29 Nov

Financial Statement Fraud: Revenue Overstatement

By far the most common way that executives manipulate financial statements is through the overstatement of revenue. The reason is simple: It’s the easiest way to improve the appearance of the company’s financial condition.

Revenue can be inflated by doing things such as:

  • Booking fictitious sales
  • Holding the books open at the end of a period
  • Recognizing legitimate sales early
  • Shipping items not ordered by customers and booking the sales
  • Booking revenue before it has been earned on projects in progress
  • Recording sales for items produced but not yet shipped, or only partially shipped
  • Booking sales but delaying shipment to customers (bill-and-hold schemes)
  • Not properly recording allowances for returned goods

Revenue overstatement is detected by examining revenue patterns and looking for irregularities. Unusual changes in cost of goods sold might signal a problem, as companies that book fictitious revenue do not always book corresponding expenses. Revenue overstatement may also be suspected when a company has consistent cash flow problems, even in light of apparently increasing sales and profits. Read More

26 Nov

Consulting Versus Testifying in Divorce Cases

A financial professional can fill two distinct roles in family law cases. He or she can be a consultant who provides analysis and opinions privately to the attorney and client. The consulting expert’s work and conclusions are not intended to be presented in court, and are intended to be of an advisory nature. The other role is that of a testifying expert, alternately called an expert witness.  The testifying expert must be disclosed in the event that the case goes to trial.

The services of a consulting expert may include:

  • Explaining financial topics to the attorney and client
  • Providing opinions and advice on financial matters, including the value of assets and liabilities, the taxability of settlement scenarios, and the strengths and weaknesses of the financial portion of the case
  • Helping to develop a litigation strategy
  • Devising a strategy for presenting financial issues to the court
  • Evaluating a testifying expert’s work as a “second set of eyes,” which may help identify weaknesses or opportunities in the testifying expert’s work
  • Scrutinizing the work of a financial neutral appointed in the divorce

Read More

21 Nov

Why Audits Don’t Find Fraud

This video is a little longer than usual. Tracy Coenen talks about the reasons why traditional financial statement audits don’t find fraud. It is very rare for fraud to be uncovered during the year-end audit, but stakeholders often rely on audits to do just that.

Tracy walks through these 9 common reasons why audits are not effective at detecting the fraud. Watch the video for the details of each.

  • Reliance on internal controls
  • Doing predictable audit tests
  • Using sampling of transactions
  • Employees working around scope and materiality
  • Inexperienced auditors
  • Dynamic business environment
  • Inadequate follow-up by auditors
  • Looking for a needle in a haystack
  • Use of estimates by management

16 Nov

GoFundMe Fraud (Again)

Things aren’t always as they seem. I’m often suspicious. It’s a hazard of being a fraud investigator. But sometimes we’re not even suspicious of the right things.

Take the situation involving the homeless man (Johnny Bobbit Jr.) who allegedly gave his last $20 to Kate McClure when she became stranded on a roadside with no gas in her car. She and her boyfriend Mark D’Amico started a GoFundMe that ultimately raised over $400,000.

And now Bobbit, McClure, and D’Amico are being charged with fraud because the whole thing was apparently made up. Police went over more than 60,000 text messages sent by McClure and D’Amico, and this one from McClure to a friend of hers has the punch line: Read More

14 Nov

Finding Fraud Clues in the Notes to Financial Statements

The notes to financial statements are often lengthy and boring. But they can provide very important information about a company.  On the most basic level, they provide details behind the company’s numbers. But they can also provide clues to fraud or other irregularities that may be occurring. Tracy gives a brief overview and a few examples of things you might find in these notes.

13 Nov

Divorce Financials: Lifestyle Analysis in Family Law Cases

This article was originally published in the American Journal of Family Law (Volume 32, Number 2 / Summer 2018)

Determining the income of the parties to a divorce or child custody case is critical, as it affects spousal support and child support. It may also affect the division of assets, particularly if there are income-producing assets to be divided.  In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have accurate numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.

It is not unusual for a closely held business to suspiciously suffer from declining revenue and profits once a family law case comes to fruition. The spouse in control of the business may state that the economy is negatively affecting the business, or that other conditions such as competition or changing technology are the cause for a decline in the financial condition of the business. Is it a coincidence that a thriving business just happens to suffer a decline at the precise time that a family law case is initiated? Of course it is no coincidence, and the numbers must be investigated to present a true financial picture to the court. Read More

08 Nov

Getting Business Tax Returns During Divorce

When one or both spouses have an ownership interest in a business, it is critical to get both income tax returns and financial statements for the entity. It is impossible to fairly evaluate the business and the income from it without both of these.

Many times we meet resistance from the spouse during discovery. It is common to hear “we already gave you the financial statements, why do you need the tax returns too,” or vice versa. Both are important because they provide different information. Occasionally the two will have identical information, but the vast majority of the time there will be different numbers and different levels of detail. We want as much information as possible on the business, so both are critical. Read More