Here are some tips that can help you protect your own assets or help your clients to protect theirs.
Quick action benefits everyone
Most clients contact us much later than they should. If we’re engaged early on, it’s easier to find patterns that suggest fraud or attempts to hide assets. It’s more time consuming and expensive to discover the facts long after they have occurred.
Divorce: If you believe your marriage is going to end, we can be especially helpful before any formal steps to end a marriage are taken. For example, we can advise you on how to protect or preserve financial information—to make it more likely that you’ll be able to amass all the facts about marital assets and liabilities, including your spouse’s actual income.
If you’re already involved in litigation, introduce us to your attorney ASAP, so the attorney can figure out how data will be obtained, who needs to be subpoenaed, etc.
Divorce attorneys should contact us whenever one spouse has property, such as a business, and especially if the attorney doesn’t trust the propertied spouse.
Business: The valuation of your or your spouse’s business could uncover hidden assets, or possible embezzlement. Economic loss may be greatly mitigated if the discovery process begins sooner rather than later.
Business valuation also could reveal fraud or embezzlement by employees or even by trusted advisors. Any suspicion should prompt quick action. And if you’re fortunate to not have been the victim of embezzlement, we can help you prevent it in the future.
Keep in mind these sobering facts: 1) Embezzlement typically goes undetected for 18 months before it is discovered; and 2) One incident of embezzlement costs the average business owner $147,000.
How spouses typically hide assets
Divorces often get ugly. Fast. Especially when one spouse feels he or she has been betrayed, or taken advantage of. Or is just plain greedy.
Unfortunately, divorce often brings out the worst in people. Here are some of the things spouses may do to keep from having to share property they don’t want to—or don’t believe they should have to--divide:
- Pretend there's no ledger for their business. Two sets of books are more common than most people would care to believe.
- Gradually funnel money into new out-of-state or foreign bank accounts (sometimes in the names of corporations set up in those states or countries) and have all statements sent to their offices.
- Systematically take money from the cash register and simply hide it somewhere.
- Buy real estate in the name of a new company with which the spouse is unfamiliar.
- Open new investment accounts with brokerage companies that are different than those the couple had used.
- Overpay income taxes. Then after the divorce is finalized, file an amended return and get the refund.
- Let real estate property fall into disrepair, so it is evaluated at a lower amount that it’s really worth.
- Ask customers to delay paying large invoices until after the divorce has been settled.
Documents that can reveal hidden assets
Certain documents are typically reviewed to learn about financial transactions or decisions. They include copies of income tax returns, bank statements, insurance policies, investment statements, etc. Other documents, however, are overlooked. The following can be extremely revealing:
- EZ Pass statements
- Statements from airlines documenting mileage points earned
- Credit card company statements, especially those revealing points
- Passports
- Mortgage and other loan applications
- List of professional advisors consulted in recent years: accountants, lawyers, investment advisors, insurance agents or brokers
If you have any question that raises a red flag—e.g., a sudden decrease in salary, a home computer whose financial software has suddenly “crashed,” etc., we can do a detailed lifestyle analysis to compare income and expenses, among the many other steps we can take to protect you.
Signs of business embezzlement
The statistics about embezzlement are staggering:
- It typically takes about 18 months before fraud and theft are discovered.
- One incident of embezzlement costs the average business owner $147,000.
How can that happen? Often, there were red flags that the business owner didn’t notice. Among the most common:
- An employee was living far beyond his or her apparent means. Perhaps s/he took lavish vacations, wore expensive clothing or jewelry, and drove a high-end luxury car.
- Another tip-off is just the opposite: an employee had huge financial problems. Perhaps the employee was a known high-stakes gambler, or recently incurred enormous medical expenses, or an unanticipated alimony judgment.
- The person who handled the books shrugged off any questions about business finances by saying, “Don’t worry, I’ve got it all covered.”
- A new and unfamiliar vendor began receiving monthly or periodic payments.
Don’t be a victim of fraud. Let us help you prevent it. Or find it and stop it.
Examples of common embezzlement schemes
There are dozens of ways in which businesses can be defrauded. Some of the most common:
Lapping—This is easily understood as “robbing Peter to pay Paul.” Customer A pays her bill. Money is stolen from that payment. Customer B pays his bill. Part of the money goes to complete Customer A’s credited payment. More money is stolen. Customer C’s payment is partially credited to the account of Customer B. And so on, and so on…
Inventory theft—Goods go out the back door.
Writing unauthorized checks to oneself or others—If the same person collects the money or other payments, keeps the books, and handles the banking, it’s far too easy to cover up checks written to individuals or companies that don’t exist.
Credit card abuse—This one is simple: Charging personal items to the company card.
Don’t be a victim of fraud. Let us help you prevent it. Or find it and stop it.
Most common questions we encounter
Q . What’s my business worth? I want to give some or all of my equity shares to the children.
A. What’s needed is a business valuation.
Q . Why are profits down? I have carefully reviewed the books and our company’s pricing policy. Revenues are up. What gives?
A. These are the questions that should generate an embezzlement probe.
Q . The shareholders aren’t getting along. Besides, it’s time for at least one of them to retire. What services can you provide to us?
A . Business valuation services.
Q . I’m thinking about divorce (or, I have a friend who’s contemplating divorce). What do I (does she) need to do to prepare for the financial consequences?
A . The person needs to be interviewed to determine what services are warranted. Planning ahead and anticipating what may occur is always a good idea.
