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Forensic Accounting Industries
The loss of a family member or close friend is hard. Along with the emotional elements, those left behind must also manage the financial elements of the estate. Few have training regarding this type of management. Even fewer have the training to perform proper accounting.
Estates can bring a significant amount of wealth to the beneficiaries. From liquid cash to income production assets, the beneficiaries can see an increase in their net worth overnight. The estate will usually be managed by a personal representative (PR) who is one of the beneficiaries. This combination of wealth, lack of controls, and lack of overall accounting knowledge can lead to estate fraud and theft.
At Hovland Forensic & Financial we utilize our experience to provide a review of the financial aspects of estate fraud. We work hand in hand with legal counsel to review transactions and determine if there has been theft from an estate. Common estate frauds we have seen are:
Personal use of estate assets. This type of misappropriation happens when there are income producing assets. The personal representative will utilize these assets for their benefit without compensating the estate for use. An example would be if an estate owns a construction company and the construction company builds the PR a house without any payment from the PR. This type of theft tends to happen small at first, and then gradually increases. The PR will usually rationalize why they should be getting the benefit without having to reimburse the estate
Payment of excessive PR fees. Many states allow the PR to be compensated for their work on the estate. This reimbursement is legitimate for the time and effort needed to manage the estate. Where misappropriation happens is when the PR determines their own rate that is excessive or when the PR starts charging for ‘hours’ worked that never happened. Similar to personal use of assets, the PR will rationalize the amount of time they have put in and should be compensated. Usually the PR will not have any detailed timesheets to support their hours work, just their ‘estimate’.
Utilizing estate’s assets to secure personal funding. While rare, the PR can sometimes utilize the financial resources of the estate to secure personal funding. An example would be to have the estate co-sign or guarantee a mortgage of the PR’s personal house or businesses.
Theft of liquid assets. The theft of liquid assets tends to happen when there is substantial amount of cash held at the bank. The PR will cut checks to ‘cash’ and then transfer the funds to their own account. When doing the accounting for the transaction, the PR will book the transaction to a miscellaneous or supplies expense account to hide the transaction.
As part of our investigative process, we will:
- Analyze historical records
- Review significant transactions for signs of self-dealing
- Review reasoning for estate staying open longer than expected
- Analyze fees charged to estate
- Analyze total assets and how they have been managed.
An expert review of the estate’s accounting is critical to determine if the estate has experienced fraud. Our estate knowledge allows us to provide you with that expert review.