Case Studies

Case Studies Forensic Accounting/ Litigation Support Services

Validating Business Interruption Claim for an Insurance Company

“As an insurance company, we often get business interruption claims. These claims – for the most part – come from natural disasters. The challenge for a business interruption claim is that the insurance company has to quantify revenue and loss of income. To determine the accuracy and validity of the claim, we need to understand how the business operated before the disruption. For this, we count on the forensic analysis of Foodman CPAs & Advisors. They analyze all the books and records, financial statements, and business trends of the claimant. Understanding its financial situation before an incident takes place is key to an insurance company making the right payout to its insured clients.”

Expert Witness/Litigation Support for Law Firm

“My litigation practice works in tandem with Foodman CPAs & Advisors. Our law firm often needs litigation support services from Foodman to quantify damages, as well as to provide expert witness testimony during litigation.
Foodman quickly acquires all the appropriate insights into case financial material. The firm works independently and is able to measure and quantify numbers and results in an understandable way. The numbers always speak for themselves, but they need to be simplified to be understood.”

Panoramic Approach to Defending Money Laundering Accusations

“Eternally grateful to Stanley Foodman! I was a defendant charged with money laundering by the US Government. Foodman was able to quickly pinpoint in the discovery documents provided by the Government that the Government had completely omitted key elements of my business and personal financial records. A “lifestyle” analysis performed by Foodman revealed what was missing. A multi-year historical financial analysis of my business and financial records, as well as an investigation into my sources of funds and my daily/monthly living expenses was performed.
The analysis and related work product comparison demonstrated that all my receipts, disbursements, and asset purchases were the result of legitimate sources of funds derived from my business and from banks.
I was found not guilty at trial. Without Foodman’s panoramic in-depth approach, the results would have been catastrophic for my family and me.”

Minimizing Fraud Loss for a Community Bank

“Our financial institution decided to hire a qualified forensic accountant to enhance our corporate governance program, and we are very happy that we did!

Foodman CPAs & Advisors were brought into the bank’s Board of Directors meeting to discuss financial crimes and how banks are utilized as a conduit for money laundering and sanctions violations. It was an eye-opening experience.

Evidence of misconduct could be buried in thousands of pages of documents, business records and complex business structures. Successfully uncovering transgressions depends on an understanding of the movement of monies and assets in the context of the related surrounding documents and business environment. In other words, one must “look beyond the numbers,” follow the money and put all relevant information into context.

Forensic accounting analysis provides context for supporting the existence of patterns of misbehavior. Foodman’s forensic accounting skill set and recommendations has assisted the bank in the detection and identification of red flags earlier in the corporate governance process. Our decision demonstrates that taking a proactive approach by bringing in a forensic accountant early instead of waiting for something to happen is a way to minimize fraud losses and protect the bank.”

Uncovering CFO Embezzlement From a Successful Manufacturing Company in South Florida

“We suspected that our CFO was misappropriating funds. It was challenging and difficult to uncover and prove due to the level of sophistication that was used to cover their tracks.

The financials of the company were not adding up. We discovered unauthorized banking transactions that yielded a level of proof, but we still needed further investigation.

We hired Foodman CPAs & Advisors to “dig deep” into all the financial transactions and banking records over several years. Foodman’s forensic analysis revealed numerous unauthorized transactions – including payment of bonuses, fake vendor payments, and payroll manipulation.

We were able to file an insurance claim based on the evidence produced by Foodman and recovered a significant portion of the total amount embezzled by the CFO. Foodman also successfully served as an expert witness when we moved to trial.”

Establishing Policies to Prevent Fraud for a HealthCare Company

“Foodman CPAs helped us establish a code of conduct, a formal internal audit department, an anti-fraud policy, and an employee fraud training program. Best investment we ever made!

Our health care company discovered occupational fraud in the billing area. We knew that we needed to implement strong anti-fraud internal controls as a deterrent. In addition, a prevention and detection mechanism against fraud was of the utmost importance.

