Financial tracing: Show me the money

David Zweighaft, CPA/CFF, is a co-author of this quarter’s FVS Eye on Fraud report, focused on financial tracing.

Zweighaft joined the Journal of Accountancy podcast to discuss details in the report and share stories from his more than 30 years of experience in the field of forensic accounting.

The discussion delves into particulars of the quarterly report and mentions an infamous municipal fraud case, which was one topic mentioned in a 2023 JofA podcast episode.

Resources

• FVS Section home page
• CFF credential information page
• Eye on Fraud report for the first quarter of 2025
• Understanding the Forensic Technology Landscape

What you’ll learn from this episode:

• Zweighaft’s definition of financial tracing.
• Why human skills such as interviewing can be differentiators even as technology speeds up some tasks.
• Some of the core accounting and auditing skills that apply to financial tracing.
• The difference between direct and indirect financial tracing.
• Details of the United States v. Melissa King case, a focus of the FVS Eye on Fraud article Zweighaft co-wrote.
• The value of hearing other professionals’ stories in financial tracing.

Play the episode below or read the edited transcript:

— To comment on this episode or to suggest an idea for another episode, contact Neil Amato at Neil.Amato@aicpa-cima.com.

Transcript

Neil Amato: Welcome back to the Journal of Accountancy podcast. I’m your host, Neil Amato, a JofA news editor. We’re talking fraud today on the show. Specifically, the fraud discussion is focused on the quarterly Eye on Fraud report from the AICPA’s FVS Section, FVS standing for Forensic and Valuation Services. Joining me to discuss that topic is David Zweighaft, managing partner at RSC Forensic Associates in New York City. David, you’re a co-author of this quarter’s report, and we’re going to discuss some of the details in it. Thank you for being on the JofA podcast.

David Zweighaft: Thank you, Neil.

Amato: The FVS audience will certainly know the term, and our more general Journal of Accountancy audience likely will, but I’ll ask anyway to kick us off: What is financial tracing?

Zweighaft: Financial tracing is, much like it sounds, drawing the connection between suspected unlawful acts and the disposition of the ill-gotten gains generated from those acts. When I say disposition, that could mean going into financial accounts. That could mean the acquisition of personal or other types of assets, let it be real estate, cars, jewelry, what have you. This would be for the personal benefit of the bad actor, and these funds were generated at the detriment of the host organization, the company, the partnership, the unwitting spouse, that sort of thing.

Amato: Financial tracing as an act, I guess, has been around for a while, but how has it evolved and changed over the years?

Zweighaft: That’s a great question, Neil, because when you say financial tracing, people who have been in the accounting profession for many, many years will say, oh, that’s the old sources and uses analysis, and I would have to agree. But sources and uses is similar to talking about your statement of cash flows in a set of financial statements. Financial tracing differs in that it is far more dynamic. You have to consider a greater diversity of venues through which money can move, and you don’t necessarily have all of the information available as you would normally when you’re preparing a statement of cash flows for a set of financial statements.

For instance, you might understand how the money was extracted from the company. However, that’s at best half of the story. You really want to see where it went, how it was used in order to come up with a plan to reclaim those funds. It’s what law enforcement calls restitution. But when you’re talking about a victim company or victim shareholders, it’s more about reclamation of the funds to put them back in the position they were in before the unlawful act.

Amato: Obviously, there’s going to be some technology that will make the job or is making the job of a forensic accountant easier. We hear about it, probably it’s changing every day it feels like, related to automation, etc. But let’s step back and talk about the value of the human element in financial tracing and how it can be a differentiator.

Zweighaft: Well, you’re asking two different questions here, and I’ll take those one at a time. In terms of technology, we’ve seen tremendous strides being made in how accountants deal with massive amounts of data. That’s great because the data generated by companies is jumping exponentially day by day. We’re finding that you’ve got the management and analysis of the data through better and better tools. We’re going beyond Excel and going into bigger database manipulations where you need to use more automated processes to filter and eliminate unnecessary data elements so that you can really focus on monies going to specific sources or monies that do not lend themselves to otherwise characterizing as legitimate transactions. And that way, you’re able to focus on the illegitimate transactions.

Once we’ve moved from a huge data dump into a narrowed-down set of information that relates to the questionable transactions, you then have to focus on, “Where did the money go?” That’s the technology side, and that’s great. We are, as accountants, all very familiar with it, regardless of the scale of data. If you want to talk about robotic process automation or AI, yes, that’s all there, and there’s a lot of press about that already.

