Download Net Worth

WHERE DOES IT ALL
GO……?
Objectives
At the end of the period the participant will be able to:
• Understand the need to look at the suspect and their
financial footprint
• Understand the theory behind this method of
investigation
• Identify problems associated with theory and practice
• Realisation that revelation of a good model assists to
identify a bad model.
How to develop a Financial Profile
• Collection information to be of use
• Be aware of documents related to financial
accounts, property and investments.
• Second tier look at Insurance, tax returns
and sundry income sources.
• Financial records, expense records and
receipts of transactions et al
• Many more
Analysis of a Financial Profile
Could be described as:
• Asset Method
• Expenditures Method
• Bank Deposits Method
• Own lifestyle
Asset Method
• The Analysis compares the subject’s
beginning and ending networth for the
period/s in question, with adjustments for
known legitimate income and expenditures.
The end figure represents the subject’s
income from unknown sources.
• The Analysis values the assets at their
original cost to avoid understating or
overstating funds from unknown sources.
Expenditures Method
• This method focuses on the subject ‘s
available income and accumulated assets,
matching total expenditures against available
sources of funds.
• The analysis includes income from all sources
,including money earned, salary,
inheritances, loans, gifts and cash on hand at
the beginning of the period in question.
• Any excess or unaccounted normal
expenditures is attributed to funds from
unknown sources.
Bank Deposits Method
• This method is based on the assumption
that money is either spent or deposited.
The analysis adds the net deposits to all
accounts to cash expenditures to calculate
the total receipts.
• Funds from known sources are deducted
from total receipts to estimate the total
funds from unknown sources.
What do you spend
your money on?
• Please list your own expenses in your day
to day life.
Assets Declaration
• Certain countries statutorily and
constitutional require Asset declaration by
public officials.
• Asset declarations contain properties,
vehicles, cash in hand, cash in bank, holding
by associates, family interest etc
• A subject who declares his Assets should
justify holdings in relation to income
generated
Development of the Net Worth Method of Proof
The net worth method of proof was one of the indirect
method developed by the United States IRS to prosecute
organised crime figures.
The theory behind the Net worth and any other indirect
method of proof is that there are three things an individual
can do with money:
Spend it
Deposit it or,
Hoard it.
The indirect methods of proof track the financial
transaction and account for the funds spent, deposited and
hoarded.
When to used the Net Worth Method of Proof
• This method is used when there is:– No direct evidence of income
It would be impossible to trace specific transactions for a
cash intensive business (bar, restaurant, etc) through the
books and records.
– The books and records are inadequate,
Individual engaged in illegal activities rarely reports
their income and would not provide their books and
records. In fact they would deny their existence and
attempt to destroy the records to avoid releasing them.
– The suspect is accumulating assets
The net worth method of proof is applicable where assets
are being accumulated. For example, bank deposit applied
if the suspect deposits most of his/her income.
Developing the FINANCIAL PROFILE
The first step in a net worth analysis is to assemble
a financial profile of the subject to detect changes in
net worth that might indicate hidden assets.
TY PICAL ASSETS:
•Residence
•General property ownership
•Bank Accounts
•Stocks and shares and Bonds
•Motor vehicles
•Insurance/s
•Cash in hand
Jewelry
Clothing
Collectibles
Pensions
Home Furnishings
Boats
Holidays
Other Sources of Financial Records
The analysis also gathers data from a variety of
sources including:
Online databases, for background and assets checks,
Online subscription services, for public and court
records,
Employment applications, for identifies such ID
numbers, places and dates of birth, current and
previous addresses, names of family members,
education and previous employment
Target record searches, and provides alternative names
in which the subject might hold assets,
Other Sources of Financial Records
Payroll records, for salary history and banking
information and tax returns
Expense reports, for credit card and bank accounts,
and phone numbers called (which can reveal
banking relationships, associates and witnesses).
A subject’s accountant, tax advisor, former spouses,
former business partners, real estate agents and
others can also provide information critical to
compiling a comprehensive financial profile.
The Financial Profile
For each significant asset determine
determine::
When was it acquired and from whom?
How much did it cost?
How was it paid for? (currency exchange, cheque
cheque,,
mortgage, loan, cash, debt swap)
What source of funds was use to acquire it?
What documentation exists for the purchase and
where is it?
Cash in Hand
Prior financial statements
Low earnings in prior years
Bankruptcy in prior year
Borrowing money
Installment purchases
Credibility of subject’s story
of “cash hoard”
Typical Liabilities
Mortgage(s)
Other loans
Lines of credit
Accounts payable
Taxes and other bills
Alimony and child support
Day to day living expenses
Normal overheads
For each Significant Liability Determine:
What was the original amount of the loan?
What is the present balance due?
When was the liability incurred?
What was the purpose of the loan or debt?
What security (collateral), if any, was given
for the debt?
What documentation exists for the
transaction and where is it?
Who was the creditor or lender?
Typical Sources of Funds: Personal
Salary
Gifts
Rental income
Share Dividends
Interest
Sale of assets
Insurance proceeds
Commissions and
fees
Awards
Inheritances
Disability payments
Family loan
For each Source of Funds Determine:
What was the total amount during a given
period?
What was the source?
How was it paid for (currency, cheque,
cheque, bank
transfer or by other means)?
When were the funds received?
Where were they deposited?
How spent?
What documentation exists and where is it?
What documentation could exist?
Net Worth Analysis Formula
Assets
Minus Liabilities
Equals Net Worth
Minus Prior Years Net Worth
Equals Increase in net worth from previous year
Plus: Known expenses
=
Total Outlay
-Funds from known sources
-Equals Funds from unknown sources
Net Worth Truth Table
Assets Status
Assets increase
Liabilities Status
Effect on Net
Worth
Liabilities stay the
same
Liabilities decrease
Net worth will
increase
Net worth will
increase
Assets stay the Liabilities increase
same
Assets decrease Liabilities stay the
same
Net worth will
decrease
Net worth will
decrease
Assets increase
Change in Net Worth shows the increase or decrease in net
worth over several years to show trends or patterns in the
financial profile or the subject of the investigation
Effect of Personal Loss
Asset
12/31/99
12/31/00
Cash in bank account
00
13,000
Car
4,000
00
Total Assets
4,000
13,000
4,000
13,000
Liability
Net worth
Less prior year’s net worth
4,000
Increase in Net worth
9,000
Investigation Steps
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Conduct Interviews
Obtain bank record
Secure share / stock records
Document vehicle costs
Ascertain inventory costs
Verify property costs
Analyse available credit card transaction
Calculate expected personal living
expenses
Common Problem
• Failure to establish firm starting point
• Failure to account for non taxable or legal income
or expected income
• Failure to address possible defence raised by
suspect.
• Failure to establish likely source for unreported
and /or illegal income
• Presenting a fair and balanced case
• Accepting you may not be able to prove
everything
Summary
• Based on circumstantial evidence
• Primary methods of proving unreported /illegal
income
• Used when:
• Specific item method not applicable
• Books and records are not available and
• Suspect accumulating assets
• Investigator must document;
•
•
•
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Opening net worth with reasonable certainty
Follow up reasonable leads that prove suspect’s innocence
Establish likely source of income for proceeds in question.
Be prepared to give a suspect ‘the benefit of the doubt’