Application of the Net Worth Method in Forensic Accounting Investigations

International Research Journal of Multidisciplinary Studies, 4 (10), pp. 1-23

23 Pages Posted: 9 Feb 2019

See all articles by Paul Eisenberg

Paul Eisenberg

University of Derby; University of Portsmouth

Date Written: October 10, 2018

Abstract

The present article deals with the application of the net worth method in the financial crime case study of John and Gayle Fawn. The UK Crown Prosecution Service accuses the defendants of having committed offences against the Proceeds of Crime Act 2002 in the period 2012/13-2014/15.Under the net worth method, the assets less liabilities (net worth) and the personal expenditure of the defendants are compared to their reported income during the period of investigation. In case the net worth and personal expenditure exceed the reported income and cannot be accounted for by previous savings, indirect evidence is provided that the defendants must have obtained unreported income. The case study shows that the increase in net worth and private spending of John and Gayle Fawn can be accounted for by undisclosed savings from previous employment income of John Fawn and by reported income for the year 2012/2013. This cannot be shown for the years 2013/14 and 2014/15, which constitutes a financing gap. Based on evidence and calculations, it can be demonstrated that in 2013/14 and 2014/15 the defendants covered the financing gap of £143.434,04 and £196,297.60, respectively, by unreported commission income in the range of £135,000.00-£216,000.00 per year. It can be concluded, that the defendants have been able to account for the net worth increase and private spending with unreported income in the calculated range in 2013/14 and 2014/15.

Keywords: Forensic Accounting, Financial Crime, Net Worth Method, Financing Gap, Proceeds of Crime

JEL Classification: K13, K14, K41, K42, M40, M41, M42

Suggested Citation

Eisenberg, Paul, Application of the Net Worth Method in Forensic Accounting Investigations (October 10, 2018). International Research Journal of Multidisciplinary Studies, 4 (10), pp. 1-23, Available at SSRN: https://ssrn.com/abstract=3324282 or http://dx.doi.org/10.2139/ssrn.3324282

Paul Eisenberg (Contact Author)

University of Derby ( email )

Kedleston Road
Derby, Derbyshire DE22 1GB
United Kingdom

University of Portsmouth ( email )

University House
Winston Churchhill Avenue
Portsmouth, Hampshire PO1 2UP
United Kingdom

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