Hidden assets can be an issue in a variety of contexts — from divorce to bankruptcy to fraud. An acrimonious divorce, ownership dispute or occupational theft incident could all lead an individual or business to wrongfully hide items of value. In such cases, fraud experts use a variety of tools to uncover the assets — and the truth.
Net worth analysis
Experts often start their searches with a net worth analysis that looks at changes in a person’s worth, reconciling those changes with income and expenses. The first step is to reconstruct this data, which may involve some detective work. Experts search for clues in a variety of places, including:
- Bank records,
- Real estate and court filings,
- Payroll records,
- Phone bills,
- Expense reports,
- Insurance documents, and
- Credit reports.
Employment and loan applications also can provide insights, including current and previous residences, family members’ names, and previous jobs. Experts then may interview people such as the subject’s accountants, former spouses, former business partners and real estate agents.
Once they collect the financial data, experts typically have three ways of detecting hidden assets.
- Asset method. The subject’s net assets at the beginning of the year are compared with those at year end, adding known income and subtracting known expenses. A result other than zero indicates income from unknown sources.
- Expenditures method. Here the expert looks for discrepancies between the subject’s expenditures and sources of funds, including salaries, commissions, investment dividends, inheritances, loans, gifts, and cash on hand at the beginning of the year. If the subject’s spending exceeds the available funds, an unknown source of funds exists.
- Bank deposits method. This method assumes that all money is either spent or deposited. The expert looks at net deposits to all accounts during the year and adds cash expenditures to arrive at total receipts. If that amount exceeds funds from known sources, the difference represents an unknown source of funds. Bank-deposit scrutiny is particularly appropriate with cash-intensive businesses.
Fraud experts also typically obtain (through legal methods) and examine tax returns for specific items and general trends. Of particular interest are income from wages; interest and dividends; and taxable refunds of federal, state and local taxes. And the expert might review the existence and amounts of any distributed retirement plan assets.
If you suspect that someone is hiding assets contact Ashley Sparks, CPA, CFE at firstname.lastname@example.org. We can tailor our investigation to the circumstances of the case.