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The Search for Missing or Hidden Assets

By Peggy Tracy, CFP ® , CDFA, CFE

Family fraud is a topic that elicits an uncomfortable feeling amongst many people. In particular individuals who are committing fraud may dodge questions and inquiries regarding their behaviors. This article discusses strategies and ideas on where to locate family assets that may have been segregated or squandered.

The subject of fraud detection has, over the last few decades, become more mainstream. We have seen corporate fraud exposed at the highest levels of management. The same techniques used to uncover business fraud can also be applied to family situations.

First, let’s discuss situations that may arise within the family confines where fraud could be occurring. Then we will tackle the bigger questions of how to uncover the evidence. This is the job of the forensic accountant or investigator.

Family fraud usually occurs when too much trust is given to a particular family member who chooses to abuse the privilege of trust. It can occur between siblings,  elderly parents and caregivers, and most noticeably, between spouses. The main ingredient all these people have in common is the desire to deprive a family member of their proper share of the family assets/income.

Unlike commercial fraud, family fraud may find normally law-abiding, honest people assisting in the concealment. How then do we re-create the paper trail to substantiate our claims of dishonesty?

There are many avenues and areas that can be used to uncover evidence. Here is a  list that can get anyone started on their own family investigation.

  1. Create Master List – This can be accomplished by writing down all the known assets and sources of income. Use the latest statements available to produce the starting point. This is called the Family Financial Inventory.
  2. Cross-check Master List with all available tax returns. If necessary, contact the IRS to verify information with returns that were filed. You can find important information regarding the ownership and disposition of assets from tax returns. In particular, the following forms and schedules can aid in this search:
    • Taxable Investments (Schedule B)
    • Tax-Free Investments (Schedule B)
    • IRA/Pension Distributions (Line 15/16)
    • Sales of Investments (Schedule D)
    • Installment Sales (Form 6252)
    • Rental Real Estate (Schedule E)
    • Partnership, Trust Interests (Schedule E)
    • Business Interests (Schedule C and E)
    • IRS and State Estimated Payments
    • Farm Interests (Schedule F)
    • Penalty on Early CD Withdrawal (Line 30)
    • IRA Deduction (Line 32)
    • HAS Deduction (Line 25)
    • SEP and Simple Deductions (Line  )

You may want to compare and contrast at least three to five preceding years returns. Tax returns will generate a wealth of knowledge regarding an individual or family’s finances.

Another source of information used to uncover fraud is insurance companies, where you can inquire about annuities and cash values/death benefits of existing policies.

One of my favorite pieces of evidence is loan applications. Often a prospective loan applicant will “puff” themselves up to qualify for the loan. You may find a list of assets, additional real estate holdings as well as a net worth calculation.

Don’t overlook safe deposit boxes or cash “stash” within the household. Estate planning documents/trust documents will also provide vital information. And let’s not forget the value in talking to business associates, friends and other family members. They can provide valuable clues to the whereabouts of assets/income.

In today’s electronic age, there is often evidence to be found on the home computer or hand-held device. Computer forensic specialists can retrieve data from a hard drive. You can run simple credit reports, backround checks, as well as peruse the history and favorites of the computer’s user. E-mail messages are now part of the evidence trail in many forensic cases.

We can track a person’s whereabouts through their cell phone log, ATM usage or tollway passes. Credit cards and debit card trails lead us to discovery of purchases.

Bank statements and checkbooks still give us most of the clues regarding the transfers of money.

Behavioral clues are also used to predict unethical movement of money. Changes in lifestyle or changes in the level of confidentiality can be viewed with skepticism. Other suspicious activities might include avoiding family members, lying or trying to cover-up wrongdoing by distractions.

Using common sense and a few auditing skills may allow you to uncover fraud occurring in your family. Better to be skeptical now than to be blindsided later.