This article was originally published in the Summer 2011 issue of ICPAS INSIGHT Magazine.
What happens when a spouse, sister, uncle or parent steals from you?
Fraud is defined as the knowing, intentional misrepresentation of a material fact, justifiably relied upon and resulting in damage. For forensic accountants, the materiality of both the misrepresentation and the resulting damages is critical. Our job is to evaluate and quantify the economic impact of fraudulent actions. But good forensic accounting goes beyond the numbers to look for patterns and circumstances that help identify intent.
Motivation and rationale are key components in any forensic investigation. Why would someone intentionally deceive others? Financial gain, economic duress, ego gratification and self-righteousness are common themes we see in business situations. However, what if the business involves family members? Do the same rules apply?
When our work crosses into the unique area of family law, thick forensic skin is a prerequisite.
Family—the word conjures up a wide variety of thoughts for us all. We live in an era when “non-traditional” is the norm for most things, including family. Regardless of the circumstances, our deepest emotions are tied to the ones who brought us into this world, the ones we grew up with and the ones we fell in love with, married and started families with.
Blood being thicker than water, we trust our family members more than any others. Many people enter into business relations with family predicated on this trust. A family owned and operated business is still a part of the American Dream.
For purposes of this column, I’ll focus on two distinct family law practice areas: Divorce and trusts and estates.
Divorce now impacts more than 50 percent of American families. When marriages dissolve and substantial assets need to be divided, people can rationalize actions that they would never consider under normal circumstances.
Thomas T. Field, Esq., partner at the law firm of Beermann Swerdlove LLP, focuses on matrimonial issues. Field, who was just named a “Top 40 Illinois Attorney under 40,” offers this scenario on a recent case: A spouse employed alleged mental illness as a front for a sudden loss of employment, which was preceded and followed by covert extramarital affairs withmultiple people. The spouse misappropriated hundreds of thousands of dollars from family accounts and fled the United States. The individual in question left a seven-figure salary, and the non-wage earning spouse and three minor children behind to fend for themselves. Having returned to the country after a judgment was rendered, the spouse is now working several states away. We will be tracking this individual down to start wage garnishment.
Think about this story; possibly faking a mental illness to avoid working and supporting a spouse and children. Then withdrawing hundreds of thousands of dollars from accounts and fleeing the country. How do you reconcile these actions with an album of wedding photos showing the happy couple? These breaches of trust result in damage that goes far beyond matters of economics.
Estate and trust disputes can contain acts and allegations that are just as sensational. When a parent passes away and control of their assets is designated to one family member, the others rightfully presume trustworthiness. Certainly the decedent made that presumption. But, what if the controlling party diverts assets from the intended beneficiaries for their own gain? This is fraud of biblical proportions. Anecdotally, I worked a case involving the eldest offspring acting as trustee, funneling millions of dollars away from their siblings to set up a business that competed directly with the family business.
Ray J. Koenig III, Esq., a member of Clark Hill’s Litigation Practice Group in Chicago, focuses on Trust and Estate Litigation. Koenig explains that, “The commitment of fraud by one family member against others has both immediate and long-term effects. More immediately, expensive and time-consuming litigation ensues. Long-term, the trust implicit among family members is destroyed, resulting in a shattered family.”
Human behavior can be outrageous when our deepest emotions (love, in particular) factor in. I have witnessed successful, sophisticated business people throw common sense out of the window during family disputes. The sense of betrayal and the ensuing desire for revenge can leave the most seasoned attorneys and forensic accountants shaking their heads in dismay.
However, as an accountant first and foremost, I take solace (and refuge) in the black-and-white world of financial records. The data (at least third-party independent data) doesn’t lie, cheat or swindle—and my job is to provide the facts. As accountants, we can serve our clients at their moments of greatest need.