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Forensic Accountant Warns: ‘Tis The Season for Gift Card Scam Fraud

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

According to the international accounting firm, Deloitte Touche Tohmatsu, Limited, 54 percent of Americans plan to buy gift cards this holiday season. David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, states that gift cards have become the number one most popular holiday gift, beating out clothes, toys and games, and books.

Fraudsters love gift cards, too.  According to Certified Fraud Examiner Anderson, a recent research report by the Association of Certified Fraud Examiners (ACFE) lists these schemes as being among the latest trends in gift card scams:

Stealing Gift Card Numbers

In this scheme, the fraudster takes one or more gift cards from the display rack at a retail store or post office, carefully removes the card from its packaging (if any), scratches off the silver sticker on the back of the card (under which is the PIN number), records the PIN and gift card number (usually by taking a photo with his/her phone), puts an identical silver sticker (easily purchased on eBay) on the card to replace the one scratched off, and returns the gift card to the display rack.

The fraudster waits until the gift card is activated, and regularly monitors the card issuer’s website to check the balance.  Once the balance shows up (meaning the card has been activated), the fraudster either uses the relevant gift card information online or sells the gift card online (providing the gift card info and PIN number to the purchaser).

Since the gift card has been activated before the relevant holiday, and because many recipients don’t try to use the card for days, weeks or months after receiving it, this gives the fraudster plenty of time to carry out the scheme.

Other variations of the scheme involved hacking the issuer’s website for gift card information or employing specialized software to test millions of number combinations until an active gift card is identified.

Balance Confirmation Scams

In this scheme, the fraudster contacts a seller who has listed a gift card for sale on eBay, Craigslist or some other site.  The fraudster asks the seller to make a three-way call to the card issuer with the fraudster on the line to confirm the card’s balance.  The purpose of this call is for the fraudster to capture the touch tones the seller enters.  The fraudster can then use these touch tones to determine the card number and the PIN number, and then uses the card information himself/herself.

Other Gift Card Scams 

These schemes include dishonest cashiers who switch the activated gift card for an “empty” gift card at the cash register, and phishing e-mails that offer free gift cards as a way to obtain personal financial information

So, how can you avoid becoming the victim of a gift card scam?  The ACFE suggests you consider some or all of the following:

  • Buying gift cards only from reputable sellers.
  • When possible, buying gift cards online directly from the issuer.
  • Avoiding gift cards that are displayed in easily accessible areas (for example, asking for a gift card stored behind the counter).
  • If buying a gift card from a display rack, choosing a card from the least accessible area of the rack (such as from the bottom row).
  • Choosing a card from the middle of the rack spindle instead of choosing the front card.
  • Carefully inspecting the card’s packaging and PIN sticker for any tampering.
  • Watching the cashier scan and activate the gift card.
  • Matching the card number to the number shown on the receipt (if the card number is shown on the receipt).
  • Using the gift card as soon as possible.
  • Frequently checking gift card balances.
  • When possible, registering the gift card on the issuer’s website.
  • Immediately contacting the card issuer if the gift card balance is lower than expected.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Forensic Accounting Tips to Help Reduce Expense Reimbursement Fraud

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Corporations and organizations of all sizes face myriad threats to their financial stability; however, one of the most devious is one that comes from within: Expense Reimbursement Fraud.

While taken individually, the amount of money undeservedly extracted by each employee on each report is small in comparison to the overall total, if many members of your team are presenting phony receipts, the amount of money you might be losing could be staggering.

“Many employees don’t see padding their expense reports as being immoral or illegal,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley. “They think it is their right, just as much as a paid vacation or a safe work environment.”

“Some see it as a common practice their employer overlooks because the dollar amount stolen is insignificant in the greater scope of things,” said Anderson, a Certified Fraud Examiner.  “Still others see the money they pocket as an unauthorized bonus for putting up with the hassles of business travel.  Employees have all kinds of justifications for padding their expenses, but the bottom line is that when you add it up, companies are dealt a hard blow from expense reimbursement fraud.”

