Chapter 9 - Conversion investigation methods Flashcards
_____________ proof is not always available, so we must rely on __________ methods
direct
indirect
Indirect methods of obtaining proof
- net worth method
- expenditures
- bank deposits
When do you apply the Net Worth Method
when significant changes in assets and liabilities have taken place
net worth equation
assets - liabilities = net worth
expenditures method
when significant changes in expenditures have taken place
what method do you use when significant changes in assets and liabilities have taken place?
net worth method
what method do you use when significant changes in expenditures have taken place?
expenditures method
expenditures method formula
total expenditures
-funds with known sources
=equals funds from unknown sources
definition of predication
a set of circumstances that would lead a reasonable professionally-trained person to believe that a fraud has occurred, is occurring or will occur
Net Worth Method
increase in net worth \+known expenses =total income -funds from known sources =funds from unknown sources
expenditures method
changes in assets \+ changes in liabilities \+known expenditures =total expenditures -income from known sources =income from unknown sources
common defenses for unknown money
inheritance, savings, loan from family, gift
if someone claims that they had a stash of cash, you can try to verify…
if they borrowed money made installment purchases incurred large debts had poor credit delinquent on accounts filed for bankruptcy
all of which would be inconsistent with having cash
defense: money from my family/private loan. you can check…
test if the lender was capable of lending
had documents of disbursement
if the lender has knowledge of the loan
When do you use the bank deposit method?
-assets and liabilities are constant
no signs of extravagant living exist
unable to use other methods
