31 Oct

Finding Hidden Income and Assets

Cases of financial fraud often focus on the core issue of where the money went. Successfully carrying out a fraud scheme involves not only taking the money, but covering up the fraud and hiding the money trail.  But skilled financial investigators know there is always a trail, and while the money may or may not be recovered, it can be located.

Cases involving allegations of security fraud, money laundering, misappropriation of assets, income tax fraud, and Foreign Corrupt Practices Act (FCPA) violations require investigators to follow a money trail. However, sometimes it is difficult to know where to start, or where to continue when you’ve come to an apparent dead end.

Third Party Records

Regardless of the type of case for which there is a need to trace the flow of funds, the most reliable source of information is third party records. The records of an alleged fraudster are always suspect. How are we to know if the accounting records have been manipulated?

In contrast, records from a disinterested third party are much more likely to be authentic and to tell the truth about the money. The most common and reliable sources of third party records are banks, brokerage houses, and credit card companies. Except in rare cases in which a secret relationship facilitates the manipulation of these records, they will tell us exactly where money came from and where it went. Read More

23 Oct

Forensic Accounting Specialties

Why specialize when you’re a forensic accountant?

Forensic accounting is already a specialty within the broader field of accounting, so some people never consider that you can narrow down your practice even more. We focus on investigating numbers, but that doesn’t mean we have to do every sort of investigation out there.

I’m a firm believer that narrowing your focus helps you be better at what you do and get more (and better!) business. Read More

22 Oct

The Family Law Engagement Process

Serving as a forensic accounting expert in a family law case  begins with setting the stage for the work to be performed for the attorney.  One of the most important steps is developing the scope of the engagement. There are almost always limitations on the work based on budgets, deadlines, and available documentation. Therefore, it is important to evaluate what is available, what work is most critical and will be most valuable, and what problems the limitations might cause.

The typical divorce engagement will follow this general process:

1. Secure the engagement – Determine the nature of the engagement, the identities of the parties involved, and whether or not there are any conflicts of interest. Determine whether work can be completed in the time frame identified by the client, and whether the forensic accountant has the necessary expertise to complete the engagement. Read More

08 Oct

Doing Criminal Defense Work

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.

05 Oct

Why Investigate a Business During a Divorce?

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.

03 Oct

Can Fraud Investigations Reduce Fraud?

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.

26 Sep

Hidden Assets in Divorce Cases

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

24 Sep

Prevention After Finding Fraud

After a company has experienced internal fraud and has investigated the situation, how do they address the issue of fraud prevention?

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