When Partners Cheat

Like the end of a romance, discovering that a partner has cheated stings every law firm to its core. Trust built up over decades of service disappears in the blink of an eye when fraudulent partners, valued and admired by their colleagues, are discovered all along to have had their hands in the till.

In too many cases, it is a star lawyer, who, having brought considerable work into a firm, increased profits, become a partner quickly and built up a position almost beyond scrutiny, is found to have raided the expense account or creamed off client funds.

As the recent well-reported cases of city law firm partners claiming false expenses, or moving money out of client accounts, demonstrate, it can be months or even years before the losses come to light, during which time irreparable damage may be caused to the firm and client relations.

Many signs of wrong-doing are, however, evident from much earlier on, and by taking some simple steps, firms can minimise the likelihood of falling victim to these breaches of trust, investigate suspected wrong-doing expeditiously, and manage the fallout of a rogue partner.

Prevention is better than cure

There are different sorts of fraudulent partner, for example, the conscientious type who patiently bides his time, or the star performer who confidently believes he won't be caught. Either way, such individuals create masks to hide erratic behaviour and record keeping, which others in the firm may be willing to turn a blind eye to. Although frauds do not happen simply because processes fail, a failure to examine all aspects of a business will be much more likely to lead to its undermining. Firms should be aware at all times of cheating partners, and be ready to spot them. Here are some tell-tale signs and ways of managing risk.

Be aware of any activity spikes which appear at odds with the market. For example, if numerous property transactions appear suddenly, they may be a consequence of the solicitor involved hiding dubious practices behind a veneer of respectability. Similarly, a sudden growth in the number of personal injury claims being managed in a crowded market could be the product of an unlawful referral source

A typical fraudulent partner will operate over several years, and so look for radical changes in new work or improbable billings. Make sure the source of the work and the actual work done are appropriate and in line with market figures for similar work. The high number of chargeable hours may be...