I previously presented at the International Association of Arson Investigators (IAAI) conference to fire investigators, insurance claims adjusters and county attorneys. My presentation was focused on determining/identifying financial motives for arson, or for that matter, any crime where the motive appears to involve financial gain. The process used by accounting professionals to identify motive is referred to as financial forensics.
Financial forensics is defined as a financial analysis and examination used to assist in the determination of a possible motive to commit a crime/fraud. A key element in the investigation of a financially-motivated crime is gaining an understanding of the perspective of the possible culprit. For example, the culprit may ask: “Does the relief from personal financial pressure outweigh the cost (risk) of prison, continued financial hardship and even the cost of damaging my own moral compass?”
The Fraud Triangle describes three elements present when a financial crime is committed: pressure, opportunity and rationalization. The analyses performed by fraud investigators focuses on the pressure(s) present in an individual’s life causing them to commit an act they may not normally commit. What were the financial pressures leading up to the event, on the event date and/or following the event? The following circumstances may lead to deteriorating financial condition and may create a financial motive to commit a crime:
- Marital dissolution
- Substance abuse
- Addictive behaviors (gambling, shopping, collecting)
- Loss of income (job)
- Unpaid taxes
- Insured arrested/attorney fees needed
- Recent business partner split or dissolution
In 2003, fraud investigators from Eide Bailly were asked to review the personal financial position of a woman who was accused of shooting and killing her boyfriend. The prosecutor and the investigating law enforcement agency suspected the crime was financially motivated. Eide Bailly’s fraud investigators reviewed the woman’s finances. Our findings indicated that leading up the event, the woman had amassed $37,000 in credit card debt with expenses exceeding her income by $52,000. The State was also able to demonstrate that the credit cards and associated debt were in her boyfriend’s name without his knowledge. In addition, the credit card statements were sent to a Post Office Box of which she had had the only access. The belief was that the victim/boyfriend was close to, or had discovered, these financial forgeries and debts, which ultimately led to his eventual murder. The culprit was found guilty and sentenced to thirty-five years in prison.
In 2010, Eide Bailly was retained by an insurance company to review and examine financial accounts for a business owner who lost his home and two at-home businesses due to suspected arson. Our fraud investigators’ analyses and financial trending charts showed an increasing number of delinquent payments, increasing amounts of debt and personal insolvency as of the date of the fire. In addition, our fraud investigators included in their analysis a projection of the financial position the business owner would have been in six months following the fire, if the fire had not occurred. The case never proceeded to trial, and our financial motive theory was never tested. However, the insured ultimately settled for an amount far less than their coverage.
It is also important to note that personal enrichment, also known as greed, is sometimes the sole motivation for financial crimes; not all financial crimes include the presence of financial pressure. Often times, these financially motivated crimes are easier to prove.