Our firm provides litigation support and trial consulting services for a variety of economic crime, civil and commercial matters. In a significant number of those matters, we have relied on one or more of the seven “Methods of Proof” (MPs) commonly used by IRS agents during criminal investigations. They are the Specific Items, Net Worth, Expenditures, Bank Deposits, Cash, Percentage Markup, and Unit and Volume methods. 

Over my forensic accounting career I have employed and testified to all of the MPs, while assisting trial counsel with defending economic crime allegations and during commercial and civil litigation as a plaintiff or defendant/respondent expert. It has not mattered whether the engagements were in the federal court or state court. All of the MPs are recognized and acceptable in the court systems of the U.S. as well as a number of foreign jurisdictions. 

This article concentrates on a brief description of four engagements and the results of using the MPs. 

Some years ago, an individual was indicted by the U.S. attorney in the Southern District of Florida for laundering the proceeds of narcotics trafficking through the “cash purchase” of winning lottery tickets. The U.S. Attorney’s Office relied on the testimony of cooperating witnesses and a list of assets owned by the defendant to paint a picture of criminal behavior. Fortunately, the defendant had retained his banking and other records we required for our financial evaluation for several years before, throughout and after the specified period of alleged money laundering. Using the specific items, net worth, expenditures and, bank deposits MPs, my staff and I prepared a detailed analysis of the financial history and financial condition of the defendant for several years before, throughout and after the specified period of alleged money laundering. We demonstrated that all of the defendant’s sources of funds were from legitimate sources, all of his expenditures were for legitimate purposes, and all of his increases in net worth were the result of legitimate transactions. The jury acquitted the defendant of all charges in short order.

Two years ago, I was retained, through counsel, to assist a victim company in a state civil case involving an employee embezzlement of more than $1 million. The embezzlers included the victim’s comptroller, a customer and the employee of a prominent national bank. It was accomplished through diverting the victim’s sales receipts through a bank account with a name that was similar to the name of the victim company, the “sales of inventory” to the co-conspirator customer at a zero price and the active assistance of the co-conspirator bank employee in creating and using the diversionary bank account. The victim company brought suit against all three parties for recovery. By using the specific items, bank deposits, disbursements and the net worth MPs, we were able to quantify and support the victim’s embezzlement loss. That led to the bank settling with the victim for an amount close to the amount of the victim’s loss plus reimbursing the victim for legal and professional fees incurred during the litigation.

After Hurricane Wilma, an attorney retained our firm on behalf of certain condominium association unit owners to evaluate disbursements of hurricane damage insurance reimbursement that were approved by members of the board of directors of the condominium association. A lawsuit filed by condominium owners alleged that certain board members made repairs and improvements to their units in excess of what was required to restore their condominium units to their pre-Hurricane Wilma condition. Because of deficiencies in the books and records of the association, its required financial statement audits were not done for several years prior to Hurricane Wilma and audited financial statements were not issued; eliminating a potential base line starting point for our work. Our work included reconstructing the association’s accounting books and records, assessing the disposition of insurance reimbursement funds received by the association, and reviewing in detail the association’s disbursements for the reconstruction and repair of the units of certain board members. In doing our work, we relied on the bank deposits, disbursements and specified items MPs. We used the association’s bank account records and documents, disbursements records and invoices in its files, as well as records in the possession of the targeted association board members. The result of our work was a settlement involving the targeted association board members, and the association’s officers and directors’ errors and omissions insurance carrier that resulted in the association being reimbursed for the inappropriate expenses and improvements relating to the targeted board members. 

In 2011 our firm was retained to provide forensic accounting support to the defense team in one of the most publicized Miami murder trials of the decade. The defendant, a former FBI agent, was charged with first-degree murder, conspiracy to commit first-degree murder and second-degree murder with a firearm. In charging the defendant with conspiracy to commit first-degree murder, the prosecution team relied on the testimony of notorious convicted murderers whose sentences were reduced in exchange for their testimony against the defendant. The prosecution team also relied on the defendant’s financial records for one year immediately before and several years after the charging period in the indictment using the services of an IRS criminal investigation agent for its analysis and presentation of findings. The IRS agent inaccurately used the net worth MP to present the financial side of the prosecution’s case by performing an analysis of the one-year in the charging period that produced a negative net worth when viewed in the vacuum of that year. Had the agent used the net worth MP as required by the Internal Revenue Agent’s Manual, the year chosen would have demonstrated a beginning net worth of more than several hundred thousand dollars and the ending net worth for that year, although somewhat reduced, would have remained at several hundred thousand dollars. The net worth MP is not accurate unless it covers several years because analyzing a single year in a vacuum can produce skewed results. We used the same records and produced a net worth analysis for all of the years covered in the government’s charging period. As a result of our objective net worth MP analysis, the jury ignored the prosecution’s cooperating witness testimony regarding financial bribes paid to the defendant as well as the inaccurate presentation and related testimony of the IRS agent, and acquitted the defendant of the charges of first-degree murder and conspiracy to commit first-degree murder that rested on the prosecution’s assertion that the defendant had received bribes for ignoring the murder activities of the cooperating witnesses.

In the absence of a smoking gun, using the “Methods of Proof” during a forensic accounting engagement has proven to be the most effective approach to achieving a positive result for parties that we represent. 

South Florida Legal Guide 2014 Financial Edition