LINDQUIST FORENSIC INVESTIGATIVE ACCOUNTING LESSONS LEARNED #8
Written by Bob Lindquist
The forensic accountant must appreciate all the ‘outs’ that exist within financial information in order to create doubt in the financial aspect of a plaintiff’s case.
Counsel in one of the largest income tax cases in the U.S. involving a privately held international company was required to refute allegations including money laundering and customs violations made by the U.S. government. The government’s investigation focused upon the company’s business activities in Asia.
The husband and wife who owned the company were indicted in federal court for conspiracy, tax evasion and smuggling, where it was alleged that they had under-reported three years of income by more than $125 million.
It is essential that any accountant during the financial fact-gathering phase identify all relevant information that is good and bad for Counsel’s client in order to identify an ‘out’ that would create some degree of doubt in the plaintiff’s case or at least to avoid a potential bad surprise.
In this case, it was necessary to review the work already conducted by the company’s external auditor. Earlier in preparing an initial response to the allegations, the company’s external auditor was asked to create a schedule to present a global source and use of funds among the related companies located in the U.S. and Asia. This accounting was done but in a way that created the appearance of one pool of money and this document, instead of being helpful became one basis for the government to seize certain assets of the husband and wife located in the U.S.
However a forensic assessment later determined that the money generated from business sales in the U.S. had no direct relationship to the assets seized in the U.S. The direct linkage suggested by the pooled accounting statement did not exist.
The forensic accountant must appreciate all the ‘outs’ that exist within financial information in order to create any degree of doubt in the financial aspect of a plaintiff’s case. These ‘outs’ must be ‘top of mind’ as the financial information is assessed and studied. It is most important to identify all possible ‘outs’ or weaknesses, no matter how small in the plaintiff’s case, especially when it is the U.S. government.
Case is sourced from Lindquistforensics.com, ‘Selected Cases 1990’s Sunrider International’