Fraud and financial misconduct don’t always look the same. They can occur in any organization, from a small nonprofit to a large professional services firm, often hiding in plain sight through overlooked internal controls, ambiguous agreements, or misplaced trust.
At The Bonadio Group (TBG), our forensic accounting team has investigated countless cases where financial clarity was the difference between loss and recovery. The following three real-world case studies illustrate how fraud and mismanagement can occur and, more importantly, what organizations can learn from them.
Case 1: Professional Services Firm Shareholder Dispute
- Context:
- A partner in a professional services firm was preparing to leave and sought to maximize their separation payout, even attempting to persuade clients to follow them to a new firm. The partner demanded over $1 million at separation, far exceeding what the founding partner anticipated.
- Our Involvement:
- TBG was engaged to determine the actual payout due. We:
- Identified key provisions in the shareholder agreement that governed financial obligations.
- Verified all figures based on generally accepted accounting principles (GAAP).
- Recalculated “true” bonus payments, which directly affected the separation payout.
- Submitted an expert report and appendices detailing our approach for litigation.
- Outcome & Insights:
- Our analysis revealed that the firm’s bookkeeping was inconsistent and its financial terms were ambiguously applied throughout the shareholder agreement leaving room for interpretation and manipulation. The separating partner had made unauthorized self-directed payments that inflated bonuses and, consequently, their payout.
- Ultimately, our recalculation determined the partner owed the firm money, not the other way around. We also proposed new financial oversight procedures to improve daily management and prevent future disputes.
- Lesson:
- Clear, consistently applied financial terms and strong oversight are critical in partnership and shareholder agreements. Ambiguity invites conflict and, in some cases, fraud.
- TBG was engaged to determine the actual payout due. We:
Case 2: Breach of Operating Agreement
- Context:
- A co-investor in a real estate partnership questioned whether their operating partner was properly managing funds after being asked to contribute additional capital.
- Our Involvement:
- We requested all corporate records since the partnership’s formation, including bank statements, invoices, and tax returns, and:
- Categorized each loan transaction and identified all capital accounts.
- Recalculated each partner’s equity position.
- Outcome & Insights:
- We found that the operating partner was both making and receiving loans to the company based on cash flow needs from unrelated properties, misclassifying those transactions in the process. Once corrected, the analysis showed the operating partner actually owed money to the co-investor.
- Lesson:
- Partnerships thrive on transparency. Accurate classification of transactions and independent review of financial activity protect investors and prevent misuse of funds.
- We requested all corporate records since the partnership’s formation, including bank statements, invoices, and tax returns, and:
Case 3: Nonprofit Fraud Investigation
- Context:
- After the passing of its long-time Treasurer, a state chapter of a national nonprofit discovered suspicious bank activity. The Treasurer had controlled the organization’s finances for more than a decade without oversight.
- Our Involvement:
- TBG was retained by the nonprofit’s attorney to review all financial activity, from bank statements and expense reports to supporting documentation and online records. We also conducted interviews with organizational personnel to determine awareness or involvement in the misconduct.
- Outcome & Insights:
- Our investigation uncovered nearly $1.5 million in fraudulent transactions, including bank transfers, ATM withdrawals, and debit card purchases, all benefiting the Treasurer and their family.
- Working with the nonprofit’s attorneys, we reported findings to law enforcement and supported civil litigation. As a result, the nonprofit was awarded the former Treasurer’s estate, recovering over $1 million in stolen funds.
- We also recommended stronger internal controls and financial oversight procedures, which were promptly implemented and significantly improved the organization’s financial management.
- Lesson:
- Even trusted employees must be subject to oversight. Segregation of duties, regular audits, and transparent reporting are non-negotiable for nonprofits handling donor funds.
Key Takeaways
Across all three cases, a few consistent themes emerge:
- Transparency and oversight are the foundation of financial integrity.
- Ambiguity in agreements or accounting practices often creates opportunities for fraud.
- Independent forensic review can not only uncover wrongdoing but also restore accountability and trust.
Fraud can manifest in many ways, but it always leaves a serious impact—affecting finances, operations, reputation, or all of the above. The key is prevention: strong controls, regular review, and professional investigation when red flags arise.
If you need further guidance or have any questions on this topic, we are here to help. Please do not hesitate to reach out to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.
