Overview
Family offices can be uniquely susceptible to fraud and embezzlement by trusted advisors. These advisors often have significant access to cash and assets and may not be regularly audited or supervised.
During our third webinar in the Private Client Dispute Webinar Series, McDermott Partners Robert Barton, James Durkin, and Matthew Madden discussed key indicators of fraud and embezzlement in the family office setting, along with deterrence strategies and possible responses to fraudulent conduct. They explored three scenarios of misconduct within the family office setting, including fraud perpetrated by trusted accountants, chief financial officers, legal advisors, and younger family members.
Top takeaways included:
- Indications of Potential Misconduct: Red flags of fraud and embezzlement include unusual transactions, inconsistent records, lack of segregation of duties, inadequate internal controls, reluctance to share information or provide details, and an employee’s significant lifestyle changes.
- Preventing Misconduct: Deterrence strategies include conducting due diligence on the legitimacy of investment opportunities, annual audits of books and records by an impartial third party, segregation of duties, and clear policies and procedures for all financial transactions.
- Responses to Fraudulent Conduct: Consider conducting an internal investigation, confronting the bad actor, pursuing civil litigation, and involving local or federal law enforcement.
