Minority Shareholder Oppression – Fraud Investigation
We are often asked to provide forensic accounting services in the course of work in the area of family law and in shareholder/partnership disputes. This work is often associated with a business valuation assignment, but as often as not, involves a detailed review of the accounting and financial records to uncover to prove wrongdoing by one of the parties.
This wrongdoing may be the result of fraud, embezzlement, hidden assets, fraudulent transfers, conversion and intentional underreporting of revenue and assets.
We routinely use tactics similar to those employed by the Internal Revenue Service in order to provide a sanity check on the reported income in relation to the lifestyle enjoyed by the suspected wrongdoer. We attempt to answer the question, how does an individual with $100,000 in reported income support a lifestyle that includes a $70,000 a year in house payments, $10,000 a year in property tax, a country club, and tuition for college or private schools.
We recently were involved in a case where the majority shareholder maintained a bank account with the same name as the business and made hundreds of thousands of dollars of deposits into this account, beyond the eyes of the company accountant, other shareholders, and the IRS. Without a lifestyle investigation, this may not have been uncovered. The implication of this type of activity would have a significant impact on a business appraisal, minority shareholder oppression claim or spousal support.