Fraud Investigation Using the Audit Report

In civil cases involving partnership agreements that are not fulfilled and money is not equitably divided per their agreement, legal actions generally ensue.  Attorneys often require the assistance of a forensic accountant and someone experienced in developing the fraudulent aspects of a financial investigation.

As attorney’s battle over disclosures under discovery, the defense will resist giving up information that may be detrimental to their client.  They will resist giving up tax returns, bank statements, cancelled checks, accounting system records, and any other documents that could potentially have a negative impact on their client.

If the defendant provides only inadequate financial reports that are not the customary Balance Sheet, Income Statements, and general ledger, then consider requesting the Audit Report for the accounting system in an Excel format for the period in question.  From that report, the fraud investigator will be able to reconstruct the receipts and disbursements for the company.  The investigator will also gain knowledge of the categorization of transactions and identify deleted revenue and expenditure transactions.

If discovery is finally delivered in the form of third-party released bank statements for the period in question, but the cancelled checks are not provided, the investigator is not left totally in the dark.  Convert the bank statements using the Sage DIO proprietary software and generate a Bank Account Report.  Take the information from the Audit Report and enter the payees for the checks that are missing payees.  You will then have a complete Bank Account Analysis with deposits and disbursements described from the Audit Report, and you will have the classification.  This analysis can be reconciled to the bank statements and the Audit Report will allow the fraud investigator to locate outstanding checks and deposits to properly determine the Income and Expenditures for the period.  This will also allow the determination of assets purchased, transfers between accounts, capital contributions, partner loans, and possibly uncover personal expenditures buried in the company’s records.

This Bank Account Analysis isolates the revenue deposited to the bank account and any revenue diverted from the account and converted to personal use helps prove the fraudulent intent of the operating partner.  It also raises the question of whether or not all of the corporate income was properly reported to the Internal Revenue Service.

Sage DIO software is very beneficial in partnership disputes, income tax, embezzlement, and divorce tracing cases.  If you are faced with a complex financial investigation or a case needing extra effort contact Sage Investigation, LLC.  DIO is waiting to help plaintiff clients process the case data and help to follow the money and advance the development of your case.  DIO can also assist in defense matters by helping develop information that will advance your defense case.  To learn more about helping your client contact Retired IRS Special Agent Edmond J. Martin, Chief Investigator at Sage Investigations, LLC, e-mail website: or call 512-659-3179.