CFE Exam Quiz 48

Account statements, which are provided for all types of financial accounts, provide summaries of all the transactions and financial activities (e.g., cashed checks, withdrawals, and deposits) on their corresponding accounts for a specific period, usually a month. Account statements also contain information about the account holder and the financial institution in which the account is held.

Wire transfer is a method of electronic funds transfer from one person or entity to another. A wire transfer can be made from one bank account to another bank account.

Records of wire transfers can contain valuable information. Typically, wire transfer records contain information such as who sent the wire, when and where it was sent, and its amount.

Financial Intelligence Units (FIUs) are centers that collect information on suspicious or unusual financial activities from banks and other financial institutions. Typically, reports filed with FIUs contain the identity of the persons making the transactions and the amount of the transactions, among other things.

Reports filed with FIUs contain the identity of the persons making the transactions and the amount of the transactions, among other things. In addition, they can provide valuable information that can be used to identify illegal activity, detect the flow of illicit funds, and identify leads to assets purchased with ill-gotten gains.

The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. The net-worth method is a reliable method for estimating a person’s ill-gotten gains.

If illicit transactions cannot be traced directly to the subject, then an indirect method of proof might be required to corroborate evidence of illicit transactions. Indirect approaches rely on circumstantial proof in contrast to direct approaches that rely on specific transactions.

Evidence that tends to prove or disprove facts in issue indirectly, by inference is referred to as circumstantial evidence. It relies on an inference to connect it to a conclusion of fact. An example of circumstantial evidence is a fingerprint at the scene of a crime.

The direct approach method relies on specific transactions while the indirect approach relies on a circumstantial proof. Circumstantial evidence is evidence that relies on an inference to connect it to a conclusion of fact such as a fingerprint at the scene of a crime. If illicit transactions cannot be traced directly to the subject, then an indirect method of proof might be required to corroborate evidence of illicit transactions.

There are two basic approaches that use circumstantial proof to prove a subject’s sources of funds. They are the net-worth method, also known as the comparative net-worth analysis and the bank deposit analysis method.

The difference between assets and liabilities at a particular point in time is referred to as net worth. Net worth is the measure of wealth.

There are two basic methods for performing a net-worth analysis to examine a subject’s sources of income. They are the asset method and the expenditures or sources and applications of funds method.

When a subject has invested illegal funds to accumulate wealth and acquire assets, causing his net worth (value of assets over liabilities) to increase from year to year, the fraud examiner would make use of the asset method. Unaccounted funds might be inferred to come from illicit or hidden sources.

The expenditures method should be used by a fraud examiner when the subject spends illicit income on consumables (e.g., travel and entertainment) as this method works best because when the subject spends the illicit income, it will not cause an increase in net worth.

The financial profile of a subject shows what the subject earns, owns, owes, and spends at any given point, or over a period; it reflects the subject’s income, expenses, assets, and liabilities. A financial profile is essentially a financial statement about an individual.

The financial profile of a subject can contain direct evidence of illegal income or hidden assets, or circumstantial proof, by showing that the suspect’s expenditures exceeded known sources of income. It can be used to establish the level of criminality, to build evidence for litigation, to support a request for an enforcement order, to identify fund transfers between entities, and so on.

Fraud examiners can typically develop a subject’s financial profile through the following means:

– Conducting interviews with the subject and his associates.
– Observing the subject’s lifestyle, habits, and assets (e.g., observing the subject’s residence, hobbies, and vehicles).
– Using public records (e.g. criminal court records, civil court records, business filings, or real property records).
– Using online resources.
– Viewing the subject’s charitable contributions.
– Obtaining anecdotal information.

Cash (on hand) or anything else of value that can be converted into cash is referred to as an asset. An asset is anything tangible or intangible that can be owned or controlled to produce value.

Cash on hand comprises coins and currency in the subject’s possession (i.e., on the subject’s person, in the subject’s residence or other places, in a nominee’s hands, or in a safe deposit box). Cash on hand does not include money in any account with a financial institution.

A debt arising from an oral or written promise to pay, and includes mortgages, loans, credit card debt, installment loan payments, and other debts, is referred to as a liability.

Money, or other things of value, received in exchange for services or goods is referred to as income. Income is not included as an asset in fraud investigations.

The behavioral profile contains information about the suspect’s personal characteristics (e.g., carries large amounts of cash, wears expensive clothes, or has club memberships), home and furnishings, automobiles, and leisure activities. The behavioral profile complements the financial profile.

A financial profile might have information gaps, but such factors and gaps can be filled in by preparing the behavioral profile. The behavioral profile complements the financial profile. The following are differences between the financial and behavioral profiles:

– The financial profile works best for large transactions while the behavioral profile is best at identifying smaller activities and smaller currency transactions.
– The behavioral profile contains information about the suspect’s personal characteristics while the financial profile contains the financial statement about the subject.

Liquid assets are assets that can be purchased and sold quickly. Fraudsters tend to hide liquid assets more frequently.

Illiquid assets are assets that are not easily converted into cash. Fraudsters tend to hide liquid assets more frequently than illiquid assets.

Illiquid assets are assets that are not easily converted into cash. Examples of illiquid assets include real property, vehicles, boats, and planes.

Asset hiders want products that are difficult to trace or untraceable. With such instruments, asset hiders can break or obscure links between the initial receipt of the assets and their final disposition. Asset hiders want products that are secure and accessible. Assets hiders also want products that are liquid.

The reasons why people would tend to hide some or all of their assets include the following:

– To fraudulently reduce the holdings of a marital estate in divorce proceedings.
– To keep them away from creditors or remove them from bankruptcy.
– To misrepresent the assets of their company.
– To avoid having to pay a civil judgment.
– To evade taxes.
– To conceal their connection to a criminal act and to disguise illicit assets as legitimate.

A transfer that a debtor makes to try to defeat a creditor’s efforts to collect against the asset is referred to as a fraudulent transfer. When an individual transfers his assets to evade a creditor’s efforts to collect against the asset, the transfer is fraudulent and voidable.

Fraudsters can use many techniques to hide ill-gotten gains. Some common ways through which individuals hide assets include:

– Hiding assets in someone else’s name.
– Depositing funds into financial institutions.
– Purchasing real estate.
– Using assets to pay down debt (e.g., mortgages, credit card balances).
– Purchasing assets and collectibles, such as art and antiques.
– Transferring assets into tax havens.
– Transferring assets into trusts.
– Using assets to purchase insurance products.
– Investing assets.
– Hiding assets in businesses.