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Flint Forensics
Pty Ltd - Newsletter
Welcome to the seventh edition of the
Flint Forensics Pty Ltd semi-annual newsletter. This newsletter is to help keep
you informed of the latest developments relevant to Life Policies and personal
and commercial litigation support. It is a free service provided by Flint
Forensics Pty Ltd.
Index
- Tax Returns – FOI Request,
Change of Rules
- Tax Returns and Financial
Statement Fraud
- Financial Ratios
- Financial Profile
- Anti-money laundering: bill
passed by parliament
- Administration
Tax Returns - FOI
Request, Change of Rules
If
you are having trouble obtaining copies of ITR’s from the ATO after
receiving a signed original from an insured, then you are lucky. Recently one of my clients was
encountering difficulty in gaining copies, as always has been the standard
practice for years.
Well,
on 11 March 2005 things changed.
The ATO released Practice Statement Law Administration regarding the authorization
to request information under the Freedom of Information Act 1982.
The
purpose was to advise a Tax Officer about the authorization required by a
person making a Freedom of Information request on behalf of another person.
PS
LA 2005/3 provides further explanation as to the ATO rationale.
http://law.ato.gov.au/atolaw/view.htm?rank=find&criteria=AND~ps~basic~exact:::AND~la~basic~exact:::AND~2005%2F3~basic~exact&target=ZD&style=java&sdocid=PSR/PS20053/NAT/ATO/00001&recStart=1&PiT=99991231235958&recnum=2&tot=16&pn=ALL:::ALL
Tax Returns and Financial Statement Fraud
Income Tax Returns are good sources of
additional and comparative information on the operations of the business. A
complete review and comparison of the financial statement may provide
information unknown to the reviewer or disclose unexplained discrepancies.
Again, the lack of properly prepared and timely file tax returns may be a
method of stalling or not providing the required information. Most perpetrators
of fraud are reluctant to continue the deception and falsify a tax return.
Year-after-year extensions and filing of the tax returns on the last possible
date could be ploys to cover up financial statement and tax return differences.
I recently reviewed a clients claim with
properly prepared income tax returns and assessment notice and after further
investigations, it was revealed that their was an amended income tax assessment
notice that reversed the alleged income used to substantiate the level of
earnings under an income protection policy.
Financial Ratios
Ratio analysis is a means of measuring
the relationship between two different financial statement amounts. The
relationship and comparison are the keys to the analysis. Ratio analysis allows
for internal evaluations using financial statement data. Traditionally,
financial statement ratios are used in comparisons to an entity's industry
average. They can be very useful in detecting red flags for a fraud
examination.
As the financial
ratios present a significant change from one year to the next, or over a period
of years, it become obvious that there may be a problem. As in all other
analysis, specific changes in specific ratios is detected, the appropriate
source accounts should be researched and examined in detail to determine if
fraud has occurred. For instance, a significant decrease in a company's current
ratio may point to an increase in current liabilities or a reduction in assets,
both of which could be used to cover fraud.
In the analysis of financial statements,
each reader of the statements will determine which portions are most important . Like the statement analysis discussed
previously, the analysis of ratios is limited by its inability to detect fraud
on a smaller, immaterial scale.
One of the ratios that is useful
is Receivable Turnover:
Net Sales on Account
_____________________
Average net Receivables
Receivable turnover is defined as net
sales on account divided by average net receivables. It measures the number of
times accounts receivable is turned over during the accounting period. In other
words, it measures the time between on-account sales and collection of funds.
This ratio is one that uses both income
statement and balance sheet accounts in its analysis. If the fraud is caused
from fictitious sales, this bogus income will never be collected. As a result,
the turnover of receivables will decrease.
In terms of an income protection policy,
this type of analysis could determine if the individual artificially created a
sum insured or pre disability earnings.
Financial Profile
Most fraud investigations require a
detailed understanding of an individual or organisation finances. This
information is assembled into a report known as a financial profile. The four
components of a financial profile are assets, liabilities, sources of funds and
expenditure.
Assets
Typical assets include residences, real
estate, bank accounts, stocks and bonds, automobiles, cash, jewellery,
clothing, collectibles, pensions, furnishings and boats or other recreational
craft.
Liabilities
Typical liabilities include mortgages,
secured and unsecured loans, lines of credit, credit cards and credit accounts,
accounts payable. taxes and other bills, alimony and
child support. It is particularly important when examining liabilities to note
the initiation date of each liability and details of payment made against the
debts.
Source of Funds
Typical sources of funds include salary,
gifts, rental income, dividends, interest, sale of assets, insurance proceeds,
commissions and fees, awards inheritance, disability payments and government payments.
Expenditures
Typical expenditures include rent and
mortgage, health costs, interest payments, credit cards, car loans, travel,
clothing, utilities, food, insurance and travel.
Source: Financial Investigations, IRS
Publication, 1714.
Anti-money laundering: bill
passed by parliament
The Anti-money laundering and Counter
Terrorism Financing Bill 2006 and the Anti-money Laundering and Counter
Terrorism Financing (Transitional Provisions and Consequential Amendments) Bill
2006 was passed by the Parliament on 7 December 2006 and will come into effect
on Royal Assent.
This legislative package implements the
first tranche of anti-money laundering and counter
terrorism financing (AML/CTF) reforms. This applies to the financial services
industry, including financial planners when they are arranging for the
provision of other designated services.
The government will begin work on the
second tranche, which will cover accountants,
lawyers, real estate agents and jewellers after
implementation of the first tranche has been started.
There are serious civil penalties imposed in the first tranche
for non-compliance.
The government has also committed $13.1
million for an advertising campaign to ensure that the basis for the new
obligations will be fully understood by the general public.
Administration
Corporate
Membership of the Australian and New Zealand Institute of Insurance and Finance
Flint Forensics has again supported the
insurance industry by once again becoming a Corporate Member of the Australian
and New Zealand Institute of Insurance and Finance for 2007.
Instruction
Forms
I have available a series of instruction
forms which also have guidelines as to what information may be required for
specific tasks. This is a valuable resource and I can only stress the
importance of requesting the right information the first time to make the
financial assessment the most efficient and effective as possible. Please feel
free to review these at our leisure.
You can either print them out or simply
unprotect the document by using the password "FLINTFORENSICS" and
save the document to your desktop.
Talk to you soon,
Bruce Flint
Managing Director
FLINT FORENSICS PTY LIMITED -
Assessment of Economic Loss, Expert Witness, Financial and Other
Investigations, Income Protection Risk Management, Regulatory
Investigation and Assessment, Training and Valuations
PH: 02 9584 1474 FAX:
02 9584 1474
VISIT OUR WEBSITE: www.flintforensics.com.au
WE AIM TO PROVIDE PROFITABLE SOLUTIONS
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owner.