Mediator Podcast .com - Mediation, Negotiation & Collaboration
Mediator Podcast .com - Mediation, Negotiation & Collaboration
Hidden Assets and Income: Uncovering Financial Fraud in Divorce
Hi, welcome to MediatorPodcast.com, a podcast and video series about mediation, negotiation, and collaboration. My name is Melissa Gragg, and I'm a Valuation Expert and Divorce Financial Mediator in St. Louis, Missouri.
Today we're speaking with Krista Shelton, a Certified Fraud Examiner and Former Special Agent for the IRS. She has her own firm, Focused Forensic Solutions, where she and her team aids clients in uncovering facts, decoding details, and finding resolution during challenging financial crime investigations. Welcome, Krista.
What type of financial fraud is typically seen in divorce?
What signs or patterns raise concern for fraud or hidden assets?
What are the first signs your clients notice when they suspect fraud or hidden assets?What steps can individuals take on their own if there is suspected fraud or hidden assets?
What is Red Flag Analysis?
What is the Red Flag Analysis process?
How do you work with divorce attorneys in the divorce process?
What is the timeline of this process?
Melissa Gragg
CVA, MAFF
Expert testimony for financial and valuation issues
Bridge Valuation Partners, LLC
melissa@bridgevaluation.com
http://www.BridgeValuation.com
http://www.ValuationPodcast.com
http://www.MediatorPodcast.com
https://www.valuationmediation.com
Cell: (314) 541-8163
Krista Shelton, CFE
krista@focusedforensic.com
www.FocusedForensic.com
Hi, welcome to mediator podcast.com, a podcast and video series about mediation, negotiation, and collaboration. My name is Melissa Greg , and I'm a valuation expert and divorce financial mediator in St. Louis, Missouri. Today we're speaking with Krista Shelton, a certified fraud examiner and former special agent for the IRS. She has her own firm focused forensic solutions where she and her team aids clients in uncovering facts, decoding details, and finding resolution during challenging financial crime investigations. Welcome, Krista . How are you?
Speaker 2:Hi , thank you. I'm great. How are you?
Speaker 1:Well, this was , um, you know, I've been doing a lot of forensic work for corporations and businesses, usually in a business valuation context. Mm-Hmm. <affirmative> . But your experience and knowledge is like far beyond my comprehension. Can you just give us a little bit of background, because I think everybody's always kind of interested in like, what is being a special agent for the IRS mean?
Speaker 2:Sure. Um, so I actually started working at the IRS just out of college. And when I started, I was a revenue agent, so I was responsible for performing audits on small business taxpayers. And so I did that for a couple years and actually came across two fraud cases where I started working with the special agents , um, on the, on the fraud cases, and immediately knew that that was where I, I needed to be. So in 2010, I switched over and went and became a special agent with the Internal Revenue Service. So I was working, you know, financial crimes investigations, like tax evasion, money laundering , um, even bank secrecy act violations, and did that for about 10 years before deciding to start my own firm.
Speaker 1:Nobody can even understand the amount of experience or the things that you see when you're dealing with really high financial crimes or these, these kind of , um, crazy schemes. And quite frankly, today we're gonna talk about hidden assets and income and how we uncover financial fraud and divorce. And it's a little, you know, like you're probably not seeing the most dramatic things, right. But it does, we do see kind of general themes happen in divorce. And so maybe if we just start out with some simple things, you know, like we're not talking about espionage or, or, you know , um, trafficking and like all of these kind of things that people think are these big crime things. You know, we're seeing some financial fraud and divorce, but what do you normally see , um, coming through this space?
Speaker 2:So, you know, the, the typical scenario where we get involved is when there's a small business involved. So if the opposing spouse owns or controls any kind of small business, that's the scenario where people have the most ability to manipulate their income. And so some of the very, I mean, the, the typical things that we see are either unreported income, so, you know, we see a lot more deposits going into the business account than what's claimed on a tax return. So that's, that's an indication that there's , uh, you know, unreported income. Um, the other really common scenario that we see is when people put personal expenses through the business, and we see this on personal credit cards, but we also see it just in the bank accounts . So they could be paying their mortgage, they could be putting all their grocery receipts , um, through the business. And, and so it doesn't, when that happens, you are changing, you know, their income. It could be $20,000 a year, it could be a hundred thousand dollars a year. And so if you've got any kind of spousal maintenance or child support that's based on an income figure, then it's a , it's appropriate to determine what the actual income is that somebody earns every year. Um, so that's probably, you know, the, the most typical thing that we see. But in our analysis, we always look for hidden bank accounts. Um, you know, if there's a, a one check for a hundred dollars that goes to a different bank, that's an indication that there's another bank account out there. And so , um, you know, again, we, we, we do comparisons on tax returns to look for , um, you know, anything that's changed, you know, right before diver divorce, all of a sudden there's meals and entertainment for $10,000 on a tax return. That's an indication that they've started to shift a bunch of their personal expenses over
Speaker 1:Well, and I think obviously that is where we see the majority of, and I, I would say we don't call it fraud, we call it discretionary spending and things like that. Um, but I would say a lot of times business owners are underreporting their income and , um, you know, trying to claim that there's no income for tax purposes. Um, but that's something that you could see on the tax return, you know, what other signs or patterns would maybe give a person concern for fraud or hidden assets? And can they look at , you know, like are there documents they should look at or some of their own forensic work that they should do?