As business owners, we needed to justify the business expenses associated with the implementation of fraud prevention and detection programs.

Foodman assisted us with understanding the losses experienced by other victim organizations and how these losses looked with and without fraud control processes in place. We quickly realized that mitigating against defalcation is a very worthwhile investment. “

Helping Business Partners Properly Evaluate a Company They Wanted to Acquire

“My business partner and I wanted to buy a small pharmaceutical distributor company in Florida. We did not want any surprises at the closing table or after the closing.

We concluded that a forensic evaluation of the targeted business would give us peace of mind that we were making the right decision. Foodman CPAs & Advisors stepped up to the plate and started asking a multitude of questions about the company’s financials.

During this process, we discovered issues with the accounts receivable aging report. Foodman went as far as tracking each accounts receivable down, finding the transaction, and confirming the payment. This type of records evaluation assisted us in ensuring an accurate business valuation.

Foodman also utilized key financial ratios within the industry to further ensure that we as investors were paying a fair market value for the company. When the dust settled, we actually paid less as we were able to prove that certain assets did not have the value that the sellers represented.”

Case Studies Corporate Governance

Risk Assessment

Foodman CPAs & Advisors was hired by a large Latin America based bank to perform a Risk Assessment for BSA/AML and OFAC (“A Framework for OFAC Compliance Commitments”), intended to identify the money laundering, terrorist financing and sanctions-related risks that the Bank faced and the internal controls that they currently have in place to protect the Bank. Foodman conducted an assessment of the BSA/AML risks posed by the Bank’s customer base, products, services, transactions and geographic locations. The risk assessment reports evaluated inherent risks associated with the Bank’s products, services, customers, entities and geographic locations. It also identified other qualitative factors and the strength of existing mitigating controls for describing the residual risk that remains after the controls are considered. The risk assessment reports have the objective of: (a) Providing a depiction of the Bank’s BSA/AML & OFAC compliance risk exposure for informing decision‐making by the Board, senior management and the compliance team, (b) Identifying BSA/AML & OFAC compliance risks requiring action by Management and Compliance Staff, and (c) Enhancing the Quality of Risk Management.

Customer Due Diligence

Foodman CPAs & Advisors provided a global financial institution with training related to “Customer Due Diligence Best Practices”. During the training, the financial institution was able to identify and verify the true identity of a customer, learn about the minimum period for retention of customer documents and the application of enhanced due diligence. In addition, beneficial ownership requirements as well as record retention best practices as per the FATF were discussed as well as high risk customers and risk rating methodologies. Foodman’s Corporate Governance training programs ensure that a Financial Institution’s BSA/AML compliance program is reasonably designed and risk based and includes at a minimum: internal controls to assure ongoing compliance, independent testing for compliance, designation of an individual or individuals, also referred to as the BSA/AML compliance officer(s) responsible for coordinating and monitoring day-to-day compliance, training for appropriate personnel, suspicious activity reporting, customer identification, customer due diligence and beneficial ownership.

Anticorruption Training

Foodman CPAs & Advisors launched an “Anticorruption Compliance Training” for employees understand the risks of bribery and corruption, as well as how to avoid them which has been utilized by several Financial Institution in the U.S. and Latin America. All U.S. Companies of all sizes in all industries are responsible for ensuring that they are in compliance with the FCPA. Senior Level Executives have a responsibility for ensuring that they implement the FCPAs policies and procedures, hire experienced compliance professionals, provide effective training for relevant employees (including human resources) and appropriately screen consultants, third-party representatives and or vendors. In order to be able to properly analyze the causes of the misconduct and timely and appropriately remediate those causes to prevent future compliance breaches as well as individual compliance responsibility, companies ought to ensure that they have an anticorruption program in place.

