Knowledge

Searching For A Crime’s Financial Motive

Rehana MoosaBy Rehana Moosa

Published in the December 25, 2015 edition of The Lawyers Weekly

Claims of financial motive are seen in fraud, arson, and murder cases. Allegations of financial motive can exist in cases where the defendant had high levels of debt, was the beneficiary of a large life insurance policy, or had an addiction and required funds to finance it.

In many cases, a forensic accountant can be hired to evaluate whether a financial motive existed. This article discusses the types of procedures that can be performed in the assessment of financial motive. It is important to note that if the defendant is married, living common-law, or cohabiting with another individual, the analyses should be performed on both an individual and joint basis, in the event that income or assets are pooled together or jointly owned, or expenses are shared.

Cash Flow Analysis

The purpose of a cash flow analysis is to determine whether cash spending exceeds the defendant’s income or cash inflows. This can occur in cases where, for example, the defendant does not have a steady source of income or has a sporadic employment history. Another situation where this can occur is if certain expenses are high relative to the defendant’s total income. For example, if he / she spends 50% of their income on their housing costs, it is likely that they do not earn enough to cover other necessary expenses such as food, clothing, etc.

An overall analysis of the defendant’s bank account can highlight other issues such as frequent and / or large cash withdrawals and bank balances that are often in overdraft. Again, this can suggest that the defendant may be spending beyond their means, and can support an allegation of financial motive.

Net Worth Analysis

A net worth analysis involves comparing an individual’s total assets to his / her total liabilities. This is a measure of a person’s financial wealth and indicates whether he / she has sufficient resources to cover outstanding debts. This calculation is performed as of a specific date since the value of assets and liabilities can change daily.

When performing this analysis, all assets and debts should be considered. Examples of each include:

Assets –Bank accounts, stocks / bonds / investments, vehicles, registered retirement savings plans, tax-free savings accounts, houses / cottages, furniture and household contents, cash surrender value of life insurance policies

Liabilities –Credit cards, lines of credit, mortgages, bank loans, payday loans, student loans, vehicle loans, home equity loans

Net worth typically varies with age and stage of life, making it important to compare the results of the net worth analysis to statistics that report average net worth based on these characteristics, in order to give it context. Statistics Canada publishes this type of data by age, gender, marital status, and ages of dependent children. This comparison is critical because a negative net worth may simply indicate that the defendant’s finances are in line with averages for someone in that demographic category as opposed to supporting claims of financial motive.

Financial Ratios

Various financial ratios can also highlight any issues with respect to the defendant’s overall financial health. The ratios should not be considered in isolation but should instead be assessed in conjunction with other information and used to highlight other potential areas for analysis.

Examples of ratios that can be performed are:

Debt to Pre-Tax Income Ratio –amount of debt owed for every $1 of income

Debt to Asset Ratio –amount of debt owed for every $1 in assets owned

Debt Service Ratio –amount of cash available to cover the principal and interest of any outstanding debt

The ratios calculated should also be compared to statistics reporting averages by age, gender, and other factors. This data is also available through Statistics Canada.

Life Insurance Policies

A common basis for asserting that financial motive exists in murder cases is that the defendant was the beneficiary of a life insurance policy. However, the possession of a life insurance policy by itself does not necessarily support that the defendant had a financial motive for the crime. Other considerations include:

  • How long has the policy been in place? Was the policy purchased shortly before the crime?
  • Were any increases to the amount of coverage purchased prior to the murder?
  • Is the defendant the beneficiary of multiple policies? If so, why were multiple policies purchased?
  • How much coverage does the defendant hold? Is the amount reasonable given their financial circumstances (e.g. number of children, income level)?

Time Period

In order for a financial motive analysis to be meaningful, the procedures described above should cover a sufficient period of time, to develop a complete picture of the defendant’s financial situation. The procedures performed should cover a sufficient period both before and after the crime, to determine if there were any significant changes in spending habits, income levels, etc. that may be tied to the crime.

Conclusion

Although allegations of financial motive in crimes are common, the analysis required to establish whether motive existed can be complex. Accounting experts can review personal and business financial records that should be considered in the analysis, identify relevant statistical data for comparison to the defendant’s specific circumstances, and highlight other factors (both financial and non-financial) that should be taken into account.

Contact us to learn more.   647-426-0146  |  rehana@rmforensics.ca

Communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. For permission to republish this content, please contact Rehana Moosa Forensic Accounting Professional Corporation.

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