The following types of expense reimbursement schemes have been identified by forensic accounting experts as those most commonly used by employees.  Following each scheme are recommendations companies can use to combat the fraud.

Air Travel

The Scheme:  Some companies allow employees to travel in first or business class or to book coach tickets that allow flight plan changes without incurring an additional change fee.  Fraud occurs when an employee buys a ticket with a personal credit card, submits the cost for reimbursement and then returns the ticket to the airline for reimbursement and replaces it with less expensive travel, according to Anderson, a forensic accountant who also is a Certified Fraud Examiner.  The employee may fly coach instead of first or business class; replace a non-change fee ticket with a less expensive ticket that carries a change fee; use frequent flyer miles; or even travel by train or car instead of plane.

Fraud Deterrence Measures:  Companies should book tickets and pay for them on a company credit card so if a ticket is returned, funds are applied to the company card instead of the employee’s card, Anderson said.  Companies also should require employees to submit boarding passes as documented proof of the expense.  A company manager well versed in boarding passes can verify the pass was used, he said.  And because most airlines require boarding passes be printed within 24 hours of the scheduled flight time, it is harder for employees to print a pass and then change the ticket.

Meal and Entertainment Fraud

The Scheme:  The most common fraud is for an employee to pay for meals or entertainment with cash, obtain a blank receipt from the restaurant/venue and then enter a higher amount on the blank receipt, said Anderson, a forensic accounting expert.  Another scheme involves a group of people dining together and one employee charging the entire bill to a credit card while everyone else pays cash.  The employee pockets the cash but submits the entire bill for reimbursement.  A third method is for an employee to claim a personal meal as a business expense.  Another scheme is for the employee to submit a phony restaurant receipt (available at websites such as www.salesreceiptstore.com) for an amount greater than what the employee spent.

Fraud Deterrence Measures:  These schemes are difficult to detect and validate because it is impossible to know where employees ate or what they paid, Anderson said.  But companies can require employees to use company credit cards for all charges, thereby eliminating the need to reimburse them for meal and entertainment expenses.  Companies must scrutinize credit card charges to make sure employees do not charge personal expenses and must require employees to identify the attendees and business purpose of each charge.  One other alternative that limits a company’s total meal cost is to use the per diem tables issued by the federal government and reimburse employees at the per diem rate regardless of what the actual expenses were, Anderson said.

Taxi, Parking and Tolls Fraud

The Scheme:  An employee reports having paid cash for a taxi, parking or bridge/highway toll and failing to obtain a receipt.  Many companies allow claims up to $20 or $25 for each of these types of expenditures without a receipt.

Fraud Deterrence Measures:  The two most effective means of combating this fraud is to require use of a company credit card or to deny reimbursement without the required receipt for these expenses.  Many taxis, parking venues and toll booths produce receipts electronically now, so it is difficult for employees to claim that a receipt was not available.

The Copy of a Receipt Fraud

The Scheme:  An employee submits a copy of a receipt, keeping the original receipt or another copy of it to be submitted for additional reimbursement later.

Fraud Deterrence Measures:  Companies should require employees to submit original receipts and deny reimbursement for photocopies.

“Some of these fraud schemes are actually easy to prevent,” said Anderson, a forensic accountant who recommends that every organization enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  “But many companies think the loss is so low that it is not worth the effort to combat it.  If they added up the ‘minor’ pilfering for each employee for the full year or multiple years, it would likely no longer be a ‘minor’ loss.”

