Mark Scott, J.D., CFE
ACFE Research Specialist
Imagine the sole proprietor of a small manufacturing business learns that his company’s controller, a long-time employee, has been embezzling money for personal use. The owner terminates the controller’s employment and brings a successful civil suit against the former employee, in which he obtains a judgment ordering the former controller to repay the stolen funds with interest. The owner, however, mistakenly believes that because he won in court, he will automatically receive payment. The owner does not realize that, absent the unlikely event of voluntary payment, he must take additional steps to enforce the judgment (i.e., to force the defendant to pay).
Enforcement is the process by which the plaintiff takes action to compel the obligated party to obey a court order. A judgment is a court order, but it is not a guarantee of payment. To collect on a judgment, the party ordered to pay the award — the judgment debtor —must have enough money or assets to satisfy the judgment. Thus, if the party to whom money is owed — the judgment creditor — has not identified and located the proceeds of the fraud or sufficient assets to satisfy a money judgment, it can be difficult, if not impossible, to collect on the judgment, rendering all efforts at recovery fruitless.
Locating the fraudster’s assets is therefore an essential part of any effort targeting recovery of fraud losses.
Furthermore, enforcement is faster and cheaper for creditors with information about their debtors’ assets than it is for creditors without such information. It follows that judgment creditors often hire fraud examiners to investigate their debtors’ finances in search of assets that can be used to satisfy court orders.
Although asset searches can help facilitate the recovery of criminal proceeds, there are numerous other reasons why an individual or entity might ask a fraud examiner to conduct an asset search, such as:
- Before filing a lawsuit, a potential plaintiff wants to determine if the potential defendant has enough assets to pay any court-ordered sum in the event that a judgment is ordered.
- An organization is considering making an investment in an individual or business, and, as part of its due diligence procedures regarding investments, it needs information on the relevant individual’s or entity’s assets.
- A party to a divorce wants to know if the other spouse is hiding assets.
- A parent who is owed child support wants to facilitate collection by obtaining information regarding the errant parent’s wages and assets.
Therefore, it is important for fraud examiners to understand the nature of asset recovery and how asset searches can reveal a wealth of information to facilitate better decisions.
Locating assets, however, is complex work. Due to fraud’s inherently hidden nature, assets are often actively concealed, making them difficult to identify. What is more, individuals often begin concealing their assets at the first hint of a lawsuit.
At this time, we are working to develop a seminar, Tracing and Recovering Fraud Losses, with the goal of helping fraud examiners deal with the strategic, organizational, investigative and legal challenges they face when seeking to locate assets and recover fraud proceeds. The seminar will provide an overview of the resources, legal considerations and techniques used to prepare for and conduct an asset recovery examination, and it will give attendees the tools needed for success in this complex work.
To find out more information about Tracing and Recovering Fraud Losses, visit ACFE.com.