Application of the net worth method in forensic accounting investigations

Paul Eisenberg

Abstract


The present article deals with the application of the net worth method in the financial crime case study of John and Gayle Fawn. The UK Crown Prosecution Service accuses the defendants of having committed offences against the Proceeds of Crime Act 2002 in the period 2012/13-2014/15. Under the net worth method, the assets less liabilities (net worth) and the personal expenditure of the defendants are compared to their reported income during the period of investigation. In case the net worth and personal expenditure exceed the reported income and cannot be accounted for by previous savings, indirect evidence is provided that the defendants must have obtained unreported income. The case study shows that the increase in net worth and private spending of John and Gayle Fawn can be accounted for by undisclosed savings from previous employment income of John Fawn and by reported income for the year 2012/2013. This cannot be shown for the years 2013/14 and 2014/15, which constitutes a financing gap. Based on evidence and calculations, it can be demonstrated that in 2013/14 and 2014/15 the defendants covered the financing gap of £143.434,04 and £196,297.60, respectively, by unreported commission income in the range of £135,000.00-£216,000.00 per year. It can be concluded, that the defendants have been able to account for the net worth increase and private spending with unreported income in the calculated range in 2013/14 and 2014/15.


Keywords


forensic accounting; financial crime; net worth method; financing gap; proceeds of crime

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References


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