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Where Did the Money Go?

You often hear cautionary tales of how money can bring out the worst in people. Whether it’s assets secretly being funneled from a business by a partner, shareholder, or employee, a child or trustee that misappropriated funds from an estate, or even a spouse that hid their income or assets, these stories are far from fiction.

If you ever find yourself in a similar situation, what should you do? The first step is to call a lawyer and consider involving the expertise of a forensic accountant.

How a Forensic Accountant Uses Transactional Data

A forensic accountant focuses on these fundamental rules:

  1. Communicate the facts.
  2. Maintain an independent perspective.

Keeping these rules in mind, a forensic accountant will then leverage the information provided to “follow the money.” When dealing with a dispute, it is important to know what information can be relied upon, and what information is of less value. Conducting further research and working alongside counsel is also imperative to the success of the investigation.

When dealing with a business dispute, reviewing and analyzing business transactional data is key. This is supplemented by understanding where to find the most reliable information; a skill possessed by experienced forensic accountants. While the general ledger includes all journal entries related to the transactions of a business, the general ledger is created internally, so it can be manipulated by internal parties. Therefore, relying on the general ledger as fact is insufficient.  In cases where a business partner is believed to have misappropriated company funds, a forensic accountant will rely on third-party transactional data, such as bank statements, credit card statements, and investment statements, as fact while still leveraging the general ledger data.

General Ledger and Bank Statement Review

The general ledger entries can be used to vouch transactions from the bank accounts to the general ledger (and vice versa) to identify any discrepancies for further analysis. For instance, one transaction may be identified in the bank statement, but missing within the general ledger, which requires follow-up. Further, account-specific transactions can be examined to identify their business purpose and rationale. For instance, expenses within the general ledger related to management, consulting, and marketing fees may be further examined to determine their validity, including whether they are appropriate and relevant to the operations of the business. Expenses per the general ledger can be identified within the bank statement and traced to specific accounts and/or recipient entities or persons.  

Data Analytics

Conducting data analytics on third-party transactional data provides insightful information. By grouping transactions from specific sources, the transactions may reveal transfers to a personal account(s), related business entities or other third parties used to misappropriate company funds. Review of supporting documentation linked to specific transactions, such as invoices, receipts, and proof of payment documentation (i.e., cheque copies) is just as important to understand the nature of the transactions in question.

In a marital dispute case where a spouse is believed to have hidden income or assets, bank account transactions are key in identifying the outflow of funds to cash or unidentified accounts. Following the money may expose recipients of funds through fees paid to third party professionals that may have some connection to a hidden asset. For instance, a payment to a lawyer, title agency, boat company, or car dealership may expose hidden assets.

Similar to business disputes and marital disputes, estate disputes leverage the estate’s financial data and third-party transactional data to identify misappropriated funds and potentially hidden assets.

GG Observations:

If you or someone you know is going through a dispute or believes that funds and/or assets have been misappropriated, speak to one of our professionals. These cases are more common than one might think, and a professional forensic accountant may be the key to equitable resolution.

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Alessandra Leggio

CPA, CA, CPA (Florida), CAMS, CFE, CFI

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