Following The Money: Forensic Accounting Tracing Methods & Best Practices

Most accountants are familiar with the first in, first out (FIFO) and last in, first out (LIFO) inventory pricing methodologies. These are also two of the most common tracing methods for forensic accounting, among other methods such as the lowest intermediate balance rule (LIBR) and pro rata method. With various viable options, how do you know which approach is best for tracing ill-gotten gains?

I worked on a recent case where our team at HKA Global, LLC, was brought in to re-analyze an opposing expert witness' tracing of alleged fraudulent funds that were comingled with legal funds. To determine which tracing method would be most appropriate for this situation, I looked to the American Institute of Certified Public Accountants (AICPA) and the Association of Certified Fraud Examiners (ACFE) for guidance. To my surprise, neither organization had specific best practices for determining the appropriate accounting method for asset tracing in a given set of facts.