Thank you for sharing!

Your article was successfully shared with the contacts you provided.
Your client tells you that he has been the victim of a fraud. Furious, he wants the suspect to repay the money and do 10 to life in a maximum-security prison. Apparently, the woman who has been his bookkeeper for 10 years has written checks on your client’s checking account to a fictitious company she established. Your client’s accountant places the loss at $100,000. With an annual income of less than six figures and two children in private school, your client is very eager to recover those funds. Since you are not sure how to proceed, you call a friend who was formerly a prosecutor. She explains how busy prosecutors are with their drug, terrorism, and violent crime cases. Prosecutors have discretion as to white collar crimes, she says, and guidelines for prosecution require them to decline to file charges when the loss is below a certain dollar amount. Your friend asks, wasn’t the $100,000 loss really just a cost of doing business? Does the firm have an insurance policy that will cover part of the loss? And why didn’t your client pay more attention to his accounting records? Didn’t he have an adequate system of internal controls to guard against employee theft? Is there anything unusual or sexy about the case? Prosecutors are not very interested in prosecuting victimless crimes of commerce, she concludes. Even though your client is a victim in the strict sense, she points out that cases involving drugs or murder are easier to prosecute. These types of cases don’t require all those pesky documents and the expert witness testimonies for the jury to understand the elements of the crime. Furthermore, the public is outraged when they read about the drug and murder cases, whereas they are not particularly concerned about another theft of funds from a business. White collar crime investigations are very time-consuming. Because of the complex privacy laws, investigators must obtain subpoenas for the documents and prosecutors have to call witnesses before the grand jury to obtain enough information for an indictment. Then the prosecutors must prepare the witnesses to simplify their complex testimonies and sequence the documents to ensure the jury understands the main elements of the case. The bottom line is that prosecutors may decline to prosecute a case of embezzlement. Your client wants his money back, and since the employee “did the crime,” he wants her to “do the time.” But the conversation with the former prosecutor convinces you to persuade your client that he should focus on trying to recover the money, rather than trying to send the bookkeeper to prison. (After all, the kids’ tuition is due.) You advise your client to consider hiring a forensic accountant to investigate the case. CRACKING THE CASE What does a forensic accountant do, your client asks. A forensic accountant integrates accounting, auditing, and investigative skills to develop the facts of the case in a way that meets the legal standards of evidence, to resolve the dispute at hand. The accountant may be able to “package” the case in such a manner that the attorney can present the case to a prosecutor so as to short-circuit the whole process, by allowing the perpetrator to plead guilty to an “Information,” rather than an indictment by a federal grand jury. To investigate employee theft, or a deliberate misstatement of the financial statements by management, forensic accountants look beyond the numbers and deal with the business reality of the situation. They may use computer applications to analyze and present the financial evidence; communicate their findings in the form of reports, exhibits, and collections of documents; and assist in legal proceedings, including testifying in court as an expert witness, developing questions for witnesses, and preparing visual aids for the jury. The ideal forensic accountant is a skilled criminal investigator with training in forensic accounting, who can effectively communicate the results of the investigation to a jury as an expert witness. Taking the client’s information as a starting point, forensic accountants interview witnesses and assemble the “story behind the story,” to develop information about the perpetrator’s fraudulent intent to commit the crime. Successful criminal investigators have developed special interviewing techniques to obtain the answers to sensitive and embarrassing questions. Extracting information from witnesses is a very difficult process. A co-worker may be a friend of the perpetrator or may not want to be labeled as an informant. Witnesses may even be fearful of losing their job if they cooperate with the investigation. Knowing when and how to ask the questions that may lead to a confession is an acquired skill. And knowing when and how to reduce the verbal statements to a written and signed statement may be the key to obtaining the perpetrator’s cooperation and pleading guilty. Accounting involves many subject areas. Many certified public accountants specialize in other areas and are not experienced in conducting forensic investigations. TRACING THE MONEY In your client’s case, the accountant can evaluate the fraud, learn how it was perpetrated, and most important, find out where the money went. The first investigative step is to attempt to trace the funds to the bookkeeper’s checking, savings, or stock brokerage account, or to determine if she simply cashed the checks. This may be as easy as reviewing the information on the back of the checks. The next step may be to interview the subject and present the known facts to her. Although most suspects won’t talk to an investigator without their attorney present, some people, after being confronted with the preliminary results of the investigation, are so anxious that they will submit to the interview and provide a signed statement. The accountant may then suggest that you refer the case to the authorities or that you file a civil case. Either way, he or she will want to review additional documents to trace the funds to the suspect and, if possible, show how the money was spent. Linking the perpetrator to the funds is compelling evidence. There are several investigative methods that a forensic accountant can use to trace the movement of money. The link analysismethod seeks to trace the monetary instruments through financial institutions, to determine if the financial transactions indicate possibly illegitimate sources, to identify forfeitable assets, or to trace money-laundering activities. The results of the examination must show a connection between the transactions and the property to be forfeited. The investigator will have to determine the amounts of the legitimate and illegitimate funds that passed through the accounts, to distinguish commingled funds. The expendituresmethod is based on the theory that if expenditures for a given period exceed the suspect’s known sources of income for that period, the excess expenditures may be from illegal income. The net worthmethod, presented in the familiar balance sheet format, is based on the theory that increases or decreases in a person’s net worth during a period, adjusted for living expenses, results in a determination of income. This method compares a person’s assets and liabilities at a particular point in time to identify funds from unknown or illegal sources. The bank depositsmethod proves income through an analysis of bank deposits, canceled checks, and currency transactions. All transfers or exchanges among bank accounts should be subtracted from “total deposits” to arrive at net deposits. The forensic accountant will accumulate the information from the investigation, write the forensic report, and present the facts of the case to the client and attorney, who will decide if they want to proceed with a civil or criminal prosecution. To settle the matter, the forensic accountant can facilitate an agreement to repay the stolen funds. When your client is the victim of a fraud, the best way to recover the stolen funds is likely to be through the services of a forensic accountant. A former supervisory special agent with the Federal Bureau of Investigation, Jerry Simpson is a senior forensic investigator at the accounting firm of Klausner Dubinsky + Associates, P.C, in Bethesda, Md. ( www.klausnerdubinsky.com).

This content has been archived. It is available exclusively through our partner LexisNexis®.

To view this content, please continue to Lexis Advance®.

Not a Lexis Advance® Subscriber? Subscribe Now

Why am I seeing this?

LexisNexis® is now the exclusive third party online distributor of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® customers will be able to access and use ALM's content by subscribing to the LexisNexis® services via Lexis Advance®. This includes content from the National Law Journal®, The American Lawyer®, Law Technology News®, The New York Law Journal® and Corporate Counsel®, as well as ALM's other newspapers, directories, legal treatises, published and unpublished court opinions, and other sources of legal information.

ALM's content plays a significant role in your work and research, and now through this alliance LexisNexis® will bring you access to an even more comprehensive collection of legal content.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.