Income tax returns are an important piece of financial information in a divorce or child support case. There is so much information that can be obtained from the tax returns, and if we have several years of data, we can make comparisons from year-to-year. In the video below, Tracy talks about the financial data she analyzes on the income tax returns and what these items may tell us about the financial situation of the family.
A forensic accountant may be needed in a case alleging securities fraud. In the video below, Tracy discusses some of the particular issues that the accountant may evaluate and how to find the right expert for your case.
It has become commonplace to hear news stories of Ponzi schemes being uncovered. Investment scams and Ponzi schemes are all too common. Investors are lured in with promises of high returns. People in or nearing retirement find these investments enticing, especially as their retirement funds in the stock market have taken many hits in the last few years.
As I wrote in my book Expert Fraud Investigation: A Step-by-Step Guide, investors are becoming victims of these scams despite the proliferation of information available about phony investment schemes and the dire warnings given regularly by news reporters. Perpetrators of investment schemes dream up stories explaining their unusually high rates of return on money, and get high net worth people to invest with them. Often these people are investing their entire savings with scammers.
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 this investment is the answer to their money problems.
Employees in positions of power have greater opportunities to commit and conceal financial statement fraud. Tracy explains how and why this is the case in the video below.
It’s clear that there is a time and place for management to occasionally override a control. Everything in business is not routine, and there are times when special situations require special treatment. It would be silly to prohibit management from ever overriding the policies and procedures that are in place. There has to be guidance in place to direct employees when they may consider overriding controls.
However, it’s important to recognize that the override of controls should be the exception rather than the rule. Employees should be able to circumvent the system only on an infrequent basis, and these instances must be actively monitored to determine if the override process is being abused.
For example, there may be a policy specifying levels of approval before a payment can be issued. What if the person who normally approves the payment is on emergency sick leave and a payment needs to be made? There must be a process for getting an alternate employee to approve the payment. This transaction should then be flagged for later follow-up to determine that the payment was still proper. In this case, there is a need for overriding the normal control, but this is something that should happen infrequently.
After completing a lifestyle analysis for a divorce case, a written report is often requested. In the below video, Tracy describes the information she puts in her written reports, which often includes things like background information, documents utilized, important estimates, and methodology used.
Robert FitzPatrick, one of the foremost experts on multi-level marketing, published a piece entitled “What John Oliver Didn’t Have Time To Say In His Hilarious Exposé Of Herbalife And MLM” on Seeking Alpha. (register for free to read the whole article) As always, he did a masterful job o flaying out the case against MLMs, which are nothing more than elaborate pyramid schemes set up to look like legitimate businesses.
As of the writing of this post, the YouTube video of the complete episode Multilevel Marketing: Last Week Tonight with John Oliver (HBO) had over 5 million views. The program made the point (in a very articulate, yet humorous way) that MLMs are nothing but pyramid schemes.
FitzPatrick expands on the episode:
Last Week Tonight With John Oliver devoted this week’s episode to multi-level marketing. Although he uses quite a bit of humor in his presentation, his analysis of MLM is spot on. Multi-level marketing companies are pyramid schemes, plain and simple. MLM is not a business. It doesn’t matter what product you’re trying to sell, the whole set-up is a fraud in which 99% of participants lose money.
The full episode is shown below, and is well worth the time spent watching. John Oliver mentions companies like Mary Kay, Herbalife, Market America (Shop.com), Jeunesse, and Youngevi. The producers did an excellent job of honing in on the important facts about an industry that is made intentionally confusing (in order to conceal their fraud, of course).
Fifteen or twenty years ago, it may have been far-fetched to suggest that a simple internet search could help you win a case in front of a jury. Those immersed in the world of data mining knew it was possible, even then. Today, the sources of information on the internet have grown exponentially, and these can be used strategically in litigation.
The work of a financial investigator and expert witness is focused on financial documents and numeric evidence. Much of the information in fraud cases or contract litigation is found in private records, such as income tax returns, accounting records, bank statements, and financial statements.
In addition, public records can enhance a case. Traditional public records include real estate records, civil and criminal court files, probate court files, vital records, corporate registrations, intellectual property documentation, and professional licensing records.
Publicly Available Information
One source of information that is sometimes overlooked by counsel is publicly available information. The data includes everything else that is readily available to the public, if one knows where to look and how to get there.
In divorce and child support cases, one party may attempt to hide income and assets to deprive the spouse or children of their rightful support. It can be difficult to prove hidden earnings or assets, particularly if the other party owns a business, owns assets within corporations or partnerships, or has other financial vehicles that could be used to conceal wealth.
However, there are ways to discover the existence of assets or reasonably estimate the person’s level of earnings. One such way is a lifestyle analysis, which calculates the earnings necessary to live the known lifestyle of the target.
The logic is simple: Life costs money. We can calculate how much you’re spending based on what we know about your mortgage, car payment, eating habits, utilities, toys, vacations, and other expenses. The money to fund these expenses has to come from somewhere, so we can infer that the cost of your lifestyle equals your earnings.
This type of analysis can be done in several different ways, or through a combination of these methods: