The Insured Was Paid in Cash; Now What?

Cold, hard cash can be very hard to trace. This makes accounting for cash wages in Income Replacement Benefit (IRB) calculations tricky.

There are any number of instances when a person might be paid in cash: tips for waiting tables, housekeeping, contractors, whether employed or self-employed, and often when working for family members.

So, how do we prove a claimant earned a particular wage where they were paid in cash?


As with most income, cash wages should be considered when calculating an IRB. However, when looking at cash wages, the following must be considered:

  • Is there reasonable evidence of receipt of cash for services rendered?
  • Has the income been reported for tax?

Starting at the Tax Return

The Statutory Accident Benefits Schedule (SABS) simplifies the issue of cash income a bit, at least as it relates to the pre-accident period. Pursuant to subsection 4(5) SABS, if an insured has not report the cash as income on their taxes, then it doesn’t have to be considered in calculating their pre-accident income for an IRB. However, as there is no similar section in the SABS relating to post-accident income, you will still have to investigate the cash income level.

To further complete the issue for employed individuals, is the delay in reporting income for taxes. For example, an employed individual does not have to prepare a tax return for a particular year’s income until April 30 of the following year. This means, if the accident occurs in July, for example, it would take almost a year to confirm if the insured has reported this cash income for tax.

In situations such as that, the issue is: How do we quantify something the insured may not have tracked?

Quantifying Cash Income – Where to begin

As forensic accountants, we play a role in assessing the existence and quantum of cash income an insured may have received. This will obviously vary on a case-by-case basis. However, it is important to recognize that in some cases there might not be a perfect solution. It’s cash, after all!

Ascertaining a precise calculation in an income situation where cash wages are involved can often be impossible. As such, it ultimately comes to reasonability for an IRB calculation. You need to determine whether it is reasonable the insured:

  • Earned the indicated level of wages
  • During the time period indicated
  • Performing the job indicated.

So how do we do this?

Step 1 – Request supporting documentation

There will not always be documentation available, or at least not obvious documentation. So you may need to look for documentation that supports the reasonability of the insured’s claim, as opposed to the specifics.

  • Historic tax returns to compare reported income year-to-year.
  • Signed receipts from the employer, which should have been prepared prior to the accident, not retroactively.
  • Documents to support the earnings and work availability for other employees at the same employer, or to support the wages paid to the insured’s replacement. There will be privacy issues, so don’t expect to receive names with this request.
  • The insured’s bank statements to match the timing of any deposits with the story provided by the insured. This can be valuable, even if the deposits do not represent the complete earnings, which is likely to be the case with cash income.

Step 2 – Assess Reasonability

As we have previously stated, it is unlikely the documentation you receive will validate the insured’s receipt of cash income beyond a shadow of a doubt. So, you now need to assess its reasonability.

  • Compare documents from different periods to look for consistency.
  • Compare the reported income with industry statistics. Industry statistics can include average earnings of individuals in different geographic regions, industries, and age brackets.
  • Request information from third parties, such as industry associations or other employers in the same industry.
  • The individual’s lifestyle is also a key indicator in assessing reasonability, although this can be much more difficult to assess without the insured’s cooperation.

Red Flags to Keep Watch For

All the steps you have taken thus far, were to assess reasonability. Red flags really just exist because something isn’t as you would expect, or doesn’t appear reasonable. While the examples below are by no means exhaustive, they do provide a starting point for you when performing your investigation.

  • Using industry statistics, you can assess that a waitress working in a small town restaurant is unlikely to earn $300 in tips on a Tuesday evening, although that same waitress working during a film festival in a major metropolis might very well earn $300 in tips on a Tuesday evening.
  • Historic tax returns on which the insured may have previously reported cash earnings, or other income sources which conflict with the details provided by the insured. An example is Employment Insurance benefits being received while the insured claims to have been working.
  • Bank statements show varying levels of deposits month to month, but the income level reported remained the same.
  • An employer who will not sign off or confirm an employee’s wages.
  • An insured having started a job right before the accident or claiming an income level very close to the policy limit.

In these instances, the claim should be investigated further to rule out any concerns.

What this means for you

If an insured claims to have received cash wages, but has never reported so on an income tax return, it is essential to assess the reasonability of the insured having received the income claimed.

Follow the steps above, and always keep your eyes open for situations that don’t seem reasonable in the circumstance. There will always be outliers, situations that fall outside the norm, but they aren’t as common and may be an indicator that additional investigation is required.

As always, the team at ADS Forensics would be pleased to talk with you further if you have questions, whether general or about a specific claim. You can reach us at or 1-800-380-7908 ext ASK (275).

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