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FIU ACG 6686 - METHODS OF PROVING INCOME

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Slide 1ObjectivesFINANCIAL PROFILESProof, like evidence:Why Financial Investigations?The Financial Investigator is a financial bloodhoundTheory to Financial Money TrailsTools of the Financial InvestigatorSpecific Item Method of ProofSlide 10Remember: There are two sides to every financial transaction:Specific Item Method can be used to:Point of Receipt AnalysisPoint of Payment AnalysisWhen can Point of Payment Analysis be used?Indirect Methods of ProofIndirect Methods of Proof are useful when:Indirect Methods of ProofConceptsFINANCIAL PROFILEPreparing the Financial ProfileRemember…Financial Profile TableSlide 24Slide 25Slide 26Indirect Method ConceptNet Worth AnalysisWhat is Net Worth?Net WorthNet Worth FormulaKeys to Net Worth AnalysisThree requirements for prima facie Net Worth CaseExpenditures MethodExpenditures Method FormulaExpenditures Method Transaction TreatmentProof Requirements for Expenditures MethodBank Deposits Method of ProofBank Deposits Analysis FormulaSlide 40Summary1METHODS OF PROVING INCOME12Objectives•At the end of this session you should be able to:–Understand the concept of Financial Profile–Recognize the difference between Direct Method and Indirect Method of Proof–Understand when to apply the appropriate method23FINANCIAL PROFILES USING DIRECT AND INDIRECT METHODS OF PROOF34Proof, like evidence:•Can be Direct•Can be Circumstantial5Why Financial Investigations?•Most Crimes are committed for:–Financial Reasons–Profit6The Financial Investigator is a financial bloodhound•The Financial Investigator must be able to follow the “money trail” with success7Theory to Financial Money Trails•The crook “always leaves a financial trail”•It is up to the Financial Investigator to follow the financial trail and prove the case8Tools of the Financial Investigator•Direct Method of Proof:–Specific Item Method of Proof•Preferred method used in tracing financial transactions•Is the simplest method used9Specific Item Method of Proof•Direct Link is established between the suspect, the financial transaction and the illegal activity–It is proof precise to the point at issue:•Example: Payments by investors and subsequent expenditures by the suspect10Specific Item Method of Proof•Is the easiest and simplest method to present at trial•The proof that results from it’s application is the most difficult for the suspect to refute11Remember: There are two sides to every financial transaction:•Receipt•Payment12Specific Item Method can be used to:•Document the movement of funds from either side of a transaction:–From the Point of Receipt–From the Point of Payment13Point of Receipt Analysis•Specific analysis of deposits to bank accounts vs. recorded amounts in cash receipts journals and accounts receivable journals–$2,000 received from customer and only $1,000 was deposited to the bank account and only $1,000 was credited to the customer’s account (“Lapping”)14Point of Payment Analysis•Can be used when Point of Receipt is difficult to accomplish:–Payments are received in currency–Funds received are not reflected in the books and records of an individual or company15When can Point of Payment Analysis be used?•Kickback schemes•Embezzlement schemes•Insider trading schemes•Money Laundering schemes•Fictitious employee schemes16Indirect Methods of Proof•Are based on a true principle:–Money in any significant amount will eventually show up–Directly or indirectly–In the accounts, assets or expenditures of the recipient17Indirect Methods of Proof are useful when:•Suspect is taking currency or other payments that cannot be directly traced–Drugs–Bribery –Money Laundering–Other illegal activities where there are very little, if any, books and records18Indirect Methods of Proof •Are based on circumstantial evidence AND:–Infer that the flow of funds being spent or assets being accumulated by the subject must have been from an unknown or illegal source19Concepts•The Specific Item Method relies on a microscopic view of financial transactions•The indirect methods of proof require a macroscopic view of the financial situation under investigation20FINANCIAL PROFILE•Overview of a person’s financial condition–Large accumulations of assets not commensurate with known sources of income–Large expenditures not commensurate with known sources of income21Preparing the Financial Profile•Thorough interview with the suspect•Third party contacts•Public information sources22Remember…•Funds in any significant amount eventually pass through:–Suspect’s bank accounts–Other bank transactions–Currency transactions23Financial Profile Table•Typical Assets:–Residence–Real Estate–Bank Accounts–Stocks and bonds–Automobiles–Furnishings–Other Assets24Financial Profile Table•Typical Liabilities:–Mortgages–Other loans–Lines of credit–Taxes and other bills–Alimony and child support–Credit cards/installment credit25Financial Profile Table•Typical Sources of Funds:–Salary–Gifts–Rental Income–Dividends–Inheritances–Insurance proceeds–Disability payments26Financial Profile Table•Typical Expenditures:–Rent/mortgage–Car payments –Credit card payments–Clothing, food and utilities–Travel–Insurance27Indirect Method Concept•Any recipient of funds has only four ways of disposing of those funds:–Save it–Buy assets–Pay off debts–Spend it on personal or business expenditures28Net Worth Analysis•Begins with a person’s financial profile–Through identification of a person’s:•Assets•Liabilities•Income•Expenses29What is Net Worth?•The difference between a person’s assets and liabilities at a certain point in time30Net Worth•Assets = $200,000•Liabilities = $50,000•Net Worth = $150,00031Net Worth FormulaAssets- Liabilities=Net Worth-Prior Year’s Net Worth=Increase in Net Worth from previous year+Currency Expenditures=Net Worth Increase-Funds from known sources=Funds from unknown or illegal sources32Keys to Net Worth Analysis•Must have a reliable base year•Inverse relationship between one year and the next•Determining cash on hand•Cash in banks•Asset valuation•Known expenditures•Known sources of funds33Three requirements for prima facie Net Worth Case•Establish a reliable opening net worth•Investigate all relevant leads that might show the suspect’s innocence•Establish a likely source of income


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