Accounting for Fraud

If your club has been the victim of fraud, particularly if cash has been removed from the account, the *first* step is to let the brokerage know; they should, at a minimum, begin an investigation.

While that investigation is happening:

1. **Record the Cash Movement for Transparency**
   - Go to **Accounting > Cash Accounts > Transfer**.
   - Enter a transfer **from** your Bank or Brokerage account, to **Suspense** for the amount stolen.
   - This keeps your club’s accounting records in sync with your actual bank/broker balance and clearly shows the funds are temporarily missing.
2. **Document the Reason**
   - In the transaction notes, clearly state: “Funds transferred to Suspense due to suspected fraud/theft pending investigation.”
3. **If Brokerage Restores the Funds, then reverse the transfer
   - Go to **Accounting > Cash Accounts > Transfer**.
   - Enter a transfer **from Suspense back to your Brokerage or Bank account** for the restored amount.
   - Add a note: “Funds restored by Brokerage after fraud investigation.”
4. **If the Brokerage Does NOT Restore the Funds**
   1. **Record the Loss as an Expense**
      - Go to **Accounting > Cash Accounts > Expense**.
      - Enter the amount as an expense, categorize it as “Loss due to theft/fraud.”
      - This will reduce the club’s assets and be reflected in member valuations.
   2. **Remove the Suspense Entry** - Delete the initial transfer that moved the money into Suspense, so the Suspense account is cleared.

Beyond this, the club should check with a professional tax preparer about getting the 1065 and K-1 forms filled out for whatever tax year the loss occurred in, if the money is not returned by the end of the year.