🔍 How to Investigate Fraud

Fraud rarely announces itself. It reveals itself through patterns — small inconsistencies, behavioral changes, and financial discrepancies that individually seem minor but collectively paint a damning picture. The first step in any fraud investigation is learning to recognize these warning signs before the damage compounds further. Whether you are dealing with a business partner who may be siphoning funds, a contractor who disappeared with your deposit, an employee who has been manipulating financial records, or a debtor who has been hiding assets to avoid paying a judgment, the red flags follow remarkably consistent patterns across virtually every type of fraud scheme. 🚩

📊 Financial red flags are the most straightforward indicators. Watch for unexplained cash shortages or inventory discrepancies, bank statements that do not reconcile with accounting records, payments to vendors or entities you do not recognize, duplicate payments or invoices for identical amounts, revenue that drops while expenses remain flat or increase, unauthorized wire transfers or checks, and financial reports that consistently arrive late or require “corrections.” When financial records show patterns that do not match the legitimate business activity you would expect, fraud is a likely explanation — and the sooner you investigate, the more likely you are to recover what was taken.

🔄 Behavioral red flags from the suspected fraudster are equally telling. People committing fraud typically exhibit noticeable changes: living beyond their apparent means, becoming unusually defensive about their work or responsibilities, insisting on exclusive control over certain financial processes, refusing to take vacations (because someone else might discover the scheme during their absence), maintaining unusually close relationships with vendors or customers, and displaying excessive secrecy about routine matters. An employee or business partner who reacts with hostility or deflection when asked legitimate questions about financial transactions is exhibiting a classic fraud indicator.

📝 Documentary red flags include contracts or agreements that appear to have been modified after the fact, signatures that look different from known examples, documents with inconsistent formatting suggesting they were created at different times, records that are conveniently “lost” or “destroyed,” and communications that contradict the official narrative. If you are pursuing a judgment and the debtor suddenly produces documents showing they have no assets — documents that did not exist during the debtor examination — that is a documentary red flag that warrants deeper investigation.

🏢 Structural red flags involve the use of complex business structures, shell companies, trusts, and intermediaries to obscure the movement of assets. When a debtor or business partner suddenly creates new LLCs, transfers property to family members, establishes trusts, or routes funds through multiple entities for no apparent legitimate business purpose, these structural changes are classic indicators of fraudulent asset transfers. Our business asset searches can map corporate structures and identify nominee arrangements that suggest fraud.

Understanding the specific type of fraud you are dealing with shapes your entire investigation strategy — including what evidence to look for, which professionals to engage, and what legal remedies are available. Here are the fraud categories most relevant to businesses, creditors, and individuals pursuing financial recovery: ⚠️

💼 Business fraud and embezzlement. Employees, partners, or officers who exploit their positions of trust to steal money or assets from the business. Methods include creating fictitious vendors and paying invoices to themselves, skimming cash receipts before they are recorded, manipulating payroll to include ghost employees or inflated hours, using company credit cards for personal expenses, diverting customer payments to personal accounts, and manipulating financial statements to conceal the theft. Embezzlement often continues for years before detection because the perpetrator controls the records that would reveal it. If you suspect an employee or partner has been stealing, time is critical — every day of delay means more money disappearing.

🏗️ Contractor and vendor fraud. Contractors who collect deposits and disappear, submit invoices for work never performed, use substandard materials while billing for premium products, or substantially overcharge for services rendered. Vendor fraud includes kickback schemes where an employee receives payments from vendors in exchange for steering business their way at inflated prices. If a contractor has ripped you off, a skip trace can locate them and an asset search can determine whether they have assets worth pursuing before you invest in litigation.

📉 Debtor fraud and asset concealment. Judgment debtors and borrowers who actively hide assets, transfer property to family members, create shell companies to shelter wealth, underreport income, or make false statements about their financial condition. This is perhaps the most common fraud type encountered in debt collection — and it is the type where our services provide the most direct value. Our asset search services uncover real property, vehicles, business interests, and other assets that debtors attempt to hide. If you suspect a debtor is hiding assets, read our companion guide on fraudulent conveyance and asset transfers for detailed information on how to identify and legally challenge these schemes.

🎭 Identity-based fraud and impersonation. Individuals who misrepresent their identity, credentials, background, or qualifications to obtain money, employment, contracts, or other benefits under false pretenses. This includes people who use fake identities to obtain credit, contractors who fabricate licenses and insurance, and individuals who provide false information on applications and agreements. When someone is not who they claim to be, a thorough background investigation and background check can reveal the truth.

