When a divorce involves a business, we often ask for a copy of the general ledger, which is part of the company’s accounting records. The general ledger includes the details of transactions for a specified period of time. What can we find in the general ledger? Tracy Coenen explains in this video:
Employee fraud always has a “cause.” The “cause” is the motive, desire, or need that is being filled by the theft from one’s employer. A need doesn’t have to be a true need in order for fraud to occur, but can be a perceived need on the part of the thief. One common impetus for fraud is an addiction. Addictions are expensive, and the money has to come from somewhere. The employer is sometimes the logical answer to the problem.
But addictions aren’t limited to drugs, alcohol, and similar vices. They can and do include gambling, and the news is full of incidents of fraud with a gambling connection. A known addiction can be a red flag of fraud, meaning that the addicted employee is statistically more likely to commit fraud and therefore usually merits further monitoring.
Defining Gambling Addiction
People didn’t talk much about gambling addictions in the old days. They may not have even realized it existed. But just like a chemical addiction such as alcohol or drugs, it has now been found that gambling can cause changes in the brain that can become addictive.
In divorce cases, forensic accountants can use the “net worth method of proof” to calculate income. This is used to search for hidden or unreported income. Rather than simply taking a spouse’s word for it that his or her income is X, we can do an analysis like this to try to verify the claimed income.
This method of proof is one part of a lifestyle analysis, in which we are analyzing the party’s lifestyle and determining if that lifestyle matches the income that is being reported. This video explains the process of completing the net worth analysis.
Multi-level marketing is not a business. I’ve written numerous times about the fact that more than 99% of participants in multi-level marketing (MLM) lose money. Companies like Mary Kay Cosmetics promote the “income opportunity,” but when the vast majority of MLM distributors say they lost money, the story changes to “they didn’t really want to make money,” or “they just did it for fun,” or “they didn’t try hard enough.”
The truth is that MLM is not a “business opportunity.” Almost everyone who participates is guaranteed to lose money. You can follow all the instructions, talk to everyone you know, invest money in the scam, and you will still lose money. Why? Because MLM is nothing but a pyramid scheme in which all the people at the bottom of the pyramid will lose money.
Check out this new video featuring victims of the Herbalife “business opportunity.” They put lots of money, time, and effort into their “businesses” and ended up losers.
When there are suspicions of hidden income or secret investments or bank accounts, an analysis of known bank accounts can reveal helpful details. Tracy Coenen explains how bank statements and credit card statements can be used by a forensic accountant in a divorce case.
When companies have big problems, they usually bring out the big guns. The benefits of using large law firms, audit firms, and other professional service firms are undeniable. These firms offer a depth of experience that is invaluable, and they have seemingly unlimited resources in terms of manpower. A large firm often has the ability to mobilize an engagement team quickly, and can bring in experts from around the world.
Does bigger mean better? Certainly the perception exists that larger firms provide better services. No one can fault an executive who chooses a big firm when trouble is brewing. There is an undeniable comfort level that comes with the big firms because they have established reputations and many resources. Even if the project goes poorly, no one can fault the executive who chose the large firm.
A CPA who focuses on traditional tax work or auditing services might be a great fit to branch out into litigation support work. Attorneys are always looking for expert witnesses with certain areas of expertise, and accountants doing general work might fit the bill.
What is your focus? Do you specialize in a certain industry or work frequently with certain accounting and tax rules? Litigation work is often interesting, but you have to be able to explain your work to non-accountants and testify in depositions or at trial.
The video below offers Tracy Coenen’s commentary on this topic.
There is no shortage of allegations of investment fraud since the stock market tanked in 2008. Are there more investment scams occurring, or have market conditions just led to the discovery of more of these schemes? I’ll guess the latter, although no one really knows for sure.
The beauty of fraud is that so much of it goes undetected. Those involved in financial fraud actively conceal their schemes and their involvement, so it’s impossible for fraud investigators to know exactly how much fraud is happening. For example, perpetrators go so far as to pay others to participate in the scheme and cover up phony financials and non-existent promissory notes. This kind of concealment leads to more investors putting money in a scheme, and ultimately creates ever larger financial losses.
In the end, however, it doesn’t necessarily matter if we can put our finger on exactly how many of these investment schemes are out there. What really matters is being able to identify the hallmarks of such schemes so that investors can avoid them like the plague.
The Federal government wields a big stick when it comes to business-related crimes. Violations of the Foreign Corrupt Practices Act (FCPA), fraud in the delivery of health care services or in the receipt of federal money for those services, and other whitecollar crimes can open up companies and their executives to harsh penalties under the United States Sentencing Guidelines.
Companies and executives can get reduced sentences if certain mitigating factors have been identified. One of those mitigating factors is having an effective compliance and ethics function within the company that attempts to prevent fraud and proactively identify criminal activities.
An additional way that companies have sought to mitigate their sentences is through confessing their violations of law to federal prosecutors.
Tracy talks with Miles Mason, JD, CPA about some of the common financial lies told by spouses during divorce.