When was the last time your expense reimbursement procedures were examined by a forensic accountant?  A forensic accounting expert from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley can recommend fraud deterrence measures that will strengthen your expense reimbursement measures and help prevent losses, Anderson said.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

The Role of the Forensic Accountant in Alternate Dispute Resolution

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Business litigation can be a very expensive proposition.  Generally, opposing attorneys will fight vigorously for their clients.  When forensic accountants are engaged as expert witnesses in business litigation, such fighting can drive up the cost of the expert witnesses and drive down the understanding of the forensic accountant’s work and, therefore, the client’s satisfaction with the forensic accountant

In a typical business litigation scenario, the opposing attorneys may fight against providing information which the forensic accountant has requested in order to calculate damages or to perform a business valuation valuation.  Depending on the amount of rancor between the parties and level of antagonistic determination between the attorneys, Anderson, of David Anderson & Associates, says there are times he may have to perform the damage calculation or business valuation without all the relevant information he believes is necessary.  In the absence of such information, the forensic accountant may have to make reasonable assumptions regarding the missing information.  If there are differing assumptions by each side’s expert witness, significant differences in damage calculation or business valuation amounts may result.

In such situations, the parties often may expend significant time and incur significant costs in using these forensic accounting experts.  Especially when there are significant differences of opinion between the two expert witnesses, the experts’ fees and attorney fees can be even higher.  According to Anderson, both parties also may come away with confusion and misunderstanding regarding how the relevant damage amount or business’s value was determined. This is because they may only speak with the expert retained by their attorney and must rely upon the deposition and/or courtroom testimony of the opposing expert without being able to ask their own questions.

The use of alternate dispute resolution – such as mediation, arbitration, and negotiation – not only can reduce the cost of traditional business litigation, but also can help eliminate the uncertainty that comes from leaving the resolution of the dispute up to the Courts (judge or jury).

Examples of disputes that are prime candidates for alternate dispute resolution include:

  • Business contract disputes
  • Shareholder/partner disputes
  • Employee termination disputes
  • Insurance claims
  • Royalty payment disputes
  • Patent/trademark disputes

So how does the role of the forensic accounting expert differ in alternate dispute resolution?

  • First, the forensic accounting expert can be jointly retained by both parties as opposed to by just one party in traditional business litigation.
  • Next, because of the joint retention of the forensic accounting expert, both parties are more cooperative and better able to share all the necessary information needed by the forensic accounting expert. Thus, there is also usually less of a need to make assumptions.
  • Finally, Anderson explained, the expert witness report can be openly reviewed with both parties. Because this is a joint retention, the forensic accounting expert can be more open and informative with both parties and stand ready to fully answer either party’s questions. This helps to eliminate confusion and lack of understanding regarding the damage calculation or business valuation and the forensic accounting expert’s process.

Additionally, the cost for the forensic accounting expert will be less, because only one expert is retained instead of two, and because the cost of depositions and/or courtroom testimony can be eliminated.

If you need a forensic accounting or business valuation professional in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Don’t Try Hiding Cash Transactions; Forensic Accountants Will Find Them

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

There are several reasons why the owner or principal of a business – typically a retail business – that receives payment in cash for a significant amount of sales might try to hide some or all such cash by pocketing it and not entering the sales into their books and records. These primary motivations are:

  • To pay less in taxes; and/or
  • To show reduced cash flow, profits and business value to divorcing spouses or to shareholders who are not employed in the business (often called non-operating shareholders).

As a firm that offers forensic accounting services in Philadelphia, David Anderson & Associates often is called in to analyze the books, records, and operations of such businesses to determine whether – and, if so, how much – cash sales are not being reported. As part of my fraud investigation, and as a Certified Fraud Examiner, our Philadelphia forensic accounting firm employs many of the same fraud deterrence techniques as the IRS and other taxing authorities to identify non-reported cash sales.

Here is a sampling of some of the techniques that forensic accountants use:

  • Analysis of tax returns and financial statements over a multi-year period: One form of analysis is to compare key operating data over a multi-year period and look for unusual trends. For example, in the case of a retail gardening business, I noted the business had been averaging about $600,000 to $800,000 sales per year with a slight upward trend until the year immediately before the owner commenced divorce proceedings. In that year, sales dropped to about $450,000. The next year, sales recovered to around $600,000, and the following year sales jumped to over $700,000. This was a potential indicator of unreported cash sales.
  • Analysis of tax returns and financial statements in comparison to industry statistics: Forensic accountants have access to industry statistics that can be compared to the financial information reported on a company’s tax returns and financial statements. For example, a pizza restaurant with between $3 million and $5 million in sales will typically have a gross profit in the range of 65 percent to 72 percent of sales. If the pizza restaurant I am investigating has been averaging a gross profit in the range of only 45 percent to 50 percent, this can be a strong indicator of unreported cash sales.
  • Comparison of inventory records with sales records: In the case of a retail beauty products business, I analyzed the inventory records of certain high-value beauty products – including expensive perfumes – and compared those records to the recorded sales of those high-value beauty products. I was only able to trace about 50 percent of the inventory reduction to recorded sales. The owner was unable to explain the other 50 percent inventory reduction. Her initial claim was that her staff must have stolen the other 50 percent, but she then was unable to explain how the staff members obtained access to the locked cage where the products were stored after I determined she was the only one with a key to the locked cage.
  • Analysis of employee time records versus recorded sales: In analyzing the sales of a catering business, I noted multiple instances in which employees were paid for working certain catered events for which no sales were recorded. I then contacted each of the customers for these events and learned that each had paid cash. In this case, I could obtain the actual amount paid from each customer.

As a Certified Fraud Examiner offering forensic accounting services in Philadelphia, some of the other fraud deterrence techniques I have used include observation – in which I have someone observe the number of customers and/or product deliveries that occur during a specific length of time and then compare that information with the number of sales recorded in the company’s accounting system – and interviews with present and former employees, although I have noted that interviews with present employees can be very sensitive because such employees may not want to cooperate for fear of losing their jobs.

Of course, while such techniques can be a strong indicator of unreported cash sales, forensic accountants still must perform other procedures and analyses to validate the amount of such unreported cash sales.  But in the end, if the owner is hiding cash sales, a forensic accountant who also is a Certified Fraud Examiner and is conducting a fraud investigation is very likely to find them.

If you require forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Determining the Valuation Date is a Key Factor in Business Valuations

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

When a forensic accountant performs a business valuation, one of the first – and most important – factors that must be determined is the date of the valuation. There are many different bases that can be used to fix this key factor. Here are a few:

  • For a marital dissolution, the valuation date can be the date of marriage (for determining the pre-marital business value) and/or date of separation or date of filing of divorce complaint (for determining marital business value), and/or a current date (for determining ability to pay);
  • For financial statement presentation purposes, the valuation date can be the date of acquisition (for purchase price allocation) or the end of the financial statement year (for determining goodwill impairment or purchase price impairment);
  • For gift taxes, the valuation date can be the date of the gift;
  • For estate taxes, the valuation date can be the date of death or the date six months after the date of death;
  • For insurance claims and damages litigation, the valuation date can be the date of the incident that gave rise to the claim occurred (for determining valuation of total loss value) and/or the date the impact of the damaging incident ceased (for determining period of loss and lost value during that period);
  • For business acquisitions, sales and/or mergers, it can be any mutually agreed-upon date.

The selection of the valuation date is critical because, among other things, a business valuator can only consider factors that were known or knowable as of the valuation date.  This means that certain key subsequent events may or may not be considered in valuing the business.  The following illustrate how this impacts the business value:

  • In the case of Hurricane Sandy which hit New Jersey and New York on October 29, 2012, the selection of a valuation date could have a major impact. For example, if the valuation date of a business affected by Hurricane Sandy was October 29, 2012 or later, then the effects of the hurricane would be considered in valuing a business which was destroyed by Hurricane Sandy. But what if the valuation date was a few days earlier?  If the valuation date was October 28, 2012, it is reasonable to expect that the business would have been affected by Hurricane Sandy only 24 hours later.  But what if the valuation date was October 23, 2012, when all but one of the storm models predicted that the storm would head out to sea?  Or October 24, 2012, when three of the storm models predicted that the storm would hit the East Coast around the Delaware-Maryland-Virginia peninsula and the rest predicted that the storm would head out to sea?  This determination would be critical if the business had been destroyed by Hurricane Sandy.
  • In a divorce, if the spouse’s business was declining, static, or growing slowly as of the valuation date, but three months later landed a large lucrative contract, should the impact of that contract be included in the valuation? In this case, several factors would determine whether it was known or knowable as of the valuation date that the contract would be awarded. For example, if the contract was awarded based on a Request for Proposal that was sent out by the customer ten days after the valuation date and this was the first time that the spouse’s business had ever submitted a bid to this customer, it would tend to point to the award not having been known or knowable as of the valuation date.  Alternatively, if the Request for Proposal and proposal had been submitted several months before the valuation date, if the spouse’s business had been selected as one of two finalists before the valuation date, and if the spouse’s business had previously won one or more contracts from this customer, it could be reasonable to assume that as of the valuation date it was known or knowable that the spouse’s business was likely to win the contract.