Speaker 2:Well, sure. And, you know, to start off , uh, if you're going through a divorce, you should always be looking at bank accounts. So, you know, in typical situations there seems like there's always a lot of control by one spouse over all the financial aspects of the, of the marriage, including maybe small businesses. So if you're not having access to bank statements, then, then I would absolutely, you know, get on there and start looking at 'em. Just scroll through there and see if you see anything that's unusual to you, because you're gonna be, you know, the first person that's gonna notice some of this. Um , you know, some of the things that we'll see , um, you know, some of the other things that we, we look for is if, if a company is overly complex, if they have set up, you know, a ton of shell companies, if they're using trusts , um, if they're, you know, offshore accounts, things like that , um, are , you know, can often be indications that something nefarious is going on. Um, you know, same with the bank statements. This is one thing that we always look for is if you know where all of your properties are, but you are scrolling through a bank statement and you happen to see a tax payment that goes to a different county that you don't know any assets belong to, that's something that you can absolutely follow up on. And, you know, go Google searches, even look on Facebook. Um, I mean, there's, there's loads of information out there and, and just having a , an idea of kind of the things to look for can really make a huge difference.
Speaker 1:Well, in the bank statements, we usually talk about, you know, round numbers. Mm-Hmm . <affirmative> big numbers, you know, things going in and out that you don't recognize. Sometimes it could be on the business bank statements, and a lot of times those are going to the business or something like that. One thing that you said though, is about trusts, and I think that more often , uh, a couple who's getting divorced may have a trust or a prior trust. Um, what are you seeing in some of that capacity? You know, what, what are you seeing they use the trust for, or what should we be mindful of?
Speaker 2:Well, for one, if, if a spouse is the trustee of another individual's trust, that is something, you know, I just got a call this morning with somebody who realized that their sister, who's the trustee and and guardian of their mother has been taking money out of, out of the trust accounts. And, you know, and again, that is, at the end of the day, that is becomes income to the person who's stealing the money. And so, you know, any, I mean, you know, most of the time in trust, the bank accounts end up being in the trust name. Mm-Hmm . <affirmative> you , a lot of times the assets are put into trust names. And so, you know, we do , um, we get a comprehensive report. We work really closely with a, a private investigative company, and so we get a standard comprehensive report on every case that we work, which lists off any properties that are owned, vehicles that are owned. And so, you know, again, the trust is, is becomes difficult. And you probably realize this too, because it's, it's really hard to get information and, and, you know, I don't even think we could subpoena,
Speaker 1:Right.
Speaker 2:Is that, is that true? I mean, I, I ,
Speaker 1:Well, it depends on who owns it, right? Right. So if you have a trust that's not a party to the marriage or a trust that's owned, and they are just a trustee, but they're not the beneficiary, or there are other things, or, you know , there's complications , um, yeah. You might not be able to pierce that veil if it's the parents' trust Mm-Hmm. <affirmative> , um, you know, and that money is separate money or hasn't come through. Right. You could have an issue. So I like to tell people, like, everybody who goes through divorce is like going through a trust issue, right? Yes . You know, a communication issue sometimes and a trust factor. And there's, since that's so heightened that everybody assumes like, oh, I saw something that looked suspicious, like they're hiding money. Like everybody thinks that it's easy to hide money. Offshores , everybody thinks that they're diverting funds. Um, but what are some of the first things that you should really pay attention to , um, to notice if you should suspect it? Because just because they have a business doesn't, you know, and they put some personal expenses that's not the same as hiding money from you. So what should they, what are some of the first like spidey senses that, that happen ?
Speaker 2:Well, so I'll tell you this. So when I, when I worked , first started working at the IRSI was a revenue agent. And so I'm just doing audits on small business tax returns. The very first thing that we always did was kind of a cash flow analysis. Is this person able to pay for normal living expenses based on the amount of income that they're reporting? And I always use the example of, you know, if, if , if I'm looking at a tax return where somebody's claiming $30,000 in income every year, but then their house is over a million dollars, that's a clue. Right? That's a red flag that maybe something something's not quite being reported accurately. Mm-Hmm . <affirmative> . And so, you know, there are pretty standard living, you know, personal living expenses, calculations based on what area of the country you are. Um, you know, so you can get a really good idea on whether, you know, whether somebody's, whether it makes sense that somebody would be able to report that that amount of income or that little amount of income.
Speaker 1:Well, and I, and I think that, you know, the assumption that like , like let's say somebody is doing something , um, or hiding some money or shifting it off, you know, are you typically seeing a trail , um, in the documents? Because a lot of times, unless it's a cash based business, you know, there's a trail, you use a debit card, you use a credit card, you are paying by Zelle, or, you know, online payments are not as easy to get from a discovery standpoint. Um, so how are you dealing with some of those types of issues?
