U.S. Trustee Suspends Random Audits

Audit checklist, with tick against "audit satisfactory",On March 30, 2013, the Office of the U.S. Trustee announced that it would stop conducting random audits of bankruptcy cases.  The indefinite suspension is due to budget constraints.

Random Bankruptcy Audits

The Bankruptcy Code permits the U.S. Trustee’s office to randomly select  a certain number of Chapter 7 and Chapter 13 cases each year for audit.  The U.S. Trustee’s office could randomly audit up to one out of every 1,000 Chapter 7 or Chapter 13 cases filed, and at a minimum at least one out of 250 cases in each federal judicial district.

Bankruptcy law also allows the U.S. Trustee to audit cases with red flags — those with unusual income or expenditures.

The U.S. Trustee would identify the cases to be audited, and then send them to independent audit firms to conduct the audits. The firms were to look for material misstatements or other evidence of fraud. To learn more about these audits, see Nolo’s article What Is a Bankruptcy Audit?

What Now?

The vast majority of bankruptcy filers do not lie or commit fraud in their bankruptcy cases. For those that do, they are likely to be caught by the bankruptcy trustee assigned to their cases. The case trustees look for  red flags on the petition and schedules and will inquire or investigate further if anything looks fishy.