The Power of Forensic Accounting in Uncovering Financial Truths

Forensic accounting is a specialized field that combines accounting expertise with investigative skills, enabling professionals like Joey Friedman, CPA, a forensic accountant, expert witness, and business valuation expert, to effectively examine a company's financial records for use in legal proceedings or court cases. Often used to investigate fraud, litigation, and other disputes, forensic accountants are adept at providing accurate information about the extent of losses incurred and the quantitative amount of damages owed.

Money Laundering

Money laundering is a serious crime that involves disguising the origins of illegally obtained funds by channeling them through complex financial transactions. Forensic accountants are skilled in tracing the flow of money, identifying suspicious transactions, and uncovering the true source of illicit funds. They can assist law enforcement and other parties in locating and recovering assets that have fallen into the wrong hands.

Fraud

Fraud is a pervasive issue that not only causes significant monetary damage but also erodes trust between companies, employees, and customers. In cases of fraud, it is crucial to conduct a thorough investigation to determine the extent of the damage caused and the amount of damages owed. Forensic accountants, like Joey Friedman, CPA, play a vital role in these investigations by analyzing financial records, identifying discrepancies, and gathering evidence of fraudulent activities. 

Some common types of fraud that forensic accountants may encounter include:
  • Asset misappropriation: Theft of cash or misuse of company assets for personal gain.
  • Financial statement fraud: Deliberate manipulation of financial statements to deceive investors, creditors, or other stakeholders.
  • Corruption: Bribery, kickbacks, or other unethical practices that compromise the integrity of business transactions.
Forensic accounting may be useful in cases involving:
Forensic accounting may be useful in cases involving:

Divorce

Divorces can be contentious and emotionally charged, with the division of assets often becoming a major point of contention. In cases where one partner is suspected of hiding assets, forensic accounting can prove invaluable in uncovering the truth. By scrutinizing financial records, forensic accountants can identify inconsistencies and trace the flow of funds to reveal hidden assets or income streams. This ensures a fair division of assets and prevents one party from being financially disadvantaged due to deception.

Forensic accountants may also be involved in determining the value of complex assets, such as businesses or investments, to ensure an equitable distribution of marital property. In addition, they can assist with calculating alimony and child support payments based on accurate income information.

Shareholder Disputes

Shareholder disputes can arise for various reasons, such as disagreements over business decisions, unequal distribution of earnings, or wrongful termination. These disputes can have a significant impact on a company’s operations, making it essential to resolve them quickly and fairly. Forensic accountants can be instrumental in these situations by providing an impartial examination of the company’s financial records.

In shareholder disputes, forensic accountants may be tasked with:
  • Determining the fair value of shares: By conducting a business valuation, a forensic accountant can help establish the fair market value of shares, ensuring that minority shareholders receive an equitable payout in case of a buyout.
  • Investigating allegations of financial misconduct: Forensic accountants can analyze financial records to uncover instances of fraud, misappropriation, or other financial improprieties, providing evidence to support or refute shareholder claims.
  • Calculating damages: In cases where damages are owed to shareholders, forensic accountants can accurately quantify the monetary value of these damages, facilitating a fair resolution of the dispute.

Insurance Claims and Disputes

Forensic accountants can be engaged to investigate insurance claims involving business interruption, property damage, or loss of income. They can help determine the accuracy and validity of a claim, identify instances of fraudulent claims, and calculate the appropriate compensation.

Bankruptcy and Insolvency

In cases of bankruptcy or insolvency, forensic accountants can help identify the causes of financial distress, uncover hidden assets, and determine if fraudulent activities contributed to the company’s downfall. They can also assist in the recovery and distribution of assets among creditors.

Contract Disputes

Forensic accountants can analyze financial records related to contractual agreements to determine if one party has breached the contract or if damages are owed. They can also help in quantifying damages resulting from a breach of contract.

Intellectual Property Disputes

In cases involving infringement of copyrights, trademarks, or patents, forensic accountants can help calculate the financial impact of the infringement and determine the appropriate damages to be awarded.