Speaker 2:Yeah. Um, again, when we start with the bank, bank accounts and the tax returns, and the first thing that we always do is a tax return comparison where we take, you know, you may have an entire folder that is hundreds of pages of tax returns and flipping through one page after another isn't, you know, you're not gonna be able to comprehend it the same way as if you have a spreadsheet, which we're really good at spreadsheets, right? And if you have a spreadsheet where it has columns per year, and so you can see that their income went from a hundred thousand dollars and then the next year it was only 50, and that year happens to be the one that they're in the divorce, well, that would be an indication that there's something to do, right? Mm-Hmm . <affirmative> . And so, but , but the bank statements always, I mean, unless there's just a lot of cash , just like you said there , every transaction can be traced, every transaction can be categorized, can be grouped together , um, to see if it matches on a tax return. You know, we follow up on any kind of payments to other financial institutions, that's an indication that there's something else out there. Um, you know, we , um, I mean, which is
Speaker 1:Kind of like fictitious vendors, you know, all of these things Yes. That talking about have very specific terms to them, but we're trying to make it easier to understand , um, for people, it , and one of the things that I think is important to know is like, this kind of analysis can be very expensive. Like, when we were doing forensics, we were going in for kickbacks and other types of things and big corporations, and they were paying a lot of money. But even in a divorce, you could pay 10, 20, $30,000 for somebody to trace every dollar. And it's an emotional thing, right? Right . It's an emotional, they screwed me over. Whereas I don't think you can always, you know, like chasing every dollar isn't gonna be as beneficial. And the reason why we kind of had you on here is because you have a way of looking at and kind of going after some of the , um, inherent worries about one of the parties, you know, addressing. Yes, we're worried that there's something happening, but is it to the level of millions or 10,000 or 1000? And in my mind it's really doing that in a container like saying, okay, we're gonna look at, you know, like a couple years or a couple accounts or a couple things, but you have an , an amazing process that you can go a lot deeper and you call it the red flag analysis. Yes . So I would love for you to tell us more about this, because this actually probably helps people get the answers that they want, but in a, in, in , in a tighter cost, right. So that, that's just not an unlimited cost. Right. Exactly. Tell us more about this.
Speaker 2:So, so the red flag analysis is for a situation where there's a complicated divorce and you have just a ton of financial information, and maybe your gut feeling is that something's not quite right, but you can't put your finger on it and you're , you know , you're not sure where to look. And so we have developed this unique process where we analyze standard first round discovery documents in a divorce. And so, you know, we're focusing on the bank statements and the tax returns, but we're also looking at all the interrogatories. We're also, you know, starting off by just analyzing whether you've received all of the information that you've requested. Um , we're looking for missing statements , um, things like that. And so we do a complete analysis on every single document that you provide us in these cases. And we look for suspicious activity. So we're looking for red flags, like hidden bank accounts, like unreported income, personal expenses through the business. And, you know, there's basically two scenarios that would happen. We either find red flags, which we identify, and then we help develop a , a tailored plan that will fit the needs of the case. And so whether that be additional discovery that it should be requested, or if there's witnesses that should be contacted , um, you know, helping a , an attorney come up with deposition questions, things like that. And, and then, you know, and again, if we don't find red flags, then we provide peace of mind. And I can tell you a specific example and , and that I love talking about because you know, this, this client was convinced that something nefarious was going on with her spouse's business. And we looked at it, we did our standard analysis on it, and we really, there weren't any red flags that we were identifying. And when we first disclosed that to her, she was really upset. I mean, she was really frustrated that we didn't find anything. She called me two weeks later and expressed so much gratitude for being able to give her that peace of mind, knowing that she was gonna get a fair deal. And at the end of the day, that's what we're trying to do. We wanna make sure that it's fair for everybody, that people are , are accurately reporting what they should. Um, and, and, you know, we just wanna help our clients get to the bottom of that
Speaker 1:Mm-Hmm. <affirmative> . And again , well then I , I like the concept of a red flag analysis, because what I would assume happens is that if there's one area, so let's say you do the red flag analysis and there's , um, or maybe we should <laugh> , you know, like maybe we talk about the process, but like, you , you do this process, right? And then something triggers Mm-Hmm. <affirmative> like, then what, because I think that, you know , in litigation or in mediation, there could be two different ways to deal with that. But you know, so you do find a couple red flags. How, how does that, how do you give that information? Is it a report? You know, do they then take some steps next?
Speaker 2:So what we typically do is if we just , if we determine that there are red flags and we wanna bring those to the attention of the attorney and or the clients , um, then we actually do it . We put together a PowerPoint presentation and, and present the information to both the parties , um, you know, whether it be Zoom or even in person. And so what we do is we start off with like, here's all all of the information that we looked at, and then we start breaking it down into, you know, we see an issue here. One of the most common things that we find is personal credit cards that are paid out of a business. And so, you know, in a , in a case that we just had, there were two credit card accounts , um, you know, a chase at a Capital One, and there , out of the business there were between 300,000 and $400,000 worth of ex payments made from the business account to these personal credit cards. And the opposition tried so hard to fight providing those credit card statements, but at the end of the day, there's no way for anybody to be able to verify that the expenses paid on that credit card are in fact business expenses. And in that specific case, we determined that there were personal expenses paid to the tune of a hundred thousand dollars a year. Mm-Hmm . <affirmative> . And that's, you know, that's real income. That if a personal expense is paid by a business that is income to the individual.
Speaker 1:Mm-Hmm. <affirmative>. Mm-Hmm. <affirmative> Well, in also looking at income and cashflow, you know, there's a way that in mediation and even dealing with a business valuation that we can make adjustments for some of these things. You know, we don't necessarily have to go refile with the IRS. So when you find things, are you also, you know, basically having to tell the IRS that these things are happening? Or is this just a confidential thing that you're kind of giving the couple this information or one of the parties? How does that work?