Export Controls Evasion

Latin America Financial Institutions have been concerned about their ability to detect and monitor suspected export control evasion. Foodman CPAs & Advisors developed an on line E-Learning Course: “Export Controls: The New Regulatory Focus” which provides an in-depth review of international export control regimes, including the regulatory framework, control lists, compliance requirements and red flags. These financial institution’s concerns stem from the Department of Commerce Bureau of Industry and Security (BIS) and FinCEN’s joint notice regarding export controls evasion highlighting a new Suspicious Activity Report key term (“FIN-2023-GLOBALEXPORT”) for financial institutions to reference when reporting potential efforts by individuals or entities seeking to evade U.S. export controls NOT related to Russia’s invasion of Ukraine. Financial institutions and other entities conducting business with U.S. persons, within the United States, or with businesses dealing with U.S.-origin goods or services or in foreign-origin goods otherwise subject to U.S. export laws, ought to be vigilant against efforts by individuals or entities to evade U.S. sanctions and export controls. Foodman recommends that in addition to filing a SAR, financial institutions may wish to consider reporting suspected export control evasion activity directly to BIS through its web-based confidential Enforcement Lead/Tip form.

Terrorist Financing

All Financial Institutions and Virtual Asset Service Providers are responsible for detecting and monitoring illicit or suspicious activity with respect to terrorist financing. Given that on 10/20/23, many financial institutions were concerned about their efficiency in detecting and monitoring terrorist financing activity, Terrorist Financing Red Flags were issued by FinCEN in response to Hamas terrorist attack on the people of Israel. FinCEN urged all financial institutions including virtual asset service providers (VASPs) to be vigilant in identifying suspicious activity relating to financing Hamas and to report it to FinCEN. Since FinCEN requested that financial institutions reference this alert in SAR field 2 (Filing Institution Note to FinCEN) and the narrative by including the key term “FIN-2023TFHAMAS” and select SAR field 33(a) (Terrorist Financing-Known or suspected terrorist/terrorist organization), financial institutions wanted to make sure that they could recognize “Terrorist Financing Red Flags”. Foodman has been educating and training compliance staff with understanding FinCEN’s Terrorist Financing 7 Red Flags.

Case Studies FATCA

Several FFIs inquired about their relationships with counterparties such as a “Remitter,” a “Correspondent” or a “Provider” through which transactions that are impacted by FATCA are completed. Foodman explains through the Help Desk the following:

It is only necessary to implement the FATCA diligence, documentation and reporting when a “Remitter”, Correspondent or Provider has a “Liability” account.
Remitters can be participating FFIs in FATCA (with their GIIN) or they can be exempted from being considered Financial Institutions for not maintaining “Liability” accounts for third parties.
In FATCA you only have to document those who physically have an account with the FFI.
If you have an account with the bank, it is the Remitter, which has to complete the W8BEN-E (if it is not North American) and the W9 (if it is incorporated in the US).
If you are not North American and you are classified as a participating FFI, you must include the GIIN, and it is recommended that the Bank validate this GIIN every six months against the IRS list.
If you are not North American and claim to be exempt from being considered as an FFI, you must choose your FATCA classification, which is most likely “Active NFFE”. It is recommended that whatever exemption they choose, upon opening the account, the bank’s salesperson asks for an explanation of why they are considered exempt and document this reason in the file of the Remitter.
For the account of a correspondent bank, the W9 is requested if it is a North American Bank, and it is only reported if the W9 is not exempted with the code in number 4 of the first part. If it is not American, it is documented in the W8 BEN-E. As with Remitters, the GIIN must be validated every 6 months.
Suppliers are treated in FATCA only when they have an account with the Bank, and it is documented the same with a W9 (if it is American) and the W8BEN-E if it is a non-American entity. Providers are typically classified as “Active NFFE”.
In all cases, the fact that they do not have to be filled out, documented, and reported in FATCA, does not mean that they do not have to implement AML regulation on these relationships.

How can an FFI reestablish its GIIN?