🏠 Real estate and investment fraud. Schemes involving fraudulent property transactions, fake investment opportunities, Ponzi-style arrangements where early investor returns are paid from new investor capital, and real estate transactions involving forged documents, misrepresented property conditions, or undisclosed encumbrances. Real property asset searches and pre-litigation asset investigations can uncover the true ownership and financial picture behind suspicious real estate transactions.

A systematic approach to fraud investigation maximizes your chances of both proving the fraud and recovering your losses. Jumping ahead, cutting corners, or confronting the suspect prematurely can destroy your case. Follow these eight steps in order for the best outcome: 📋

📌 Step 1: Stop the bleeding immediately. Before investigating the scope of the fraud, take immediate action to prevent further losses. If an employee has access to financial systems, restrict that access (ideally without alerting them — work with IT to implement monitoring rather than outright blocking if possible). If a business partner is diverting funds, secure the accounts you control. If a debtor is transferring assets, consult an attorney about emergency remedies like a temporary restraining order or preliminary injunction to freeze asset transfers. The first priority is always preventing additional damage while you investigate what has already occurred.

📌 Step 2: Document everything you currently know. Create a detailed written timeline of every suspicious event, transaction, and communication you can recall or document. Include dates, amounts, names, and descriptions of what happened. This becomes the foundation of your investigation — the framework that reveals patterns, identifies gaps in your knowledge, and guides your next steps. Write down what you know, what you suspect but cannot yet prove, and what questions remain unanswered. Save copies of all relevant communications — emails, text messages, voicemails, letters — in their original format. Do not modify, annotate, or rearrange original documents.

📌 Step 3: Secure and preserve all evidence. Evidence preservation is critical because fraud cases live or die on documentation. Make copies of all financial records including bank statements, accounting files, invoices, receipts, checks (front and back), contracts, and tax returns. Screenshot or export relevant emails and text messages. Photograph or video record physical evidence. Store copies in a secure location separate from anything the suspect can access. If digital evidence is involved, consider engaging a forensic IT specialist to create verified copies that will hold up in court — data must be preserved in a way that proves it was not tampered with.

📌 Step 4: Run background checks and investigate the suspect. A comprehensive background investigation on the suspected fraudster reveals their full picture — criminal history, past lawsuits, prior fraud allegations, known addresses, known associates, business affiliations, and financial indicators. A background check can reveal prior convictions for fraud, theft, or embezzlement. Our skip tracing services provide current addresses, phone numbers, employment information, and associated individuals — all essential for identifying where the perpetrator may have moved money and who else may be involved. Results delivered in 24 hours or less.

📌 Step 5: Trace and identify all assets. Before you can recover stolen money, you need to know where it went. An asset search reveals what the fraudster currently owns: real property including homes, land, and investment properties, vehicles and watercraft, business interests including LLCs, corporations, and partnerships, and other identifiable assets. Asset searches are particularly important in fraud cases because perpetrators frequently purchase tangible assets with stolen funds — buying property, vehicles, boats, and luxury items that can potentially be traced back to the fraud proceeds and recovered. Combined with a pre-litigation asset search, this information helps you and your attorney decide whether legal action is likely to result in actual recovery.

📌 Step 6: Engage qualified professionals. Most fraud investigations require professional expertise beyond what a single person can provide. Key professionals include an attorney experienced in fraud and civil recovery litigation, a forensic accountant (for cases involving complex financial manipulation, multiple bank accounts, or business records), and investigation professionals for locating people, tracing assets, and gathering evidence. The specific team you need depends on the complexity and scale of the fraud. For straightforward cases — a contractor who took a deposit and disappeared, or a debtor hiding assets from a judgment — a skip trace and asset search combined with a competent attorney may be all you need.

📌 Step 7: Assess your legal options and remedies. Based on your investigation findings, work with your attorney to evaluate all available legal remedies. Civil options include filing a lawsuit for fraud, breach of contract, conversion, or unjust enrichment, seeking judgment liens against real property, levying assets, pursuing fraudulent transfer claims to claw back assets moved to third parties, and piercing the corporate veil through alter ego liability when fraud was conducted through business entities. Criminal options include filing a police report and working with prosecutors if the conduct constitutes criminal fraud, theft, or embezzlement. Pursue both tracks simultaneously — criminal prosecution serves justice but rarely results in financial recovery, while civil remedies focus specifically on getting your money back.