Speaker 2:Right. Um, you know, we're under no obligation to turn over any information to the IRS and, and our standard procedures are to keep all of that information confidential. Um, the only time that we would ever turn anything over is if we were court ordered to do so, in which case, you know, we would comply with that. Um, but I will say, you know, there are situations where there's, you know, fraud found or discrepancies in, in IRS issues where, you know, the opposing spouse wants to turn it over to the IRS mm-Hmm . <affirmative> . And so, you know, we will help , um, in those scenarios because there are things that people need to pay attention to. Number one, if you're filing a joint return and you turn over information to the IRS, then potentially you're, you're adding a liability to your own, you know, that you would be personally responsible for Mm-Hmm . <affirmative> . And so there's, you know, procedures that you can claim innocent spouse, and so we, we could help, you know, and, and even if we do find fraud and , um, and you know, maybe that they don't wanna turn it over, but you wanna protect your clients Mm-Hmm . <affirmative> , then we can help establish those innocent spouse procedures with the IRS to , to ensure that they're protected in the future. Mm-Hmm. <affirmative> . Um, so, but, but I will say on the other side of that, there is a form that you can file with the IRS and claim an award for turning over information. And so, you know, we, we don't necessarily suggest that that happens, but , um, but that is something that can be done
Speaker 1:Well, and that kind of gets us to, you know, how do you work with divorce attorneys in this process? Because in my mind, one person could hire you because they're really concerned. And typically in a litigation, that's what would happen is you'd hire a forensic person to look at some accounts , um, and do this kind of analysis. Right? Mm-Hmm. <affirmative> , um, for the most part though, you don't have to disclose the information. It's confidential. I think that sometimes people use the fact that there could be an IRS issue , um, to try to kind of negotiate or try to use that as leverage. Yes . Um, are you seeing very many people kind of jointly hire you or to, to dispel that issue? Or are you really just seeing the person that assumes that something is happening? Um, looking into it further?
Speaker 2:Yes. I mean, that, that is typically how that happens is somebody assumes and then they want, you know, someone to verify or, you know, take a look at the information. But in a scenario where there were two people and maybe one did have a concern, we would certainly get involved in a case to be able to explain to one or the other. Um, you know, if there isn't anything to be concerned about and we are comfortable , um, you know, making that statement to the, to the other spouse, then we would certainly, you know, get involved in a case like that. Um , but at the end of the day, you know, we're, we're trying to take the burden off of somebody who doesn't have the financial expertise in this area. I mean, forensic accounting is not, it's not just adding one plus one equals two. I mean , we , you know, we have a lot of experience looking forward this nefarious activities and this suspicious activity.
Speaker 1:Yeah. There's very few, I mean, I've been doing this for 20 years. There's very few people that will do, you know, and you guys do some fixed fee analysis in order to do this red flag analysis. And I don't see a lot of people around the country offering this because this is, this is still a lot of review of information and, you know, it's, it's sort of like we do a very similar process, but we have a valu, you know, like a business involved and we're doing the actual valuation . Um , but I think that they should keep in mind that, you know, I have had one situation where , um, a business owner filed the tax return based on numbers that we knew were wrong because they were our calculation for nine months of income from the prior hearing in the litigation. And then they filed their tax returns using that income number, and we were able to say, okay, <laugh> , it's wrong. Because it was only nine months and it's the , it was the exact dollar. And in that case, the judge did stop the court and ask for the attorneys to come to chambers, and then came back out. I think two more questions were asked of me, and we were very much at the beginning Mm-Hmm. <affirmative> . And then I was told I was not , you know , and that case settled because I think the judge, you know, you have to understand that this is still a legal system. The courts are connected to the IRS, they're all government entities. So if you get to the courtroom , that judge could theoretically disclose it to the IRS. Um, and so a lot of this is understanding how often do you really find the needles in the haystack, right? Like, I will give you my, like, you do this a lot more, but I would say, you know, 75% of the time that somebody thinks something is being mishandled or mismanaged, there might be mismanagement of the money. Mm-Hmm. <affirmative> . But I don't always see it hidden like in secret bank accounts and, and things like that. So where do you normally, you know, like what are you seeing the percentage that you're finding the red flags? Um, or that there's nothing, right?
Speaker 2:Um, yeah, to be honest, it's probably some , I mean, 75% of the time if, if somebody is coming to us because they believe or they suspect something is not right, then 75% of the time we are finding red flags that we identify Mm-Hmm. <affirmative> . And that, that's pretty, that's a pretty high percentage. And, you know, going back to your, you know, recent trial, I mean, we just had one, my, my team and I did where we , uh, you know, stepped in because we did identify what we considered tax fraud. And we had, you know, emails that were evidence of their intent to defraud the IRS. And so we stepped in, met with the opposing side to, you know, to let them know that the fraud was there. But to also tell them like, if your client testifies, or if his business partner testifies, there's two things that are gonna happen. They're either gonna perjure themselves on the stand or they're gonna admit to tax fraud. Yeah . And so in that scenario that that forced that other side to, you know, understand what they were doing to come to terms with it, and they had been doing this for years and years and years and, and, you know, it resulted in a settlement that day because they, they, you know, they , the other, the other attorney had to protect their clients from going on that stand.
