Case Studies: Fraud

#1: Forensic Accounting, Prosecution

A bookkeeper, and family friend of the business owners, knew the accounting system inside out.  He was also completely trusted and he decided to take advantage of the close relationship and total access to the money of the business.  Over three years the bookkeeper stole several hundred thousand dollars.

An IRS audit ultimately blew the whole scheme apart.  The outside CPA called the business owner and said that getting information from the bookkeeper for the audit was ridiculously hard and that none of the numbers were adding up.  The owner responded by retaining Arxis to come in to the business to review the records.  Within an hour it was evident that cancelled checks did not match the accounting records for the business and that many checks had been forged.  The bookkeeper had established a bank account for a fake business and had written checks to this business.

Arxis conducted the investigation, prepared a report and supporting file, and the client submitted the evidence to the prosecutors’’ office.  Criminal charges are pending against the bookkeeper.

#2: Forensic Accounting, Court Testimony

The accounting staff of a company discovered strange transactions on their monthly bank statement. The employee who normally opened the bank statement was unexpectedly out that day and one of the owners decided to take a look. It became quickly obvious, even to an untrained eye, that something was wrong. The initial assumption was that there was a bank error.

Arxis Financial was retained to resolve the problem. Once on-site, it became obvious to a trained eye that it was not a bank error, it was fraud. What began as a reconciliation engagement became a full-fledged fraud investigation and prosecution. After eight hours of forensic work, enough evidence was gathered to support a report proving the defalcation and quantifying the total loss.

Chris Hamilton eventually provided key evidence in Los Angeles Superior Court that was instrumental in proving the case against the employee.

#3: Bank Reconciliations, Internal Controls

Arxis was hired to do a review of the accounting records of a business because senior management was suspicious of the financial reports they were receiving from the controller.  The reports just didn’t make sense and there was a sense that the accounting department was sloppy and out-of-control.

The first step was to review bank reconciliations.  It was represented by the controller that they were current.  However, it was quickly determined that bank reconciliations had not been completed for over 20 months.  It was further established that the cash records were incomplete and as sloppy as perceived.  And, this was just the beginning.

The result of the investigation was that there was no embezzlement.  Every dollar was eventually accounted for.  The controller had simply been exposed as under-qualified and overpaid.  Arxis assisted in hiring a new controller and establishing a system of internal controls that would assure complete, accurate, and timely financial reporting.  The owners of the business realized when the engagement was done how fortunate they were that the controller was not dishonest to the same level as they were incompetent.

#4:  Forensic Accounting, Trial testimony, Defense

A prestigious law firm contacted Arxis with an unusual request.  They had a client who was the defendant in a lawsuit alleging fraudulent behavior.  The law firm requested that Arxis examine the records and develop an opinion regarding the case, how to present it, and most importantly they wanted an opinion as to whether their client was guilty of the allegations.  This was the beginning of a series of cases extending over several years that resulted in one jury verdict and two bench verdicts all in favor of the law firm’s client.

Early in the case Arxis requested authorization to completely recreate and recast the financial statements for the entities involved in the alleged fraud.  The client and the law firm gave the authorization and each transaction was analyzed, classified, and recorded.  When the accounting work was done it was obvious the client was not guilty of the many accusations and the law firm had the basis to present a vigorous defense.  In addition to the favorable verdicts, the client received a written apology from the plaintiff.

In one of the bench verdicts, the court noted that the testimony of Chris Hamilton was “His detailed testimony that followed was vastly more persuasive than any contrary evidence” and “his testimony was perceived as accurate and knowledgeable.”