Going on to the human factors, this is where some of your core audit training comes into play. I recommend focusing on professional interview techniques, whether it’s information-gathering interviews or admission-seeking interviews because those both will come up in the process of doing a rigorous financial tracing. You need to rely on human beings, knowledgeable persons, in order to identify accounts and institutions, as well as the purchases or acquisitions using these unlawfully produced funds, you want to identify other parties who may be involved who might also have information. So this information gathering is not something that you’re doing in front of your computer. You’re doing it in front of other people. You’re having conversations, you’re doing research, but it’s the people who typically are the best sources of these kinds of information.

Amato: Have you had any examples of using some emerging technology at all in any sort of tracing activities of your own where the technology has just done something ridiculously silly that obviously a human would have caught, but because it’s a machine that isn’t quite coached up on it has made a mistake?

Zweighaft: What comes to mind is an analysis that we were doing. It was an asset trace on behalf of the Department of Justice and it involved a civil rights matter. We were tasked with looking for financial adequacy of the suspect in order to come up with a reasonably painful financial penalty. The individual owned a number of low-income housing units. In order to determine how much money was there, we had to look at the value of those homes because those were his primary assets.

By doing various database searches and the like, we came up with 26 properties. The only problem was the properties were encumbered by mortgages – not surprising, but our database search did not turn up the mortgages. The difference between the assets free and clear and their net value was substantial and you had to wear your accounting hat to say, “Wait a second, this doesn’t make sense.” It was important because we didn’t want to look foolish when we came back to the DOJ with these results.

In fact, the net asset number was of sufficient size to make a reasonably painful penalty against the suspect, but it could have been very embarrassing for us if we hadn’t thought, “Gee, you own properties. These are commercial properties. They’re going to be reduced by the mortgage value.”

Amato: Yeah, that’s a good example. The machines can get that info quickly, but it doesn’t necessarily mean that that info is the absolute best, most accurate, and so it still needs that human review.

Zweighaft: Exactly.

Amato: I mentioned the current Eye on Fraud report of which you’re a co-author. It includes details on the different types of tracing. We’re not going to go into all of them because there are many and for this podcast, we’re just going to say you’re going to have to read the report for more detail. But for now, can you give a few examples? First, what’s the difference between direct and indirect methods of tracing?

Zweighaft: That’s probably the biggest general pair of buckets for differentiating between the approaches that are available to accountants. Direct tracing is following the money from its origin, meaning from the books and records and the evidence of the suspected unlawful act to its current location. Going from the books and records to the bank statements, to the corresponding recipient bank statements, to the disbursements, to purchase assets – that would be direct tracing.

Then indirect is more inferential, and the goal is to create a picture of the subject in the absence of full facts. There are a number of approaches to that. There’s the bank deposit method, there’s the sources and uses of funds method. These are all detailed in the Eye on Fraud, and it’s laid out in very neat, accounting-equation format just for the ease of the reader.

Amato: One thing I didn’t ask, how long have you been doing this sort of thing?

Zweighaft: It seems like all my life, but if I really had to count it up, it’s 30-plus years.

Amato: Wow, yeah, so you’ve been at it a long time. Definitely seen a lot of changes, but there’s still some of those base, core skills that are important.

Zweighaft: Let me jump in for a second.

Amato: Go ahead.

Zweighaft: When you talk about the core skills, anyone who’s gone through proper accounting curriculum has taken an auditing class or two, and they’ll remember the terms vouching and tracing as audit techniques.

These are the same techniques, the same core skills that are used in asset tracing. Vouching is going from the accounting records to the source document, also known as forward tracing. Tracing as a technique is going from the source document to the accounting records. That’s reverse tracing.

For example, if we’re looking at the books and records of a company, and we detect monies going out and going to a bank account and then there are transfers from that bank account to an offshore investment vehicle, that would be forward tracing.

Reverse tracing is where you have evidence that the subject has acquired – I don’t know, a Porsche, a Bentley, a Jaguar – a luxury car of your choice that is outside of their normal ability to own, then you’re starting with the purchase records for that vehicle and looking at the source of the funds. There will probably be, if the dealership has adequate records, a draft, a wire receipt, what have you, that will point to a financial institution and a specific account.

