PROBLEM:

Debtors who own their own business can hide funds by cutting checks to a nonexistent employee or overpaying a current employee. Once creditors are no longer hunting for funds, the debtor simply voids the checks and pockets the money.

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SOLUTION:

If you have access to the debtor’s business records, then you can unravel this trick by scrutinizing payroll and personnel files.  The debtor should be asked to provide a list of all employees at the business as well as corresponding personnel records. The goal is to make sure every employee can be linked to a record, or personal identification information like a Social Security number or a tax ID number. It might be worthwhile to go the extra step and try and track down whether any of the Social Security numbers are fraudulent.  A primer on how this works can be found in an entry at our Ethical Investigator blog, “Using Social Security Numbers to Root Out Employee Fraud.”

If there is any suspicion that the business owner is lying about the number of people on the payroll, it may be necessary to request to see whether all the recent payroll checks have been cashed. Generally it’s possible to spot patterns suggesting some checks regularly remain undeposited.

Other business paperwork may also help answer the question of just how many people are on staff. Business owners have to inform the government of how many people they employee in order to calculate their unemployment insurance tax rate. Paperwork for health insurance providers and uniform vendors may also detail how many employees are on the payroll.

Some business owners will allege that their paperwork does not match the number of employees they claim to pay because some people get paid “under the table.” This is far from a legitimate explanation. Paying off the books may make an employer liable for unemployment insurance tax fraud and make him the subject of an investigation by his state’s Department of Labor. The odds are he’d rather come clean about his assets than have to face increased government scrutiny.

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