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By Robert Scott Sr.
An aspiring Hollywood Starlet suddenly files a sexual harassment suit against a producer, claiming to have been the victim of a workplace sexual assault. A Los Angeles area building contractor’s home catches fire and is reduced to rubble. A trusted longtime auto parts supply company manager suddenly becomes a suspect in the embezzlement of company funds.
What is the one thing that all of the above have in common? The key player in each case was in serious financial distress before donning the hat of plaintiff, claimant, or suspect. The actress was found to have a recent history of apartment evictions and car repossessions. The building contractor’s business had shrunk severely, but his lavish lifestyle did not, plunging him into debt. The auto parts supply employee had been slapped with a $24,000 child support order by the Los Angeles County District Attorney.
While the discovery of financial distress alone does not prove fraud or guilt, it does establish a viable motive for the fraud. Because of the close linkage between financial distress and fraud, discovery of financial distress often serves as an important indicator that further, more in depth investigation of the overall claim is warranted.
Discovery
The process of discovering the financial health of any insured, claimant, plaintiff and/or suspect needs to begin at the earliest stages of the investigation process.
First, the interviewer must be willing to ask the interviewee if he or she is having financial difficulty. Many investigators, adjusters and attorneys shy away from what they feel might be an embarrassing line of questioning. It feels uncomfortable both to the investigator and to the person being interviewed.
However, once the question is asked, the onus is placed on the subject of the investigation. If financial distress is present and the subject lies about it, or if the subject refuses to answer the questions, a pattern of deceit and/or evasion has already been established.
Questioning the subject about his finances serves dual purposes. First, it is the most obvious and most direct route to learn the specifics of the financial distress if the subject of the investigation is forthright. Second, it can serve as an indicator of the subject’s truthfulness. Since an experienced investigator can independently determine whether the subject is in financial difficulty, the result of such a financial investigation can be compared to what the subject said to gauge his truthfulness at least in this area.
Another critical step is securing a records release authorization signed by the subject. A good authorization will allow the investigator “front door” access to everything from the subject’s credit report and employment history to his banking records. This obvious early step is often overlooked.
Because a good investigator doesn’t trust anyone (but his clients and his mother), an independent investigation of the subject’s financial condition is begun.
The Investigation
A financial investigation doesn’t have to be expensive or cumbersome. Often law firms and insurance companies will authorize a preliminary investigation one that is cursory in scope and simply seeks to establish whether a further, more detailed investigation is in order.
The preliminary financial investigation specifically costs between $250 and $500 and might include some, or all, or the following.
Identity Verification
Using both public and private sources, the investigator must establish that the subject is who he says he is. Social security number and date of birth must be verified, because these are the two most common identifiers under which financial and other records are held. Prior married names, aliases, alternate social security numbers, and alternate dates of birth need to be uncovered at this stage. Use of aliases or multiple social security numbers is an indicator of potential fraud.
Credit Reports
Credit reports can be a useful yardstick for measuring overall financial health and personal debt. Auto repossessions, liens, bankruptcies, evictions, and some civil judgments can also be found here. However, be forewarned that access to a person’s credit history is sharply controlled by the Fair Credit Reporting Act.
Also be aware that credit reports can be misleading or even useless. They can be misleading if a subject has five different credit histories under five different names and social security numbers and you only know about one. They can be useless if the subject lives outside of the financial mainstream by living without credit and credit cards which is often the case with recent immigrants and those with low incomes.
Public Records Sweep
Using computerized information sources, the investigator can conduct a sweep of numerous public record databases to identify past or present filings, including lawsuits, notices of default and foreclosures, UCC filings, bankruptcies, tax liens and judgments. These public record sweeps are most effective when the subject of the investigation has a unique or uncommon name. Since the databases are indexed by name only, a common name will show records everywhere, with potentially time consuming follow-up needed to identify which records belong to the subject. If multiple names have been used by the subject, he or she will need to be run under each name.
If the preliminary findings warrant further follow-up, a more thorough investigation may be in order. The process of collecting financial information will then come into play, presenting a clear picture of the subject’s true financial condition.
Using the Results
Certainly, investigation of financial distress is only one aspect of an overall thorough and complete investigation. The investigator will still need to interview witnesses, collect and analyze physical evidence and obtain background information.
The results of a financial investigation should be used whether they indicate financial distress or not. If financial distress and fraud go hand in hand, can we assume that good financial health and honesty do, too? Well, not always. A successful fraud artist may be in good financial health because of his many past successes.
If indicators of financial distress are not evidence of fraud or guilt, then what is their value to the overall investigation? Certainly, discovery of financial distress establishes one viable motive for the fraud scheme.
However, beyond motive lies a more indirect value. Because of the close linkage between financial distress and fraud, discovery of financial distress can serve as a signpost justifying further investigation of the larger issues relevant to a case.
In many investigations, the face value of the claim may appear to be strong. The facts and evidence as provided by the subject may initially make sense. However, when serious financial distress is uncovered, further investigation and review of the “facts” can lead to an unraveling of a fraud scheme which resulted in the successful denial of the claim or the successful outcome of a lawsuit.
In fact, uncovering financial distress can often be a key step in defeating fraud. It can serve both to establish motive and to justify further investigation, leading to the ultimate defeat of the fraud scheme.
Robert Scott is a senior investigator with Specialized Investigations and author of The Investigator’s Little Black Book.
Financial Distress Indicators
The following is a partial list of financial distress indicators:
- Credit Report: High debt to credit ratio; past due collection accounts; many recent “inquiries,” indicating recent efforts to obtain additional credit.
- Employment: Subject is unemployed, marginally employed, or was recently fired or laid off.
- Marital Status: Subject is divorced or recently divorced and has unmet or burdensome alimony or child support orders.
- Real Estate: Late pays on mortgage, notices of default, foreclosures. For renters, evidence of evictions or many recent moves, generally to cheaper housing.
- Vehicles: Repossessions or late payments; unpaid registration fees, parking tickets, and fines.
- Lawsuits: The subject has been named as defendant in civil actions.
- Professional License Suspension: The subject had a professional license suspended for disciplinary reasons. He is unable to practice his customary occupation.
- Derogatory Public Records: Past filings of bankruptcies, tax liens or judgments.
- Business Failure: Self employed person or business owner has undergone serious interruption in business, including separation from partners, loss of location, change or downturn in customer base.
- Criminal Records: The subject has been fined or convicted in a criminal court and is required to make a bail payment or fine or face being jailed. Also, loss of income or employment due to incarceration, or the inability to obtain employment due to criminal records.
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Substance Abuse: The subject has a history of alcohol or drug use, diminishing income and increasing personal debt.
© Copyright 1997 Alikim Media