Each year the United States Trustee Program (USTP) contracts with independent audit companies to conduct audits of individual Chapter 7 and Chapter 13 bankruptcy cases. The goal is to discover how accurate, true, and complete the average bankruptcy filer is when filing a bankruptcy petition and schedules. With this baseline data, the USTP hopes to be able to better identify instances of fraud, abuse, and error in bankruptcy cases, and then devise ways to deter this conduct. (Learn more about bankruptcy audits.)
While the USTP is authorized to do these audits annually, it suspended the audits from March 18, 2013 through March 10, 2014 because of budget issues. This means that its current 2014 audit spans from March 10th through December 31st.
In the 2014 audit, the USTP randomly audited one out of every 600 consumer bankruptcy cases. About half of those were random audits and the other half were “exception” audits (audits of cases where the filer’s income and expenses were above the norm).
The total number of cases that ended up with an audit report (some cases were dismissed by the filer before a report was filed, and other filers did not cooperate with the audit company so no report was filed) was 1,498. In 23% of those cases, the audit company found at least one material misstatement in the bankruptcy filing. The random audit rate of misstatements was lower – 16%. The exception audit rate was higher – 31%.
About two-thirds of the misstatements had to do with the debtor’s income. Just under half related to reporting assets or the transfer of property. (Some cases had more than one misstatement.)
To read the public report and review the table of results, see Debtor Audits by the United States Trustee Program Fiscal year 2014.