Speaker 1:Mm-Hmm. <affirmative> . Mm-Hmm. <affirmative> . So , well, and sometimes, you know, you detect the fraud and you see it and the, the, it's still in the negotiations to sign a joint tax return for that given year. Right. Yeah . And I think the concern is sometimes, at least from the lawyer's perspective, and I don't know if we have an answer to this 'cause it really is a legal thing, but you know what, what can be done? Like, are you an innocent spouse at that point because you've identified it, you know what's happening, and now you're going to consciously sign on that next tax return. You know , there's there like, this is, this type of stuff happens in almost a lot of the cases that I work on because there's a business, right . And that's usually the conduit to be able to do some of these things. Right? Right . Or you own property. Do you think you see more things hidden in companies with tangible properties or operational kind of cash flow ?
Speaker 2:Um , most of what we've seen has been in the, in the operational side. Yeah . Um, but you know, it , it's also a matter of looking at, you know, there , we just had a scenario and, and this was one of those exciting, like, you know, we finally broke the case open and I got to call the attorney and tell 'em like, oh, I figured out what's going on. And it was a matter where, you know, there was management fees being paid and it was like, you know, let's say, let's say it was a plumbing business, like there, it's not typical for a plumbing business to pay 50,000 a year in management fees. Right? Well, the management fees happened to be paid to a company that he owned with his cousin, who also ended up owning another similar, you know, construction trade business. And so what it looked like was both the individual businesses were paying management fees to this jointly owned partnership, and then all of that income was just wiped out. Mm-Hmm . <affirmative> . And there was other things, you know, other little tidbits about this, like they were, you know, the , the , uh, the partnership that was receiving the management fees was a trucking company with very little gross receipt , but all management fee income. I mean, so those are the types of things that somebody might not recognize, except that we have the experience of, of working these IRS cases , um, you know, that we're able to shed light on. And, you know, one of the other things that I really wanna point out is the first thing we do in any case is we look for what was requested from the opposing side and what was received. Mm-Hmm . <affirmative> . And so if you've requested three years of bank statements and you only get one, then we identify that. And that's something that, that, you know, you as the attorney or your or your attorney can immediately go to the other side and request those records. Mm-Hmm . <affirmative> , we also look for missing bank statements. And I can't tell you how common it is that we get, you know, a, a , a dump of discovery, you know , uh, on us. And then we look at the three years of tax returns or , or sorry, the three years of bank statements that we have. And then there's just like every once in a while there's a missing bank statements. Mm-Hmm. <affirmative> . So that's something that maybe you wouldn't notice if you're, again, if you're not doing the kind of detailed analysis that we are Mm-Hmm . <affirmative> . But there's so many times it, it could be a matter of that one bank statement that's missing, had a transfer to a different bank. Right. Or it could even be like, there was, we , we just had one recently where it was a missing credit card statement and he didn't wanna provide it because there was a $3,500 chair charged to a dating site. Mm-Hmm . <affirmative> , I mean, so there's, you know, generally reasons for information not missing. And I'm gonna say this too , because if in today's world, if you can't go to your online banking and get a copy of your bank statements, that is a red , I'm sorry, that is a red flag. Yeah . That does not make any sense. And so if I ask five times for one big statement and keep getting, you know, pushback on that, then, you know , that's, that's not , that's a red flag. That's something that we would absolutely look into even further, further.
Speaker 1:Well, and it's a red flag if your name's not on the bank statements.
Speaker 2:Exactly.
Speaker 1:You know, a red flag. If you've never had a conversation with your accountant, it's a red flag. If you've never had a conversation with your financial planner, but your spouse does, you know, I think there are a lot of issues and maybe, you know, we can at least give some advice on, you know, things that they can do. Um, I know that when we're talking to people, you know, if we're gonna look at 20 a a year, you know, 20, 22, 20 23, 20 24, we wanna look at bank statements, tax returns, business tax returns, credit card statements. Yes . Everything in a given year. Like, I will almost start with like the most recent year and then go backwards and, and take a whole year. Because I think what people don't understand is you can't just look at one piece of it and assume that it's the whole picture. You have to look at all of these pieces and say, oh, okay, this went over here and then this went over here, and then this, or we come in and double count and we're showing something that is not accurate. But are there steps that like the people could take , um, to look at things or collect data or sleuthing around if they su suspected some of this stuff?
Speaker 2:Absolutely. I mean, if you've got bank statements at your house that you keep at a file file cabinet, look through those. Make sure that you, that you can identify every account that you're finding, whether it be a financial , uh, you know, a , a , a financial institution, a credit card company , um, you know, any kind of financial document I would take a look at and make sure you at least write down the account number and who's on it. Um, you know, it may be a matter of accounts that are , uh, you know, and , and the parents' names that are being used by your spouse. Um , things like that. If, if it's a small business and you've got QuickBooks on your home computer, I mean, I Why , and if you have a login , why wouldn't you get on there and download a backup copy of the QuickBooks or get on there and , and you can Google, I mean, it's , you know, Google how to run a report in QuickBooks and you'll get step-by-step , um, you know, instructions on that. Mm-Hmm . <affirmative> . And so there's things that may be at the house that you can identify that you can go ahead and grab just to make sure that you have that information. You know, even if you know it's a year from now that you end up getting divorced. Mm-Hmm . <affirmative> . Um, you know, so those are the, those are the , uh, the other thing I would say is like paying attention to the mail that comes in the house. So, you know, or is all the mail being sent to the business and is there a reason for that? If is , are your personal bank statements, if you notice that those are being sent to, you know, your husband's or your spouse's business address, then that would be something that I would identify.
