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. Recent headlines have consumers wondering how someone like John Corzine of MF Global could have no idea where hundreds of millions of dollars went. 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.

Do you know where to start getting these records? It may be simple in the case of a bona fide business with one or two sets of books. Even if the accounting records are manipulated or altered in some way, the records will likely point to financial institutions that hold at least some of the company’s money. The first place to start is the accounts disclosed by the target of the investigation or the accounts documented in the target’s records.

If we’re tracking down a fraudster with no disclosed or confirmed accounts, we will have to be creative. It’s not practical to subpoena every bank in existence, so some precision is required in our investigation. We must look to parties other than the target for information on accounts and activities of the scammer.

For example, an investor in a Ponzi scheme may have canceled checks relating to his investment, and the information on the back of the checks can go a long way in telling us what banks the target was using. Gather together the documentation of multiple victims of the Ponzi scheme, and suddenly several financial institutions used by the fraudster may be revealed. We can then get those records and dig through them to find evidence of other accounts used.

Detailed Analysis

A skilled fraudster is going to tangle a very intricate web of accounts, transactions, people, and entities. Money is intentionally bounced from bank to bank, account to account, and entity to entity in varying amounts with seemingly random timing. These things make it difficult to trace the flow of money and to tie funds to any particular act or scheme.

A capable investigator is going to be able to unravel the mess and make sense of the money movements. This isn’t easy, especially when the number of involved bank or brokerage accounts climbs. Cataloging individual transactions is simple. The more institutions, accounts, and entities involved, the greater the complexity of the analysis.

The difficulty is in ensuring that all accounts and all time periods have been analyzed, and all transactions between these accounts are properly documented. It is easy to get so caught up in the details of individual transactions, that the investigator could lose sight of the big picture. This could result in a failure to analyze all transactions, a missed link between accounts, an overlooked payment to an outside party that be a smoking gun, or a failure to have a complete and accurate tracing of money through the web of accounts.

Don’t think of this as simply a data entry exercise. It is much more than that, and it is a critical part of prosecuting or defending a fraud case. It’s easy for just about anyone to look at one bank statement or check copy and tell me where the money went. It is another thing entirely to look at 100 bank accounts over a period of three or five years and get a complete picture of the flow of funds over time.

Dead End?

What happens when you seem to have come to a dead end in the money trail? There is usually no such thing as a dead end unless you’ve come to a piece of real estate, a boat, an airplane, or a sizable bank account that can be seized (or at least tied up in the legal system for the foreseeable future). Whether a case is civil or criminal, part of the endgame will be recovering the proceeds of the fraud. In many cases, it is the most critical thing, especially for the victims.

If frequent small transactions are all you are seeing, and there is no apparent pot of gold, you just haven’t found the right information yet. Somewhere within all this evidence is a clue to a piece of real estate that was purchased with illicit funds. A payment to a municipality, a utility company, a real estate attorney, or a construction company may hint to the existence of real estate. A payment for a registration fee, to a fuel company, or to an insurance company might lead us to the existence of a luxury yacht.

Again, the key will be to dig deep into the details of the financial transactions without losing sight of the big picture. As questions are raised regarding certain transactions, the investigation still must continue through the remaining transactions. Although one lead may look promising, it should not be the reason to stop going down other roads that may lead to the discovery of other valuable information.

Pulling It All Together

Equally as important as wading through a financial labyrinth skillfully is presenting the findings in a way in which non-accountants can understand it. Attorneys, judges, and juries may need to understand the flow of money in the scheme, so telling a story about the money is critical.

The best way to communicate results to people with varying levels of accounting and financial sophistication is with three approaches: words, numbers, and pictures. The financial investigator should start with an explanation of the work completed and the findings and conclusions. Then set forth summary tables of the most important numbers that are discussed, followed by charts and graphs that further demonstrate the findings. This gives the user an opportunity to see a picture of what has been explained about the disposition of funds or relationships between entities.

When these three approaches are combined, it is much easier for a reader to understand the conclusions that have been drawn after an exhaustive financial analysis. After all, a complex analysis and conclusion that is helpful to your case is not worth anything if the important people can’t understand the opinions and how they were reached.

Tracy L. Coenen, CPA, CFF is a forensic accountant and fraud investigator with Sequence Inc. in Milwaukee and Chicago. She has conducted hundreds of high-stakes investigations involving financial statement fraud, securities fraud, investment fraud, tax fraud, and criminal defense. Tracy is the author of Expert Fraud Investigation: A Step-by-Step Guide and Essentials of Corporate Fraud, and has been qualified as an expert witness in both state and federal courts. She can be reached at [email protected] or 312.498.3661.

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Lifestyle Analysis in Criminal Cases: Proving Income Without Full Documentation


Both civil and criminal cases often involve an element of proving or disproving income of an individual or business. It is not unusual for a divorce case to include allegations of hidden income or assets. In contract disputes alleging the loss of sales or profits, an accurate determination of income is critical.