Forensic accounting may be useful in cases involving:
Forensic accounting may be useful in cases involving:

Mergers and Acquisitions

During mergers and acquisitions, forensic accountants can provide due diligence services by examining the financial records of the target company to identify potential liabilities or undisclosed risks. They can also help assess the accuracy of the financial information provided during negotiations.

Tax Fraud and Evasion

Forensic accountants can assist tax authorities in identifying and investigating instances of tax fraud or evasion. They can analyze financial records to detect discrepancies, underreporting of income, or the use of illegal tax shelters.

Employee Misconduct

Forensic accountants can investigate instances of employee misconduct, such as embezzlement, expense account fraud, or misuse of company resources. They can help determine the extent of the misconduct and gather evidence to support disciplinary actions or legal proceedings.

Ponzi Schemes and Investment Fraud

Forensic accountants can be engaged to investigate suspected Ponzi schemes or other forms of investment fraud by tracing the flow of funds, identifying the source of returns, and uncovering evidence of fraudulent activities.

Business Valuation Disputes

In cases where the value of a business is in dispute, such as during a buyout, divorce, or estate settlement, forensic accountants can provide an objective and accurate valuation of the business based on an in-depth analysis of its financial records.

Regulatory Compliance

Forensic accountants can help companies ensure compliance with various financial regulations, such as anti-money laundering laws, securities regulations, or environmental regulations. They can identify areas of non-compliance and recommend corrective actions to prevent potential fines or penalties.

Forensic accounting may be useful in cases involving:


How We Can Help:

Forensic accounting is a powerful tool in uncovering financial truths and providing valuable insights in various situations, from money laundering and fraud investigations to divorce cases and shareholder disputes. Professionals like Joey Friedman, CPA, possess the accounting expertise and investigative skills needed to scrutinize financial records, identify inconsistencies, and uncover hidden assets or illicit activities.

At Joey Friedman CPA PA, clients can expect a comprehensive range of forensic accounting services tailored to their specific needs. With an unwavering commitment to professionalism, integrity, and accuracy, Joey Friedman, CPA, ensures that clients receive the information and evidence they require to navigate complex legal and financial matters effectively.

As the business world becomes increasingly interconnected and complex, the demand for forensic accounting services will continue to grow. Whether it’s safeguarding a company’s reputation and financial stability or ensuring that justice is served in legal disputes, forensic accountants play a crucial role in uncovering the truth and promoting fairness in financial matters. In the hands of experienced professionals like Joey Friedman, CPA, forensic accounting can be a formidable weapon against financial crimes and a critical ally in the pursuit of equitable resolutions to financial disputes.


FAQs

A forensic accountant combines accounting expertise with investigative skills to examine financial records for legal proceedings. They analyze complex financial data to uncover fraud, trace hidden assets, calculate economic damages, and provide expert testimony in court. Unlike traditional accountants who focus on compliance and tax preparation, forensic accountants serve as financial detectives who investigate discrepancies, embezzlement, money laundering, and financial disputes in divorce, partnership dissolution, or insurance claims.

Forensic accountants typically charge $300-$600 per hour depending on their credentials, experience, and case complexity. An ABV (Accredited in Business Valuation) designation or extensive expert witness experience often commands higher rates. For a divorce case involving hidden assets, expect $5,000-$25,000+ depending on the number of accounts analyzed. Business valuation disputes may range from $10,000-$50,000+. Many forensic CPAs offer initial consultations to provide fee estimates based on your specific situation.

Consider hiring a forensic accountant when you suspect financial deception, face complex asset valuation, or need expert testimony. Key situations include: divorce with suspected hidden income or assets, shareholder disputes over business value, embezzlement or employee theft investigations, insurance claim disputes, breach of contract damages, or economic loss calculations in litigation. Early involvement allows the forensic CPA to preserve evidence, conduct thorough analysis, and strengthen your legal position before settlement negotiations or trial.

Yes, forensic accountants are trained to trace hidden assets through sophisticated analysis techniques. They review tax returns, bank statements, credit card records, business financials, and lifestyle expenditures to identify discrepancies between reported income and actual spending. Forensic CPAs can uncover offshore accounts, cryptocurrency holdings, undervalued business interests, payments to family members, cash businesses, and deferred compensation. They use public records, subpoena power (when available), and financial modeling to reveal concealed wealth.

