The job of a forensic accountant entails many different skills and talents, but the ability of an individual in this field to play detective is certainly high on the list of requirements. Many of the tasks performed in forensic accounting come down to finding things that other people don’t want to be found. Whether it’s assets that are hidden, financial transactions that have been obscured or even forged, or any other improprieties, forensic accounting services are charged with tracking it all down and bringing it to light.
With that in mind, how does a forensic accounting investigation lead to the uncovering of hidden assets? There are many different techniques and tricks deployed in this field, along with plenty of experience that needs to be gained in order to get great results. In this post, we’ll break down some of the basics of this process so you can understand how forensic investigation may be able to help in your situation.
If you have been thinking that forensic accounting may be required in a situation that you are facing, don’t hesitate to get in touch with Space Coast Forensics to learn more about what we can offer. Even if you aren’t sure that you’ll need our services, you are welcome to reach out just to learn more and have your questions answered. Seasoned forensic accountants can help you deal with even the most complicated of financial crimes, and it’s always helpful to get started as soon as possible. Get in touch today to get the ball rolling.
Forensic Accounting is a Specialty
It would be a mistake to lump the field of forensic accounting in with general accounting. To be sure, forensic accountants come from an accounting background, and both of these services can be highly valuable to businesses and individuals alike. However, they are not the same thing, as forensic accounting is a very specific niche within the accounting field.
Forensic accountants have developed sharp investigative skills and understand how to use tools and techniques to uncover fraud and other crimes. Corporate investigations, for example, often call for these professional services to unravel complicated schemes that led to the loss of millions of dollars. Financial reporting is critical in the business world, but taking those numbers for granted as being accurate and true is risky. Instead, forensic accounting can be used to look for forensic evidence of improprieties that compromise the position of the company or point to a greater problem that needs to be addressed. Forensic accounting could be used for a routine internal audit, or it might be brought in specifically when fraudulent activity is suspected.
So much of this profession is based on finding things that just don’t look right. There are regular patterns that develop in the financial transactions recorded by a business on a day to day or month to month basis. When something stands out that is different than the usual patterns, it warrants a closer look. It might not always point to anything being wrong, but taking a closer look is important to make sure no fraud is occurring. It’s the skill of finding these unusual patterns or anomalies that makes forensic accounting so valuable to so many businesses.
Laying the Groundwork for Discovery
Fraud investigations don’t happen in a vacuum. If someone, or an entire entity, is suspected of intentionally hiding assets, one of the first steps in the process is to evaluate their history and look for any patterns in the past that would point to this type of behavior. These kinds of investigations are done in much the same way that a law enforcement agency might look into the past of a suspected criminal to notice patterns and behaviors that would speak to their most recent crime.
Rather than doing detailed investigations at this point, forensic accounting early on may be focused on just getting to know the players involved, the business as a whole, and anything else relevant to the situation. Understanding the big picture can help the small details to make a lot more sense later on. For instance, if witness testimony needs to be collected down the road, it will be easier for the forensic accountant to understand that testimony if they already have a good understanding of the people involved in the situation and what their various roles may be. This will also make it easier for the accountant to give expert testimony later if such a step should be required.
Doing thorough groundwork is particularly important in a large organization where there are any number of possibilities for where assets could have been hidden or who could be doing the hiding. By understanding the “lay of the land” in the business or organization, the forensic accountant can then start investigating strategically in the places they feel are most likely to contain fraud. It can take time, of course, to finally reveal the hidden assets and the guilty party, but ultimate success is more likely when careful background work has been done.
Knowing Where to Look
There are countless places where assets can be hidden. It’s one thing to suspect that a given party is hiding assets for one reason or another – but it’s another thing entirely to prove it, and to find those assets. Forensic accounting is the process by which such access could be uncovered, but only through the hard work of an experienced professional who knows all of the right places to look.
For example, it’s common for offshore bank accounts to be used in cases of financial fraud. In fact, this is so common that it’s become something of a cliche in movies where financial crimes are a focus in the story. More than just an option on the silver screen, offshore accounts are used in the real world because they can muddy the trail of the money that is being stolen and make it difficult to track down.
Someone who works in forensic accounting, however, is going to be very aware of this tactic and will be focused on making sure no assets are able to find a safe haven in an offshore account. Digital forensics and other advanced techniques can be used to trace the flow of funds across borders to reveal their resting place. Once the forensic accounting team is on the trail of these hidden assets, they can work with law enforcement and other agencies to get the information and access that is needed to blow the case open.
