Construction Fraud Cases

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What kinds of things can forensic accountants be involved in relative to construction fraud? A common area of fraud involves a general contractor using funds from a project to fund other projects. Also common is the construction company claiming a project is further along than it really is in order to get paid more than it is entitled to.

Hear more in this video:

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Accounting “Irregularities” Can Signal Fraud

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Numerous signs can point to the possibility of fraud. Literally hundreds of different types of fraud schemes exist, so the number of possible red flags of fraud is huge. Today we’ll talk about one area where you may see some red flags: irregularities in the accounting records and procedures.

Irregularities that point to the possibility of fraud can range from simple things like unreconciled accounts and unusual account balances to more complex problems like “on top entries,” which are made after the books are closed in order to manipulate the numbers ultimately reported on the financial statements.

An auto dealership had a controller who had not reconciled the bank accounts for nearly a year, despite management’s insistence that it be done. Management did not insist enough, and the problem persisted; the accounts remained unreconciled month after month. Unreconciled bank accounts usually signal one of two problems: the accounting staff is incompetent or understaffed, or there is a fraud-in-progress that will likely be exposed through a bank reconciliation. Both of these problems need to be corrected quickly.

In this case, it turned out that the controller simply couldn’t handle all of the responsibilities of her job. She was out of her league and was not doing the reconciliations because she did not have time and was likely afraid that the reconciliations would expose her incompetence. The reconciliations would have shown that she didn’t have a good handle on the company’s finances. Continue reading

Foster a Culture of Integrity in Your Company

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The average business loses approximately 5% of revenues to employee fraud. The employees are running off with money, fixed assets, and business opportunities. They are taking kickbacks from suppliers who overcharge for their products and services, and pushing contracts toward friends and relatives. Executives are manipulating financial statements to increase stock prices and impress lending institutions.

These types of dishonest activities can be decreased, however, by companies that take action to prevent and discourage fraudulent behavior. An extensive fraud prevention program might be the most effective way to reduce fraud opportunities, but following a recent flurry of regulatory requirements, many companies aren’t willing to invest more in revamping policies and procedures.

Activities that were traditionally thought to deter and detect fraud, such as independent audits and internal examinations, have been found to be less effective than previously believed. Those types of procedures may still provide some valuable business benefits, but they should not be relied upon as a primary tool for detecting and preventing fraud. Continue reading

Lifestyle Analysis in Divorce Cases

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One of the chief concerns in a divorce or child custody case is identifying the true income of one or both of the parties. It is not unusual for such a case to include allegations of hidden income or assets. It is common for a closely held business to suspiciously encounter declining sales and profits following the filing of a family law case.In each of these instances, properly determining the income of the party is critical to getting a fair and equitable settlement, maintenance award, or child support award. Until you have the correct numbers, the attorney may find it very difficult to decide what is fair or in the best interest of the client.
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Milwaukee Alderwoman Chantia Lewis Removed From Office Following Felony Conviction

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Back in September 2021, Milwaukee Alderwoman Chantia Lewis was charged with was charged with 4 felonies and 1 misdemeanor related to misconduct in public office, embezzlement, fraud, and campaign finance violations. Her attorney claimed it was just “accounting errors.”

Today Chantia Lewis was convicted of two felonies and was removed from office. She pleaded guilty to one county of misconduct in public office, and pleaded no contest to one count of intentionally accepting an illegal campaign finance disbursement. The three other charges against her were dismissed, but will be considered at her sentencing on August 25.

She immediately lost her $73k per year job as an alderwoman for the City of Milwaukee, since there is a state law that requires removal from office if convicted of a campaign finance violation. The prosecutors say she took over $21k of campaign funds and false travel reimbursements between 2016 and 2020. Average that out, and it’s a small amount per year that has now cost Chantia her career.

Apparently during her hearing today, she said she did not “necessarily agree” that she knew her conduct was illegal. Sigh. Chantia still can’t own up to her behavior. She took campaign funds for her own personal use (credit card bills, car payment, trip to Florida for a worship conference, tuition to a bible college, family trips), but says she didn’t know that was illegal. Sure, Chantia.

The prosecutor is recommending 12 months in jail followed by 3 years of probation.

What Does a Corporate Fraud Suspect Look Like?

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Those aware of fraud risks might think they should be on the lookout for likely fraud suspects. That is not a bad idea, and there are many potential personal red flags of fraud, but it is difficult to put those who commit fraud into one little box. Many different types of people commit fraud; it is difficult to pinpoint a few types who are more likely to steal from their employers.

It’s important to recognize that there are inherently bad people who look for situations in which to take advantage of others. Companies try to avoid hiring these people but do not always weed them out because they may be good actors who are able to cover their evil intent. More likely, a company is a victim of a situational fraudster—someone who has a particular reason to commit a fraud at a certain time. This person would not normally be considered a bad or unethical person, but circumstances at home or work may motivate the employee to commit fraud.

A wide range of factors could cause a person to turn to fraud, including a legitimate financial need, a plan to get revenge on someone, a house going into foreclosure, a child support or alimony burden, an expensive addiction to drugs, a desire to engage in risky behavior for a thrill, or a feeling of power desired by the employee. Continue reading

Why Clients Work With Me

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It’s important to think about why your clients work with you. It can guide your marketing efforts and it can help you refine your service offerings.

My clients like the fact that what they see is what they get. I’m the forensic accountant who will do all the work on their project. They don’t have to worry about someone inexperienced learning the art of forensic accounting on their dime or possibly even botching their case. Experience is key, and my clients know that they get my experience.

My clients also like that: Continue reading

Calculating Income in Divorce and Child Support Cases

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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. Continue reading

Questions for New Clients

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What questions do you ask a new potential client?

Nearly all of my work comes from attorneys, on behalf of their clients. I have two clients: the attorney and his/her client.

My questions are pretty much the same no matter which of them I’m talking to on that first phone call. The most important questions I ask are things like:

  • What kind of case is this – I am looking for some specifics of who is involved and what is going on.
  • What do you need me to do – Are they really in need of a forensic accountant, or do they need someone else, like a private investigator? Are they looking for services that I provide? For example, I trace funds in a divorce, but I do not provide business valuation services.
  • When does the work need to be done – I do most of my case work in 60 to 90 days.
  • That’s great for clients, but it also means that there are cases I can’t take because I’m already at capacity.
  • Can you pay my fees – This might sound impolite, but I have to earn a living. This is where I explain my fixed fees and the deposit I require. I may ask about their budget to ensure that we are on the same page. (Even though I can’t quote a fee this early, I often get a feeling for a range of fees.)

Figure out the questions that are most important in your practice, and be ready to ask them of any potential new client.

What is Money Laundering?

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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. Continue reading