This post is a response to a question posed in its complete format: “Are big companies likely to experience more fraudulent and mismanagement issues than small companies?”

This question touches on the core of the privatization argument, where people claim government inefficiency justifies a privatized alternative to a government service.

The larger the organization, the more people must be coordinated, and the more complex and inefficient it will naturally be. Whether it is a government operation or a privatized one.

Opportunities for corruption increase at scale per the degree of complexity of operation, which can hide corruption and the degree of reward available for effort expended.

The more opportunity there is for flying under the radar, the more attractive an environment becomes to the corrupt. The greater the reward, the more the corrupt will risk detection.

The larger the organization, the more vulnerable it becomes to corruption because the rewards are more significant, the chance of detection is reduced, and the effort expended is minimized.

For example, in a generic scenario, because it happens pretty often, it is a common tactic of fraudulent billing to a large company for non-rendered services by a non-existent company.

The larger the organization, the more significant the number of invoices it must handle. All are being funneled through a finance department with a large contingent of staff who cannot know the specific details of each bill passing through their office. They superficially review each invoice to determine veracity and establish a threshold at which the review process intensifies.

For example, if their threshold is $1000.00, the fraud can create a fictional company, send monthly bills under that threshold, and collect a monthly sum that can go undetected for extended periods. They will often be discovered when someone investigates the bill in detail, which may or may not result in charges, depending on how well one has covered their tracks.

In an accounts payment office handling dozens of bills per day, it can be easy to overlook something like copier maintenance invoices.

Setting all of that up requires inside knowledge of a specific operation, so I am not sharing this as an endorsement, only as a generic description of the type of fraud that can occur and does so in large organizations that would not happen in a small one.

The larger the organization, the greater the financial reward, which exposes larger organizations to ladder-climbing strategists more than smaller organizations, attracting people more interested in the quality of work, flexibility of challenges, broader scope of responsibilities, and deeper interpersonal relationships.

Larger organizations can become quite politically toxic, but that doesn’t mean smaller organizations don’t fall prey to the same levels of incompetence.

All of these are basic human behaviours we see throughout society, and ironically, they’re not much different than those we witnessed during our high school years. Sometimes, they are just as juvenile in their manifestations. More often than not, however, in large organizations, those underlying attitudes and behaviours one experiences within high school cliques are more subtle and sophisticated because they are more often among people with higher levels of education.