Speaker 1:Yeah . And the reason why that's a red flag, because people wouldn't understand that, is that most accountants tell business owners to send their business statements to their home. Yes. So that you don't have your staff opening it up and you have a separate, you know, like you can know if somebody's stealing from you. Mm-Hmm. <affirmative> . So , um, one of the other things that I think is interesting is that you could go to your spouse's office and, you know, even looking around at what the, the envelopes are coming from Bank of America or Chase or something like that, we have phones. I mean, I would definitely recommend, I mean, writing down things is great, but if you know your spouse well enough, they will destroy documents. Yes . And so, taking pictures of things that have some, you know, a lot of times they will paint the person to be crazy, you know, so you'll be like, no, I saw this account. Well, if you at least have a picture, it doesn't mean that it's totally admissible, but it has the account number, it has tangible proof that that statement and some of that information you can use. Right. Right.
Speaker 2:Right. No, that's absolutely correct.
Speaker 1:Now, at what point should they really step back because they can do more harm than good?
Speaker 2:Well, we would obviously never suspect or suggest , uh, that somebody commit any or do anything illegal. Right . So, you know , don't break into your spouse's business and then steal documents. We would never suggest that you do that. Um, I mean, what , what kinds of things do you see? Have you
Speaker 1:Well, I think that, I think that it's brilliant to just take a dive into there to see if you really think what you think. Right. The other , the , the other thing that people have to keep in mind is what is the end result that you're gonna use in court? You know, so if this goes all the way to court, can you use that information? Is it moving the needle? A lot of people get very concerned about spending money on a , um, girlfriend or boyfriend.
Speaker 2:Yes.
Speaker 1:Or, you know , uh, squandering marital assets. And I think what I've seen in some of really high net worth divorces where you could have hundreds of thousands of dollars every month being spent by one person and the other person's locked out of the financials. You know, those types of situations , um, are obviously there's something going on, but you are gonna assume that there's way more than there is. Mm-Hmm. <affirmative> . And so, and you, it may be very hard, like you gave an example of the credit card. So they're running one credit card with business and personal expenses. Like I can't always tell it. I can see the patterns, right . We'll see the patterns of behavior, and we're looking for breaks in the patterns. Um, but I think that, how am I gonna, how is that spouse gonna prove that that meal was business and that meal was not right? You know , so you can almost get like a , it's almost better to get a bigger picture than to assume that you can get so specific in the numbers. I think. Yes .
Speaker 2:And, and again, with the red flag analysis, we're trying to identify, you know, bigger items. We're not looking for the $500 discrepancies here and there. Now if it's, you know, a hundred dollars check, that could potentially lead to something bigger than we would follow up on it. But, but we're really trying to identify things that are going to make a difference in a divorce.
Speaker 1:Okay. So what is the timeline? Like, let's say, I think that there's something, because what I believe is if if you see something, you think that something's there, there's gonna be a , a , some more things there. Right ? Right. Um, but what is the ti , like what is the ti And I think that this is a sanity check. Like this is you coming in and saying, I believe that they're going and taking all my money. Are they really doing it <laugh> ? Yes. You know, like, so what's the timeline involved in something like this? And are you just getting like the discovery documents basically, or do you also request additional information?
Speaker 2:So , um, you know, we, we definitely like to get involved. The earlier the better because it gives us more time to be able to follow up on things that we do identify. So I do wanna say that to start. Um, but you know, when we receive all of the standard first round discovery documents , um, within a month we have , we will go through them, we will do our comparisons, we will do our analyses, and then put together a list of either we've got red flags here they are, or, or we don't. And so usually within a month, we're able to meet with, meet with our clients and, and at least give them an idea of, of what we're, what we're seeing. Or if there are, you know, lots of missing records, then we would identify that. Um, and so at that point we start to , you know, as soon as we identify red flags, we start developing our plan. And so we're coming up with, you know, whether it be deposition questions that, that should be answered , um, whether it be, you know, following up on additional credit card , uh, records that we don't have. Um, and so we put together a list of all the kinds of different discovery that we , that you know, that the opposing side should ask or that you should be asking your opposing side . And so, you know, we wanna make sure that we're still within that discovery window where we still have the ability to go ask for additional records.
Speaker 1:Now, let's say you find something like, let's say, and it's in a certain account or it's a certain type of analysis, are you then coming in at this red flag analysis and saying, okay, we saw A, B, and C , um, and would you like to go down any of those pipelines?
