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How to Prevent Business Partner Fraud in New York

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Business partner fraud is a serious issue that can lead to financial harm, loss of profits, reputational damage to a company, and costly litigation. It can take many forms, including misrepresentation, misappropriation of business assets, and the use of deceptive practices for a personal benefit. While business relationships should be built on trust, it’s vital to take precautions and implement measures to mitigate the potential for fraud before it becomes an issue.

Here are four ways to prevent business partner fraud in New York: 

1. Have a Well-Drafted Partnership Agreement in Place

Having a clear and well-drafted partnership agreement in place is one of the most important steps you can take to prevent business partner fraud. This document establishes the expectations and obligations of a partner from the beginning of the business relationship. By addressing essential issues from the outset, such as decision-making processes, partner responsibilities, profit distribution, and capital contributions, a partnership agreement can help reduce the potential for conflict — and deter fraudulent activity before it arises.     

2. Conduct Regular Audits

Audits are a critical tool that can help prevent business partner fraud. They evaluate a company’s financial records, uncover discrepancies, and assess internal controls. Regular audits can also identify fraudulent activity, promote transparency, and protect a company — legally and financially. Importantly, since potential wrongdoers know their actions are being monitored and can be detected, audits act as a significant deterrent to fraud. 

3. Implement Internal Controls

Internal controls are the procedures, policies, and measures a company can implement to protect its assets and deter fraudulent activity. By creating a system of checks and balances, the opportunities a business partner would have to engage in fraud are reduced. 

 Internal controls that can help prevent business fraud can include:

  • Ensuring all financial transactions are properly documented
  • Limiting access to sensitive data and proprietary information
  • Conducting regular reconciliations
  • Having measures in place to compare data concerning unusual transactions
  • Conducting regular reviews of financial activity
  • Requiring more than one signature for large financial transactions

A company can also fight fraud by using fraud detection software and implementing other technological tools, such as data analytics and anomaly detection. 

4. Segregate Duties

An effective way to prevent business partner fraud before it can occur is by segregating duties. This ensures that responsibilities are divided among partners — and one person does not have full control over a transaction or process. For example, duties can be segregated by assigning one partner to approve business expenses, while another records the financial transaction. Third parties can also be brought in to reconcile bank accounts, conduct audits, or perform other tasks. In smaller companies, where the segregation of duties might not be possible, accounting software can be used to create an audit trail and provide oversight.          

Contact an Experienced New York Business Attorney

If you’re a business owner, it’s crucial to take the necessary steps to protect your business and its bottom line. Offering knowledgeable counsel and strategic solutions, Barnes & Barnes, P.C. represents entrepreneurs and corporate owners for a wide range of business disputes, including those involving fraud. Contact us at (516) 673-0674 to schedule a consultation.

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