Defending Tax Fraud Cases

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Government investigations of white collar crimes almost always have one thing in common: They rely heavily on the analysis of financial information. Often, this includes combing through bank statements and credit card statements, as well as scrutinizing accounting records.

Some people think that analyzing this kind of data is simple. It seems like it is only a math exercise in which we’re checking dollar amounts and verifying the addition and subtraction. But there is much more involved, and it gets exponentially more complicated (pun intended) when there are large volumes of data.

Expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against a company or individual. To properly defend such a case, it is necessary to have a forensic accountant involved to help evaluate the data and the issues the government will raise. Continue reading

How Can a Company Recover From a Fraud Loss?

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Fraud committed by employees can have devastating effects on a business. The company’s finances suffer, employee morale may drop, and the company’s reputation could be affected by negative publicity.

Following the investigation of an internal fraud, owners and managers of companies need to rethink how they do business. It is the perfect time to carefully analyze the operations and create procedures and an environment in which ethical behavior thrives.

A fraud by a trusted employee is often devastating to management, both financially and emotionally. A company can be thrust into turmoil because of a significant theft, and it’s important to approach the situation methodically in order to mend the damage and prevent future occurrences. The company can recover from an internal fraud by focusing on three key areas, in addition to completing a thorough investigation of the fraud. Continue reading

Expense Report Fraud

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The dreaded expense reports. Employees hate preparing them. Companies hate reviewing them. They seem to be painful for everyone involved, yet companies can’t get away from them all together.

You’re asking yourself why this might be an important topic. Expense report losses are really a minor expense for most companies, aren’t they? Yes, they are.

However, the problem with them is what they stand for in other areas of the company.

Cheating on expense reports is one of the most common thefts perpetrated by employees. While the amounts lost to expense report abuse may be small, condoning this unethical behavior can lead to bigger problems.

The Schemes
Probably the most common way of cheating on expense reports is by claiming items for which an employee is not entitled to reimbursement. Companies typically specify certain items that are not reimbursable, so an employee who wants to be reimbursed may mischaracterize the item in order to avoid scrutiny.

Companies may also set limits on the dollar amount that will be reimbursed for some items. If an employee exceeds the allowable amount, sometimes she or he will split the item into two parts so that the smaller items fall under the predetermined threshold.

Another common way to cheat on expense reports is inflating a bona fide expense. This might include adding on tips that were never paid or expenses that were never really incurred. Some companies specify maximum meal reimbursements, and if a receipt is not required, employees may claim the maximum amount even if a meal did not cost that much. Continue reading

Investigating Cases With Large Volumes of Financial Data

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Many of the cases I work currently focus on the tracing of funds through multiple bank, brokerage, and credit card accounts. I am typically working with tens of thousands of transactions at a time, so the sheer volume of the data could be overwhelming.

I use a proprietary system that allows me to capture, manage, and analyze large volumes of data. There are quality controls in place that ensure the integrity of the data, and speed an efficiency of the system allows me get down to the business of investigating much quicker than forensic accountants used to.

Getting the Data

The process of discovery can be long and agonizing for everyone. There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data. It often takes several rounds of requests to get the information we seek. Continue reading

Expert Testimony That Non-Accountants Can Understand

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Testifying is the pinnacle of an expert witness’s work in a case. It may well be the most important part of the expert’s work, as the assistance of a competent financial expert is the key to cases involving economic damages and other financial calculations.

An expert must do much more than just analyze facts and calculate figures. Traditional accounting and finance skills are not enough when it comes to litigation matters. A financial expert witness must qualify as an expert in court, and must be able to convey her or his findings to non-accountants in both the written and oral formats.

Accountants often forget that not everyone speaks their language, and many are not used to explaining their findings to people outside the finance function. Creating a meaningful understanding for readers and listeners can be an art form unto itself, and the best financial expert witnesses do it easily.

Selecting the Expert
The whole process starts with selecting the right forensic accountant or economist for the case. The required expertise goes beyond technical proficiency and extends to the ability to communicate the findings. What good is an opinion favorable to your case if the expert can’t get anyone to understand that opinion? Continue reading

Lifestyle Analysis in Divorce (Second Edition)

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Last year the American Bar Association published the second edition of my  book “Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets.”

Here’s the video that was done for the first edition. It’s a great summary of what you’ll find in the book, which is designed to help attorneys understand the financial analysis process and get a handle on the documents they will need to do a thorough investigation of the family’s finances. The first edition was good, but the second edition is great with even more case examples, expanded explanations, and updates for new developments in the law.

Fraud in a Family Business

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Trust is inherent in any good business. We continuously place trust in our employees and in those with whom we do business. But that trust which is so necessary to the operation of a business is also the impetus for thieves to profit.

It is unfortunate that fraud occurs when and where you least expect it. Blood may be thicker than water, but that doesn’t protect a company from theft by family members. In fact, it may be just that trust between family members that is exploited by a dishonest sibling, uncle or cousin.

Some fraud experts suspect that fraud occurs more often in family businesses than other businesses, and that the increased fraud risk is due to the trust factor. Family members put more trust in one another and therefore grant one another more access and opportunities for fraud. The controls in family businesses may be lax, particularly as they relate to the oversight of management’s activities. Continue reading

IRS Special Agent Fraud

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I had to write about this IRS special agent because his fraud story is so wild. Bryan Cho (aka Yong Hee Cho) was a Special Agent in the IRS Criminal Investigation Division since 2008. And now he’s been charged with possession of a fake foreign passport, aggravated identity theft, making false statements during a background check, and wire fraud.

The story goes like this…. in 2018 there was an investigation into corrupt public officials in South Korea. It was discovered during that investigation that Cho was being bribed by public officials at South Korea’s National Intelligence Service (NIS) and National Tax Service (NTS). They give him money, and he gives them confidential information that he has access to by virtue of his employment with IRS-CI. Continue reading