Management’s Judgment and Financial Statement Fraud

With thousands of detailed accounting rules, how can there be financial statement fraud? There are areas of the financial statements that rely heavily on the judgment of management. They make estimates and decide how to apply the accounting rules. This leaves the door wide open for abuse. Many accounting entries are pretty simple. It’s easy … Read more Management’s Judgment and Financial Statement Fraud

What is Money Laundering?

Money laundering is fun to talk about. It just sounds cool to begin with. And the whole process is fascinating to me.

It is important to know that money laundering is not a fraud scheme. It is a crime that is committed to cover up other crimes, but it is not the same thing as fraud. The primary purpose of money laundering is to take money that has been received from criminal activities (dirty money) and make it appear legitimate (clean money).

Dirty money can come from illegal activities such as drug dealing, prostitution, robbery, bribery, illegal political contributions, tax evasion, or fraud. The laundering process hides the real origin of the money and makes it look like it came from a legitimate source.

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Pay Support or Go to Jail?

Last week Dukes of Hazzard star John Schneider asked a judge to send him to jail because he can’t pay the spousal support he owes. Schneider apparently owes over $150,000 in alimony to his ex-wife Elly Schneider. He was previously sentenced to 3 days in jail for contempt for his failure to pay, but was let out right away because of jail overcrowding.

The court set certain conditions for him to avoid additional jail time, including paying Elly half of the earnings he is owed from Maven Entertainment, filing certain tax returns, and making certain financial disclosures.

But John would rather do time behind bars because he says he can’t pay. He says he’s taken out all sorts of loans and can’t do it anymore. When they divorced, he was ordered to pay nearly $19,000 per month in alimony.

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Keeping Forensic Reports Simple

Making complex transactions easy to understand is no small task, but it is part of the job of any good fraud investigator. You can find the most earth-shattering proof of fraud, but if you cannot articulate your findings in a report that others can understand, your investigation results are not worth much.

Use graphs, charts, and tables to help illustrate your points. Even though you may not need a graph or chart to demonstrate your findings, consider that the reader of your report might benefit from it. Remember that people learn and comprehend in different ways, and that fact could be very important if your case ever goes in front of a jury.

One juror might understand your written words best, so it is important to make the report very reader-friendly with short, well-organized paragraphs. Other jurors might understand the most by listening to your court testimony, which should support and reiterate the written report. Other jurors might be most receptive to pictures or charts that demonstrate what you have found.

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What is Fraud? 4 Legal Elements

Tracy talks about the definition of fraud, and the four legal elements that are generally required. Laws vary from state to state, so you can see some variation here, but this is the “textbook” definition. The elements of fraud include: intentional misrepresentation, knowledge of the falsehood, reliance on the fact, and damage as a result.

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Determining Income in Divorce and Child Support Cases

When attempting to calculate the income of a party in a divorce or child support case, it is important to remember that income is not determined simply on the basis of historical earnings. It is necessary to also consider the future prospects for income, and how the income scenario may change following the divorce. For example, one of the spouses may encounter a job change with a related change in earnings. Even if a change is not the result of the divorce, it still must be considered as changes in earnings may change a spouse’s ability to pay support.

In evaluating historical income, it is necessary to consider whether historical income was abnormally high or low for some reason. For example, suppose a business run by the spouse had lower net income in the past because there was a substantial investment to increase the capacity of the business. The investment included operating expenses and depreciation of fixed assets, which lowered historical earnings, but created an opportunity for the company to generate higher income in the future. Thus, the projection of future earnings must not rely solely on the historical earnings, but must consider the future prospects for income.

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