In criminal cases, the issues surrounding the income of an individual or business have even higher stakes. These cases are quite often tax-related matters, but cases involving white collar crimes and drug trafficking usually include questions about income too. Continue reading

Divorce Financials: The Lifestyle Analysis and the Search for Hidden Income or Assets


Tracy explains the purpose of a lifestyle analysis in a divorce case, and the process used to analyze the family’s finances. The lifestyle analysis may be used to determine how much money is required to continue living the lifestyle the parties had while married. It may also be used to find hidden income or hidden assets, and Tracy discusses how she may uncover these items.

Divorce Financials: Finding Hidden Income


divorceIt is not unusual for the “out” spouse (the one who is not the major breadwinner in the family and who does not have control over the family’s finances) to suspect that income and assets are being hidden during a divorce.  When one party is accused of hiding income, how can a forensic accountant find it?

Below are a few techniques that I may use to uncover hidden income. A more in-depth discussion of this topic appears in Chapter 9 of my book, Lifestyle Analysis in Divorce, published by the American Bar Association. Continue reading

Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets (Book)


LifestyleAnalysisInDivorceCasesSmallMy new book, Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets, is being published by the American Bar Association this summer. It will be the only book available on the topic of lifestyle analysis in divorce cases. While there are plenty of excellent books on financial issues in divorce, none of them focuses on the lifestyle analysis, how it is done, and how the results may be used in court.

This book focuses solely on the lifestyle analysis in the family law case, although other services from a financial professional may also be needed in a case. The lifestyle analysis is the process of tabulating and analyzing the income and expenses of the parties. The lifestyle analysis is then used to determine the standard of living of the parties, which will influence support calculations, and possibly property division. Continue reading

How a Lifestyle Analysis Can Be Used in a Divorce Case


A lifestyle analysis is the process of tabulating and analyzing the income and expenses of the parties. The lifestyle analysis is then used to determine the standard of living of the parties, which will influence support calculations, and possibly property division.

Calculating the lifestyle of the spouses prior to separation can provide insight into the lifestyle the married couple enjoyed and the cost of that lifestyle, as well as the income that was or is required to fund the lifestyle of the married couple. The results may be used to prove a spouse’s financial needs following divorce. In other words, a detailed analysis of the spending during the marriage can be the basis to calculate the funding the spouse needs to maintain a similar lifestyle after divorce. Continue reading

Red Flags of Fraud in Divorce


This article was originally printed in the ABA Section of Family Law eNewsletter, January 2014.

The vast majority of family law cases are settled without trials. However, a client should not enter into a voluntary settlement if there are significant concerns about the truth of the financial disclosures and indications that assets or income may be hidden. The first step in determining whether a forensic accountant is needed to evaluate the finances of the parties is the identification of “red flags” of fraud. A red flag is simply a warning sign or an unusual item or circumstance.

Attorneys often use their instinct to determine when a forensic accountant is needed in a family law case. If something does not feel right, it probably should be investigated.  A client is often suspicious of the spouse even before they are separated. The spouse may even be known to manipulate the money. Continue reading

My Spouse Is Hiding Assets In Our Divorce…


One frequently asked question from divorcing individuals is what to do if the spouse is suspected to be hiding assets. I recently outlined the steps that should be taken if a spouse is worried about the other spouse manipulating assets and income:

If you think your spouse may be attempting to hide income or assets during your divorce proceeding, your first step should be to tell your divorce attorney. Your attorney should know how to handle situations such as this, and the sooner he or she can act, the more likely you are to see results.

You should also quickly gather and secure any documentation that might prove your allegations. Financial documents that you can legally access should be copied and turned over to your attorney. This might include tax returns, pay stubs, credit card statements, bank statements, brokerage statements, contracts, or any other documents which might prove the existence of assets or streams of income.

Read the rest of the article here.

The article can also be found in the Spring 2013 print edition of Divorce Magazine.


Divorce Lies: Red Flags of Common Financial Untruths


red-flag-fraudThis article was originally printed in the ABA Section of Family Law eNewsletter, March 2013.

Experienced family lawyers are familiar with the common ways spouses attempt to commit financial fraud in divorce: hiding or undervaluing assets, overstating debts, concealing income, and inflating or fabricating expenses. All of these are done in an attempt to get more than the spouse’s fair share in the property division, and to influence the amount of support that will be paid or received.

Successfully advocating for your client involves more than just knowing that these things occur during the divorce process. You must also be able to identify the red flags that indicate the financial issue(s) must be investigated further. Some are easier to spot than others, but once you have identified two or three red flags, it is time to get a forensic accountant involved. The financial analyst’s experience with fraud and deception will be invaluable in evaluating the red flags and determining if there is something of substance to investigate further. Continue reading