Would you open a fraud investigation against your own family member? Of course, you would hope that it would never happen. But what if you found out that your own family member was committing financial fraud against your business! That was the case for a wealthy and kind hearted uncle, who decided to help his niece launch a cleaning business. He opened his wallet.
Financial Fraud in Family Businesses
Financial fraud is common within family businesses. That’s because family oftentimes run off of trust. You know that person all their life, why would they steal from you? When it does happen, family members may take sides, lie or use the business to accuse a person for monetary gain.
Small businesses with fewer than 100 employees accounted for 30% of fraud cases in the 2016 ACFE study. Despite having fewer resources, they suffer the same median $150,000 loss as larger organizations. Small family businesses are also at high risk of fraud. That’s because family members don’t enforce a type of punishment that would stop the fraud from happening. The 2016 ACFE study revealed that 40.7% of companies choose not to involve law enforcement. Family members want to avoid any type of bad publicity. Sometimes their loyalty to the family member takes precedence. These types of losses can’t be absorbed easily by smaller businesses.
Let’s see how fraud took its toll on the uncle.
An Uncle and His Niece’s Business
RGH Investigations was contacted by a confused, wealthy uncle. The uncle invested in a joint business between him and his niece. He claimed that oftentimes, his niece would call asking for more money. She would claim the business needed more capital, and another expense had come up. He kept writing checks, trusting that his investment was going toward keeping the company afloat. But, the business never seemed to improve. Eventually, the uncle grew suspicious. Where was the money going?
Following the Trail
RGH Investigations opened a fraud investigation case. The case involved interviews and surveillance. Investigators focused on the niece’s daily movements, starting the investigation near her home. What we found was a storefront rented for what turned out to be a second, entirely separate business near her home.
The separate business was a distribution operation registered solely under her name with no connection to her uncle or to the company they ran together. Our fraud investigation confirmed she was going there every day to work. The distribution business wasn’t a side job to make ends meet, it had five employees and what appeared to be a successful operation.
Her uncle’s investments had been quietly funneled into her own separate distribution business. The plan, it appeared, was to eventually tell her uncle that the cleaning business had collapsed, cutting him out of the picture entirely. Meanwhile, the successful distribution business would remain hers alone, free of any obligation to share profits with the uncle who had unknowingly financed its startup costs.
Moving On
Once it became clear what she was doing, her uncle chose not to pursue a lawsuit. He invested nearly $100k. Instead, he cut off financial support and stepped out of the cleaning company, cutting her monetary supply. He acknowledged his role in how things unfolded. He admitted he should have paid closer attention to where his money was going, rather than assuming good intentions would keep the business on track. Even the most experienced and successful make mistakes.
RGH Investigations and Financial Fraud Investigations
Financial fraud can take on many forms, from large scale embezzlement within corporations to quiet schemes within family run businesses. No case is too small or too personal. If you suspect fraud and need answers, RGH Investigations can help you get to the bottom of it. Contact us in the Chicagoland area, throughout Illinois, or anywhere in the world at 312-981-8770 today.
