16 Aug

Fraud at GE Alleged by Harry Markopolos

Harry Markopolos, the whistleblower in the Madoff case (who was telling people for NINE years that a fraud was in progress), just released a report on General Electric (GE) saying that it is a bigger fraud than Enron.

It’s a massive (175 page) report that highlights problems with:

  • hiding $400 billion of losses in the insurance business
  • accounting in the oil and gas unit
  • liquidity

A web page set up to feature the GE report highlights the work and the findings:

  • The investigation of the financial statements and the accounting practices of General Electric has been in process for more than a year
  • 17 years of 10-Ks (2002 to 2018) were analyzed cover-to-cover
  • GE’s approach to business is called “Enronesque”
  • The accounting fraud has been going on for decades, with the company providing only top line revenue and bottom line profits for its business units (not reporting all sorts of expense line items)
  • GE changes financial statement formats every few years so people can’t compare numbers across multiple years

Read More

09 Aug

Ocrolus Software Review

Ocrolus PerfectAudit SoftwareA few years ago, I reviewed data analysis software sold by Ocrolus called PerfectAudit. The software captures data, analyzes the data, and assists with fraud detection

Recently the company abandoned the Perfect Audit brand, and now just calls the product Ocrolus. The old website www.perfectaudit.com forwards to the Ocrolus website. PerfectAudit as a brand has essentially been scrubbed from the internet. This might correspond with a recent round of venture capital that was raised.

My unfavorable review of Ocrolus was met with requests from company representatives to remove it from my site. They were disappointed that my review of the Ocrolus software ranked well in Google searches.

Some improvements have been made to the Ocrolus investigative software, but some of my concerns are still valid. Have a look at my PerfectAudit software review if you want all the details, but here’s a summary of the concerns I still have: Read More

26 Jul

Financial Analysis in White Collar Crime Cases

White collar crime cases tend to focus on the flow of money. Government investigators analyze the finances of a company or individual to determine where money came from and where it went. It is this trail of money that leads to evidence of a crime.

Sometimes the financial evidence is direct, but often it is indirect. Consider a case of alleged tax fraud, in which the government is trying to prove that a person or business had unreported income. The evidence may be large unexplained deposits to a bank account. If the source of the funds is unknown, the government may consider the deposits indirect evidence of unreported taxable income. Making such assumptions is often necessary when investigating financial frauds, as those committing fraud deliberately try to hide the true sources and uses of funds. Read More

11 Jul

Follow the Money, Find the Fraud

Forensic accounting existed quietly for a long time before the general public started to become aware of it. Twenty years ago when the frauds of Enron, WorldCom, and Tyco became big news, the work of forensic accountants was finally given the spotlight. It has been a slow evolution, but the general public is becoming more and more informed about what we do.

Would it surprise you to know that many of the techniques used by forensic accountants to investigate fraud and analyze the numbers are the same today as they were decades ago?

Computers have made things easier, as we can track, sort, and manipulate data faster. While software solutions for analyzing data, managing documents, and following the money are being used in investigations, they’re not being used to their full potential. This is obviously a missed opportunity for clients. Read More

09 Jul

Bank Deposits Method to Find Unreported Income

When the Internal Revenue Services suspects that a taxpayer has unreported income, the agents can use one of several methods to uncover that income. These methods can also be used to help calculate hidden income in a divorce or child support case. One such method used to determine unreported income is the bank deposits method, in which the forensic accountant analyzes bank deposits. In the video below, Tracy explains how this is done.

01 Jul

Financial Analysis in Litigation

The financial portion of a lawsuit is often high-stakes. This is especially true in cases of divorce, breach of contract, securities fraud, tax fraud, money laundering, and white collar criminal defense. Whether the other side is an individual, a company, or the government, you need an accurate analysis of the numbers for the benefit of your client.

There is almost always a story behind the numbers. Things are not always as they appear, and it is unwise to take the financial story at face value. A case can be won or lost based on your ability to find out the hidden truth about the numbers.

Finding the Data

Getting your hands on the right financial data depends on knowing what to ask for. The financial statements and tax returns are the obvious places to start. While they may not always be truthful, they still hold many clues to the financial story. Read More

20 May

Former Law Enforcement Working as Forensic Accountants

A comment on an old article here inspired me to resurrect the topic today. Do former law enforcement officers make better forensic accountants? I think that having “former law enforcement” in your LinkedIn profile lends some credibility to the forensic accountant, but does it really mean as much as people think it does?

Certainly, experience in law enforcement (especially a lengthy career) can be helpful. There are skills that are learned and developed over time. But the question for the forensic accountant is: How much of that law enforcement experience was gained doing financial investigations? Were the investigative techniques relevant to private sector investigations? I’ve learned that digging through databases and resources available only to law enforcement isn’t the same thing as doing a deep dive into the numbers to unravel a complex fraud scheme. Read More

26 Mar

Determining Income Using the Net Worth Method of Proof in a Divorce Case

iStock_000019355019XSmallHow can income be calculated in a divorce case when a spouse refuses to produce documentation or is suspected of concealing sources of income? One way is through the Net Worth Method of Proof, which is used to analyze income and assets when detailed documentation is not available, either because the opposing spouse is obstructing efforts to get data and documents, or because data and documents are legitimately not available.

This method of determining income is used by the federal government in criminal income tax cases. Because it is accepted in federal criminal cases, family courts often will accept this as a reliable method for calculating income.

A detailed analysis of expenditures is performed using any documentation available. Each expenditure for the period under review is captured from bank, brokerage, and credit card statements, and each item is categorized so that totals can be accumulated for the period under analysis. Read More

04 Feb

Evaluating the Income of a Business

It’s not unusual to want to confirm the income of a business in litigation. Whether it’s a divorce, a business breakup, a wage claim, or other matter that involves accurately reporting business income, it may be necessary to attempt to verify that income.

I frequently work withe clients who claim that the reported income of a business is artificially low. For example, a spouse who runs a small business may make the income of the business look lower than reality in order to reduce spousal support payments and/or reduce the value of the business for the division of assets.

In a business divorce, a party may falsely report lower income to reduce the value of the business and therefore the amount necessary to buy out the other owner(s). A wage claim involving commissions and bonuses that relate to sales volumes may need a verification of income if the company is accused of underreporting sales.

How do we do this? Read More

22 Jan

Investigating Investment Frauds and Schemes

Despite the proliferation of information available about phony investment schemes and the dire warnings given regularly by news reporters, consumers continue to become victims of these scams on a regular basis. The perpetrators of investment schemes dream up stories explaining their unusually high rates of return on money, and people with money to invest with them.

These high investment returns typically amount to guarantees in excess of 10% per year. Often they are to the point of ridiculous, offering a 30% or 40% annual return. As a fraud investigator, it is clear to me that these offerings are bogus, because any investment that legitimately generated such returns would not be much of a secret to the rest of the world. But consumers, who are often eager to protect and grow their nest eggs, are all-too-willing to believe that such an investment is the answer to their money problems. Read More