During legal proceedings, such as a divorce or bankruptcy, it’s often necessary to uncover money by conducting a financial investigation to expose fraud, embezzlement or hidden assets.
 How the Analysis Works Assume that utility expenses for the year under examination are $7,000 (in absolute dollars) or 10% of total operating expenses (common size). During the financial probe, a horizontal approach compares a given expense for a particular time period (before the alleged wrongful activity) to the period of alleged wrongdoing. This lets investigators determine a pattern of variations that may pinpoint when the wrongdoing occurred. In many instances, a statistical analysis is also used to predict what the suspicious payments look like. |
However, the paper trail of hidden assets isn’t always clear and it takes a specialist to track it down. For example, a typical ploy is to pay personal bills using funds that don’t belong to the perpetrator — money from a company or an employer.
An initial approach to finding the trail is to use a technique called horizontal analysis. This approach can be done on an absolute dollar basis or a common size basis, where the dollar payments are converted to a percentage of some larger amount — say, total operating expenses or revenues.(See “How the Analysis Works” at right.)
Eye on Utilities
Utility costs are a particularly fertile ground for uncovering hidden assets for two reasons:
Consistency: Utility expenses are relatively constant. Variations occur for predictable reasons, such as altering plant size, adding energy-consuming machinery, changing unit costs and weather patterns from one period to another. For example, a local energy provider might note that a particular month was the coldest on record and that consumption jumped 17% from the previous year.
Unusual consumption: Given the general stability of energy costs, it’s easy to spot any surplus spending. This evidence leads the investigator to identify where the energy was consumed. If it’s just at the perpetrator’s residence, nothing particularly exciting has been uncovered. However, tracing excess payments can lead to a bigger — and more exciting — discovery: unknown real estate assets.
Taking this discovery a step further, these real estate assets may be held in a fictitious or corporate name that wasn’t readily associated with the individual and could point to even larger sums that have been misappropriated or hidden.
Seek Outside Expertise
When your case involves fraud, defalcation, embezzlement, or hidden assets in a divorce, bankruptcy or other incident of financial wrongdoing, be sure to turn to skilled and experienced financial investigators. They know how to find the assets and show you the money.