Knowledge Is Power: The World Of Forensic Auditing

Forensic audit written on the paper - The Complex Tax Law Firm, LLCThe title of this chapter itself speaks volumes. Forensic auditing may sound intricate, and indeed it is. Fortunately, this is exactly what tax attorneys, including myself and my capable staff, excel at – deciphering intricate financial documents and presenting a clear narrative for those who may not be familiar with complex financial matters. Of course, we’re not CPAs, so our aim isn’t to dig into adjusted gross income or alternative minimum tax. Instead, we scrutinize bank statements, track money flows, and question discrepancies between what’s disclosed and what we see.

In essence, our role is to guide clients away from potential financial pitfalls. For example, we might come across a business claiming to spend $40,000 weekly on payroll, yet we see their payroll company disbursing $80,000 every two days. This incongruity naturally raises questions, such as “Where is this additional money coming from?” Often, we discover that our client has omitted crucial information, like undisclosed bank accounts, which should be reported to the IRS and can give the impression that they’re intentionally withholding information.

All in all, our forensic examination of financial records involves identifying such issues, correcting errors, and, in nearly 99% of cases, ensuring that a business’s financial records align with the owner’s understanding.

The Triggers Of Forensic Auditing

Often, forensic audits revolve around tax liability and assessing how much a company can realistically pay the IRS for its outstanding tax debts. Our goal is to minimize the monthly payment arrangement imposed by the IRS. But while a business might have the capacity to pay more, we prefer such payments to be voluntary. Hence, we scrutinize financials to identify income sources, expense patterns, and any discrepancies.

For instance, we had a client whose business account revealed monthly charges of $600 for a Farmville game app – a detail he was entirely unaware of. This discovery prompted a more thorough audit, uncovering wasteful spending across the board. Such seemingly minor recurring expenses can, over time, significantly dent a business’s finances. I often refer to this phenomenon as “rich poor people” – where substantial income flows in and out, but financial oversight is lacking. Recognizing these inefficiencies is often half the battle, shedding light on how money is being spent.

In the grand scheme of things, individual transactions like a thousand dollars in monthly bank charges might not immediately raise alarms. However, when you aggregate numerous similar transactions, it can result in substantial losses when the money could be put to better use, such as settling taxes or reinvesting in the business. At the end of the day, we aim to ensure that the companies we work with can meet their IRS payment commitment, even in the worst-case scenario. To do this, we perform a comprehensive financial review, which can lead to various eye-opening discoveries.

The Range Of Applications For Forensic Auditing

Our financial expertise extends far beyond tax-related matters; it finds application in various contexts…

Civil Litigation Cases

In litigation situations, we can request up to six years’ worth of bank statements and other pertinent documents to submit to our auditing practices. However, in non-litigation due diligence scenarios, limitations may emerge if we don’t have access to all the necessary paperwork. We make every effort to define these constraints, even still, third-party restrictions on information disclosure can pose challenges. It’s a complex yet intriguing process, one that can offer substantial benefits to business owners or individuals with significant financial interests at stake.

Beyond Taxes: Family Law Cases

What’s more, we can employ the same techniques in family law cases, especially when one party has control over significant assets and business accounts. The truth is, sorting through stacks of paperwork filled with intricate financial details isn’t the specialty of divorce or family law attorneys, but it’s where we truly shine.

In fact, this form of forensic auditing can sometimes feel like conducting a criminal investigation, revealing hidden truths, or substantiating a party’s claims to their advantage. We have the ability to uncover financial irregularities, like when one spouse claims to earn $10,000 per month while secretly managing an account generating $60,000 monthly. And in cases like these, our reports shed light on sometimes shadowy financial complexities, making the work that we do indispensable.

For more information on Forensic Auditing, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (303) 720-6573 today.