Asset Analysis of Fraud Suspects

 Asset Search and Discovery - Police Line-up of Potential Suspects in a Corporate Fraud Scheme

Asset searches can be an effective tool in investigations of financial fraud, as discussed by John Powers, president of Hudson Intelligence, in “A Corporate Fraud Playbook,” published earlier this month by Pursuit Magazine.

For executives and business owners, the first suspicion that their company has a fraud problem may come from red flags in the annual audit report, complaints from internal whistleblowers, or a realization that profits or expenses have fluctuated in unusual ways that do not reflect changes in business revenue or operations. Most business leaders immediately turn to their financial officers and auditors for answers. For complex schemes and large organizations, forensic accountants may be brought in to analyze the situation.

Consulting the CFO or lead accountant is an appropriate first step, and may correct the problem, but most corporate frauds cannot be fully resolved by solely examining the company’s financials. There are a number of illicit schemes – such as cash-skimming, kickbacks and bribery – that do not leave an audit trail that can be easily traced in the company books to identify the culprits. In other cases, suspicious transfers to third parties can be successfully identified in the financial statements, but the beneficiaries – and their connection, if any, to internal employees and executives – are unfamiliar and unknown. Missing links in the payment chain may exist if funds have been transferred to shell corporations, money mules or foreign entities, which are common occurrences in vendor fraud, wire fraud, payment schemes and internet fraud.
 

Asset Searches on Employees and Executives

If there are suspicions of internal corporate fraud, but the specific employees who participated in the scheme have not yet been identified, then an asset search by experienced investigators can be useful for discreetly vetting potential suspects in two key ways:

  • Identification of Employees with Personal Financial Pressures
  • Determining if Employees are Living Beyond their Means

Ordinary people who commit corporate fraud often do so as a result of financial pressure – personal money problems they feel unable to resolve by legitimate means, compelling them to secretly violate their position of financial trust within the company – as observed by Robert Cressey in his landmark study of occupational fraud in the 1970s. Evidence of personal financial problems can be located by an investigator reviewing public records and court cases for bankruptcies, liens, judgments, or collection suits.

Alternately, an asset search can identify conspicuous lifestyle changes of employees or executives who make major expenditures – such as large new houses or luxury cars – that appear beyond their means, which could suggest access to concealed sources of income.

Neither deep debts nor sudden wealth should be considered proof of participation in a fraud scheme, but heightened scrutiny may be merited for those employees whose financial red flags closely coincide with the timeframe of the company’s losses, particularly if they had clear access and opportunity to commit the fraud.
 

Investigation of Vendors and Third-Party Payees

Investigations of payment schemes, ghost employees, bid-rigging, bribery, kickbacks and collusion may require asset searches to identify beneficiaries of external accounts where funds have been wired or deposited.

Identifying the owners of corporate shells and offshore entities that received fraudulent transfers will require the skills and resources of an investigator specializing in asset searches.
 

Asset Searches for Fraud Litigation and Judgment Collection

Companies that pursue civil litigation to recoup losses of a corporate fraud often seek an asset investigation to locate accounts and assets for collection after a judgment for money damages has been awarded.
 

Seeking Answers Beyond Accounting

Corporate fraud investigations should be conducted in close consultation between business executives and the investigative team. Investigators will also need to coordinate with accounting, and possess a solid familiarity with auditing functions and internal controls. Accountants are trained to analyze financial records and report anomalies when entries do not conform to generally accepted practices, providing an important line of defense for fraud detection. Rarely does a CPA have the resources or training to conduct a comprehensive investigation or asset search, and they may not fully recognize the various ways internal controls can be counteracted or side-stepped by bad actors. Once a red flag of fraud has been identified, it may take a team effort to determine who put it there.

 

Click here to read the complete Corporate Fraud Playbook from Hudson Intelligence, a tactical and strategic guide for managing investigations of corporate fraud.
 

About the Author: John Powers is president of Hudson Intelligence, an investigative firm specializing in asset searches and financial investigations.

 

 

Hudson Intelligence