Click to return to iNEWS ARCHIVES page
Week of September 19, 2008 • Issue No. 017
This Week in the iNews:
▲ LIKE-KIND EXCHANGE INTERMEDIARIES POSE RISKS
▲ FOCUS ON FRAUD: 2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE © ACFE – Part 7
▲ LUNCH & LEARN SERIES PROGRAM #3 – ESTATE TAX PLANNING
Under normal circumstances, when a taxpayer sells business or investment property, tax must be paid on the gain at the time of the sale. Qualified intermediaries receive and hold the proceeds of a sold property and then disburse the funds to acquire a replacement property, thereby deferring payment of the capital gains tax and saving the taxpayer a current tax obligation.
The Treasury Inspector General for Tax Administration recommended in a new report that the IRS enhance the written guidance it provides to taxpayers by including information about the risks associated with using a qualified intermediary, including the possibility of the intermediary going bankrupt, and any alternatives to qualified intermediaries.
In early 2008, IRS cautioned taxpayers about recent incidents of qualified intermediaries declaring bankruptcy or otherwise unable to meet their contractual obligations. As the number of like-kind exchanges has more than doubled between tax years 2001 and 2005, these defaults are further fallout resulting from the dramatic shift in real estate prices.
TIGTA found that the IRS does not have authority over qualified intermediaries. Although qualified intermediaries have important fiduciary responsibilities, they are not licensed or regulated, have minimal federal government oversight, and are not subject to minimum standards for training, competency or conduct. The IRS agreed with TIGTA's recommendations.
▲ FOCUS ON FRAUD: 2008 REPORT TO THE NATION ON OCCUPATIONAL FRAUD AND ABUSE © ACFE – Part 7
This study is based on data compiled from 959 cases of occupational fraud that were investigated between January 2006 and February 2008. All information was provided by the Certified Fraud Examiners (CFEs) who investigated those cases.
Executive Summary – Part 7, How Occupational Fraud is Committed; What the Study Reveals
Comparison of Methods Used
Approximately 90% of all occupational frauds involve asset misappropriations, with the majority of schemes (85% of the 90%) focused on cash, as opposed to other organizational assets. Fraudulent disbursements are the most common form of cash scheme.
Comparison of Schemes by Frequency
Of all schemes, corruption schemes were the most commonly reported form of occupational fraud, including more than one fourth of all the frauds reported. Common corruption schemes were paying or receiving bribes, engaging in conflicts of interest, extorting illegal payments or accepting illegal gratuities. After corruption, billing schemes were most common.
Comparison of Schemes by Median Loss
Fraudulent financial statement schemes registered a median loss of $2,000,000 ranking at the top of the list; register disbursements schemes were at the bottom of the list at $25,000 median loss. Fraudulent financial schemes differ from most others since the goal is not to directly enrich the perpetrator, but to mislead third parties (investors, owners, regulators, etc.) as to the profitability or viability of an organization.
Duration of Fraud Schemes
Fraudulent financial statement and check tampering schemes had the longest median duration of more than 30 months; the shortest median duration of fraud schemes was that with cash on hand lasting 17 months. Occupational fraud differs from other forms of theft in that generally they are ongoing crimes lasting months and years before they are detected. This makes occupational frauds so difficult to precisely measure the true cost.
Next time:Executive Summary – Part 8 – Detection of Fraud Schemes
▲ Lunch & Learn Series Program #3 – Estate Tax Planning
Please mark your calendar for Thursday, October 16, 2008 to attend the third installment of our Lunch & Learn Series on the subject matter of Estate Tax Planning. More information will provided in next week’s iNEWS – Look for it!