These are just examples, of course. The forensic accounting professional acting as the business valuator in such situations must consider all the specific facts surrounding the valuation date to determine whether a critical post-valuation date event was known or knowable as of the valuation date.

If you need a business valuation professional in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting, and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.

Guidelines to Help Ensure the Reliability of Financial Statements “Associated With” an Accounting Firm

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

Seeing the label “associated with” a specific accounting firm on a financial statement you receive is not a guarantee the information you are receiving has actually been examined rigorously, presented fairly, or carries even a shred of credibility, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.

“Simply being ‘associated’ with an Accounting Firm does not mean the financial statement has undergone a thorough examination for reliability,” Anderson said. “Investors, litigants and other interested parties need to understand the true implications of having Accounting Firms ‘associated’ with financial statements.”

Anderson, a forensic accountant in Philadelphia who also is a Certified Fraud Examiner in Philadelphia, said there are four primary ways in which an Accounting Firm is “associated” with financial statements:

  • When the financial statements are in a binder with the name of the accounting firm on it;
  • When the accounting firm performs a compilation;
  • When the accounting firm performs a review; and
  • When the accounting firm performs an audit.

Binders

Anderson said Accounting Firms provide clients with some form of financial statements in a binder usually when the Accounting Firm is performing a special analysis or projection for internal use only. These types of financial statements usually do not reflect actual financial performance, and are referred to as “pro-forma,” he said.

Financial statements found in a binder usually are stamped with the words “Confidential,” “Unaudited” and/or “For Internal Use Only,” Anderson noted. Accounting Firms usually do not verify or authenticate the underlying information used in “pro-forma” financial statements, said Anderson, a forensic accounting expert in Philadelphia. Furthermore, he added, the Accounting Firm generally does not issue a letter to accompany these financial statements (other than perhaps a transmittal letter).

Compilations

Compilations performed by an Accounting Firm and accompanied by a Compilation letter are limited to presenting information that is the representation of management, Anderson explained. Substantially all disclosures and financial statement notes are usually omitted from a Compilation, he said.

The Accounting Firm does not audit or review the statements, does not express any opinion about presentation of the information in the statements and provides no assurance about their reliability, according to Anderson, a forensic accountant in Philadelphia whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Reviews

Reviews, accompanied by corresponding Review letters, consist primarily of inquiries of company personnel and analysis of the financial statements, including ratio analysis, explained Anderson, a forensic accounting expert in Philadelphia who also is a Certified Fraud Examiner in Philadelphia.

The Accounting Firm does not perform any audit procedures and does not express an opinion about presentation of the information contained in the financial statements, he said. However, the Accounting Firm does provide limited assurance that the financial statements do not require any material modification, Anderson noted.

Audits

Audits performed by an Accounting Firm, which also produces an accompanying Audit letter, are detailed examinations of financial statements intended to provide assurance that the financial statements are free of material misstatement, Anderson explained. The Accounting Firm expresses an opinion that the financial statements present fairly, in all material respects, the financial position of the company, he said.