The IRS may cancel an FFI’s GIIN if, for example, the FFI does not submit required IRS certifications of compliance. Foodman explains through the Help Desk the following:

File a formal appeal with the IRS to reinstate your GIIN. This appeal should be sent to the email address provided by the IRS in the termination notice.
Submit the missing certifications through the FFI FATCA Portal.
The FFI FATCA Portal has the necessary options enabled to be able to remedy the event of non-compliance. If you do not have them, on appeal, you have to ask the IRS to rehabilitate the options to present the certifications.
Provide a detailed explanation of the reason for the event of default.
This explanation is provided through the certification of compliance.
It is required to identify the cause of the termination of the GIIN.
Provide a remediation plan to the IRS.
It is recommended to send this remediation plan to the IRS by email and also by regular mail.
The remediation plan should include an explanation of the events of non-compliance, the reason for the events of non-compliance, the steps that have been or will be taken to correct the events of non-compliance, and the steps that have been or will be taken to avoid that such events of default occur in the future.
When reviewing a remediation plan, the IRS will consider an entity’s good faith efforts to comply with all rules, regulations, and requirements for Chapter 4 compliance. In general, reiterated noncompliance is not indicative of good faith and may result in a request for reinstatement being denied.
While waiting to receive the GIIN, the Bank must ensure that it does not receive any withholding flow from the United States.

Some FFIs need clarification on the issue of thresholds and the balances to be reported. Foodman recommends the following through the Help Desk:

The FFI should use the FATCA report and the instructions to fully understand the detail of the FATCA report that is the basis for creating the XML.
Thresholds apply to the aggregate balance of a customer’s accounts and that balance is the account balance (not the income balance to the account).
The thresholds that can be used are:

Preexisting (Natural Person) – Less than USD 50,000 in aggregate of the balances in a client’s accounts
Preexisting (Legal Entity) – Less than USD 250,000 in aggregate of the balances in a client’s accounts
New Accounts – Less than USD 50,000 in aggregate of balances in a client’s depository accounts (using thresholds for new accounts is optional)

Normally, the balance as of December 31 of each year is used to apply thresholds and / or report. You can choose to use averages of account “balances” throughout the year (average income is never used)
Total income credited to each reportable account is reported as well.

How can we ensure that our FFI has an effective FATCA compliance program? Foodman recommends the following through training via Zoom or through the Help Desk:

Written Policies and Procedures.
Independent Testing (internal or external audit) consistent with IRS requirements, including:

Verify that due diligence on the accounts was carried out and that all reportable persons have been identified.
Verify that FATCA Reports were submitted on time and included all reportable persons
Include a review of the linking documentation to ensure that it is complete in accordance with FATCA requirements.

Training Plan.
Compliance and internal audit personnel should be trained.

What are the material failures defined by the FATCA Regulation? Many FFIs want to have a good understanding of the material failures in the FATCA Regulation. Foodman explains the following material failures:

Do not report impacted accounts
Do not withhold on withholding payments
Do not report recalcitrant accounts
AML/FT sanctions for due diligence
A potential future obligation to the IRS that necessitates the creation of a reserve account

Could you define the events of non-compliance under FATCA? Foodman recommends that FFIs understand the following events:

Not obtaining confidentiality waivers
Not significantly reducing the number of recalcitrant accounts
Failure to establish or maintain a compliance program
Failure to conduct a periodic review of the compliance program
Failure to take timely corrective measures to remedy a material failure
Failure to perform the certification and/or periodically within the specified period of time (that is, not submitting the compliance certifications before the established dates)
Failure to cooperate with an IRS request for additional information or make any fraudulent statement of material facts to the IRS

Case Studies Complex domestic & International tax matters

Correcting a Good Faith Misunderstanding to Avoid Penalties

We helped a U.S. citizen avoid substantial penalties after he received inaccurate tax advice on his filing requirements for foreign earned income.

He was told that the foreign earned income exclusion would reduce his taxable income to zero. However, he still had a US tax filing requirement to be able to use the foreign earned income exclusion.

We advised him to file amended returns using the Foreign Offshore Streamlined Filing Procedures (FOSFP.) To avoid perjury, he had to truthfully certify that his actions were non-willful.

