Embezzlement is the unlawful misappropriation of money, property, or something of value entrusted to someone’s care but owned by someone else.
What is Embezzling from a Partnership?
A partnership is a legal business operation between two or more individuals sharing management responsibilities and profits. When a partner is entrusted with partnership assets and wrongfully takes them for himself without permission, it is considered embezzling from a partnership.
How to detect embezzling from a Partnership
Embezzlement can occur in many ways. For example, falsifying bookkeeping entries and records, cash receipts or invoices, shrinkage of inventory, false expense claims, or payroll fraud schemes.
Find evidence of embezzlement in your company’s financial books and statements, receipts, records of transactions, and even the partnership agreement.
What to do if you suspect partnership embezzlement?
Embezzlement can be prosecuted as criminal or civil fraud. Therefore, gathering relevant information and evidence to support your claim is essential. For a charge of embezzlement to be supported, the following four factors must be present and proven:
- A fiduciary relationship must exist between the two parties;
- The defendant must have acquired the asset or property through the relationship;
- The defendant must have taken ownership of the property or transferred it to someone else, and
- The defendant’s actions were intentional.
If convicted, penalties depend upon the amount stolen. For instance, the embezzler may receive a fine, be required to return the funds, or face a prison sentence.
If you strongly believe that your partner is embezzling funds, you may want to consider legal action. Actions to take include suing for breach of fiduciary duty, claiming civil or criminal fraud, seeking embezzlement charges, or dissolving your business partnership.
Risks of embezzlement
- Business closure: Embezzlement can lead to a lack of sufficient cash flow and assets to continue running the business, leading to the closure
- Increased operational costs due to ongoing legal troubles: Choosing to seek legal redress can increase operational costs from legal expenses.
- Loss of trust: This may lead to the dissolution of the partnership
Mitigate embezzlement through segregation of duties, transaction monitoring, zero-based budgets, and sustaining values.
Embezzling from a Partnership – Conclusion
Dealing with a business partner’s embezzlement demands extreme tact and attention to detail. There is a delicate path to follow in obtaining evidence, ensuring you are not making a false accusation, and safeguarding your interests and business.
Check the following reference articles to learn more about inconsiderate embezzling from a partnership.
- Deloitteeditor (2013, September 9). 10 Steps to Help Mitigate Embezzlement Risk. Risk & Compliance Journal – WSJ.
- Murray, J. (n.d.). Embezzlement and Employee Theft. The Balance Small Business.
- Selachii LLP. (n.d.). What to do if Your Business Partner Steals from You. Selachii.
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