Jack and Jill are married for over 20 years. The couple has two children, Dweezil, age 16, and Moon Unit, age 14.
In the early 1990’s Jack was a member of a thrash metal band, End in Ruins (EIR). The group attained mid-level success and broke up in 2000 due to creative differences. Since the break-up, Jack has bounced around in the music industry earning much less than his EIR days.
Jill is the owner of a very successful dance studio; the studio generates revenue through private and group dance lessons, several recitals, and a significant annual event. The studio is very profitable over the years due to Jill’s outstanding work in the industry. Jill won many awards and contests. The hard work created much goodwill.
About five years ago, Jill asked Jack to find a steady job and get out of the music business because he is not earning a sufficient income that contributes to the family. Jack refused and responded to Jill, “You make big bucks; there is no reason to get out of the business.” The comment did not sit well with Jill!
As a result, Jill started to become dissatisfied with the marriage. In anticipation of filing for divorce, Jill began to engage in some acts to lower the net income of the dance studio. She started to skim money by asking individual and group dance clients to pay in cash in return for a ten percent discount. Jill also convinced the venues for the recitals and annual event to limit prepaid the ticket system for attendees and install a cash payment at the door. The venues liked the idea of being paid in cash. The combination of these actions caused the dance studio to appear to be less profitable and have lower activity.
Jill has filed for divorce. You are appointed as a mutual forensic accounting expert.
D1: What are the non-business issues the forensic accountant should address?
D2: What are some procedures a forensic accountant could perform to detect the schemes to reduce the net income for the dance studio?