Forensic Accounting in Corporate Disputes Between Partners

A partnership that began with trust and a handshake often drifts into suspicion. One co-owner notices that there is “somehow” no profit, that dividends are never declared, while the other partner’s lifestyle and side interests keep growing. Forensic accounting — a financial investigation of the shared company — moves those suspicions out of the realm of emotion and into the realm of documents and numbers. In this article I explain exactly how profit gets pulled out of a company, which documents a member is legally entitled to demand, and how to build an evidence base that stands up both at the negotiating table and in court.

In my expert practice the typical picture looks like this: the conflict between partners smoulders for months, the sides trade accusations in messenger chats, but neither has a structured financial analysis. And without one, any demand to “split things fairly” or “return what was stolen” is legally defenceless. Let us break down what evidentiary work in a corporate dispute actually consists of.

Why the conflict arises: typical profit-extraction scenarios

When a co-owner says “we are being robbed,” there is almost always one of a few mechanisms behind it. Understanding them matters, because each leaves its own documentary trail.

• Profit siphoning through related parties. The most common scenario. Profit is “channelled” into a structure the partner controls: purchases are routed through a middleman company at inflated prices, services are ordered from “friendly” firms at non-market rates, finished goods are shipped cheaply to an affiliated distributor who then resells them at a mark-up that never touches the shared till.
• Hiding revenue. Part of the sales are run through cash or a parallel channel and never recorded in the shared company’s books. On paper the business looks low-margin or loss-making, while the real cash flow is significantly larger.
• Opaque, “grey” expenses. Artificially inflated administrative and entertainment costs, fictitious services with no real deliverable, padded salaries for “dead souls,” write-offs of inventory and fixed assets without grounds. The goal is always the same — to shrink the profit available for distribution.

It is important to see the line: a transaction with a related party is not, in itself, a violation. What makes it one is economic senselessness, non-market terms and harm to the company. That — not “dishonesty” in the abstract — is what forensic accounting proves.

The member’s right to information: what you can legally demand

The first mistake an aggrieved co-owner makes is trying to “get at the truth” outside the law. In fact, the specialised Law of Ukraine “On Limited and Additional Liability Companies” expressly enshrines a member’s right to information: on the member’s request, the company must grant access to the documents of its financial and economic activity and enable the member to review them and obtain copies.

In practice a member is entitled to receive, among other things:

• the company’s financial statements and the documents on which they are based;
• minutes of the general meeting of members and decisions of the executive body;
• contracts under which the company acquires or disposes of property, together with the primary documents behind them;
• information on interested-party transactions and significant transactions.

The key rule: the request must be in writing and on the record (a letter with an inventory of enclosures, delivery against signature, an electronic document). If the company ignores the request or refuses without grounds, the documented fact of that refusal itself becomes a strong argument — both in negotiations and, later, in the commercial court, where a member may seek protection of their corporate rights. Unjustified withholding of documents further weakens the company’s position in the underlying dispute over the member’s rights.

An audit or an expert examination at the member’s request

Obtaining the documents is only half the job. They then have to be examined professionally. Here a member has two instruments that are worth distinguishing.

Criterion	Audit at the member’s request	Forensic economic examination
Who performs it	Independent auditor	Court-appointed forensic economist
What it yields	An opinion on the reliability of the statements	An answer to specific economic questions
When it fits	A general review of the accounts	Disputed episodes, preparation for trial
Evidentiary role	Audit report	Expert opinion — a source of evidence in court

The specialised law gives a member the right to demand an audit of the company’s financial statements by an independent auditor — and the company may not obstruct this without grounds (as a general rule such an audit is carried out at the expense of the member who initiated it). An audit is good at revealing systemic distortions in the reporting, but it answers the question “are the statements reliable,” not “how much exactly was extracted, and where to.”

Once the conflict is heading towards court, an expert examination or a forensic economic examination is more effective. Unlike an audit, it answers precisely the questions a dispute needs: do the prices of related-party transactions match market levels, what is the amount of income the company failed to receive, are the disputed expenses supported by primary documents, and what is the value of a share. Such an examination is conducted under the Law of Ukraine “On Forensic Expert Activity” and the Instruction on the appointment and conduct of forensic examinations and expert studies (approved by Order of the Ministry of Justice of Ukraine No. 53/5), within the economic expert specialties — the study of accounting and tax records and reporting (11.1), the economic activity of enterprises and organisations (11.2), and financial and credit operations (11.3). It may be ordered by the court within commercial proceedings (under the Commercial Procedure Code, HPK) or commissioned by a party itself on a contractual basis before a claim is even filed.

