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.
You are only an expert if the judge says you’re an expert. No matter how many times you may have testified in court as an expert witness, each time you must prove all over again that you’re qualified to provide expert testimony.
In this video, Tracy Coenen talks about how she presents herself to the court as a forensic accountant so that she will be qualified to provide expert testimony. It is a combination of education, credentials, and experience.
When an IRS auditor or criminal investigator suspects that a taxpayer has unreported sources of income, he or she looks for ways to calculate that unreported income. One way is the net worth method of proof.
Forensic accountants and fraud investigators can use the same method to calculate unreported income in other types of cases, such as divorce. In this video, Tracy describes how the calculation is done and how the results may be used.
A while back we talked about behavioral red flags of fraud, which are the signs that someone might be involved in a fraud at work. Some of the most common red flags are living a lifestyle that exceeds a person’s earnings and unusual attitudes on the job (being combative, possessive of their work, etc.)
The same red flags don’t necessarily apply to upper-level executives, or they’re just not as easy to spot. In this video, Tracy talks about some of the warning signs we might see with top executives who are committing fraud. Most commonly, we see a higher level of greed and arrogance when committing fraud (which, coincidentally, may lead to the person’s downfall).
With thousands of detailed accounting rules, how can there be financial statement fraud? There are areas of the financial statements that rely heavily on the judgment of management. They make estimates and decide how to apply the accounting rules. This leaves the door wide open for abuse.
Many accounting entries are pretty simple. It’s easy when the company buys a small item, gets an invoice for it, and pays it. We can record the amounts and the dates pretty simply based on that information.
But it gets more difficult when the situation is not so black and white. For example, when a company sells a long-term service contract to a customer, when is that revenue recognized? The revenue usually is going to be recorded over time, and the way to calculate this can vary.
Who is to say that management won’t decide to recognize the revenue using a schedule most beneficial to that company? There may be reasons for wanting to recognize that revenue sooner or later, and management has the ability to manipulate the situation.
Tracy talks about the definition of fraud, and the four legal elements that are generally required. Laws vary from state to state, so you can see some variation here, but this is the “textbook” definition. The elements of fraud include: intentional misrepresentation, knowledge of the falsehood, reliance on the fact, and damage as a result.
Tracy Coenen and Miles Mason talk about some of the financial documents that should be requested during discovery in a divorce case: some of them are obvious, while others are not. Check out this video to find out the more created documents and why they can be important.
Have you ever thought about the fact that a particular industry in which a company operates creates risk factors for fraud? We call these industry red flags, and Tracy discusses some of the more common ones in this video, including:
- Performance substantially out of line with competitors (either much better or much worse than others in the industry)
- A highly competitive industry
- Poor reputation within the industry
- Market saturation
- Declining margins
- Industry declining in general
- Industry affected by rapidly changing technology
In this video, Tracy Coenen briefly defines and audit and how many people are being audited by the IRS. (Hint: A very low number of people are being audited, and people with higher incomes are much more likely to be audited. Watch the video to find out the numbers.)
What kinds of companies are more prone to fraud?
In my business, we talk a lot about the red flags of fraud. There are two different types of red flags: the kind that suggest that a fraud is currently in progress, and the kind that puts a company at greater risk of fraud.
In this video, I talk about a few of the characteristics of companies that seem to put companies in greater danger of becoming a victim of fraud by employees. Some of these red flags include:
- Executives act autonomously
- Authority is not delegated
- Distrustful management
- Management driven by the pursuit of power