As small organisations evolve and grow, they often face significant challenges and growing pains. While expansion presents exciting opportunities, it also introduces complexities that can strain the operational foundations laid during the early stages of organisational development. One of the most critical areas of concern is governance—specifically, the lack of strong policies, procedures, and frameworks that ensure compliance with legislation, sound internal controls and better practice principles.
Without robust governance systems in place, a small organisation risks becoming overwhelmed by the requirements associated with growth, leading to potentially severe consequences which may include legal and financial penalties, reputational damage and even fraud, which may go undetected for longer periods.
Understanding the risks of inadequate governance during growth is crucial for any organisation looking to scale its operations, while maintaining sustainability and integrity.
1. The Complexity of Compliance and Legislation
Australia has a complex regulatory environment. Organisations must adhere to various state and federal laws, including but not limited to tax, employment, workplace safety, environmental protection and consumer rights. As an organisation grows, the need to stay on top of these regulations becomes more pressing.
A small organisation may be able to manage compliance with these laws when it is relatively simple and manageable, but as the organisation expands—adding more employees, new products, or entering new markets—the risk of falling behind on legal requirements increases. Without an established framework for compliance, organisations may unintentionally violate regulations or fail to keep up with new legislation, leading to fines, legal actions, and operational disruptions.
In particular failure to comply with workplace health and safety regulations can have serious consequences in Western Australia’s resource-heavy industries, where safety risks are higher. Inadequate policies, procedures or risk assessments could expose the organisation to workplace accidents, leading to both legal repercussions, and harm, or even death. This has potential personal liability and potential criminal liability consequences for management, directors and owners.
2. Failure to Establish Formal Policies and Procedures
As organisations scale, processes and decisions become more complex. The informal, ad-hoc practices that served a small organisation in its early stages may no longer suffice as the organisation grows. This is where the need for clear, written policies and standard operating procedures becomes critical.
Policies and procedures ensure consistency, fairness and transparency in day-to-day operations. They provide guidance for staff and leadership in handling everything from human resources matters to customer complaints, financial transactions and contract negotiations. Without these, organisations risk making inconsistent or misguided decisions that can result in operational inefficiencies, disputes or poor customer service.
Additionally, as employees come and go, institutional knowledge can be lost unless there is a proper system in place for training, onboarding and sharing key information. An organisation that lacks a formalised framework is more likely to experience confusion, misunderstandings or miscommunication, which can lead to costly mistakes. In essence, failure to establish formal policies and procedures, leads to an inefficient and ineffective organisation.
3. Lack of a Governance Framework Increases the Risk of Fraud
One of the most significant risks associated with poor governance is fraud. As an organisation grows, so does the number of financial transactions, risks and opportunities and third-party relationships. Without strong governance mechanisms to monitor, track and safeguard financial processes, opportunities for fraudulent activity can arise and increase as the organisation grows.
People in leadership positions often trust their employees as they as leaders are focused on growth and sometimes this trust can be misplaced where there is motivation for fraud by the employee such as financial pressure, opportunity and rationalisation the fraud.
Fraud can take many forms including embezzlement, misappropriation of funds, financial misreporting and procurement fraud just to name a few. In a small organisation, these activities may go unnoticed due to a lack of internal checks and balances. Without segregation of duties (where different individuals are responsible for different tasks), one person may have the ability to both execute and approve transactions, making it easier to manipulate financial records for personal gain.
In many cases, fraudulent activities can go undetected for extended periods, especially if there is no clear audit trail or regular review or audit of financial reports or internal controls. This can have devastating consequences for an organisation’s financial health and reputation. The longer fraud goes undetected, the more damage it can cause, potentially affecting investors, creditors, other stakeholders and potentially the viability of the organisation.
In the context of small organisations, industries such as mining, agriculture, and construction—which often deal with large amounts of money, assets and high-risk environments—are particularly vulnerable to fraud without proper governance. A lack of transparency and oversight increases the potential for unscrupulous activities, especially in industries with complex supply chains and cash flow management.
4. Delayed Detection of Problems
Another critical risk of insufficient governance is the delayed detection of operational, financial or compliance problems. In a rapidly growing organisation, it can be easy to overlook warning signs of financial distress or legal violations until it’s too late. Without established governance systems in place, such as regular financial audits, compliance checks or risk assessments, organisations may fail to notice problems until they escalate to crises.
For example, poor record-keeping and a lack of financial oversight can delay the identification of discrepancies in accounting or financial reporting. Similarly, the absence of a compliance framework may mean that non-compliance with key regulations only becomes apparent when an external audit or inspection takes place—by which time the organisation may already face legal sanctions or reputational damage.
Moreover, a lack of transparency can contribute to an unhealthy organisational culture where employees may feel emboldened to hide problems or fail to report issues. This can further compound risks, as key information may never reach senior management, delaying corrective action and making it harder to restore order when things go wrong.
The Importance of Good Governance for Sustainable Growth
To mitigate these risks, it is essential for organisations to implement good governance practices from the outset and to ensure that they evolve as the organisation grows. Here are some key elements of good governance for a growing organisation:
-
Clear Governance Frameworks, Policies and Procedures: Establishing comprehensive written frameworks, policies and procedures helps standardise operations, ensuring that all employees know how to perform their duties in line with legal requirements and organisational standards.
-
Internal Controls and Segregation of Duties: Ensuring that no individual has unchecked control over financial processes is essential in preventing fraud. Implementing a system of checks and balances, such as requiring independent or dual approval for transactions, can reduce the risk of fraudulent activity.
-
Compliance Monitoring: Supervision of staff and regular audits and reviews of internal operations ensure that the organisation stays compliant with relevant laws and regulations and policy and procedures. This includes keeping up with any changes to such things as workplace safety standards, tax laws or environmental regulations that may impact the organisation. Independent audits can prove invaluable if the owners wish to seek capital or funding for future growth or to sell the organisation as an exit strategy.
-
Culture of Continuous Improvement, Transparency and Accountability: A culture of continuous improvement helps to ensure the organisation is “the best it can be”. Identifying improvement opportunities results in incremental positive outcomes for the organisation, suppliers, customers and stakeholders. Promoting transparency and accountability helps identify potential issues early. Encouraging open communication, active complaints management and whistleblowing/ public interest disclosures can help detect problems before they escalate into more significant risks.
-
Training and Capacity Building: As an organisation grows, it’s important to invest in employee training and leadership development. A well-trained workforce is more likely to adhere to policies, report issues promptly and help sustain the integrity of the organisation.
-
Seek Expert Advice: Seeking expert advice in times of growth is critical to ensure that the skills and competence of the staff and leadership is complimented, where required to ensure risks are being managed. Expert advice should not be seen as a cost but a governance imperative to success.
Conclusion
The transition from a small organisation to a larger enterprise comes with both exciting opportunities, significant challenges and growing pains, if the organisation is not proactive. Without proper governance in place, organisations expose themselves to risks ranging from compliance failures and operational inefficiencies to fraud and delayed problem detection.
To protect the longevity and success of their organisation, owners must prioritise the development and implementation of governance frameworks that ensure compliance, foster accountability and safeguard financial integrity. Only then can they grow sustainably, confidently navigating the complexities that come with growth while maintaining a strong foundation for future success.
Moore Australia can assist with developing and revision of the governance structure, frameworks, policies and procedures to ensure your organisation is asset up for success. We can identify the risks and opportunities for improvement in your organisation to give you comfort and assurance. We can perform a review, internal audit or investigation if there are concerns over any functional area or staff member. We can help your organisation take care of your growing pains, so that you can have confidence in your controls, and you can thrive in a changing world.