📌 Step 8: Execute your recovery strategy. With evidence secured, assets identified, and legal strategy determined, execute your plan. File suit before the statute of limitations expires. Request emergency injunctive relief if assets are being dissipated. Obtain your judgment and immediately begin enforcement using every available tool: writs of execution, judgment liens, asset levies, wage garnishment, and debtor examinations. If the fraudster has relocated, domesticate your judgment in their new state. The speed and aggressiveness of your enforcement directly correlates with how much you ultimately recover — fraudsters who see aggressive collection activity are far more likely to settle than those who face passive collection efforts.

The quality of your evidence determines whether your fraud investigation results in recovery or frustration. Courts require specific types of evidence to prove fraud, and evidence that was improperly collected, modified, or stored may be challenged or excluded entirely. Here is what to collect and how to preserve it properly: 📂

📄 Financial documentation. Bank statements showing suspicious transactions, transfers to unknown parties, and unusual withdrawal patterns. Accounting records including general ledgers, accounts payable and receivable records, journal entries, and reconciliation reports. Tax returns — both personal and business — which may reveal unreported income, fictitious deductions, or hidden business activities. Canceled checks (front and back, showing endorsements), wire transfer confirmations, credit card statements, and loan documents. For business fraud, also collect corporate meeting minutes, partnership agreements, operating agreements, shareholder records, and any documents showing who had signatory authority on accounts.

💬 Communications. Emails are often the most valuable evidence in fraud cases because people communicate more candidly in email than in formal documents. Preserve all emails to and from the suspect in their original electronic format — including headers, metadata, and attachments. Export them from the email system rather than printing them, as electronic versions contain metadata showing when messages were sent, received, and read. Similarly preserve text messages (take screenshots showing the sender’s phone number and timestamps), voicemails (record them from the phone before they auto-delete), social media messages, and any handwritten notes or letters. Do not forward, edit, or annotate originals.

📊 Digital evidence. Computer files, cloud storage documents, application data, GPS location records, internet browsing history, and electronic access logs can all provide critical evidence. If the fraud involved company systems, preserve server logs showing who accessed what and when. If possible, create a forensic image (exact bit-for-bit copy) of relevant hard drives and storage devices before they can be wiped. Digital evidence is particularly valuable for proving that the suspect accessed accounts they should not have, was in locations inconsistent with their claims, or created documents at times that contradict their story.

👤 Witness statements. Interview anyone who may have relevant information — employees, customers, vendors, neighbors, and associates who observed suspicious behavior or transactions. Take detailed written statements or, with consent, record the interviews. Note each witness’s full name, contact information, relationship to the parties, and what they personally observed versus what they heard secondhand. Witness testimony that corroborates documentary evidence is extremely powerful in fraud cases.

Proving fraud is only half the battle — recovering the stolen money or assets is what actually makes you whole. Asset tracing is the process of following the money from your pocket to wherever the fraudster has hidden, spent, or invested it. Professional asset tracing often reveals that fraudsters are far wealthier than they claim — they just hide it well. 💰

🏠 Real property searches. Real property asset searches reveal any real estate owned by the suspect, including residential homes, investment properties, vacant land, and commercial properties. Fraudsters who steal significant sums frequently invest in real estate because it feels “safe” — they believe property cannot be easily seized. They are wrong. Once you obtain a judgment, you can place a lien on every piece of real property the fraudster owns, and in many states you can force a sale to satisfy the judgment. Property records also reveal the purchase price and date, which can establish that the purchase was made with stolen funds.

🚗 Vehicle and asset searches. Vehicle asset searches identify cars, trucks, boats, motorcycles, and other titled vehicles registered to the suspect. High-value vehicle purchases made during the period of the fraud scheme can corroborate that stolen funds were used for personal enrichment. These assets can be levied once you have a judgment.

🏢 Business entity searches. Business asset searches reveal LLCs, corporations, partnerships, and other business entities associated with the suspect. Fraudsters frequently create shell companies to receive diverted funds, purchase assets in company names rather than personal names, and layer ownership through multiple entities to make tracing more difficult. Mapping the suspect’s entire corporate structure — including entities where they serve as agent, officer, director, or member — often reveals hidden wealth that does not appear under their personal name. If the fraud was committed through business entities, alter ego liability and veil-piercing claims can reach personal assets.

