Do you own a business, or are you involved in a business partnership or an investment and have concerns about how those investments or your business interests are being handled?
In my forensic division, we are hired to scrutinize these situations and protect a client’s financial interest.
If you are worried about the employees of your business, a partnership that you’re in or an investment that you made, you have every right to make sure that your financial interests are being protected.
Of course, prevention is the best medicine. Before signing any business or investment agreement, make sure it is vetted by my team. Always include wording in agreements that gives you complete and unfettered access to all company records at anytime.
Prepare a list of specific items wanted on a monthly, quarterly and annual basis, and include that as part of any agreement. You can then have independent professionals, hired by you and working on your behalf, review this data. Simply having this clause in agreements is an excellent deterrent to those who may have planned to misappropriate the funds you are investing.
Here are just some of the few areas where fraud can be taking place.
- Loan to partners / shareholders is a common way for unscrupulous partners to drain a company’s cash over time. We see large sums of money here. Always look for an actual loan agreement with specified terms and see if there were ever ANY monies repaid. Many partners, especially silent (Not working in the company day to day) do not pay attention to this. These Loan balances can grow each year in silence.
- Business credit cards. There is a great amount of fraud here where everything and anything gets purchased by the business. Do all parties involved know what is being purchased with these cards? Are there specific agreement in place, which includes very specific wording about restrictions on purchases, signed by any credit / debit card holders?
- Company Cars. Is the correct portion of personal use being included in a W2 as part of compensation? Remember, commuting to work is not a business deduction. Auto expenses can be significant, making sure that the personal use is billed back to the drivers of the cars is important.
- Vendor payments. Demand a list of the vendors that regularly get paid and periodically review expense payments, and related detailed invoices, to see if any mystery vendors appear. It is very easy to sneak a payment through for a personal purchase (I have seen personal mortgage payments, swimming pools, kid’s tuition, etc. getting paid this way) and being expensed illegally through the business. It is also common for phantom companies to be created with credible sounding names, and purchase invoices paid through a business, with the cash flowing directly into a partner’s pockets.
- VOIDED payments. Review QuickBooks (or whatever business software is being used) for VOIDED payments. We have seen this happen many times. It is not enough to rely on the accounting system reports. You need to verify the validity of voided checks by going back to the raw data (bank statements and cancelled checks). We have seen dishonest bookkeepers pay for expensive personal items knowing that the cancelled checks would probably never be analyzed and just need to forge the accounting system entries.
- Ghost employees. Where a fictitious person receives a salary.
- Draw. We have seen issues here also where partners or owners do not have written restrictions and distribution limits.
- A lax business agreement can give a majority owner the ability to make decisions without consulting the other partners. What specific restrictions, if any, apply to the majority owners in business or investments you are involved in?
- If the promised returns of investment seem too good to be true, they probably are.
- Even reasonable-looking investment returns can be problematic; always insist on detailed documentation of the investment, and consider having a professional review that information – even if you have the smallest concern.
- I have seen many situations where small businesses are slowly being drained by someone on the inside, usually a bookkeeper and the owners never know.
Please contact me so I can discuss your options. I, and my team of expert attorneys and former IRS investigators are ready to make sure that your interests are being protected.
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Chris Whalen, CPA
(732) 673-0510
79 Oak Hill Road
Red Bank, NJ 07701
www.chriswhalencpa.com