Speaker 2:Correct. Yes. Okay. And, and it generally starts with, you know, it almost always it starts with here's the additional stuff you need to be asking for. And so as, as pieces start coming in, you know, at that point we would, you know, enter into a contract and, and work on an hourly rate , um, at that point. 'cause that , at that point we know that there are some issues that need to be identified. Um, generally speaking, by the time that we have our, we've completed our red flag analysis, we also have an idea of amounts. So it's not just, here's, here's kind of an issue. It's like, you know, here's $300,000 worth of personal credit cards put through our business. We need to get those credit card statements. Analysis needs to be done on those. And so here's the additional records, here's what you should be looking for. And so, you know, obviously we would love to, you know, help in continue in that process, but we're also going to give the attorney and or the client like, here's what, you know, you're gonna get these additional records. Here's what you should be looking for on those Mm-Hmm. <affirmative>. And so it may be a matter where, you know, they get those credit card records and they look through 'em and it is all business. Well, then you wouldn't wanna hire us, you know, to, to do that analysis if you could look through it yourself and, and identify that. Mm-Hmm. <affirmative> . Um, so again, we're looking at big things, giving you very specific instructions on , um, what records would help resolve that issue. Um, and then how to do that.
Speaker 1:Well, and I think that anybody who has some worry, 'cause this is really an emotional worry. And I think that if you don't address it, sometimes you will just continue to like hyper focus on even after the divorce is done. And in my mind, this type of analysis could actually help get things settled. Yes. Because you are coming in and saying, okay, here are these three red flags, this, it might be in this range for something realistically that person and that attorney can take that information and utilize it and say, Hey, you want us to go further down this pipeline or not?
Speaker 2:Yes. Because
Speaker 1:If you're giving ,
Speaker 2:We find leverage. We're trying to give you guys leverage to the other side to make sure that you're getting your fair share.
Speaker 1:Mm-Hmm, <affirmative> .
Speaker 2:Mm-Hmm,
Speaker 1:<affirmative> . Yeah . And if they're not willing to have that conversation, then you are going forward and you're going forward in a capacity to present it to court. Yes . Or to testify. Mm-Hmm. <affirmative> . And not everybody has that capability. Like they can come in and do the analysis, but they may not, and it does, it shifts. Like then you're producing how do you support it in court? Right. And you could be insignificant, you know, then you're still looking at the cost benefit analysis. If it's millions of dollars, if's a no brainer. If it's hundreds of thousands of dollars, it's probably still a no-brainer. Um, I think when it's smaller amounts, you might be able to, you know, do some additional analysis and then use that for leverage as well. Right. Um, but I think that people need to be mindful that not always is the court so responsive to it. You know , sometimes in high net worth divorces and we come and say, oh, they've spent a couple hundred thousand on , um, girlfriends are boyfriends. The court will be like , uh, okay. You know, like there's not as much of, you know, like, it , it , it does become relevant how big the issue is, don't you think? Yeah , that's,
Speaker 2:That's absolutely true. And, and I , you know, on these bigger issues, you know, we can put together an expert witness report that goes to the other side where we lay out all of the evidence that we have. We attach the copy of our, our cv, our resume, which shows, you know, we've been working for the IRS for 13 years, we know what we're talking about. Mm-Hmm . <affirmative> , um, you know, and then, and then if it's ends up being necessary, then we'll be expert testimony in a , in a court proceeding.
Speaker 1:Well, I want you to tell us a little bit more about your company and some of the things that you can also do, because I, I find it very fascinating that a lot of what you're doing, we are also doing in the context of a business valuation. But if they don't have a business valuation, they're not doing this type of, you know, like this is very important analysis and you have a financial eye Right . On those documents. So even if you're not having other experts, in my mind, you're, you kind of, you're a resource for attorneys Yes . And the clients. Really. That's
Speaker 2:True. Yes.
Speaker 1:Okay. Yes .
Speaker 2:I mean , again, you know, we've got 13, I I personally have 13 and a half years experience with the IRS , um, on top of another, you know, four since I've opened this company. And, you know, there's just nothing that can give you, you know, I, during that 14 years or 13 years at the IRSI was inside and out of businesses and, you know, interviewing them , um, on their procedures. Um, you know, one of the things that I actually do, I don't know if most people probably know this, but when the IRS decides when they're going to audit a tax return, it's, so every return that gets filed is given a score, it's called a diff score. And that score is based on the probability that something's not right. And that, that, that the analysis that's done, the computer analysis that's done is, is from years and years and years of IRS data. Right. But those tax returns then go to a, an office in Cincinnati where revenue agents sit down and they'll be like 10 at a time, and for eight hours a day, they're gonna look at all the returns that got pulled because of their score. And then they go through and they actually identify, oh, that looks weird. They should audit that. Oh, meals and entertainment looks really high for this type of business. We're gonna audit that one. And then they get sent out to the field. And so, so again, knowing, you know, having the ability to look at different industries, you know, financial records, it doesn't matter if I've, if I'm looking at a restaurant or if I'm looking at a trucking company , um, you know, the , the tax returns in the bank accounts are still gonna give us that same kind of information. But having an idea of what is normal in an industry , uh, you know, having, having our experience of looking at every single type of business you can imagine, and being able to identify what looks weird for, you know, a specific kind of business. For instance, the trucking company that claims management fee income, you know, that's, that was something that was, that stood out right away. Um, but you know, on top of that, my team is , uh, has, has combined 89 years of experience working in financial investigations for the Internal Revenue Service. So we've got former revenue officers who were on the collection side. We've got multiple , uh, former special agents , um, you know, that are retired that, you know, have decided that they wanna help people instead of, you know, using the victim as the government. Mm-Hmm. <affirmative> . And so, you know, again, we, and , and then Maggie is my new employee and she's got 16 years as in the banking industry. Mm-Hmm . <affirmative> . And so our , all of our experience is all in financial information and specifically related to small businesses. And so if if something's going on, then, then, you know, we're, we're trained to find that information.