A CPA (Certified Public Accountant) performs traditional accounting services like tax preparation, audits, and financial statement compilation. A forensic accountant specializes in investigating financial irregularities for legal purposes and often holds additional credentials like ABV (Accredited in Business Valuation) or CFE (Certified Fraud Examiner). Forensic CPAs are trained in litigation support, expert witness testimony, fraud detection, and applying accounting principles to legal disputes. They work with attorneys, courts, and law enforcement rather than focusing on compliance and reporting.

Forensic accounting investigations typically take 2-6 months depending on case complexity, volume of financial records, and cooperation from parties involved. Simple hidden asset searches in divorce may take 4-8 weeks, while complex fraud investigations involving multiple businesses or years of transactions can extend to 6-12 months. Timeline factors include: number of accounts analyzed, availability of records, need for third-party subpoenas, discovery deadlines, and whether the case settles or proceeds to trial. Urgent cases can sometimes be expedited.

Yes, qualified forensic accountants frequently serve as expert witnesses in civil and criminal cases. To testify, they must be qualified by the court based on education, training, experience, and credentials like CPA, ABV, or CFE designations. Expert witnesses provide opinions on financial matters including business valuation, economic damages, lost profits, standard of care violations, and fraud analysis. They prepare detailed reports, undergo deposition, and present findings at trial. Effective expert witnesses communicate complex financial concepts clearly to judges and juries.

Look for a CPA (Certified Public Accountant) as the foundation, plus specialized credentials like ABV (Accredited in Business Valuation), CFF (Certified in Financial Forensics), or CFE (Certified Fraud Examiner). Advanced degrees such as a Master’s in Accounting or an MBA demonstrate additional expertise. Equally important is experience: years of litigation support, expert witness testimony history, successful case outcomes, and knowledge of relevant laws in your jurisdiction. Review their CV, published works, and prior testimony records when possible.

Forensic accountants detect various fraud schemes including embezzlement (employee theft of company funds), asset misappropriation, financial statement fraud, corruption (kickbacks and bribery), procurement fraud, expense reimbursement schemes, payroll fraud, inventory theft, and check tampering. They also investigate Ponzi schemes, securities fraud, money laundering, tax evasion, insurance fraud, and identity theft. Detection methods include ratio analysis, Benford’s Law testing, data analytics, lifestyle analysis, and detailed transaction testing to identify patterns inconsistent with legitimate operations.

You likely need a forensic accountant if your spouse owns a business, has complex investments, shows lifestyle inconsistent with declared income, has access to cash revenue, or is uncooperative with disclosure. Forensic CPAs are especially valuable in high-asset divorces, cases involving professional practices (doctors, dentists, lawyers), partnerships, real estate holdings, or suspected hidden accounts. If marital assets exceed $500,000 or you suspect financial deception, the investment in forensic accounting often pays for itself through discovered assets and fair valuation.


HIDDEN ASSETS IN DIVORCE

FAQs

Spouses commonly hide money through understating business income, creating fake expenses, transferring assets to family/friends, delaying bonuses or commissions, overpaying taxes (to get refunds post-divorce), purchasing expensive items that can be hidden, investing in cryptocurrency, opening offshore accounts, or paying fictitious debts to collaborators. Cash businesses are particularly vulnerable to skimming. Forensic accountants identify these schemes by analyzing bank deposits, lifestyle expenditures, business tax returns, and comparing income patterns across multiple years.

Warning signs include financial secrecy (passwords changed, mail redirected), lifestyle exceeding documented income, reluctance to discuss finances, large unexplained withdrawals, asset transfers to relatives, new business entities formed near separation, missing statements or tax documents, defensive behavior about money, and discrepancies between tax returns and actual spending. If your spouse suddenly claims decreased income, insists on handling all finances, or resists financial disclosure requirements, consider engaging a forensic accountant before finalizing property division.

Yes, during divorce discovery you can subpoena bank records, credit card statements, investment accounts, business records, and tax documents. Your attorney can issue subpoenas to financial institutions, employers, business partners, and third parties. However, you must follow proper legal procedures and demonstrate relevance. Forensic accountants work with attorneys to identify which records to request, interpret complex statements once obtained, and trace fund movements between accounts. Some jurisdictions allow direct subpoenas to cryptocurrency exchanges and PayPal-type platforms.

