lectures for enterprisers. Steele has done internal trainings on the topics concerned by human resources department of many companies, such as enhancing the training and improvement on staff’s professional qualities, consummating the training system to new staff and merit system to staff in position. Besides “going out”, Steele also held some “inviting” trainings. For example, regarding human resource risk control, we held afternoon tea salon on this topic and invited CHO of big foreign companies and state-owned companies to join in the lecture given by our senior expert in risk control. All people present communicated with each other on the human resource risk control in practice and discussed the ways of solving the problem. We have achieved a lot in these company trainings. More and more leadership have possessed the consciousness of defending risk beforehand. In the cases of our company, from July 2004 to July 2005, the completed cases of risk afterwards decreased evidently by comparison with those in last two years, while the cases of beforehand due diligence investigation are in increasing trend. 

Steele has been considering and searching how to help enterprises defend and avoid financial risk to enhance the competitive capabilities in the encouraging and challenging economic environment. From 12 years’ experience, we conclude the actual business investigation system, that is, “Enterprise Financial Risk Control System”. The above-mentioned due diligence investigation and human resource risk control system both belong to business investigation system of Steele. In some meaning, this system is more like a concept. That is to say, the management of financial risk must cover two aspects and three phases. Two aspects refer to the defense of external investment risk and internal management risk control. Three phases refer to prevention system before the event, monitoring system undergoing the event and solution system after the event. While the soul of the system as well as the financial risk control concept is prevention system before the event. For enterprises, only by well defending the external investment risk and internal human resource risk, can the financial risk be controlled effectively.