However, Anderson cautioned, an Audit does not guarantee there is no fraud. He said fraud may be present but not identified by the Accounting Firm if: (1) there is management collusion (such as with Enron, Tyco International, WorldCom, etc.); (2) there is management override of internal controls (such as with Adelphia Communications and HealthSouth Corporation); (3) the Accounting Firm fails to adequately plan and execute the audit (such as with ZZZZBest); or (4) the Accounting Firm or its affiliates earn significant non-audit fees from the company (such as with Enron and Bernard L Madoff Investment Securities, LLC).

An Accounting Firm also may perform an Audit and issue an Audit letter that questions the ability of the company to continue in business, said Anderson, a forensic accountant in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. This type of Audit letter is known as a “Going Concern” audit letter, according to Anderson.

“When considering financial statements with which an Accounting Firm is “associated, it is critically important to carefully read any accompanying letter from the Accounting Firm,” Anderson said. “These letters provide insight regarding the degree to which the Accounting Firm has performed assurance services, if any.”

Anderson, who has conducted numerous fraud investigations, also recommends the recipient carefully analyze the financial statements themselves, along with notes to financial statements and supplemental schedules, if any, to gain a more complete understanding of the statements.

If you require the services of a forensic accountant, a Certified Fraud Examiner, or any other financial expert to help with disaster planning or other accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Business Valuation Experts Provide Critical Analysis in Collaborative Divorces

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services including business valuation, fraud investigation, and fraud deterrence programs in Philadelphia and the Delaware Valley.

Throughout his career, David Anderson has served as a business valuation expert on both sides of traditional divorces.

Sometimes Certified Valuation Expert Anderson is retained by the attorney for the out-spouse (the spouse who either does not have an ownership interest in the business at all or who has a non-controlling ownership interest in the business when the other spouse has a controlling ownership interest in the same business); in other cases by the attorney for the in-spouse (the spouse who has either a controlling interest in the business, or a non-controlling ownership interest in the business when the out-spouse has no ownership interest).

In a typical traditional divorce, the in-spouse’s attorney may fight vigorously against providing information which the out-spouse’s business valuation expert has requested to perform the valuation.  Depending on the amount of rancor between the parties and level of antagonistic determination between the attorneys, Anderson – of David Anderson & Associates – said he may have to perform the valuation without all the relevant information which he believes is necessary for the valuation.  In the absence of such information, the business valuation expert may have to make reasonable assumptions regarding the missing information.

For example, if the out-spouse’s business deducts 100 percent of the cost of a company-provided vehicle, and the out-spouse does not provide mileage logs or other written documentation of business use of the vehicle, the business valuation expert may have to make assumptions regarding the percentage of personal use which is not considered a valid business expense.  Such assumptions, said forensic accounting expert Anderson can form the basis of a difference of opinion between the out-spouse’s business valuation expert and the in-spouse’s business valuation expert (who is usually retained to analyze and rebut the opposing expert’s valuation).

In such situations, the parties often may expend significant time and incur significant costs in using these business valuation experts.  Especially when there are significant differences of opinion between the two business valuation experts, the experts’ fees and attorney fees can be even higher.  According to Anderson, both spouses may also come away with confusion and misunderstanding regarding how the relevant business’s value was determined because they may only speak with the expert retained by their attorney and must rely upon the deposition and/or courtroom testimony of the opposing expert without being able to ask their own questions.

Collaborative divorce presents a significant alternative to traditional divorce.  While not for everyone, collaborative divorce gives each party and their attorneys the option to work together as a team.  As necessary, the team can be expanded to include financial specialists (such as business valuation experts), child specialists (to help with parenting plans and custody arrangements) and coaches (licensed mental health professionals who help the parties address emotional issues).  The goal of collaborative divorce is to help the parties determine the key outcomes of their divorce themselves as opposed to having a judge or third-party mediator determine those outcomes.

All the team members in a collaborative divorce, said Certified Fraud Examiner Anderson, have undergone specialized training which helps foster cooperation, respect and open exchange.  Yet, because each spouse is represented by a collaboratively trained attorney, he/she can feel confident that his/her views will be adequately considered, and his/her needs will be adequately addressed by the team.

