Necessary Records and Testimony in Financial Cases

Most financial investigations either civil or criminal involve tracing the movement of money. As it relates to civil allegations, matters may involve theft or embezzlement of company assets, assets hidden in a divorce case, diverting business profits to personal use, and/or allegations in criminal cases involving income tax evasion and money laundering charges.  A lawsuit must be filed, and discover requested, in order to get the evidence needed to prove or disprove the allegations in civil cases.

Generally the following records need to be secured:

1.     For each bank account: the signature card, hand-kept check registers, bank statements (Checking and Savings) with canceled checks and withdrawals by debit card or ACH, and deposit slips.  Where necessary, wire transfers or cash in or out tickets from the bank should be secured.  Also, Personal and Business financial statements submitted for loans requested from the bank.  Loan documents requested should include the promissory note and related documents and a loan payment history.  In the case of a divorce tracing involving separate and community property, all bank documents available should be acquired.

2.     For each brokerage account: the account application, and the brokerage statements reflecting the trading history is necessary.  If a cash management account is part of the brokerage account then the source of deposits and the checks issued should be obtained.  Where necessary, wire transfers in and out of the account and transfers to or from other brokerage accounts should be documented.  Also, documents relating to any Line of Credit backed by the equity in the brokerage account should be obtained, including Personal and Business financial statements submitted for loans requested of the Line of Credit.  Loan documents including the promissory note and related documents, and a Line of Credit payment history should be obtained. In the case of a divorce tracing involving separate and community property, all brokerage documents available should be acquired.

3.     For each credit card the application and statement for the prior 5 to7 years revealing the date, amount and payee for each transaction and the payments on the accounts.  In the case of a divorce tracing involving separate and community property, all brokerage documents available should be acquired.

4.     For each year’s income tax returns for the individuals filing jointly and any small business corporations or partnerships for a three to five year period in which the client has an interest should be obtained.  In the case of a divorce tracing involving separate and community property, all tax returns available should be acquired.  If necessary, past returns for seven years can be acquired by submitting an IRS Form 4506 and for a transcript of account IRS Form 4506-T.

5.     Books (hand kept or computerized) reflecting business and/or personal transactions including income andexpenditures should be obtained.  Generally with the computerization of accounting recordkeeping, individuals and companies maintain their accounting records in a system of records on QuickBooks, Quicken, MS Money and similar systems.  The native data (format generated by the software) should be obtained and converted to MS Excel to allow worksheet to be generated off the General Ledger or classification system.  Also, request the Audit Report if the native data is not provided.

6.     Records of assets of substantial value, such as, home, vacation homes, cars, motorcycles, boats, airplanes, 401k plans, gold, silver, art, jewelry, and others will be helpful to determine expenditures of cash generated from other means or from a bank account where cash is being withheld from deposits or checks issued to cash.  The records should include invoices for purchases of gold & silver, art, jewelry, titles to vehicles, motorcycles, airplanes, and boats.

7.     Records of liabilities relate to the purchase of assets, including the HUD1 settlement statements, title company records, promissory notes, deeds filed with the county, retail contracts for the purchase of vehicles, motorcycles, airplanes, and boats.

8.     Emails and other correspondence between the subject and employees, the bookkeeper, controller, CFO and other important members of their business and their return preparer (personal and business).

Beyond the records kept, it is necessary to interview or depose the bookkeeper and the return preparer.  Their knowledge and instructions received for relevant transactions could be very helpful to determine knowledge and intent as it relates to relevant transactions. The personal records of the bookkeeper or return preparer (emails, notes, and memory of conversations) would be very helpful to develop information of who, what, when, where, and why certain transactions were characterized as they were or where accounts or other assets are concealed.  Also, the Audit Report from the accounting system will allow further discussion if transactions were changed and the reason for the change.  The return preparer may have relevant personal conversations regarding the treatment of a transaction as directed by the taxpayer.  He or she may have knowledge of where accounts or other assets are concealed.

Generally, the evidence and testimony mentioned above is needed to assist in proving or disproving allegations in a criminal case.  Therefore access to records through discovery and subpoena must be initiated.  Additional information may be secured from the computer system of the individual under investigation requiring the use of a Forensic Computer Expert who can image the computer, provide relevant testimony, and allow access to information through various search categories.

As the financial data is acquired, it is important to have it analyzed efficiently and timely in a database format that will allow informational inquiries and render meaningful reports that will help to summarize the voluminous records found in financial cases—civil or criminal.

Sage Investigation LLC has proprietary software that can benefit the financial investigations by rapidly processing the data collected and converting the data into a usable format that can be used for case strategy and when necessary, explained to a jury through expert testimony.

If you or your client needs a knowledgeable retired IRS Special Agent, fraud investigator, and forensic accountant and you have a mountain of financial records to analyze, call Edmond J. Martin, Chief Investigator, at Sage Investigations, LLC call 512-659-3179 or email edmartin@sageinvestigations.comand visit our website at  Sage Investigation is not a CPA firm but does specific fraud audits that are not related to the attestation of financial statements.  If you need the services of a CPA in your case we are associated with some very competent and experienced CPAs.