With FOSFP, the IRS will forgive non-willful conduct that can be proven to be “the result of a good faith misunderstanding of the requirements of the law.” A person making that claim cannot be under IRS examination and must have a valid tax identification number.

We helped the taxpayer submit a clear explanation of the specific reasons why the income was not reported, and returns were not filed. Under the terms of the program, he was expected to comply with the US tax laws for all future years and file returns according to the regular filing procedures. And we’ve made sure he has.

Saving a Client From Losing Her Passport for Serious Tax Delinquency

Under the law, when a taxpayer has a seriously delinquent tax debt of $62,000 (adjusted yearly for inflation) or more, the IRS is authorized to certify that debt to the State Department for action – putting the taxpayer’s passport at risk.

Upon receipt of certification by the IRS, the State Department may deny a passport application for an individual and may also revoke, suspend, or limit passports previously issued to the holder.

Foodman CPAs & Advisors was able to help a US taxpayer with seriously delinquent tax debt to reinstate her passport after it was suspended by the IRS.

In this case, the taxpayer needed to have a valid US passport to keep her job and, since she couldn’t pay the full amount owed, we created a successful Offer in Compromise for her.

Resolving Willful Failure to Comply with Tax Obligations to Avoid Prosecution

In a joint effort, Foodman CPAs & Advisors worked with a specialized tax attorney to bring a US executive who’d lived in Costa Rica for over 15 years into compliance with the IRS. He had willfully failed to comply with his US tax obligations and was at risk of prosecution.

The Foodman/attorney team determined that the executive qualified for voluntary disclosure. While the disclosure doesn’t automatically guarantee immunity from prosecution, it may limit criminal penalties.

A voluntary disclosure requires the expertise of a specialized tax advisor; preferably a forensic accountant with financial and investigative skills, working in tandem with a tax attorney.

Timing was of the essence in this case. Voluntary disclosure was a complex two-step process that required our teams’ specialized knowledge.

Our team was contacted by an IRS examiner, and we submitted the documentation and information requested by the examiner. Our client is now fully compliant with the US Government and sleeps well at night.

Yes, the IRS can file a Tax Return on your Behalf if You Fail to Do So

The IRS had filed a tax return called a “Substitute for Return,” on behalf of a high-net-worth US citizen who was residing in Bogota, Colombia. Responding to it quickly and correctly was crucial.

Referred to us by his attorney, he had received an IRS notice that said “We didn’t receive your tax return. We calculated your tax, penalty and interest based on wages and other income reported to us by employers, financial institutions, and others.” That’s perfectly legal under the IRS code when taxpayers fail to file a timely US tax return.

The IRS states on Notice CP2566: “Keep in mind that this amount may be higher than what you would owe if you filed your own return.”

Representing the client before the IRS, we were able to reduce the individual’s IRS assessment by over 50%.

Helping a High-Net-Worth Individual deal with the IRS “Wealth Squad”

The Wealth Squad is part of the IRS Global High Wealth Industry Group. Its purpose is to increase its focus on high-income taxpayers and their related entities, and to strengthen the rigor of its audit processes. Yes, there is such an entity!

The Wealth Squad specialists determine the selection criteria and draw on resources throughout the IRS, including the criminal investigation division.

The IRS uses mathematical modeling (big data analytics and AI) to determine the examination potential of high wealth individual taxpayers. It assesses the level of compliance risk contained in filed returns. Returns with the highest risk indicators will more likely be selected for audit.

A high net worth individual in the US received an audit notice from the IRS’ Wealth Squad. Foodman CPAs & Advisors represented the individual and related companies associated with him during Wealth Squad audits. We responded to the squad’s voluminous requests for books & records, documentation, bank and brokerage statements, company financial statements and other records.

Our internal accounting recommendations were implemented, and the Wealth Squad concluded its audit, satisfied with all the answers we provided.

IRS has stated that the focus on high income taxpayers and tax evasion will continue with its increased focus on foreign income and information reporting through FATCA and FBAR compliance monitoring.