A lifestyle analysis compares documented income against actual household expenditures to identify hidden income streams. Forensic accountants compile expenses including mortgage, utilities, groceries, clothing, entertainment, travel, insurance, tuition, vehicles, and discretionary spending. If spending exceeds reported income, it suggests unreported earnings or concealed assets. For example, if tax returns show $100,000 income but family spending totals $180,000 annually, the $80,000 gap requires explanation. This technique is particularly powerful in divorce cases involving cash businesses or self-employed spouses.

Most states allow asset discovery covering the entire marriage, though practical investigations typically focus on 3-7 years depending on statutes of limitations, record availability, and suspicious activity timing. If fraud or intentional hiding is suspected, courts may permit examination of earlier periods. Banks usually retain records for 7 years. Tax returns can be obtained indefinitely through the IRS. The lookback period often extends to when dissipation or hiding allegedly began, which may be when divorce was contemplated or filed.

Cryptocurrency is frequently used to hide assets due to perceived anonymity, but forensic accountants can trace it. They search for: exchange account statements (Coinbase, Binance), wallet addresses on devices, tax forms (1099-K, 1099-B), unusual wire transfers to exchanges, and blockchain transaction histories. Cryptocurrency must be disclosed as marital property. Forensic experts use blockchain analysis tools to track transfers, identify cashed-out funds, and value holdings at relevant dates. Failure to disclose cryptocurrency can result in penalties and unfavorable property division.

If hidden assets are discovered post-divorce, you may file a motion to modify the settlement based on fraud or misrepresentation. Courts can reopen property division, award you a portion or all of the hidden assets, and impose sanctions including attorney fee reimbursement and punitive damages. However, timing matters—most states have statutes of limitations (1-3 years) for fraud claims after judgment. Document the concealment, gather evidence, and consult an attorney promptly. Engaging a forensic accountant strengthens your case by providing expert testimony on valuation and intent.

Asset tracing costs typically range from $5,000-$25,000+ depending on complexity. Simple cases (reviewing 2-3 years of bank statements for one business) may cost $5,000-$10,000. Complex investigations involving multiple entities, offshore accounts, cryptocurrency, or extensive periods can exceed $50,000. Forensic accountants usually charge $300-$600/hour. The investment is often worthwhile: if tracing uncovers $200,000 in hidden assets, and you’re entitled to 50%, the $15,000 forensic accounting fee yields $100,000 in additional property—a 6:1 return.

Yes, you can obtain tax returns through discovery requests to your spouse and directly from the IRS using Form 4506-T (Request for Transcript of Tax Return). If married filing jointly, you have legal access to joint returns. Forensic accountants analyze tax returns for: unreported income, excessive business deductions, Schedule C income manipulation, mortgage interest deductions revealing undisclosed properties, passive income from hidden investments, and discrepancies between W-2 wages and lifestyle. Business tax returns (1120, 1120S, 1065) reveal ownership interests your spouse may not disclose voluntarily.

Dissipation occurs when one spouse wastes, depletes, or misuses marital assets for non-marital purposes during divorce proceedings. Examples include: gambling away joint savings, funding an extramarital affair, making lavish purchases solely for personal benefit, transferring money to family members, destroying property, or deliberately reducing business value. Courts can “charge” the dissipating spouse for wasted assets by giving the other spouse a larger share of remaining property. Forensic accountants document dissipation by tracing expenditures and demonstrating they provided no marital benefit.

Joey N. Friedman, CPA, ABV, M.Acc, MIB

Expert forensic accountant, witness and valuation professional

At Joey Friedman, we provide customized bookkeeping services that manage all aspects, including general ledgers, insurance reports, and payroll records.

Joey Friedman is well-known as a leader in his field for his knowledge, expertise and professionalism. Through a broad range of academic and real-life experience, Mr. Friedman can provide the guidance needed in a wide variety of business-related services. His ability to see each case from a variety of angles and identify the issues or inconsistencies that may need further investigation and inquiry, has made him an authority in the field. His strategic and tactical leadership has made his many businesses a benchmark for success in each of their respective industries.

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