What a forensic analysis actually examines

Investigating a shared business is not a hunt for “dirt” but a quantitative reconstruction of what happened to the company’s money and property. Here are the main lines of inquiry.

Related-party transactions

First, the very fact of relatedness is established. Formally the counterparty may be an “independent” LLC, yet the same people stand behind it. Relatedness is documented from open and provided data: entries in the Unified State Register (YeDR) on founders, directors and ultimate beneficial owners, shared addresses, phone numbers, ownership chains, and the nature of the transactions themselves. Then the terms of those transactions are compared against the market.

Intra-group (transfer) pricing

If the company buys from its “own” firm at a higher price and sells to it at a lower one, the difference is the hidden extraction of profit. The expert compares contract prices with market prices for comparable transactions and with prices offered to unrelated counterparties in the same period. It is precisely this difference, multiplied by volume, that gives the amount of income the company failed to receive.

”Grey” expenses and hidden revenue

Here a cross-check does the work: is there a real deliverable behind the expense, did the goods and money actually move, does the volume of purchases match the volume of sales? Hidden revenue is exposed through gaps: a mismatch between quantities bought and sold, between capacity utilisation and declared income, between the movement of funds in the accounts and the reported figures.

The typical “red flags” I advise watching for first:

• regular payments to one or two counterparties whose declared line of business is atypical for such payments;
• services with no material result (consulting, “paper” marketing);
• the sale of goods or assets to a related party below market price;
• revenue growth in the partner’s “parallel” structure in sync with a fall in the shared company’s profit;
• cash operations and withdrawals with no economic justification.

The fair value of a share on a member’s exit

Very often the corporate conflict ends with one partner exiting — and turns into a dispute about money. The law provides that, to a departing member, the company pays out the value of their share, determined on the basis of the market value of the company’s net assets in proportion to the size of that share. And it is around the size of this payout that the fiercest confrontation flares up.

The reason is simple: if profit was understated for years and assets were siphoned off, then the company’s net-asset value looks artificially small — and so the share is “worth” pennies. That is why determining the fair value of a share almost always requires an economic examination: it must account not only for the balance-sheet figures but also for the market value of the assets and — critically — the property extracted earlier and the income foregone. A well-substantiated fair value, backed by a calculation, radically changes the negotiating position of the departing member.

How to preserve evidence for court and negotiations

The evidence base is assembled not at the moment a claim is filed, but well in advance. What to rely on:

1. Primary documents — contracts, delivery notes, acts, payment orders. This is the foundation, with a caveat: the payment description in a statement shows what the payer wrote, not necessarily what actually happened.
2. Bank statements — the primary source on the real movement of funds; completeness of the period, with no gaps, matters.
3. Reconciliations and accounting registers — trial balances, account cards, reconciliation acts with counterparties.
4. Register data — the YeDR (ownership structure and links) and the Unified State Register of Court Decisions (YeDRSR) to identify related disputes.

For every document, record its source and integrity: material of unverified origin is easily challenged. If the company failed to provide part of the documents, that too is recorded — the expert notes which questions cannot be examined with the available materials. In the most acute cases, where there are signs of misappropriation or embezzlement, the evidence base may form the basis of a complaint to law enforcement, in particular the Bureau of Economic Security (BEB), while individual atypical transactions come to the attention of the State Tax Service or the State Financial Monitoring Service.

The common mistake: demanding “justice” without an evidence base

The most common — and most expensive — mistake of an aggrieved co-owner is to act on emotion. Loud accusations in chats, ultimatums, attempts to “settle it man to man” without any calculation not only fail to work but also warn the partner, who then has time to “clean up” the trail. A court is not persuaded by “I know he is stealing” — it is persuaded by a figure backed by a document.

So the sequence should be the reverse: first quietly and lawfully gather the documents (written requests, an audit, statements), then have an expert turn them into a structured calculation of losses, and only then go to negotiations or to court — with evidence rather than suspicion. A cautious sum confirmed by documents is always stronger than a large but assumed one.

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If you suspect that a partner is siphoning profit or hiding revenue from your shared business, my advice is not to rush into open conflict but first to preserve the documents and assess the situation with a specialist. I am ready to help analyse the company’s finances, substantiate the amount of losses or the fair value of a share, and prepare an expert opinion within the bounds of the law.