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How To Spot Fraud In The Insolvency Process

We will need to be vigilant against potential fraud as post-pandemic liquidations and bankruptcies begin to rise. Fraud often occurs when debtors deliberately try to lie or misrepresent themselves on the schedules they are required to complete during the insolvency process.

Here are some of the top red flags that Forensic Accountants will look out for that can indicate potential fraud:

  • Hidden or undervalued assets
  • Messy or misleading financial records
  • Misleading payroll records
  • Missing key financial documents
  • Inconsistencies between financial statements and recent tax returns
  • Recent transfers of cash or high value assets
  • Recent transfers of money, property or other high value assets to close family members or friends
  • Money transfers to people with no prior involvement in the business
  • A sudden decrease in stock
  • Loans to related companies
  • The formation of a new company or entity shortly before the liquidation or bankruptcy
  • Recent departure of high-level executives or key personnel in the accounting department
  • Preferential payments to creditors
  • Bonuses paid to or monies withdrawn by executives in the period leading up to the liquidation or bankruptcy

How do Forensic Accountants detect fraud?

Forensic Accountants are skilled in tracing cashflows and examining voluminous financial data to discern patterns of fraud and asset concealment. Most liquidations and bankruptcies involve concealment of assets. Forensic Accountants can assist by identifying and confirming any of the above red flags, tracing the movement of funds and/or assets, as well as presenting their findings and opinions related to their analyses.

Should you suspect or know of a fraud having taken place, please contact Davidsons Forensic Accountants who will be able to assist.

About the author

Raymond Davidson

Raymond has been specialising in Forensic Accounting and Litigation work for over 30 years, is a Fellow of the Institute of Chartered Accounts in England and Wales and trained by the Academy of Experts to act as a Mediator.



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