Flow of Funds Analysis in Legal Matters

What a Flow of Funds Analysis Answers

The analysis answers whether a disputed payment reached another party’s account. Each movement needs a source account, a destination supported by evidence and an amount. A cash withdrawal or missing receiving statement can leave the destination unresolved.

A narrative explains the transaction history and its significance. A chart puts the account relationships on one page, so a judge can locate a disputed movement and test it against the schedule. The chart reduces the need to reconstruct the route from several paragraphs. Keep the explanation beside the chart when the route depends on an inference.

A documented transfer path also differs from the legal question of who has a claim to the money. Use the separate asset tracing guide when funds pass through a mixed account and legal tracing rules affect the claim.

Setting the Scope Before Any Matching

Set the accounts and period from the pleaded issues, then record why each account belongs in the analysis. A claim about diverted sale proceeds needs the account receiving those proceeds and the accounts supported as onward destinations. Include surrounding transactions when they test an alternative explanation or show the opening balance.

1. Write the question the chart must answer. Identify the disputed amount or payment and the parties whose movements are relevant.
2. List each account, its holder and the covered period. Distinguish an evidenced account holder from an inference about who controlled the account.
3. Check statement coverage. Request missing periods, omitted pages and statements for identified receiving accounts that are absent from the bundle.
4. Record the scope decisions. State which accounts or movements are excluded and why, including any evidence that contradicts the proposed route.

Keep a coverage register with the first and last statement periods for each account. A transfer immediately before the selected period can explain opening funds. A transfer at the end can require a later receiving statement. Request both sides of these boundary movements before treating the route as complete.

Matching can begin on a supported segment while an unrelated gap remains. Mark the unresolved segment explicitly and retain the request for the missing records.

Matching Transfers Between Accounts

Pair a debit with a receiving credit using the amount and reference, then compare the posting dates. A receiving credit can clear a day later. A date difference needs an explanation supported by the transaction details, not an automatic rejection or automatic match.

Work through each candidate pair in order:

1. Give both entries stable transaction identifiers and retain their source citations.
2. Compare amounts and currencies. Where fees or currency conversion change the received amount, record the evidence explaining the difference.
3. Compare references and account details. Check competing entries when repeated amounts make more than one destination plausible.
4. Record the match and its basis. Assign one transfer identifier to the two statement entries so later totals count one movement.

Show cash withdrawals as cash leaving the account with its later use unresolved unless other records establish that use. An unmatched bank transfer has an unverified destination. Keep it as an open end and identify the missing evidence needed to extend the route.

Internal transfers move money between accounts held by the same person or entity. Show those arrows within that holder’s group and separate them from receipts or payments involving other parties. The debit and credit remain in the individual account reconciliations.

For a hypothetical holder moving $20,000 from savings to a current account, the combined position changes by $0. Incorrect treatment records $20,000 of spending and $20,000 of income. Correct treatment records one $20,000 internal transfer, excluded from external income and spending totals.

FinTrace saves hours of statement review by following transfers across related accounts and bringing the supporting evidence into one ledger and findings report. Forensic accountants use that analysis to spend more time on interpretation. Each finding cites the source PDF filename and page, so the statement supporting a proposed movement is already at hand.

Presenting the Flow Chart

Draw each account as a box and each supported movement as a directed arrow with an amount and transaction identifier. Add the posting date fields to the schedule. If several movements share an arrow, show their summed amount and the period covered, with every constituent transaction in the schedule.

The following fictional flow of funds diagram uses elapsed days and Australian dollars. Company A pays $30,000 to Person B. Person B later sends $20,000 to their own savings account and withdraws $5,000 in cash.

Use arrow thickness for amount only with a stated scale. This illustration uses three amount bands, not an exact proportional scale. Colour can group accounts by party, but account labels must communicate the same distinction when the chart is printed in black and white. Use a dashed endpoint for an unresolved destination and explain it in the legend.

The diagram’s legend must connect T1, T2 and T3 to the schedule below. These fictional filenames and PDF page numbers illustrate a citation convention. Define whether the PDF page count starts at one or zero before using it.

Movement	Debit record	Credit record	Chart amount and treatment
T1	Day 1, Company A, $30,000; company-a.pdf, PDF page 2	Day 2, Person B current, $30,000; person-b-current.pdf, PDF page 3	$30,000 external payment, matched across a one-day clearing difference
T2	Day 3, Person B current, $20,000; person-b-current.pdf, PDF page 3	Day 3, Person B savings, $20,000; person-b-savings.pdf, PDF page 2	$20,000 internal transfer, excluded from external income and spending
T3	Day 4, Person B current, $5,000; person-b-current.pdf, PDF page 3	Later use unresolved	$5,000 cash withdrawal, open end

For a summed arrow, add one schedule row per movement and a total for the arrow identifier. Preserve both posting dates when they differ. Use the schedule as the primary presentation when many repeated payments or small amounts would make arrows overlap. A court can compare exact entries in a table more easily than disentangle a crowded money flow diagram.

Identify how you will use the chart in the proceeding. Where the Commonwealth Evidence Act applies, section 50 of the Evidence Act 1995 permits a summary through a court direction on a party’s application. The court must be satisfied that volume or complexity prevents convenient examination of the documents. The applicant must serve the summary with its preparer’s name and address.

Each other party must also have a reasonable opportunity to examine or copy the underlying documents. Seek the direction before relying on that summary route. Producing a chart alone does not meet those requirements.

Testing the Analysis Before Service

Reconcile every account to its statement balances before testing the chart’s totals. Opening balance plus credits minus debits must equal closing balance for the same covered period. The bank statement reconciliation guide explains the checks that support this calculation.

In the fictional example, assume Person B’s current account starts at $0 and contains only T1, T2 and T3. Its closing balance is $5,000: $0 + $30,000 - $20,000 - $5,000. The savings account rises by $20,000. Across both accounts, $25,000 remains after the $5,000 cash withdrawal. Adding the two transfer legs as new income would misstate that combined position.

If the account reconciliation fails, check missing pages and duplicate entries first. Then compare signs, fees and the selected opening and closing periods. Keep any remaining difference in a reconciliation schedule with its amount and explanation. A chart covering selected movements needs a bridge to all other account transactions, so omitted activity remains visible.

Test the chart against the questions another party can put to its preparer:

• Why were these accounts selected, and what evidence would a wider account set reveal?
• What supports each receiving account and each match with different posting dates?
• Which excluded transactions could explain the same payment?
• Can a reader reproduce each arrow total from the schedule without counting an internal transfer twice?
• Where does the documented route stop, and what inference extends beyond the records?

For expert evidence in the Federal Court, Expert Evidence Practice Note GPN-EXPT requires the report to state its assumptions and reasoning. Paragraph 5.3 requires analyses and other extrinsic material referred to in the report to be supplied to the other parties with it. Keep the chart and supporting schedule consistent with the report’s stated basis.

Use court book preparation to organise the source pages and presentation documents. The analysis is ready for service when each arrow has a reproducible total, every account reconciliation is accounted for and unresolved destinations remain visible. Serve the version supported by those records and the applicable court directions.