Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Fraud Examination Chapter 16 Bankruptcy, Divorce, and Tax Fraud

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. To the Student  This chapter is the third of four chapters that covers types of fraud other than financial statement fraud. This chapter discusses the various types of fraud not yet addressed in the text. We will primarily focus on two types of bankruptcy fraud (bankruptcy used to perpetrate fraud and bankruptcy used to conceal fraud), divorce fraud, tax fraud, and money laundering.  However, various types of bankruptcy are also briefly discussed. You will also find an overview of the Bankruptcy Code, civil and criminal bankruptcy fraud statutes, and activities of key participants in the bankruptcy fraud statues, and activities of key participants in the bankruptcy and divorce process. Two common bankruptcy and divorce fraud schemes will be addressed: bust-outs and the fraudulent concealment of assets or income.  At the end of the chapter, we discuss what money laundering is, how it is used to commit fraud, and how it relates to other frauds.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Explain why fraud is so prevalent in bankruptcy, tax, and divorce cases.  Describe the nature of bankruptcy and be familiar with bankruptcy codes.  Understand civil and criminal bankruptcy fraud statutes.  Identify the participants involved in the bankruptcy process.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Learning Objectives  Recognize different bankruptcy and divorce fraud schemes.  Understand how perpetrators fraudulently conceal and transfer assets and income in bankruptcies and divorces.  Define tax fraud and be familiar with common tax fraud schemes.  Understand how money laundering is used to commit fraud.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Bankruptcy, Tax, and Divorce Fraud  Many people hope to maintain assets while minimizing debts.  In bankruptcy and divorce frauds, people try to conceal assets or income that could be taken from them.  In tax fraud, people are too aggressive in their attempts to minimize tax liabilities.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. The Nature of Bankruptcy  Reasons behind Filing for Bankruptcy  Gives a debtor relief from creditor collection and foreclosure actions  Protects creditors from unfair collection efforts by other creditors  Allows the debtor to work out an orderly plan to settle debts or liquidate assets and distribute the proceeds to creditors in a way that is intended to treat creditors fairly.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Concealing and Transferring Assets  Ways assets or income may be concealed  Cash may be diverted to another entity  Inventory may be shipped to an off-site location  Assets or income may be shifted to another entity controlled by the debtor  Sales may not be reported properly  Payment may be made to fictitious persons

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Concealing and Transferring Assets Indicators of Concealment  Transfers of property or large payments to related parties or individuals, such as insiders, shareholders, or relatives.  Frequent and unusual transfers between bank accounts, particularly between business and personal accounts.  Numerous transactions made in cash that normally are made on account (sales, purchases, etc.)  Unusually large and unexplainable payments to vendors.

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Tax Fraud  Common Tax Fraud Schemes  Deliberately underreporting or omitting income  Overstating tax deductions and exemptions  Keeping two sets of books  Using a false Social Security Number (SSN)

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Tax Fraud Common Tax Fraud Schemes  Claiming personal expenses as business expenses  Claiming false deductions  Hiding or transferring assets or income  Illegal money laundering schemes

Albrecht, Albrecht, Albrecht, Zimbelman © 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Money Laundering Process