👤 Associate and nominee searches. Sophisticated fraudsters transfer assets to family members, romantic partners, business associates, and nominees (people who hold assets in their name on behalf of the true owner). A thorough investigation examines asset transfers to the suspect’s spouse, children, parents, siblings, and close associates — particularly transfers made for little or no consideration during or after the fraud period. Our skip tracing identifies the suspect’s known associates and family members, enabling you to search for assets held in those names as well. The legal doctrine of fraudulent conveyance allows you to “claw back” assets transferred to third parties with the intent to defraud creditors.

🔍 Employment and income verification. If the fraudster is employed, identifying their employer enables wage garnishment once you obtain a judgment. Employment verification also helps establish whether the suspect’s reported income is consistent with their lifestyle — a significant discrepancy suggests hidden income sources from the fraud or other undisclosed activities.

Fraud victims have multiple legal avenues for recovery, and the most successful approach usually combines several remedies simultaneously. Understanding each option — and its realistic timeline and cost — helps you make informed decisions about how to allocate your investigation and legal resources. ⚖️

⚖️ Civil fraud lawsuits. A civil lawsuit is your primary tool for recovering money lost to fraud. Unlike criminal cases (where the government prosecutes and any restitution goes through the court system), civil suits give you direct control over the case and any resulting judgment. Fraud claims typically allow recovery of actual damages (the money you lost), consequential damages (additional losses caused by the fraud), punitive damages (additional money awarded to punish particularly egregious conduct — often 2-3x or more of actual damages), and attorney fees and investigation costs in many jurisdictions. The resulting judgment can be enforced through all available collection tools: writs of execution, property liens, asset levies, wage garnishment, and debtor examinations.

🔒 Emergency injunctive relief. If you can demonstrate that the fraudster is actively dissipating assets — transferring property, draining accounts, or preparing to flee — you can ask the court for emergency relief before the full lawsuit is resolved. Temporary restraining orders (TROs) can freeze bank accounts and prevent asset transfers. Preliminary injunctions can prohibit the sale or disposal of specific assets. Receivership can place an independent party in control of the fraudster’s assets and business operations. These emergency remedies require strong evidence of both the fraud and the imminent risk of asset dissipation, which is why the investigation and evidence preservation steps discussed above are so critical.

🔄 Fraudulent transfer claims. If the suspect transferred assets to family members, friends, or entities to place them beyond your reach, fraudulent transfer laws allow you to “claw back” those assets. Under the Uniform Voidable Transactions Act (UVTA), transfers made with actual intent to defraud creditors — or transfers made for inadequate consideration while the transferor was insolvent — can be reversed by the court. The court can void the transfer, order the asset returned, grant a judgment against the transferee, and attach the asset wherever it currently sits. This is an incredibly powerful remedy that reaches assets the fraudster thought they had successfully hidden.

🏢 Piercing the corporate veil. If the fraud was committed through a business entity — an LLC, corporation, or partnership — alter ego liability allows you to hold the individual personally responsible for the entity’s debts and obligations. Courts will “pierce the veil” when the entity was used as a mere alter ego of the individual, when corporate formalities were not observed, and when maintaining the corporate fiction would sanction fraud or promote injustice. Successfully piercing the veil exposes the individual’s personal assets to your judgment.

👮 Criminal prosecution. Filing a police report and cooperating with prosecutors can result in criminal charges against the fraudster. Criminal prosecution has significant advantages: the government bears the investigation and prosecution costs, the threat of incarceration creates powerful incentive to cooperate and make restitution, and a conviction makes your civil case much easier to prove. However, criminal prosecution has disadvantages too: you do not control the timeline or priorities, prosecutors may decline cases they consider too complex or too small, and any restitution ordered through the criminal case may take years to collect. Pursue civil remedies simultaneously — do not rely on the criminal system alone for financial recovery.

📋 Regulatory complaints. Depending on the type of fraud, filing complaints with regulatory agencies may trigger independent investigations and enforcement actions. Relevant agencies include state attorneys general (consumer fraud), the FTC (deceptive trade practices), state contractor licensing boards (contractor fraud), insurance commissioners (insurance fraud), the SEC (securities fraud), and professional licensing boards. While regulatory complaints do not directly result in money in your pocket, they can trigger additional pressure on the fraudster and sometimes lead to restitution orders or license revocations that enhance your leverage in civil settlement negotiations.

