Defendants in criminal cases such as tax fraud, money laundering, or embezzlement often need forensic accountants to help evaluate complex financial situations. Should you provide expert witness services to criminal defendants? Tracy discusses the work and some of the issues that should be considered.
Closely held businesses present special challenges in the family law setting. Typically, only one spouse is actively involved in the business. Therefore, not only does the spouse control the family’s finances, he or she also controls all of the records of the business. When a spouse is attempting to quantify the income from the business or the value of the business, the spouse who works actively in the business can purposely (and often very effectively) obstruct attempts to get accurate and complete data.
Certain types of businesses, such as restaurants and retail stores, can be prone to manipulation because they have so many cash transactions. Construction companies, real estate ventures, and auto dealerships are notorious for “creative” bookkeeping. Professional service providers, such as doctors, dentists, and attorneys are at risk for financial maneuvering because it is so difficult to verify the amount of professional services actually provided to patients or clients.
Any business that is closely held and has finances that are easily manipulated by the owner is at risk. If this happens, the “out” spouse is left looking for alternatives to get to the bottom of the finances. Techniques used in the personal lifestyle analysis can also be applied to businesses to ferret out the truth about the money.
When consumers think about investigating fraud, they do not usually think of the investigation as part of an overall plan to reduce fraud in a company. An investigation is typically seen as a reactive process that is only engaged in when a major problem is identified. Fraud investigations are representative of something completely negative, and they should be avoided at all costs, because if we do not have fraud investigations, then we do not have fraud.
The reality is not quite so fatalistic. Fraud investigations can and should be a routine part of a proactive fraud prevention program. Anti-fraud education and proactive fraud prevention procedures are essential to reducing corporate fraud, but fraud investigations are a third and equally important part of the equation.
Even in companies with the most comprehensive fraud prevention policies, procedures, and controls, there will still be some level of fraud. Investigations are needed to thoroughly examine allegations and suspicions of fraud. They also play a deterrent role, as employees are less likely to engage in fraud if they know that periodic checks occur throughout the company.
It would be nice if fraud investigations became completely unnecessary, but that is not realistic. In companies with increasingly better anti-fraud controls, the need for reactive investigations should decrease. But fraud investigations should never be completely eliminated, because even the companies with the most effective fraud prevention programs will still have some instances of fraud to investigate. The hope is that incidents requiring a full-blown investigation will be decreased and that management can focus their best efforts on turning a profit instead of examining cases of fraud.
Hidden assets can impact both the property division and the award of support payments. Assets hidden by one spouse deprive the other spouse of a share of them. If the hidden assets include income-producing assets such as a business venture or an investment portfolio, the spouse receiving support may receive a lesser amount of support than he or she is entitled to.
Some of the most common personal and business assets hidden during a family law case include: Read More
Moving forward after an internal fraud requires that management actually make good on promises to prevent future frauds. It is sometimes difficult to get management to make changes, because they view changes as another cost on top of the cost of the fraud and the investigation. But shoring up internal controls is necessary if the company really wants to improve after a fraud.
The wise members of company management are interested in remediation after an internal fraud is discovered, and often they look to the fraud investigator for guidance in this area. It makes sense to have someone well versed in fraud schemes help management make improvements for the future. Read More
Bank statements can be invaluable in evaluating an individual’s income for divorce and child support cases. They can help evaluate the person’s income, but an analysis of the expenditures is important too. Tracy Coenen talks about some of the specific ways the data can be analyzed.
How does a fraud investigator know when enough investigation has been done on a case? If a scope of work was agreed upon with the client, the investigator should finish that work in order to meet her or his obligations. However, there could come a point in the investigation when the cost outweighs the benefit of further investigation. The client relies on the fraud investigator’s expertise and experience to guide the work. It is not the investigator’s job to spend as much of the client’s money as possible or stretch out the engagement as long as possible.
The fraud investigator should alert the client to the issue, and explain why there may not be much benefit in continuing the investigation. If the client still decides to continue the work, the fraud examiner should cooperate. Ultimately, it is the client’s decision to continue or suspend work. Read More
The divorce financial analysis is one very specific set of services that can be offered by a forensic accountant. The lifestyle analysis is the process of tabulating and analyzing the income and expenses of the parties. The lifestyle analysis is then used to determine the standard of living of the parties, which will influence support calculations, and maybe property division.
Calculating the lifestyle of the spouses prior to separation can provide insight on the lifestyle the married couple enjoyed and the cost of that lifestyle, as well as the income that is or was required to fund the lifestyle of the married couple. The results may be used to prove a spouse’s financial needs following divorce. In other words, a detailed analysis of the spending during the marriage can be the basis to calculate the funding the spouse needs to maintain a similar lifestyle after divorce.
The lifestyle analysis may also help confirm or refute income claims made by a spouse. If a spouse has declared income that is well below the cost of the lifestyle he or she is leading, the lifestyle analysis may suggest that undisclosed sources of income exist. It may also help identify previously undisclosed assets, which may have a substantial impact on the property division.
The lifestyle analysis is not only used to sort out the numbers post-separation. It may be used to evaluate the finances of each part at the time of a prenuptial agreement. If a party did not make a full and accurate disclosure prior to the signing of the premarital agreement, the spouse may attempt to have the agreement set aside. A prenuptial agreement can also be instrumental in the forensic accountant’s work post-separation, as it provides a starting point for the tracing of funds or assets.
After management becomes aware of a potential fraud and decides that a fraud investigation is necessary, the process of creating a team, mapping the investigation plan, and requesting information begins. An organized approach is the best way to ensure that all facets of the investigation flow smoothly, that staff is properly assigned and supervised, and that all critical evidence is analyzed.
Many of the administrative parts of a forensic accounting or fraud investigation project are similar to those in a traditional auditing assignment. For those who have played an active role in managing audit engagements, some of this information will be familiar. Read More
After an internal fraud is discovered and fully investigated, a company and its employees must move forward. That might seem like a simple thing to do, but it is not always quite that easy. The financial blow of an internal fraud can be devastating. Employees have long-term memories that may not allow them to forget about the violation of their trust by someone who worked side-by-side with them or by someone who was responsible for their future.
The most obvious potential long-term effect from an employee theft is financial devastation. Companies lose something on the order of 4% to 5% of revenue to internal fraud each year. Imagine how many companies could be put out of business with a fraud of that size.
The first step to moving beyond an internal fraud, especially a significant fraud, is repairing the financial damage. Often, cash reserves have been depleted and debts have mounted while the dishonest employee was filling her or his pockets. A plan to repair the company’s finances should be established quickly. Read More