December 2007 Newsletter
Changes to the Federal Rules of Civil Procedure present a framework for the parties and the court to give early attention to issues relating to electronic discovery, including the frequently-recurring problems of evidence preservation. The changes were designed to reduce cost and increase efficiency in discovery, which benefits both sides in a case. However, in practice, hesitation still exists when dealing with electronic evidence and parties are not accustomed to addressing discovery issues early in the process. There is a narrow window of opportunity to preserve evidence because, unlike paper documents, electronically stored information is dynamic and can be easily altered or destroyed through the normal use of a computer. Delays in preservation tend to raise the cost of recovery and reduce the opportunity for success. Early attention is the best model and we can help prepare you to discuss electronic discovery at the inception of your case.
At the Rule 26 conference, parties are expected to address issues relating to the discovery of electronically stored information, including source/data identification, preservation efforts, and the form of production. The results of these discussions are to be included in the discovery plan presented to the court for the scheduling conference. The key to strategic planning is having an adequate understanding of the relevant information systems and content management practices. We can help you to identify and preserve all potentially responsive information and determine if the other side is sufficiently doing the same.
The right time to manage your discovery efforts is from the very beginning of the case. Proper planning and collaboration can add value by helping to make sure that you are getting all of the information you are entitled to and that it will be there when needed. If you feel as though you are not getting everything you could we can help to bridge the gap between law and technology for a more productive discovery.
Major Fraud Checklist
Although our services are typically used in the context of civil litigation, we have assisted our clients in referring cases to the Harris County District Attorney’s office for criminal prosecution. Our accounting work has been used in grand jury indictments and as trial evidence. We have worked closely with attorneys at the DA’s office and their fraud examiners. One of the tools that is used by the DA’s office in determining whether to accept a case for prosecution is the Major Fraud Checklist, see below. We have obtained authorization from the DA’s office to share the Major Fraud Checklist with our contacts. When submitting a complaint, this checklist helps to ensure that all relevant information is gathered to properly assess your case.
When gathering relevant information to submit to the DA’s office, it is critical that the documents be organized and summarized in a manner that easily understood. In our experience, presenting the scheme with graphic summaries and organized spreadsheets with supporting documents works best.
Oftentimes, direct evidence that a fraud scheme has been perpetrated can be difficult, if not impossible to obtain. Fraudsters do not typically leave behind a well-established trail of clear records. Building a timeline with transactions indicated by invoices, checks, emails, deleted files and other electronically stored information provides important circumstantial evidence.
If you or your clients need assistance gathering and organizing both hard copy and electronic elements of a fraud scheme, we can help. Please contact Jesse Daves at firstname.lastname@example.org or Paul Price at email@example.com or reply to this email for more information.
Introduction to the Intercompany Account
We’ve recently experienced more frequent requests for assistance with alter-ego, single business enterprise and other veil-piercing claims. The most useful source of information about transactions between affiliated corporations is the intercompany account. In order to account for transactions between a parent and a subsidiary or two sister corporations of a common parent corporation, an account is maintained on each corporation’s balance sheet called the intercompany account. It resembles a bank account between two entities where, instead of checks and deposits, accounting entries are made to reflect “due to” and “due from” amounts.
For example, a parent corporation may consolidate all the payroll for itself and its subsidiaries, issuing its checks to employees of the subsidiaries. In order to account for the paycheck to an employee of a subsidiary, the parent makes an entry in its (the parent’s) intercompany account reflecting the obligation of the subsidiary to have paid that paycheck and the consequent amount owing from the subsidiary to the parent. The subsidiary makes an equal and offsetting entry on its intercompany account with the parent. Thus the parent has an intercompany account on its balance sheet with the subsidiary and the subsidiary has an intercompany account on its balance sheet with the parent. One may see that intercompany accounts should balance exactly such that the parent’s account will equal the subsidiary’s account although one will be a debit and the other will be a credit balance (i.e. mirror images of each other that cancel out in consolidation).
Through the intercompany account, one may see all the transactions occurring between a parent and a subsidiary and by deduction, those that did not occur. When investigating the relationship between affiliated corporations, the intercompany account is the starting point.
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CHECKLIST FOR SUBMITTING A COMPLAINT
TO MAJOR FRAUD DIVISION FOR REVIEW FOR CRIMINAL PROSECUTION
NOTE: CALL THE MAJOR FRAUD DIVISION FIRST SO YOU DON'T DO ALL THE WORK AND FIND OUT THAT YOUR CASE IS A CIVIL MATTER AND NOT A CRIMINAL MATTER.
The information requested below is needed to accurately assess your case for possible violations of the criminal laws of the State of Texas. We recommend that you consult with your own private attorney to explore possible civil remedies. Keep in mind that civil and criminal actions are completely independent. Criminal charges WILL NOT be presented to gain advantage in a civil matter.
Please provide accurate, complete, and legible information, preferably typewritten. When you deliver documents to our office, always include a reference to our case number. DO NOT send your original and/or only copy of any document to this office; send photocopies and keep the originals in your file.
Please provide the following information, organized in the order listed:
- Complete name of the party or firm complained of, along with any available identifying information (social security number, driver license number, date of birth, physical description, last known address and telephone number, etc.).
- Complaining party’s complete name, address and telephone number, as well as social security number, and date of birth. If the complainant is a business, provide its complete name in addition to the above information on the individual owner(s).
- If different from the complaining party, include complete name, address, and telephone number of the person making the report.
- Type of offense (theft, forgery, etc.).
- Description of property taken.
- Total value of property taken. Also describe any reimbursement received from any source, e.g., insurance, or from the suspect.
- Date(s) of the offense(s) or beginning and ending dates if a lengthy period of time.
- Location where the offense(s) took place.
- Did you sign a contract? If so, submit a copy.
- List the legitimate payroll checks given to the target. Needed is the date on the check, check number, check amount, and include any and all legitimate bonus checks.
- Brief summary statement of offense(s) in six lines or less.
- Recite the details of the offense(s) in the order in which they occurred. Answer the questions: who? what? where? how? why? Be brief (preferably four pages or less) but complete. Include names and dates as well as references to documents provided.
- List (index) of documents submitted.
- Copies (not originals) of relevant documents corroborating the allegations, such as contracts, invoices, reports, or bank records. When copying checks, remember to copy the backs.
- List of witnesses, including current addresses and telephone numbers.
- Copies of witnesses’ statements, if any.
- Name any other agency to which you reported this matter, along with the name and telephone number of the person you dealt with and what action was taken.
- Describe the relationship of the parties. When and under what circumstances did they meet?
- Have you complained to the suspect person(s) or firm? If so, who did you contact and what was their response. Was there any recordation of that meeting?
- Is there a civil lawsuit pending? If so, furnish the cause number and court where the case is pending and the attorneys’ names.
- Complete and return the notarized certification form attached.
- To assure that your report reaches the proper file, remember to include references to our case number and direct your response to my personal attention.
As you can see, requesting criminal prosecution is a serious and time-consuming matter that will require your full cooperation and a large measure of patience. Get organized and then be prepared to assist us by explaining your complaint further if requested to do so. Understand at the outset that, if this office undertakes a full investigation, it is likely to be a slow, tedious process that could take a year or more to complete. If an indictment is then obtained, you can expect many additional months of waiting before the case is resolved by plea or trial. These comments are not meant to discourage you, but to prepare you for what’s ahead. We will need your patient cooperation.
As soon as your report has been reviewed, we will notify you as to what action may be taken on your case.
MAJOR FRAUD DIVISION
SPECIAL CRIMES BUREAU
Phone: (713) 755-5840