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Call 512-659-3179
For Free Consultation
support@sageInvestigations.com

fraudtriExperience has shown that individuals steal from their partners for a number of reasons including to support a habit including drugs, gambling, women. But the main reason is greed for money and easy access to the proceeds of the business when control systems are weak. One of the keys to why your partner will steal from you is he/she perceives that he/she does all the work. From construction to operating a bar individuals steal from their partners especially if they are absentee owners. They steal services of a vendor, health insurance for their estranged wife, fees paid for an ATM machine, proceeds from the sale of an asset, materials from a job site and many other means. The theft is indirect most the time except in the direct embezzlements of money.

Psychological studies show that people steal because they have a psychological disorder, kleptomania, depression, low self-esteem, a desire to fit in, or the feeling of being financially deprived. In the case of embezzlement, the reasoning could be that he/she has lots of money anyway and will not miss it. The fraud triangle is appropriate here because it includes opportunity, motivation, and rationalization to justify the theft.   Regardless of the reason our clients must deal with the aftermath of the theft and determine how to recover.

Scenario:

A prominent businessman was approached by a friend with an idea of providing framing crews for the lucrative housing market. The businessman (Partner #1) established a partnership with proper legal documents but without a partnership agreement. Partner #1 made the initial capital investment and purchased the tools for the workers, obtained permits, and negotiated the contracts with a major home builder. Partner #2 was responsible for organizing the crews for the jobs. Partner #1 had a thriving primary business that needed his attention, therefore he was an absentee owner of the framing business. Quickly, Partner #2 became known as the boss among the framing crew. Partner #2 organized two crews and could frame two homes per week and the profit margin was 36% on each job which was very profitable for the partners. Partner #2 hired his son as foreman and his son organized additional crews and things changed. The costs of the framing crews increased, and the profit margin decreased to 8% and Partner #1 continually contributed capital to meet the payroll. At first Partner #1 did not realize what was taking place. The son of Partner #2 was charging 44% more than the standard rate for the same construction and was completing six to eight homes per week. Partner #2 when to the bank for the business and attempted to change the signature card to eliminate Partner #1, but the bank prevented the change. Partner #1, realized there was a problem and contacted his lawyer about dealing with Partner #2. Partner #1 went to the job site and paid the subcontractors directly and did not pay the son of Partner #2 and set up a meeting to discuss costs and the future. Ultimately the son was fired, and the relationship with Partner #2 was damaged and the partnership terminated.

What does a business owner that relies on subcontract labor do to take back control over his business?

  1. Be present for the payment of the subcontractors.
  2. Make sure they are paid at the proper rate especially if paid in cash.
  3. Make sure the foreman is not skimming money from the subcontractors.
  4. Speak to the subcontractors about their pay.
  5. Appear at the job site randomly and without notice even though you are busy with other business.
  6. Meet the subcontractors occasionally and bring some food to share.
  7. Employ a job foreman and meet with him and your partner face to face weekly to know what is taking place on the job sites.
  8. Check with your bookkeeper or CPA and track the receipts and disbursements, reconcile the bank accounts, verify contracts, determine the profit margin, and make sure they understand that they are responsible to you and not your partner.
  9. Determine why the rate per square foot has increased above the standard rate.
  10. Review the records to determine where the money paid out is going and is it logical.
  11. Avoid the issuance of signed blank checks with no receipts to justify the invoice.

What to do if fraud and theft are suspected?

  1. Contact a lawyer.
  2. Immediately hire a private investigator that is a forensic accountant that can follow the money and determine the loss to the partnership.
  3. Have the investigator contact the foreman and whoever is alleged to be involved in the matter (Partner #2) to obtain their statement as to what transpired and to determine what happened with the money.
  4. Have the investigator contact the subcontractors to determine what they were being paid and where they worked, or if materials were stolen from the job site or their labor was used at another unauthorized job site.
  5. Once you have enough information fire the foreman and if your partner is involved get with your lawyer to terminate the relationship.
  6. Eliminate the foreman’s access to any computer network related to your business, change any passwords and privileges allowed, stop any access he has to your company checking accounts with blank checks issued, cancel credit or debit cards immediately.
  7. Contact your attorney before docking his pay upon termination and about contacting the construction company to inform them of the foreman’s activities to avoid him taking future contracts from your business.
  8. Hire a new, experienced foreman and hire back the other framing crews determined to be loyal.
  9. Consider paying the crew a small signing bonus to gain their loyalty and to identify that you are now in charge.
  10. Advise the new foreman and subcontractors that the former foreman is no longer in charge and is not allowed on the job site.
  11. Depending on the vindictive nature of the fired person and the exposed materials it may be important to hire a security guard at the job site to prevent vandalism.

These are suggestions and should be discussed with an attorney before moving forward.

If you are a private investigator involved in these types of fraud cases, consider referring the case to Sage Investigations, LLC for a specialized investigation. You can still benefit from the case by receiving a referral fee. Contact Chief Investigator Edmond Martin of Sage Investigations, LLC at 512-659-3179, email: edmartin@sageinvestigations.com . Let our 26 years as an IRS Special Agent and 16 years of Private Investigation benefit you and your clients. Please visit our website for our team and their CVs.