To Follow Money, Books and Records Are Needed

Any financial investigation, specifically income tax (civil or criminal), partnership embezzlement, and divorce, require books and records to be successful in tracing expenses and following the money.  Without them the chances of success are diminished. 

In income tax cases it is absolutely necessary for the client to provide all books and records to prepare a return or to aid in defending a client accused of filing a false return.  The necessary records consist of accounting system records, the general ledger (or detailed receipts and disbursements journals), journal entries, depreciation schedules, and inventory records.  Additionally, it is important to have access to the bank records including bank statements, cancelled checks, wire transfers, and deposit slips for the period involved.  It is also important to get access to brokerage records to determine the beginning balances, purchases and sales, interest and dividends, and the ending balances.  Furthermore, it is important to access the credit card statements of the client and their spouse, because credit cards are another source of funds that are mixed with personal and business expenditures that are paid periodically. 

In the case of partnership embezzlement, the same information is necessary, but the defendant in a lawsuit is reluctant to release the records in discovery.  It is best to get the same records as discussed above, including the accounting system in an Excel format to allow the manipulation of the information to facilitate the investigation.  Generally PDF versions or paper printouts limit the information available because of truncation of descriptions.  If you are limited to PDF and paper there is a means of converting this data to an Excel file without the arduous physical line by line input.  Often missed from the request for records is the Audit Report, which most accounting systems have. This allows a trained person to view the changes in transactions and determine who made those changes.  The Audit Report in Excel format was very beneficial in proving a $500,000 embezzlement by a CFO of a charitable organization. 

In community property States, the law requires a “tracing of funds” to determine where the money in a marital estate has been expended to determine if community or separate funds were used in the purchase of an asset or payment of a liability and to determine if reimbursement is due.  Without an accounting system, a tracing for a marital estate can be cumbersome and take extensive time because all the bank and brokerage accounts and credit card accounts must be analyzed by manual input into spread sheets to determine the nature of the funds used to make expenditures and to determine the source of the funds.  There is a means to convert this data to an Excel file without the arduous physical line-by-line input. The proprietary software named “DIO” can create a categorized source and application of funds summary in a shorter period of time than manual input.  Depending on the quality of the PDF or paper document the spreadsheet creation rate can be 320 transactions to 60 entries per hour.  In addition, transfers between accounts are recognized automatically by the software. 

The DIO software is very beneficial in Income tax, embezzlement, and divorce cases in tracing of funds. If you are faced with a complex financial investigation or income tax defense case contact Sage Investigation, LLC. DIO is waiting to help you process the case data and help in defending your client. DIO can also assist in a plaintiff matter by helping to follow the money and advance the development of your 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.