February 2019
In This Issue

"We're all friends here" is a prelude to fraud. "I am sincere" is a prelude to lying."
~ Mason Cooley

We are grateful to have the opportunity to provide you with this valuable information via our monthly e-newsletter and our unparalleled forensic accounting and fraud investigative services.

The goal of this e-newsletter is to provide you critical, inside information that will help you "follow the money" in business disputes, divorce cases, fraud cases, estate matters, corporate embezzlement and to prevail when defending an IRS criminal case. We will do this by sharing the knowledge we have from our 25+ years of experience as an IRS Special Agent and 16 years as a private investigator / forensic accountant.

We take special care to ensure the information we provide you in "The Beacon" is the latest and most current information available.  In this edition, we talk about the fraud investigation by the numbers.

We want to write about topics that will assist you in prevailing with fraud, divorce, estate and probate, and IRS criminal cases. Please e-mail us your topics of interest to Thebeacon@sageinvestigations.com
We encourage you to share our e-newsletter with others in your sphere of influence.  
Edmond J. Martin
Principal, Chief Investigator
Certified Fraud Examiner (CFE)
Texas Certified Investigator (TCI)

In the midst of continuous construction in Austin, Texas I have been hired to investigate the misappropriation of construction funds by contractors. Where do I start? I start with this checklist of things for investigators and attorneys to consider when investigating fraud. 

1. Meet with the client 
Your investigation begins with a client meeting. Thoroughly interview the client and any co-workers or support staff with relevant knowledge about the suspected fraud. Clarify exactly what they suspect and why. This is the time to define the scope of the investigation and secure a signed contract and a retainer.  

2. Obtain records 
Obtain and review the contract made between the client and the contractor to determine the agreed upon terms and conditions, including the required periodic financial reporting and the accessibility of financial records by the client. Determine how many properties are being constructed and the estimated cost of each. This is important because contractors often fail to allocate materials and labor per project, opting instead to take draws, which is a dangerous and nebulous scenario for the client. Secure any reports made by the contractor to the client and if there are none, determine why. Most contractors tell their clients they are too busy to maintain accounting, which creates confusion and increases risk for the client.

3. Determine funding sources 
Funds are generally received from invested capital contributed by the client of the entity and/or bank construction loans. For all funds contributed or loaned secure records that show dates and amounts of funds and where they were deposited.

4. Gather and review additional records 
Secure all relevant client records, including bank statements and canceled checks or evidence of wire transfers. This will provide a lead to the contractor's bank account. Ask the contractor for his records (bank records, invoices, etc.); if necessary, obtain a power of attorney from the contractor to obtain the records. The client may need to have his attorney file a lawsuit and subpoena records from all known banks. The bank accounts will allow a determination of the amount received and disposition of the funds and allow the identification of other bank accounts. If necessary, subpoena the contractor for invoices for construction materials in an attempt to determine the particular job to which the materials were delivered.

Additional records to secure and review include:

Settlement statements for the purchase of the land (reflecting the property loan) Bank loan documents

Bank loan history (reflecting loan advances and payments)

Draw requests - Comparing the allocations on the draw requests with the checks drawn during the draw period will allow you to determine if the money was spent for the stated purpose or if the contractor used the funds in another way.

Checks or Electronic Funds Transfers (EFTs) - Use these to determine when funds were deposited. Identify and interview the bank officer who inspects the progress of the project and signs off on the draw requests. He/she may have further records of the allocation of expenditures for the construction project as represented in the draw requests and a computation of the percentage of completion. Beware of...

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At Sage Investigations we are dedicated to serving our clients nationally, to help them navigate the difficulties of dealing with fraud, divorce, estate and probate, the IRS Criminal Investigation, and other complex (forensic) financial fraud investigations. By narrowing our focus to our primary strength of following the money, we steer our knowledge, efforts, and experience to financial issues. We help our clients propel their cases forward by assisting in the review, acquisition, and organization of financial records, evaluating the elements of their cases, and helping create winning strategies. Through the use of our proprietary advanced financial investigative technology we trace and analyze complex financial data quickly, easily and efficiently, saving our client's time and money.
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