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44 Cards in this Set

  • Front
  • Back
Proof
(2)
1. suspect’s receipt and/or disposition
of funds
2. can be direct or circumstantial
Methods of proof can be:
1. direct
2. indirect
Direct method of proof
Speficic item method
Specific item method:
(4)
1. simlest method of proving that a suspect has paid for something using illicit funds or received funds from an illegal activity
2. a direct link is established between the suspect, the financial transaction, and the illegal activity
3. nothing is implied or inferred
4. the investigator searches for a specific financial transaction ot investigate
Indirect methods of proof:
(3)
1. net worth method
2. expenditures method
3. bank deposit method
All three of the indirect methods...
(3)
1. can show a suspect's expenses exceed his or her known sources of income
2. but none of them can prove where the extra income comes from
3. an inference is needed to establishe the fact at issue
Specific item method
1. Identifying DIRECT proof of illegal
financial transactions by a suspect
2. two sides to every financital trans: payment and receipt. The investigator choose the method that appears to be the easiest
Point of payment analysis
1. begins at the transactions origin: the payor of funds
point of receipt analysis
Begins with the receiver: the recipient of funds
Techniques for point of receipt analysis
(3)
1. Check company Sales Journal for all sales
2. Identify several sales to check against Cash Receipts Journal (CRJ)
3. If CRJ is short compared to Sales Journal, check bank deposits
Considerations in point of payment analysis
(4)
1. Fictitious payables
2. Ghost employee and payroll kickback schemes
3. Overbilling
4. Offbook and currency transactions
Point of payment schemes
(df)
Companies use various point of payment schemes to cover its illegal activities
Point of payment schemes
(4)
1. fictitious disbursement schemes
2. ghost employee and payroll kickback schemes
3. overbilling schemes
4. off book schemes
Through indirect or circumstantial methods, the investigator can...
trace the proceeds from almost any type of illegal activity - all from the point of receipt
The indirect methods of tracing funds are based on a simple principle:
Money, in any significant amount, will eventually show up, directly or indirectly, in the accounts, assets, or expenditures of the recipient
Financial profile:
(2)
1. an overview of the suspect's financial condition
2. assets, liabilities, sources of funds, expenditures
When developing a financial profile for use with any indirect method of proof, the analysis should...
mirror the suspect's method of accounting (ie cash or accrual)
Disposition of income:
(4)
1. save it
2. buy assets
3. pay off debts
4. spend it (other for increasing assets)
Save it
1. do through cash on hand or cash in banks
2. effect on financial profile: assets inc
Buy assets
1. do throgh investments, real estate, or vehicles
2. effect on financial profile: assets inc
Pay off debts
1. do by paying off loans or paying off mortgages
2. effect on financial profile: liabilities dec
Spend it (other than for increasing assets)
Buy gifts, travel, entertainment, food, clothing, utilities, insurances, taxes, rent, vehicle expenses
Purpose of net worth analysis
Unknown sources of funds are located by analyzing net worth increases
Process of net worth analysis
(3)
1. begins with the completion of a suspect's financial profile
2. through idenfication of the suspect's assets, liabilities, income, and expenses, a net worth statement (diff between assets and liaiblities at a given time) can be created
3. once completed, changes in the suspect's net worth can be compared to his or her known income, and differences, if any, may be inferred as coming from unknown sources
Basic component in computing net worth is
the establishment of the base year.
Base year
The year prior to the year that the alleged illegal activity began
Net worth formula:
assets
- liabilities
= net worth
- prior year's net worth
= increase in net worth from previous year
+ known expenses
= total net worth increase
- funds from known sources
= funds from unknown sources
Keys to net worth analysis:
(5)
1. cash on hand
2. cash in banks
3. asset valuation (assets recorded at cost - not FMV)
4. known expenses
5. known sources
The court established the following 3 requirements that the investigator must meet in order to establish a prima facie net worth case (ie elements of proof)
1. establish a reliable opening net worth
2. investigate all relevant leads that might show the suspect's innocence
3. establish a likely taxable source of income together with evidence indicating an increase in net worth
Expenditures method:
(3)
1. a comparison is made between the suspect's known expenditures and known sources of funds during a given period of time
2. any excess expenditures must be the result of income from unknown sources
3. only year to year increases or decreases in the suspect's assets and liabilities are considered for analysis purposes
Elements of proof for the expenditures method
(3)
1. establish a firm starting point
2. establish likely source of income
3. investigate all leads showing suspect's innocence
Expenditures (application of funds)
(5)
1. when cash on hand increases
2. when bank accounts increase
3. when assets increase
4. when liabilities decrease
5. when personal living expenses are made
Sources (soure of funds)
(8)
1. when cash on hand decreases
2. when bank accounts decrease
3. when asets decrease
4. when liabilities increase
5. when loans, gifts, or inheritances are received
6. when assets are sold
7. when salaries or business profits are earned
8. when other sources of income are known
Expenditures method formula
total expenditures
- known sources of funds
= funds from unknown sources
Bank deposit method
1. unknown sources of funds are located by reviewing bank records and other financial transactions entered into by the suspect
To establish a prima facie bank deposit case: (ie elements of proof required)
(4)
1. suspect was engaged in lucrative income-producing business or profession
2. suspect made periodic deposits of funds into accounts in his own name, over which he had exercised control
3. a thorough analysis of deposits was made by the investigating agent in order to negate the likelihood that the deposits came from nontaxable sources
4. unidentified deposits have the inherent appearance of income
Bank deposit analysis formula
total deposits to all accounts
- transfers and redeposits
= net deposits to all accounts
+ cash on hand increase
+ cash expenditures
= total receipts from all sources
- funds from known sources
= funds from unknown sources
Total deposits to all accounts
Only funds actually deposited into an account are included
Transfers and redeposits
(2)
1. includes transfer of funds between a suspects bank accounts
2. and funds that are withfrawn and then redeposited (such as an NSF check)
Cash expenditures formula
total outlay of funds
- net bank disbursements
= cash expenditures
Net bank disbursements formula
net deposits to all accounts
+ beginning balances
= net bank funds available
- ending balances
= net bank disbursements
Determining which indirect method to use
See pages 174 and 175!!!!
Methods of proof comparison: direct method:
(3)
1. microscopic view
2. special illegal financial transaction by suspect
3. actual proof of wrongdoing
Methods of proof comparison: indirect method:
(3)
1. macroscopic view
2. overall financial consdition of suspect
3. inferences to wrongdoing