So how does the role of the collaboratively-trained business valuation expert differ in a collaborative divorce?

  • First, the business valuation expert is retained by both parties as opposed to by just one party in a traditional divorce.
  • Next, because of the joint retention of the business valuation expert, both parties are more cooperative and better able to share all the necessary information needed by the business valuation expert. Thus, there is also usually less of a need to make assumptions.
  • Finally, Anderson explained, the business valuation report can be openly reviewed with both parties. Because this is a collaborative effort, the business valuation expert can be more open and informative with both parties, and stand ready to fully answer either party’s questions. This helps to eliminate confusion and lack of understanding regarding the business valuation and business valuation expert’s process.

In a collaborative divorce, the cost for the business valuation expert can be less, because only one expert is retained instead of two, and because the cost of depositions and/or courtroom testimony can be eliminated.

If you need a business valuation professional in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Combat Fraudsters by Regularly Reviewing Your Organization’s Financial Statements

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

It’s good common sense – and even better financial sense – to review on a regular basis the financial statements issued by companies, government entities or organizations to deter fraud. However, many executive officers rarely check these documents, and often when they do, they might not fully understand what they are reading.

Knowing your financial statements, and understanding what to look for, are important components both in fraud identification and fraud deterrence.

“The only time officials in most organizations, government entities and companies actually look at the financial statements is after year-end,” said David Anderson, a Certified Fraud Examiner and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, including fraud investigation and fraud deterrence programs.  “They are doing themselves a major disservice.  Financial statements can have red flags that can alert you to potentially fraudulent activity.”

A full forensic accounting analysis of your financial statements can help point out the warning signs of fraud, Anderson said.  There are things to consider in analyzing the statement, he said.

If your business is growing, do your financial statements indicate regular increases in sales or do they show relatively flat sales?  If it’s the latter, you’ll want to know why.  In one recent fraud case, a dishonest employee was diverting sales and cash receipts.  Had the business owner checked the company’s financial statements regularly, the fraud could have been detected sooner, Anderson noted.

If your business is not growing and sales are down, and your financial statement is showing an increase in inventory purchases, there may be an issue. Someone could be fraudulently diverting inventory.

If the difference between your sales and the cost of sales or cost of goods sold – also known as your gross margins – are decreasing, there could be a reason why. If certain operating expenses — such as office supplies/expense, travel and entertainment expense, etc. — are rising faster than expected, investigate it.  If the cash balance on your financial statements doesn’t approximately equal the balances on the corresponding bank statements (allowing for some outstanding checks), look for missing funds.

The reason behind any of these “red flags” may be completely legitimate, Anderson said, but they may also indicate illicit activity.  If you are not sure that a “red flag” is completely legitimate, you may need a fraud investigation to determine the cause.  At the very least, a consistent examination of your financial statements may identify business inefficiencies that can be resolved.

Lastly, regular financial statement analysis shows your workers you care about the company, government entity or organization, and that you are watching the flow of money to assure operating efficiency and to identify potential fraud.  It’s one of the strongest fraud deterrence messages you can send, Anderson advises.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Fight Fraud by Staying Current on Your Company’s Bank Reconciliations

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

One of the most effective ways for a business to help prevent fraud is, according to one of the top forensic accountants and Certified Fraud Examiners in the Philadelphia region, to closely monitor and control its bank reconciliations and other account-related activities.

David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, previously has written about various aspects of the role that bank reconciliations play in enabling or preventing fraudsters from embezzling or diverting funds.

In this article, Anderson looks at various features of such types of fraud and the steps that can be taken to prevent them.

To start, there’s the diversion of bank deposits or improperly receiving cash from bank deposits. To prevent this fraud from occurring, according to Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – the duties of preparing deposit slips, making the bank deposits, recording the deposits in the company’s accounting system and performing the bank reconciliation should be separated from one another.

