Asset Searches and Business Fraud

While business fraud is not anything new, with the help of today’s ever-evolving technology the methods and opportunities for fraud evolve as well. Business fraud can originate from within, from employees you trust. It can happen from without, from hackers and other third parties trying to make a quick buck. Maybe even from your competition attempting to sabotage your success. Of course, the methods used for business fraud are not only technological in nature. Deception comes in many forms.

For many business owners and executives, suspicion of fraud may first come in the form of red flags in an annual audit, or they may notice unusual fluctuations in profits and expenses that do not reflect actual revenue and operations. Most business officers turn to the CFO for answers which is a suitable first step and may resolve the issue, but many fraud schemes are more complex and cannot be solved with an examination of the company’s financials alone.

Why You Must Act Quickly in a Business Fraud Investigation

If fraud is suspected, don’t attempt to wait for more evidence. To ensure the continued financial security of your company, yourself and your employees, initiating an investigation as soon as possible is imperative. If an investigation turns up nothing, or better, explains the red flags to be nothing, then you can rest easy. If the investigation confirms your suspicions, you will have prevented further damage then what the fraud has already caused.

Fraud can happen slowly in a business, over a long period before attracting your attention, or it can happen quickly, in one fell swoop, before you even have the chance to try and defend yourself. Often, the most challenging part is proving the fraud, finding the trail and hopefully identifying its origin. Hiring a professional investigator gives you room to focus on damage control and takes you out of the equation so your feelings and emotions won’t affect the investigation.

Outsourcing the investigation is imperative for legal reasons. Professional investigators have the knowledge, experience, and tools to approach a potentially costly situation without emotional involvement. Besides the fact that the average organization loses five percent of its revenue annually to fraud, your company and you as an individual could suffer a financial “beat down.” The severity of the fraud could lead to charges, arrests, and civil or criminal prosecution. The responsible parties may be your closest friends and colleagues which is why an impartial third party is essential. The trail of wrongdoing needs to be accounted for accurately. A professional investigator will do the hard part and take the necessary steps, regardless of whom the responsible party happens to be.

Asset Searches and Business Fraud

What You Can Expect in a Business Fraud Investigation

There is a plethora of illicit schemes such as bribery, cash-skimming, and kickbacks that do not leave an easily traceable audit trail making it difficult to identify the culprits by merely examining the company books. Other schemes such as suspicious transfers to third-party entities can be successfully identified by looking into the financial statements, but the beneficiaries of those transfers and their connection to internal employees may not be so easy to detect. The majority of business fraud scenarios can be resolved with a diligent and thorough asset search.

Searching the Assets of Executives and Employees

If internal corporate fraud is suspected, but specific individuals have not been identified, an asset search can discreetly examine any suspects by looking for two things:

  • Individuals with financial pressures

  • Individuals living above their means

Fraud is often the result of personal financial pressure committed by ordinary people with money problems. People who feel unable to resolve their economic woes by legitimate means and feel compelled to betray the financial trust the company has granted them. Evidence is often found by reviewing public records regarding bankruptcies, judgments and collection suits.

On the other hand, an asset search could identify sudden lifestyle changes such as expensive cars, houses and other significant expenditures made by employees or executives who appear to be living beyond their means suggesting access to other sources of income.

Deep debt or extra money in themselves isn’t proof of wrongdoing, but it merits heightened scrutiny of those employees and can help focus the investigation. Even more so, if those red flags coincide with the timeframe of the company’s financial loss and that individual had the access and opportunity.

Searching the Assets of Vendors and Third-Party Payees

Bribery, kickbacks, ghost employees, bid-rigging, payment schemes and collusion all require asset searches to identify the third-party beneficiaries. Uncovering the owners of shell corporations or even offshore entities that have received fraudulent payments or transfers will necessitate the expertise of a professional investigator.

Shell companies can be used for tax evasion, money laundering, and many other types of business fraud. While shell corporations are found most often within big business, your business doesn’t have to be big to fall victim to a shell company scheme. In many cases, a shell company is used for concealing misappropriated funds, or for masking who the real criminals are behind the fraud. Shell companies can be created for a one time use, and others are created and shelved for future use, allowing their longevity to reinforce their legitimacy should they be investigated before or even after the crime.

There can be many dense layers to a shell company and uncovering them all requires the experience and knowledge of a private asset investigator who can pick apart the web of deception. An asset investigation, appropriately conducted can find the individual bank accounts being used for money laundering, uncover any separate set of books used to track bribes or other fraudulent transactions, and identify phone numbers and email addresses that may be associated with the shell. Most importantly, the investigator can find the nominee directors and fake shareholders involved to make a shell appear as legitimate as possible.

How To Help the Investigation

Business fraud investigations need to be conducted with close communication between business executives and the investigator. The investigator will need to consult with accounting and become familiar with auditing functions and the internal controls. Accountants have been trained to analyze records and report anomalies which provides an essential first line of defense for detecting fraud. Rarely, however, does a CPA have the knowledge, training, or resources to conduct a comprehensive asset investigation, and might not fully recognize the various methods that internal controls could be counteracted or side-stepped. Once the red flags of fraud have been identified, it will take teamwork to determine who put it there.