Hidden Company Discovery Services
People hide companies for various reasons, including tax or regulatory avoidance, concealing illegal activity, bankruptcy shielding and so on. Asset and liability discovery services are experts at uncovering these business entities, using a variety of financial analysis methods. Some of the most common methods include:
- Transaction analysis
- Cash flow analysis
- Financial record analysis
- Sequence and gap testing
- Public and regulatory filing checks
- Real estate ownership checks
- Utility record analysis
- Onsite inspections
Many businesses have a large financial and operational footprint. They engage in significant transactions, maintain sizable inventories, rely on numerous third-party vendors and have a physical base of operations. It’s difficult to conceal this activity, and nearly impossible to hide it if a forensic accounting expert is on the case.
Hidden Company Discovery Services: What is Included
Business ownership may be concealed for many reasons, but no matter what those reasons are, the following solutions can uncover a hidden entity:
● Transaction and cash flow analysis – Forensic accounting teams are transaction analysis experts, and they can use this expertise to uncover unusual transaction patterns. For example, recurring payments from an unknown vendor are a red flag. If transactions are made into personal accounts or accounts that aren’t referenced in the company’s books, these are also signs of hidden business activity. An unusual transaction that doesn’t match established account activity patterns is also a concern.
Forensic accounting experts can also review the business owner’s income statements and compare that to other personal transactions, like real estate or luxury purchases. Discrepancies here are yet another indicator of hidden
business activity.
● Financial record analysis – Forensic accounting services can perform a deeper look at a company’s financials to uncover unusual patterns. For example, a forensic accountant can review where vendor payments are going and determine if they are directed to a shell entity.
Deeper financial analysis also includes mathematical calculations to determine when the company’s reported activities don’t line up. For example, forensic accountants can calculate inventory turnover or accounts receivables and compare these to the company’s sales figures. Discrepancies here may suggest off-the-books transactions.
During financial record analysis, any manual adjustments in the company’s books need to be scrutinized, as well. If a manual adjustment or write-off isn’t fully explained, it may be a mechanism to pass assets to a hidden business.
Sometimes it’s numerical patterns that raise a red flag. Benford’s Law, for instance, states that the leading digits in any set of financial data are most likely to be lower numbers (the first number is most likely to be a 1, then a 2, and so on). This is due to how figures are combined during computation. If the company’s accounting records violate Benford’s Law during analysis, it may merit further investigation.
● Sequence and gap testing – Sequence and gap testing is another form of transaction analysis, designed to seek out unusual sets of data that may indicate unreported activity. Specifically, sequence and gap testing determines whether transactions are ordered in the way you would expect, given the invoices, check numbers and purchasing orders available. If transactions aren’t processed in the order they should be, it may signal that there could be hidden business activity filling in the gaps.
● Public and regulatory filing checks – Business owners are required to register every new entity with state and local agencies. Forensic accounting teams can review these registries to determine what name and address each entity is filed under. For example, if a suspected hidden business owner is related to the person owning the concealed entity, this would be considered a red flag.
Sales tax filings can also be compared to reported revenue to discover any discrepancies.
● Real estate ownership checks – Forensic accounting experts can review the (suspected) owner’s real estate holdings to identify a potential base of operations for a hidden business. An owner may also sublease or sublet a property to a hidden business entity, which can also be detected by forensic accounting services.
● Utility record analysis – Forensic accounting services can also review utility records for any businesses connected to the suspected hidden company owner. If those known entities have unusual utility usage histories, it could mean that there are additional, unreported operations contributing to energy or water usage.
● Onsite inspections – Onsite inspections can reveal discrepancies between reported inventories/properties and actual inventories/properties. For example, an onsite inspection may reveal an unreported warehouse or inventory stockroom holding assets for a hidden company.
Hidden Business Discovery Services are Vital Asset and Liability Discovery Tools
If you or your organization is involved in litigation or a criminal investigation, discovering a hidden business may be key to the case. If so, forensic accounting services are an essential ally to partner with.
Forensic accounting teams can deploy an array of analytical techniques to reveal patterns that indicate a hidden business. They can perform complex calculations to determine when the numbers don’t add up – literally. Forensic accounting experts can trace cash flows and identify shell entities or other red flags.
Put it all together and it’s difficult to hide from an expert forensic accounting team. Whether it’s a criminal investigation (fraud, trafficking, etc.) or another form of litigation (divorce or bankruptcy proceedings, tax investigations, etc.), forensic accounting solutions can reveal any hidden business that is relevant to the case.