Even well-intentioned fraud investigations can go wrong. These seven mistakes are the most common reasons fraud victims fail to recover their losses — and every one is avoidable with proper planning: ❌

🗣️ Confronting the suspect too early. This is the single most damaging mistake in fraud investigation. The moment a fraudster knows they are under investigation, they destroy evidence, move money, transfer assets, create alibis, and sometimes disappear entirely. Complete your investigation and secure evidence before any confrontation. The element of surprise is one of your most powerful advantages.

⏰ Waiting too long to act. While you should not confront prematurely, you also cannot afford to delay the overall investigation. Every day that passes gives the fraudster more time to dissipate assets, destroy evidence, and compound losses. The statute of limitations is also ticking — fraud claims have specific filing deadlines that vary by state, and missing them eliminates your right to sue entirely. Act with urgency from the moment you suspect fraud.

📋 Failing to preserve evidence properly. Altered documents, overwritten files, forwarded emails (which change metadata), and improperly stored records can all be challenged or excluded in court. Follow strict evidence preservation protocols from the start. When in doubt, do not touch the original — make a copy and work from that.

💰 Not searching for assets before filing suit. Filing a lawsuit against a fraudster who has already successfully hidden all assets results in an unenforceable judgment — you win on paper but collect nothing. Run an asset search early to confirm recoverable assets exist. If the fraudster has substantial assets, proceed aggressively. If they appear to have nothing, investigate whether assets were transferred and pursue fraudulent conveyance claims or wait until assets materialize — but file suit before the statute expires regardless, as the judgment preserves your rights for the long term with accruing interest.

🔍 Investigating alone without professional help. DIY fraud investigations often miss critical evidence, violate legal boundaries, and fail to identify hidden assets that professionals would find. The cost of not investing in proper investigation far exceeds the cost of professional help. At minimum, engage an attorney who specializes in fraud cases and use professional skip tracing and asset search services to build a factual foundation.

⚖️ Relying solely on criminal prosecution for recovery. Criminal cases take years, prosecutors have limited resources, and restitution orders are notoriously difficult to enforce. Always pursue civil remedies simultaneously. A civil lawsuit gives you direct control over the case, timeline, and settlement process.

📝 Failing to act on what the investigation reveals. Some fraud victims become paralyzed by the scope of what they discover — or by the emotional impact of betrayal — and never follow through with legal action. Your investigation is only valuable if you act on it. Once you have evidence and identified assets, work with your attorney to execute a recovery plan promptly.

📋 The Embezzling Office Manager: $180,000 Recovery

A mid-size construction company notices persistent cash flow problems despite strong revenue. The owner reviews bank statements and discovers dozens of checks written to an unfamiliar vendor — “Reliable Supply Co.” — totaling $127,000 over 18 months. The vendor does not appear in any purchase orders, and the addresses on the invoices lead to a UPS Store mailbox. The office manager, who has handled bookkeeping for 6 years, has sole access to the checkbook and accounting software.

Instead of confronting the office manager, the owner follows the systematic investigation process. Step 1: They quietly restrict the office manager’s ability to issue checks over $500 without co-signature. Step 2: They document every suspicious transaction in a detailed timeline. Step 3: They engage a forensic accountant who examines 3 years of records and discovers an additional $53,000 in fraudulent credit card charges and payroll manipulation — bringing total losses to $180,000.

Step 4: A skip trace on the office manager reveals she recently purchased a home in her husband’s name and registered a new luxury SUV to a family LLC she created six months ago. Step 5: An asset search reveals the home (purchased for $340,000), the SUV, a boat, and the family LLC — all acquired during the embezzlement period. Step 6: The owner’s attorney files a civil lawsuit for fraud, conversion, and fraudulent conveyance, seeking to pierce the family LLC and unwind the property transfer to the husband.

Simultaneously, the owner files a police report. The office manager is arrested on embezzlement charges. Facing both criminal prosecution and civil litigation — with all her hidden assets identified — she settles the civil case for $180,000 in full restitution plus $12,000 in investigation costs, paid through sale of the boat, a lien on the home, and a structured payment plan secured against the remaining assets. Total recovery: 100% of losses plus investigation costs. Timeline: 4 months from initial suspicion to settlement.