Financial Fraud Investigations for High-Profile Clients

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Earlier this year I read a short article in Barron’s about why we should all care about Tim Duncan’s fraud case. I know I care because I am a devout San Antonio Spurs fan and love Timmy about as much as I love Pete Sampras. Which, trust me, is a lot.

The fraud may not have even been discovered if not for Duncan's divorce in 2013. According to Reuters, the scam was discovered when Duncan’s divorce lawyer consulted a financial planner to put together a property settlement for the divorce proceedings. In the end, Duncan lost $20 million to his former financial advisor, but agreed to a $7.5 million settlement this past January. His former money manager received four years in prison.

While some fans barely bat an eye at Duncan’s losses because it’s only a fraction of his net worth (an estimated $130 million), others, like myself, wonder which leg of the Fraud Triangle might have come loose. Or, even beyond that, are there similarities in fraud investigations involving high-profile individuals?

Patrick Chylinski, CFE, CVA, MAFF, principal at RSM US LLP in Los Angeles, told attendees at his educational breakout session today that there are indeed similarities and lessons to be learned to help you in your own investigations.

He began by reminding attendees of just how prevalent high-profile frauds are, specifically with fraud and corruption gripping Olympic and professional athletes, FIFA executives, musicians and actors over the last year.

There are similarities both within high-profile investigations and with financial investigations in general. Knowing these overarching parallels can help fraud examiners prepare for the sensitivities that may arise when working with either a high-profile organization or individual.

High-profile individuals often exhibit these characteristics:

  • Own multiple businesses and/or industries
  • Have family members and/or friends involved in the business or on payroll
  • Give loans or gifts to family and/or friends
  • Lack contracts, agreements or other written documentation
  • Lack access to the client

Chylinksi then shared the techniques he has used to directly address these challenges; techniques that apply to all types of investigations. He advised financial investigators to:

  • Bring in other subject matter experts or subcontract out to get the expertise you need.
  • Triangulate around data points using multiple information sources.
  • Make predictive calculations.
  • Compare to industry by conducting longitudinal analysis, common size analysis and ratio analysis.
  • Complete a lifestyle analysis.
  • Establish assumptions, in coordination with the client, to create reasonable data points to use as part of the analysis.
  • Compare to information previously provided or information disclosed publicly or through other sources like news articles or blogs.
  • Look for large, unusual, inconsistent items and data.

As one attendee in the audience mentioned, one of the best practices his company uses is to treat all clients as equals and apply the same due diligence to the person who lost $10,000 that you would to the person who lost $10 million dollars.