Speaker 1:Yeah. And well, and it's, again, it's just like so mind blowing to me because people might go and get a business valuation and really they might say, oh, I wanna , I , I want the business valuation, but like, what , what are they doing in there? Right. And I almost feel like your process, you know, like if you're really more concerned about something weird happening in the business, your process is really identify, like it's doing some of the same work to look at the discovery, but it's from a different lens, you know, and the attorneys look at discovery from a different lens. You know, a forensic person looks from a different lens, and a business evaluator looks from a different lens. And I think that that's the important , uh, pieces of it is that you have another set of eyes that's looking, you know, even to tell the attorney, like, Hey, you need to get more information here, ask these questions. Like that is very much worth, you know, what I know you're charging for right now. And it is a fixed fee, and it is, I think, very reasonable, if not low , um, for the work that you're providing. So I would encourage people to reach out to you , um, if they have some of that concerns, because I think they come to business valuation people. What ? Like, Hey, are you gonna go look for that? And like, seriously, our engagement letter, our work literally says we are not there to detect fraud. Yes. You know? Mm-Hmm . <affirmative> . So, I mean, what about tracing assets? That's another area that, like what if you have separate assets from 20 years ago and you're trying to figure out is it still mine?
Speaker 2:Uh , sure. I mean, look it , you, financial institutions are required to keep records for five years. Right. Um, most times if somebody's, you know, if there's a file cabinet at a house, there's the likelihood that there's probably 20 years in there is, is very possible. Mm-Hmm . <affirmative> . And so, you know, if you give us financial information, we will do whatever we can to, you know, to trace those in , trace those assets to look for additional assets, you know, to look for the hidden bank accounts and all that kind of stuff.
Speaker 1:Yeah. This was awesome. All right . Well, Krista , I appreciate all of this information. Is there anything else that you would recommend or can they reach out to you? Do you do like an initial call or what
Speaker 2:We do, we do a free consultation. Um, and, you know, you'll, you'll talk directly to me and, and we will , um, you know, if, if there's a scenario where I'm not understanding that there's probably a need for it, I'm, I'm not going to take your money. Right. Right. So I'm , I'm only gonna do it if I think that there's, there's an absolute need for it. Mm-Hmm . <affirmative> . Um, I do wanna say you just , uh, reminded me of something and, and it's when you're getting business records, so many times people will just provide a profit and loss statement, income statement, you know, or balance sheet or the tax returns. And, and if you just have solid numbers for a year, there's no way to determine what makes up that number. And so that's why it's always important in these cases if there's a small business to get a general ledger to get the, the actual business bank statements. And so I just, I wanted to make sure that I said that before, before we ended this.
Speaker 1:Yeah. I think definitely getting the, the right documents is gonna be important. Most people don't know what a general ledger is, but it's a basically a record of every transaction in the business income and expense. And it gives you the details about what goes into the meals and entertainment. Um, and it's typically not always requested. Right . But it's a pretty easy document to even download out of QuickBooks into Excel. So we try to ask for it in Excel as
Speaker 2:Well. Yes. That's so true. So true.
Speaker 1:All right , well this is awesome, Krista . We're probably gonna have you on again to talk about more about what we see in business valuations. 'cause I bet you we have some good stories to share. Yes . Um , or maybe we just have a storytelling session.
Speaker 2:I would love that because I, I, when I was preparing for this, I was trying to think of various cases and kind of how, you know, 'cause there are, there's lots of stories and when people start hearing how it actually happens, it'll also, it might trigger just things in your head. Like, Ooh , wait a minute. You know, that was something that I experienced. Um, and so, you know, and one thing I will say, you know, I'm not saying that every scenario there is something there, but I would encourage people to trust your gut. I mean, your gut, your gut says something for a reason. And so if we can help bring clarity to that, you know, if your gut is saying that something that's not right and you can't figure it out, that's what we wanna do. And so we wanna eliminate that uncertainty for you. Um, and again, at a flat rate so you know exactly what you're getting. And, and we, at , at the end of the day, we wanna make sure that it's accurate and that's fair.
Speaker 1:Yeah. And, and the flat rate is very reasonable as like a retainer that you would be paying to an expert anyway and you get a lot more from it. Yeah . So in my mind, I, as I hope that you find nothing, but it really, at some point you have to look at it as it is a small cost for peace of mind. Yes. And whether you go forward on any of the, you know, sleuthing and getting more information about them, you don't have to like, you might just be like, oh, okay, I knew there was something there. Oh , okay, it's at this level. Great, now we can put it to bed. Right . You know, like we're not dictating what you do with the information, but it is for your own peace of mind. And to come as an attorney, it would also move your client off of that position because sometimes the clients are just kind of like a broken record. Yes . Um , and if they don't get some clarity on that, they're just gonna continue to assume and as the proceedings go, assume that it gets worse. Yes . You know , so. Well, this is so great. Thank you so
Speaker 2:Much . Thank you for having me .
Speaker 1:Alright , we'll see you soon .