Bankruptcy Services Provided by a Forensic Accountant

In this short video, Tracy talks about some of the services a forensic accountant could provide in a bankruptcy case. These services could include: Tracing of funds through bank accounts Looking for hidden income and assets Evaluating expenditures to determine whether they were proper (as it relates to the bankruptcy) Searching for improper transfers of … Read more Bankruptcy Services Provided by a Forensic Accountant

Role of a Financial Expert in a Family Law Case

A financial expert’s assistance with the discovery process can be invaluable to the family law attorney. By virtue of the expert’s familiarity with personal and business financial documents, the financial expert can play an important role in the discovery process.  He or she can help with the following: Determining which documents should be requested or … Read more Role of a Financial Expert in a Family Law Case

Why MLMs are Pyramid Schemes

Multi-level marketing companies (MLMs) are nothing but pyramid schemes. Oh sure, there are websites that go to great pains to discuss the difference between MLMs and pyramid schemes. But when you boil it down, MLMs are indeed pyramid schemes, and ta class action lawsuit filed against Arbonne International last year explains this well.

First they describe a typical pyramid scheme:

A classic pyramid scheme operates as follows: recruits pay into the scheme for the right to receive compensation from the scheme based, in large part, on bringing new recruits into the scheme. Each recruit’s money is used to pay other recruits in the scheme (particularly more senior recruits), as well as the scheme promoter. The more recruits one brings in, and the closer to the top of the pyramid he is, the more money he might make. Recruits will necessarily lose their money unless they recruit enough new people into the scheme, who will also lose their money unless they recruit enough new people, and so on. Because there is little or no outside money flowing into the scheme from real operations (other than recruitment), because payments from recruits are shared disproportionately with the persons closer to the top of the pyramid, and because the scheme operator takes a healthy cut for himself, the vast majority of recruits are doomed to lose most or all of their investments.

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Ponzi Schemes Explained

In this one minute video, Tracy explains how Ponzi schemes work. They are also called pyramid schemes because the constant recruitment of new “investors” creates the shape of a pyramid, with many new investors required at the bottom of the pyramid to pay “returns” to the earlier investors. The hallmarks of a Ponzi scheme include: … Read more Ponzi Schemes Explained

Signs of Fraud

There are many signs of fraud occurring within companies or with individuals. What are some of the signs we may see that indicate fraud is occurring? During a fraud investigation I am looking for signs that things are wrong. What clues may exist that things are not as they seem? Are there deceptions or misdirections that seem unusual that an honest person wouldn’t engage in? Are things set up in a way such that the environment is ripe for fraud to occur?

Apparent Control Weaknesses

When readily apparent major deficiencies in a company’s control procedures are identified, they should be considered warning signs that fraud could be occurring. All companies have some things that are not as secure as they should be. However, when the controls over a company’s assets and data are severely deficient, that is cause for alarm.

Some of the most common characteristics that might be considered severe deficiencies include:

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Questions to Ask at the Start of a Fraud Investigation

In order to properly plan a fraud investigation, a fraud examiner needs to be able to ask good questions that extract valuable information about what needs to be done. The specific questions vary with each investigation, but the following are some basic areas that an investigator should strongly consider exploring.

What happened?

  • How did this situation come to light?
  • Who was involved with the discovery?
  • Who is aware that a potential fraud occurred?

Evidence

  • What evidence has already been found?
  • How conclusive is it?
  • Are there multiple pieces of evidence?
  • Might there be other easily discoverable pieces of evidence?
  • How much does the evidence tell us about the methods of fraud and the parties involved?

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Accounting 101: Parts of an Income Statement

A few of the videos I will post here are what I like to call “Accounting 101.” They have some basic accounting information for those who need a bit of a primer on how the accounting process works. This video focuses on the parts of an income statement. I talk about the main sections of … Read more Accounting 101: Parts of an Income Statement

Cash Flow Versus Income in Divorce Cases

There are many different definitions of income that can be used in divorce and family law cases. Local law will play a big part in defining income, but in more complicated cases, other definitions may come into play. A forensic accountant can help the attorneys and the court understand the various types of income and why they should be included or excluded from income calculations.

The Internal Revenue Code is often a starting point for quantifying income in divorce cases. But experienced family lawyers know this is only the tip of the iceberg and doesn’t cover many of the unusual situations that could arise in cases with complicated financial scenarios.

In simpler cases, wage income and business income will be straightforward and will form the basis for calculating child support and spousal support. Undistributed income from a business venture may be an area of contention, but local laws often provide at least basic guidance on including such income in support calculations.

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Analytical Review of Financial Statements to Find Fraud

Performing analytical review on the financial statements of a company is an important part in the fraud detection process. It can help detect manipulation of the numbers, as we are looking at account balances and their relationships to one another. How have account balances changed from period to period? How have the relationships between accounts … Read more Analytical Review of Financial Statements to Find Fraud

Searching for Fraud in a Company

How do you begin searching for fraud in a company?

Sometimes I get called in when a company finds an employee stealing. They have found one instance of theft and they want to have the rest of the company looked at, but they don’t know where to begin. What should we look at? If a specific instance of fraud has been identified, that will dictate which financial statement accounts are examined by the fraud investigation team in detail.

But what if no conclusive evidence of fraud exists, and the investigator is instead looking for clues that might point to a fraud? The company has become suspicious, yet has little hard proof that anything unusual has occurred.

In that case, the investigator must dig through at-risk accounts and functions to look for suspicious activity. Analytical review of the financial statements will provide clues about the potential for fraud. (Come back tomorrow to see a video about this very thing!) Ratios may look unusual. Account balances may be out of line with recent history. Key documentation may be missing. These types of red flags will point the investigator toward areas that deserve additional investigation.

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