Creating a Map
In advanced cases of fraud, the path that money can take on its way toward becoming a hidden asset can be a long and winding one. Sometimes, people won’t cover their tracks very carefully, or work very hard, and the path will be simple to follow. It might not even be necessary to use forensic accounting when the fraudster doesn’t put up a good fight. If a lot of time and effort has gone into the money laundering, however, only financial experts who have been trained in this specific accounting field will be able to chart a map that leads from the origin of the asset to its current resting place.
To be sure, the task of creating a money trail to locate hidden assets can be a painstaking one. Each transaction that is relevant to the case needs to be mapped, one by one, in order to establish a timeline and gain an understanding of the flow of money in this case. Slowly, patterns may start to emerge, and it could become obvious where the money is being hidden or concealed. Some of the various activities that can be involved in this winding map include taking out loans, making investments, transferring funds from one place to another, using offshore accounts or crypto wallets, and on and on. The goal on the part of the fraudster is simply to make the trail so long and complicated that anyone investigating will just give up on finding the assets. That’s not going to happen with a good forensic accountant, however, so all will come to light eventually.
Hiding in Plain Sight
One tactic for hiding assets is to create accounts that no one is supposed to know about and then stash money there for a period of time. This isn’t a very sophisticated strategy, and can be easily uncovered by a forensic accounting team in most cases, but it can work if nobody bothers to even look for money that might be missing.
With that said, another option for hiding money is to have it resting in plain sight under the guise of an asset that is improperly valued. So, it might be that the asset is listed plainly on a financial statement, but it is assigned a value that isn’t really in line with what it is worth to the market. In this way, the asset is effectively hidden in terms of how much it is worth, but nobody needs to track it down because it is right there in the open for anyone to see.
With this type of asset hiding, the forensic accountant will deploy their skills in the task of asset valuation to make sure everything in the financial reporting records matches up with a fair market value. Too often, especially in the case of a divorce, the other party will just take the listed value of an asset for granted as accurate, when it is actually a dramatic underestimate of the asset’s true market value. This costly mistake can be avoided simply by bringing in an expert forensic accountant to carefully review all of the assets in question to make sure no value is hiding within them.
Turning to Technology
In days gone by, fraud investigations would be executed through the compilation of piles of paperwork and other hard copies of documentation that could be used to prove the flow of assets from one place to another. Those days, of course, are long behind us, and forensic accounting is now a digital game. Whether for small businesses or large corporate investigations, advanced digital tools can be employed to search for hidden assets and figure out where money or other investments may be hiding.
It’s not all about advanced digital tools to find hidden assets, however. Sometimes, it can be as simple as exploring the computer history of a given individual and tracking their online activities to see where they may point. In fact, it could be that something telling is posted on a public social media account that indicates there are more assets hiding somewhere than what was initially disclosed. Successful forensic accounting comes down to exploring all possible avenues for information and keeping an open mind with regard to where valuable details could be found.
Watching Lifestyle Patterns
When a forensic accountant is used to analyze the financial records of a married couple that is in the process of a divorce, looking at the lifestyle of the two parties can be telling. Specifically, if one member of the relationship seems to be living at a level that doesn’t align with their stated means, hidden assets could be at play. For example, if the couple has separated ahead of the divorce and one person is traveling extensively and driving a fancy car – but states that they have minimal assets – something is out of place and more investigation is needed.
The other spouse may notice these things and decide to invest in the services of a forensic accountant to get to the bottom of the matter and figure out where the means are coming from for these sorts of expenditures. It could be the case that one individual has stocked away hidden assets that they are now using to enjoy life while not reporting those assets as part of the divorce process. Using digital forensics to track down these assets and make sure they are included in the terms of the divorce will ensure that the final settlement is a fair one.
It should be noted that this type of analysis can be used outside of cases of divorce, as well. When an individual who works at a business suddenly seems to be living at a higher level of luxury – without a commensurate increase in salary – some questions will need to be asked. Where is this extra money coming from? Is there any reason to suspect that the individual is engaged in fraud and hiding assets that could be used to pay for such a high-end lifestyle? Asking all of these important questions and then searching for answers that can be proven is the domain of a forensic accountant.
A Trusted Expert
You certainly don’t want to dive into forensic accounting investigations with anything less than an experienced expert on your side. Forensic accounting is the type of field where experience matters as much as education, and we combine both of those attributes at Space Coast Forensics. With the investigative skills needed to go along with our in-depth accounting knowledge, you’ll be in good hands from the start. We appreciate your time and hope to hear from you soon!
