Beyond the Numbers: Using Forensic Accounting to Establish Intent in Fraud Cases

Attorneys know that proving fraud requires more than just proving a financial loss occurred. The legal cornerstone of most fraud claims is establishing scienter, the defendant’s intent to deceive or defraud. While bank statements and ledger discrepancies can prove what happened, the true art of forensic accounting lies in uncovering why it happened and who knew.

A forensic accountant’s analysis transforms raw data into a narrative of intent, creating the compelling evidence needed to meet the legal standard.

Here’s how we move beyond the numbers to build your case for intent.

1. Analyzing the Concealment Methods

Intent is often revealed by the deliberate steps taken to hide the activity. We look for patterns that indicate a conscious effort to avoid detection.

Deviations from Normal Procedure: An employee who suddenly starts creating new vendors that bypass standard approval channels.
Use of Shell Companies: Payments to vendors with no physical address, phone number, or online presence are a classic red flag for fraudulent intent.
Alteration or Destruction of Records: Backdated invoices, missing check copies, or suspicious gaps in electronic records (like deleted QuickBooks entries) are powerful indicators of a guilty conscience.

For the Courtroom: We can timeline these concealment efforts, showing a pattern of behavior that is inconsistent with an innocent mistake and directly supportive of intent.

2. Identifying the Personal Benefit

Fraud is rarely committed for its own sake. Tracing the flow of funds to a direct or indirect personal benefit is crucial.

Direct Personal Gain: The most straightforward case. We follow the money from the company account to the perpetrator’s personal account, their credit card payment, or a mortgage payment.
Indirect or Lifestyle Evidence: The fraudster may use a complex web of intermediaries. We analyze their lifestyle, sudden luxury purchases, expensive vacations, or a new car, against their legitimate declared income. A significant, unexplained increase in personal spending concurrent with the fraud is powerful circumstantial evidence of intent.

For the Courtroom: Visual aids, like flowcharts mapping the movement of funds, make a complex scheme understandable to a judge or jury, clearly linking the fraudulent act to personal enrichment.

3. Uncovering Predication: The Red Flags Ignored

Intent can be established by showing the fraud occurred despite numerous warnings. We analyze the internal control environment to identify ignored red flags.

Overriding Controls: Did the perpetrator hold a position of authority that allowed them to approve their own fraudulent transactions?
Ignored Audit Findings: Were there previous internal or external audit recommendations that highlighted control weaknesses the fraudster then exploited?
Whistleblower Complaints: Did the company receive anonymous tips or complaints about the individual’s activities that were dismissed without proper investigation?

For the Courtroom: This demonstrates that the fraud was not a simple oversight but a deliberate act carried out despite known risks and warnings, undermining any claim of negligence or accident

4. Establishing Pattern and Duration

A one-time accounting error might be negligence. A pattern of misconduct over months or years establishes a habit and a plan.

Repetitive Schemes: The same fraudulent method used repeatedly (e.g., multiple fake vendors, consistent skimming of cash receipts).
Increasing Boldness: The dollar amount of the fraud often increases over time as the perpetrator gains confidence they won’t be caught.
Continuous Concealment: The ongoing effort to hide the fraud, such as creating more complex layers of transactions as the scheme grows.

For the Courtroom: A timeline illustrating the duration, frequency, and escalation of the scheme paints a picture of a calculated, persistent effort to defraud, not a momentary lapse in judgment.

The Strategic Advantage: From Suspicion to Proof

A forensic accountant does more than quantify a loss. We analyze the methodology of the fraud to answer the critical question of intent. By focusing on concealment, personal benefit, ignored warnings, and persistent patterns, we provide the tangible evidence you need to transform a suspicion of fraud into a provable legal claim.

Our analysis creates the bridge between the “what” of the financial data and the “why” of human behavior, giving you the tools to confidently argue scienter and secure a favorable outcome for your client.

Need an expert who can uncover the story behind the spreadsheets? Contact me to discuss how forensic accounting can establish intent in your fraud case.

How can a forensic accountant prove intent, which is a state of mind?

A forensic accountant cannot read minds, but we can analyze the objective evidence of a person’s actions. Intent (scienter) is demonstrated through patterns of behavior, such as deliberate concealment, overriding internal controls, and a direct link between the fraud and personal enrichment. We build a circumstantial case for intent that is based on factual financial data and documented actions.

What’s the most common red flag for intentional fraud you encounter?

The creation of shell companies or fictitious vendors is one of the strongest indicators. This is rarely an accident; it requires a series of deliberate steps to set up and maintain, directly demonstrating an intent to deceive and misappropriate funds.

Can your analysis help if the fraud was committed by a high-level executive who overrode all controls?

Yes, absolutely. In fact, the act of overriding controls is itself powerful evidence of intent. We document the control environment, identify the specific approvals the executive bypassed, and correlate those actions with the flow of funds to their benefit. This demonstrates a conscious and deliberate effort to circumvent safeguards.

What documentary evidence is most critical for establishing intent?

Beyond the basic financial statements, the most critical evidence includes: internal emails authorizing unusual transactions, the master vendor list showing fictitious entries, personal bank statements of the suspect, and a timeline of transactions that shows a repeating pattern over time.

How does this differ from a standard financial damage calculation?

A standard damage calculation answers “how much was lost?” Establishing intent answers “was this a deliberate, knowing act?” The latter requires a deeper investigation into the methodology of the fraud, the control environment, and the beneficiary’s actions, going far beyond simply tallying the monetary loss.

Ready to strengthen your case?

Steven D Hovland, CPA, CRFE, is the founder and principal forensic accountant at Hovland Forensic. With over 25 years of experience, he specializes in investigating financial fraud, calculating economic damages, and serving as a testifying expert for law firms across the United States. He has been retained in numerous cases, providing clear, defensible financial analysis that withstands cross-examination.

Ready to discuss your case specifics? Schedule a confidential consultation today.