- October 13, 2020
- Posted by: Jamie Nardello
- Category: Blog
There are many tools that can help forensic accounts uncover attempts to hide assets. One of the most effective, however, is something known as lifestyle analysis. Lifestyle analysis involves putting together a financial profile on a subject and looking for discrepancies between a person’s known resources and their lifestyle.
Making a financial profile
Financial profiles require forensic accounts to look into bank deposits, expenditures, assets.
Deposits, canceled checks, and currency transactions allow an analyst to reconstruct a subject’s income. A forensic accountant will also look for cash payments from undeposited receipts and other cash sources life gifts proceeds from insurance policies.
The second part of the profile involves looking into how a subject spends money during a given time period. If somebody spends more than he or she is taking in, the analyst will suspect (and look for) unreported income.
Finally, experts will look for unsubstantiated increases in a subject’s net worth. This requires a review of bank and brokerage statements, loan and credit card applications, and real estate records.
Even if a forensic accountant can prove that a person has unreported income, that isn’t necessarily enough to support a legal claim or judgment. This requires accountants to go beyond the assets noted above and look into insurance policies, applications for employment, tax returns, credit reports, and court filings.
Of these documents, tax returns can be particularly useful. People fear facing criminal penalties for evading the IRS, so they are more likely to be honest on tax returns than on other documents. This means that tax returns can reveal clues about assets or income even if a person has made efforts to conceal those facts elsewhere. Accountants can also interview real estate agents, business partners, and accountants to see if they can turn up any inconsistencies in the subject’s financial record.
Building a financial profile of a spouse (in the case of divorce proceedings) or a business partner (in the case of a legal dispute) is much less challenging than building a financial profile of somebody less well known to you. Although experts may know an individual’s salary in case of occupational fraud and have access to real estate sales, purchase records, and other matters of public record, they will require a court’s authorization to access bank records, tax information, and other personal data.
A job for the pros
Thankfully, an experienced fraud investigator can typically uncover hidden income and assets. Contact your trusted Smolin professional to learn more about conducting a lifestyle analysis.