Business Partnership Frauds | Legal Investigation

It is special area of accounting that investigates various  types of issues in business sector like: Business Partnership Fraud,  Tax Fraud, Securities Fraud, Hidden Assets, Partnership Fraud, Insurance Fraud, Bankruptcy, Money Laundering, Family Disputes etc.  

For investigation purposes, forensic accountants must possess legal framework understanding and extensive auditing and accounting experience for the investigation.

Several frauds need to be investigated by forensic accountants. 

Investigation process under forensic accounting includes the following:

- Investigation planning and framework 

- Evidence collection as per standards 

- Analysis and interpretation of collected evidence 

- Reporting the investigation 

- Court proceedings 

Here, we will study and elaborate on one of the most usual frauds seen in the business sector which is “Partnership Fraud” 

Meaning of Partnership

Before understanding partnership fraud we need to understand partnership and its legal and accounting obligations.

“Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

It is a business where two or more people get engaged to run a business to earn and share its earnings as a decided ratio.

Here partners are bound by a partnership agreement which can be said as a partnership deed as per The Partnership Act 1932. It contains all information about business, partners and their duties. 

Business Partnership Fraud

It occurs when a partner knowingly engages in deception to obtain some sort of personal or financial gain to the detriment of the partnership.  

For example,  

- If any partner uses business assets for his personal purpose without the knowledge of other partners. 

- A business partner withholds money that belongs to the partnership by means of deception for his or her own personal gain.

- Partnership fraud may exist when a partner starts a competing business without the knowledge and consent of the other partner.  

- False bookkeeping entries 

- False expenses 

- Misappropriation of partnership inventory 

- Fraudulent invoices or receipts 

Business Partnership Fraud Investigation Procedure

Step 1: Investigation Planning and Framework 

a) If you suspect that a business partner is stealing from your business, you should take immediate steps to protect yourself and your company. The first thing you should do is gather any evidence you have that indicates fraud. If the evidence is digital, take screenshots, create digital or print copies, and take any other steps that will preserve evidence in the event that your partner tries to destroy the evidence later. 

b) If you suspect fraud, it’s important to act quickly. Waiting could have harmful for you and your business. That said, you should be sure that your partner actually engaged in fraud before taking legal action. You will need evidence to support your claims, and wrongfully accusing your partner of fraud could harm your business relationship.  

Step 2: Evidence Collection 

“A Forensic Accountant Can Help You Obtain Evidence of Fraud” 

In some cases, a person may feel fairly confident that a business partner is engaging in fraud but may be unable to obtain tangible evidence to support his or her hunch. If you have found yourself in this situation, it’s better to appoint a forensic accountant than it is to snoop through your partner’s phone or laptop when he or she is not looking. 

If there is sufficient evidence of fraud to bring a claim, a lawyer can use a legal process known as discovery to compel the production of evidence.  

Following kinds of evidence a forensic accountant can obtain thorough investigation: 

- Phone records 

- Bank records 

- Hard drives 

- Text messages 

- Emails 

- Accounting records 

Step 3: Analysis and Interpretation of collected evidence 

In this step, a forensic accountant analyses all the evidence that he collected relevant to fraud and checks with accounting concepts and conventions. This is the most important step in the process of investigation. This is only the place where the report is stand.

Step 4: Reporting the Investigation 

This is the concluding step in which the investigator record all the findings and matters analysed from the evidence in the view of aforesaid issues.

It contains a summary of work done by forensic accountants.

Based on this information, it is easily proved how and how much the fraud occurred and the involvement of the people. This report also helps how to handle the case in court. 

The forensic accountant also put their comments and suggestions in the report which can help companies to prevent future incidents. Also, provide suspected fraud areas as their recommendation. 

Step 5: Court Proceedings 

Now the company can sue for a claim in court with the help of reports and findings. With the help of the report, the cheater can’t escape due to the already being found guilty in the investigation. The company can able to prove this in court. 

Conclusion

Forensic accounting is an accounting branch that involves fraud and litigation investigations. This branch takes a detailed approach to the process.

Usually, it involves similar procedures as auditing. Based on their work, forensic accountants present a forensic accounting report. This report summarizes their findings and various other areas. Note: Resources used for the above-detailed description.