You can then go from that to transfers into the account from other institutions, and given proper legal authorization, meaning getting the right subpoenas, you can then leapfrog backwards to the ultimate disbursal from the company from which the embezzlement occurred.

Amato: I’m probably silly in veering off in this direction, but have you ever had a fraud case that involved the purchase of something more plain, like a Toyota Camry or a Honda Accord?

Zweighaft: Not from a vehicle perspective, but there were payments to country clubs. There were purchases of golf equipment. Now, granted, this is a little bit over the top, but my favorite case, and it’s mentioned in the Eye on Fraud is the U.S. v. Melissa King matter. Melissa King was the third-party administrator for what we call the Sandhogs Union. Those are the tunnel workers in New York City.

She was extracting money through her role as the benefits administrator and taking money out of the pension funds through her business and through other means. She was buying show horses, the jumpers, the specialty horses. She was buying jewelry. She paid for lots of vacations. While it’s not mentioned in the Eye on Fraud, I can say with first hand knowledge, she spent money on plastic surgery. And the amount? Well, it wiped out the entire pension fund of these union workers, and that was about $42 million. She went to prison.

Amato: It’s funny – you mentioned show horses. I feel like the Dixon, Illinois, fraud also involved horses, is that right? Rita Crundwell.

Zweighaft: Rita Crundwell, the controller for Dixon, Illinois. Yes. Apparently, horses are a popular item for the exceptionally wealthy or the exceptionally wealthy wannabes who resort to illegal means. Rita Crundwell was, at one time, the owner of the most quarterhorses in the U.S. Not bad for a public employee.

Amato: Yeah. We’ve written about that case over the years in the Journal of Accountancy. We’ll aim to link to it in the show notes for this episode. Now, in the Eye on Fraud report, you and your co-authors offer nine suggested practices and practitioner tips. Again, we’ll be linking to the report, so we don’t need to go through all of them, but would you like to highlight a few for the listeners?

Zweighaft: Yes. We have a number of practices and tips that practitioners can use and in the interest of expanding your skill set and perhaps offering services and expanding your market exposure to other potential client groups.

What really jumps out at me is you need to, like anything else that we do as professionals, you want to make sure that your analyses are tight, they are reconcilable. They’re replicable. Just like any other expert witness engagement, you want to make sure that everything has been verified – by all means, take advantage of technology wherever you can, work smarter, not harder.

I would also say, make sure that especially for the first time you’re trying to do this, that you have someone that you can look to for guidance, counsel, and critique before you present something to a client or an attorney or absolutely before you testify. Just so that someone takes a cold read, someone takes a walk through your analyses, testing all of your calculations, all of your formulas, because nothing is more embarrassing and potentially career-limiting than making a boneheaded mistake that is going on the record.

Amato: That’s pretty important. Well said. For our practitioners, you mentioned that core skill and your early auditing, accounting classes. You hear these words that can be applied to what we’ve talked about today, vouching, tracing. If people are thinking,” I want my practice to start offering this type of service,” it’s not that easy, I know. But where do they start?

Zweighaft: The best thing to do is identify the need, and then you can communicate that you provide a solution to that need. Where is the need? You need to look to the market. You will obviously be marketing this to attorneys – matrimonial attorneys, estate attorneys, attorneys that specialize in partnerships or partnership dissolutions. And, after developing the skill set, you need to speak with other forensic practitioners because you’ll always get more tips, more real-life experiences from them. Let’s face it. We live by our war stories. I think I’ve told two or three just during this podcast. And you get a couple of people like me sitting down, chatting, and we could go on for hours. We’re not going to do this on this podcast, but it is, to my way of thinking, one of the most effective ways of communicating and educating practitioners. You can discuss the rules, but if you tell a story, it has context and the listener can put themselves into that story very easily.

Amato: Exactly. David, this has been great. As you say, we could talk about this for hours. We’re not right now, but anything else to add in closing?

Zweighaft: I think the best thing that I can recommend, and I didn’t say it earlier, is download a copy of the AICPA Forensic and Valuation Services Section’s publication, the Guide to Forensic Technology. It is a great resource. It’s probably three or four years old at this time, maybe a little more, but it covers everything from spreadsheets up through AI and everything in between for dealing with data. And for those of you that don’t have it yet, I’d recommend undertaking to get your CFF designation. The skills and the learning that you will get from that effort will really benefit you for years and years to come.

Amato: David Zweighaft, thank you very much.

Zweighaft: Thank you, Neil.