Unreported Income: Bank Deposits Method

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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.

Divorce Financials: Importance of a Lifestyle Analysis

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In the early stages of divorce, clients are required to complete financial affidavits, financial declarations, or other similarly titled disclosures.  The importance of an accurate disclosure of assets, liabilities, and income is obvious. Yet many clients are unable to accurately prepare this financial information.

Particularly in high net worth divorces, it may be difficult for the husband or wife to report these financial details because of a large volume of data and/or an inability to compute the numbers. The financial declaration will be a primary piece of information used to divide assets, calculate alimony, and calculate child support. Errors can therefore be very costly.

A lifestyle analysis completed by a forensic accountant can solve this problem, and can add other value to the divorce process. The lifestyle analysis is typically done to demonstrate the spending (or the lifestyle) of the family prior to the separation. Continue reading

Management Override of Internal Controls

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Some companies think they are protected against employee fraud because they have strong internal controls. Often, that’s the case. Good controls mean the rules are followed and the money is properly accounted for.

Sometimes, however, good controls are meaningless. What about the controls over the controls? All the rules and designated procedures in the world are meaningless if management has the ability to override them at will. When these overrides go unchecked, the company is often no better off than if they didn’t have any controls in place.

Indeed, the risk that management will override controls established to prevent fraud and ensure accurate financial statements is great. It is a constant risk as executives are in a position to manipulate numbers and direct employees to aid the manipulation. They can easily fabricate transactions or modify numbers to craft the financial statements to report whatever their hearts desire.

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Finding Hidden Income in Divorce Cases

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LifestyleAnalysisInDivorceCasesSmallDo you think your spouse may be attempting to hide income or assets in your divorce? One spouse commonly has control over the money in the marriage, either by virtue of being the major breadwinner, or by controlling spending, or both. The spouse in the lesser financial position should take immediate proactive steps to protect herself or himself in the divorce. ex-spouse will have with them. By being aware of some of the most common schemes used to hide income and assets, you may be more likely to see the signs.

Some of the more common schemes used to hide money in divorces include:

  • Stashing cash – It is not uncommon for an estranged spouse to start stashing money around the house, in a safe deposit box, or with trusted friends or relatives. By not keeping the funds in a bank or brokerage account, the spouse is hoping you won’t know of the money’s existence. Pay close attention to transactions that involve cash vaporizing into thin air: large ATM withdrawals, depositing checks but receiving a large amount of cash back, the sale of assets with no paper trail or no deposit to known accounts.
  • Purchasing items that are easily overlooked or undervalued – Everyone notices a new home or a new car, but who is paying attention to works of art, valuable home furnishings, or technological toys? While some spouses are paying close attention to these types of things, many are not, and  this is one great way to reduce cash while secretly increasing hidden assets.

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Presenting Complex Financial Issues to Judges

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Financial expert witnesses are the key to helping judges understand complex financial issues. It is imperative that the judge understand accounting and finance scenarios if you are to succeed in court. Tracy Coenen and Miles Mason discuss how your expert witness can help judges understand.

Five Common Fraud Myths

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19079420I’ve been investigating fraud for over two decades. When I first started, financial fraud wasn’t a big topic. In fact, most people had never heard of forensic accounting. Then in 2001 and 2002 everyone became more aware of the issue of fraud when the big frauds of Enron, WorldCom, and Tyco became public. It is now commonplace to hear about corporate frauds involving embezzlement, financial statement manipulation, or kickbacks.

Despite this knowledge, there are still many misconceptions about employee fraud. If owners and executives mistakenly believe their company is not at risk, they are probably not actively preventing fraud. Management must know the truth about fraud and its perpetrators in order to actively protect the company.

Here are five myths about fraud that I still run into in my forensic accounting practice. They’re often unspoken, and many would never admit that they believe them. However, I know from experience that they run rampant.

1. Our company doesn’t have an internal fraud problem.

While companies would like to believe they have good employees and adequate internal controls to prevent fraud, the fact of the matter is that studies suggest 75% of companies will fall victim to a fraud scheme. While some of these may not be large frauds, they will cause losses nonetheless. Continue reading

Focus on Fraud (Marquette Justice for Fraud Victims Program)

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coverI was delighted to be a part of the cover story for the fall issue of the Wisconsin Institute of CPAs (WICPA) magazine CPA2b. The article, Focus on Fraud, profiled the Justice for Fraud Victims Program at Marquette University.

The program is part of the accounting program, and gives students the opportunity to investigate a real live fraud case. They get hands on experience, and victims of financial fraud receive pro bono fraud investigation assistance. I am the mentor for the students, guiding them through the investigation (but making it a little tough on them by making them figure things out on their own). Upon completion, we submit the investigation results to the Milwaukee Police Department and District Attorney for possible criminal charges.

Earlier this year, we were recognized by Marquette University President Michael Lovell for our community service via this program.

Click on the images below to view them full size and read the text. Continue reading

Divorce Financial Analysis: Investigating Business Interests

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When a spouse owns a business, it can create some of the most complicated financial issues in a divorce. It is extremely important to dive into the financial records of the business in order to value it and to determine where the money is REALLY going. Tracy Coenen and Miles Mason discuss what documents a forensic accountant needs to evaluate the business.