Divorcing spouses or feuding former business partners may fraudulently conceal assets in order to prevent their equitable split. And fraudsters nearly always strive to conceal their illegal gains. In many circumstances, demographic information acquired as part of a lifestyle analysis might be nearly as revealing as financial data. Here’s what forensic accountants look for when searching for hidden assets.
Begin with Numbers
Typically, forensic accountants begin with numbers. For example, a professional can reconstruct the subject’s income by studying bank deposits, canceled checks, and bank transactions, as well as accounting for cash payments from undeposited receipts and non-income cash sources such as gifts and insurance payouts.
A forensic expert also typically examines the subject’s personal income sources and cash expenditures over a certain period. If a person spends more than he or she earns, the difference is probably unreported income.
Investigators generally assume that unexplained increases in a subject’s net worth imply unreported income. A professional examines bank and brokerage data, real estate records, and loan and credit card applications to determine net worth.
Examining Assets and Tax Returns
It’s one thing to show that someone has undeclared income. But it can be difficult to trace that income to assets or accounts that can be used to support a legal claim or enforce a judgment. Assets, insurance policies, court filings, employment applications, credit reports, and tax returns may all be examined by forensic accountants.
Tax returns are especially important since people have substantial incentives (such as tax evasion penalties) to prepare accurate returns. In fact, tax return entries frequently reveal information about assets or income that someone might otherwise try to conceal. Interviewing professionals who have knowledge of the subject’s financial resources and spending, such as accountants, real estate agents, and business acquaintances, is another potentially effective technique.
Getting the Goods
Investigators typically require a court order to obtain their subject’s bank and tax data, as well as other personal information. This may not be an issue in a divorce or business partnership dispute.
However, while investigating occupational fraud, experts may only have access to wage information provided by the employer, as well as publicly available data such as real estate sale and purchase records and court filings. Experts may question coworkers about a subject’s lifestyle, such as whether the suspected fraudster suddenly purchased a new fancy car or exhibited other indicators of a windfall. Social media is increasingly providing useful information about subjects’ lives, assets, and purchases.
Contact us if you suspect someone is hiding assets during a divorce or business arrangement. We have methods for locating what fraud perpetrators have hidden and can supply you with the evidence you need in court.
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