Is Your Partner Stealing From the Business? How to Detect and Stop Embezzlement

business lawyerA partner that embezzles from the company puts the entire business at risk, and violates the trust placed in them by the rest of the management team. There is rarely a clean and peaceful way to resolve such a situation, but there are ways you can minimize the damage. Consult with an experienced business lawyer, and then follow these steps.

Step 1: Validation

There’s nothing worse than accusing a partner of theft, when it was just misunderstood or even misplaced suspicion. It spoils the working relationship and creates bad blood. Worst of all, you could get sued for libel or defamation. Verify that a theft actually took place, then find out who was responsible. You can do this through detailed analysis of the accounts, especially the cash flow, bills, receipts, and credit records.

Step 2: Evidence Gathering

Once you’ve confirmed that embezzlement took place, you need to find a way to establish that your partner took the money for personal reasons. Prove that he a) transferred the money to a personal account, b) failed to report the money being in his possession, or c) did not use it to pay an outstanding loan or purchase something for the business.

This is much easier if your corporation or partnership has set rules and procedures for drawing money from the accounts. If you can’t gather enough evidence, set up a strict monitoring system and try to catch the partner in the act.

Step 3: Precautions

Your partner might react very badly to being confronted, and could attempt to damage the business as a result. The precautions you need to take depend on the degree of control your partner has over the operations, and how well the business can manage without him. Try to limit the partner’s authority, and inform the rest of the management team what you plan to do.

Step 4: Confrontation

The best way to end the issue peacefully is through a face-to-face confrontation in the presence of your attorney and witnesses. With undeniable evidence and witnesses proving the guilt, the partner will likely agree to extricate himself from the business. When these negotiations fail, the only alternative is to file a police complaint or lawsuit.

During this entire process, keep calm and don’t let your emotions get the better of you. You might be tempted to press charges immediately, but that usually ends up costing the company much more than it would recover. Aim for a quick resolution, so that the business can return to normal as soon as possible.