Executive Summary
Forensic bank statement analysis is a critical tool in litigation. By comparing account deposits, withdrawals, and transfers against claimed revenues and expenses, forensic accountants reveal hidden patterns that can confirm or refute allegations of fraud, misappropriation, or hidden assets. An expert review of banking activity can uncover discrepancies that materially impact damages, valuations or settlements.
When this issue arises
Bank statement analysis becomes necessary in a range of disputes, including fraud investigations, shareholder or partnership disputes, divorce proceedings, support and alimony cases, insurance claims and breach-of-contract litigation. In each scenario, a detailed review of deposits, withdrawals and transfers may uncover hidden income, undisclosed assets, or improper transactions.
Accepted methods/frameworks
Forensic accountants apply systematic methods to examine bank statements. These include:
- Reconciliation. Comparing bank deposits and withdrawals to accounting records and reported revenues to identify discrepancies.
- Pattern and anomaly detection. Analyzing transaction patterns over time to flag unusual activity, such as round-dollar transfers or repeated ATM withdrawals.
- Third-party confirmation. Cross-checking bank statements with credit card records, supplier invoices, payroll reports and tax filings.
Numeric example. Suppose a retail business reports $500,000 in revenue for the year but deposits $650,000 into its business account. By comparing monthly deposits to sales records, a forensic accountant can identify $150,000 of unreported income that may represent cash skimming or undisclosed sales.
Documents & Data Checklist
- Bank statements for all business and personal accounts covering the relevant period
- Cancelled checks and check images
- Deposit slips and cash receipt journals
- Credit card statements
- Accounting system exports (general ledger, trial balance, account reconciliations)
- Tax returns and supporting schedules
- Merchant account and payment processor statements
Pitfalls / Common Errors + Rebuttal Strategies
Common errors. Incomplete statements, failing to obtain records from all accounts (including personal or related-party accounts), misclassifying intercompany transfers as income, and ignoring timing differences around period end can lead to flawed conclusions.
Rebuttal strategies. To counter opposing experts, document every step of the reconciliation process, tie bank activity to source documents, and provide clear explanations for anomalies. Request complete statements directly from financial institutions when needed and ensure all adjustments are supported by contemporaneous records.
Frequently Asked Questions
When is a bank statement analysis required in litigation?
A bank statement analysis is required when disputes involve allegations of hidden income, fraud, partnership disputes or divorce. It helps determine whether financial representations are accurate.
What does a forensic accountant look for in bank statements?
The expert compares deposits, withdrawals and transfers to reported revenues and expenses, looking for unexplained gaps, cash withdrawals, round-dollar transfers or unusual patterns.
What records should I provide to my forensic accountant?
Provide complete bank statements, cancelled checks, deposit slips, credit card statements, accounting system reports, tax returns and any relevant loan or merchant statements.
How long does bank statement analysis take?
The timeline depends on the volume of records and scope of analysis, but many reviews take several weeks to a few months.
Can hidden patterns really be uncovered through statements alone?
Yes. By reconciling deposits, withdrawals and transfers with source documents, forensic accountants reveal patterns that can indicate skimming, hidden income or undisclosed assets.
How should I prepare for a bank statement review?
Gather all relevant financial records, respon quickly to document requests and be transparent about all accounts, including personal or related-party accounts.
- Washington State Auditor – Bank statements deserve your attention
- Corporate Finance Institute – Bank reconciliation overview
- Association of Certified Fraud Examiners – Fraud resources
Contact the team at Joey Friedman CPA PA for a confidential consultation to discuss your litigation consulting and forensic accounting needs. We serve clients nationwide in litigation, disputes and investigations.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Outcomes depend on specific facts and circumstances.