Another typical fraud pattern involves the improper withdrawal of funds via the use of counter checks, or out of sequence checks. To keep this from taking place, the duties of check signatory, physical control of checks and bank reconciliation should be separated from one another, says Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

One more commonly seen scheme also deals with the improper withdrawal of funds but, in this case, fraudsters use transfers to other accounts at the same bank, ACH (automated clearing house) payments and wire transfers to receive their ill-gotten gain.  Anderson, a Certified Fraud Examiner in Philadelphian, said this fraud plan can be thwarted by keeping persons who have the authority to perform these transactions separated from the bank reconciliation function.

Also, the improper use of business ATM cards, according to Anderson, can be prevented by keeping the persons who have the use of these cards separated from the bank reconciliation function.

While Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, said he recognizes that – especially in smaller companies – it might not be possible to separate such functions, he suggests adding these controls:

  • Have bank statements (along with copies of paid checks) mailed directly to the home of the business owner or senior executive (other than the executive who performs the bank reconciliations).
  • Have that person open and peruse the bank statements looking for unusual transactions and checks. These actions, said Certified Fraud Examiner in Philadelphia Anderson, can include the improper use of ATM cards, lower amounts of deposits than expected, unexpected ACH payments and wire transfers, transfers to unknown bank accounts, out of sequence checks, counter checks, checks paid to unknown parties, and checks paid to known parties but for larger amounts than expected. Only after these items have been inspected (which doesn’t take much time) should the documents be given to the person performing the bank reconciliation.
  • Have the completed bank reconciliations reviewed by the business owner or a senior executive. The reviewer, said Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – should ask questions about such items as deposits in transit (bank deposits that have been already recorded on the company’s accounting system but which were not received by the bank as of the bank statement cut-off date) and unpaid checks that are more than 90 days old as well as anything else that seems out of the ordinary or unusual. Many small companies utilize an outside expert such as a forensic accountant or Certified Fraud Examiner to regularly review completed bank reconciliations.

By adding these controls to bank accounts and bank reconciliations, Anderson said a company can go a long way to preventing many types of fraud.

If you require the services of a Certified Fraud Examiner in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Forensic Accountants Can Help Assure Timeliness and Completeness of Royalty Payments

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

Have you or your clients licensed the use of intellectual property in return for royalty fees?  Are you or your client’s franchisors who receive franchise fees from your franchisees?  If so, are you conducting royalty audits in a timely manner to assure that you are receiving the fees to which you are entitled?  If not, it may be time to turn to a forensic accountant to establish regularly scheduled royalty audits and make sure you are getting the royalty checks you deserve.

“Royalty fees are sometimes fixed so that a certain amount is paid each year, but more often, they are based on production, sales or gross profit by the licensees,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “In those situations, the license agreements allow for royalty audits.  The problem is that many licensors fail to conduct royalty audits, or they conduct them long after the fees are due, effectively cheating themselves out of money they are owed.”

Royalty audits are a complex undertaking that generally are not conducted by patent holders, copyright holders, trademark/tradename holders or franchisors, but instead by a trained financial expert such as a Philadelphia forensic accountant with experience in conducting royalty audits for licensed intellectual property or for franchisors, Anderson said.  The cost of a royalty audit usually is paid by the licensor, Anderson said.  However, many royalty agreements contain provisions that require the licensee(s) to pay for the royalty audit if the audit discovers willful understating of fees due, he said.

A royalty audit is a detailed examination of the licensee’s financial records intended to ensure that the production, sales or gross profit reported by the licensee matches the actual production, sales or gross profit recorded in their financial records, according to Anderson, a forensic accounting expert in Philadelphia who has expertise in royalty audits.

In situations where different license fee rates apply to different types of items, a royalty audit analyzes the licensee’s fee calculations to make certain that the correct rates have been applied, Anderson explained.  A royalty audit also examines the licensee’s financial data to make sure it is consistent with that of comparable companies, Anderson said.  For example, if a license fee is based on the gross profit of sales of licensed items, the royalty audit will evaluate gross profits reported on comparable sales by comparable companies to determine if the gross profits reported by the licensee are reasonable.

When significant amounts of royalties or multiple licensees are in play, the license holder may require electronic reporting of financial information, said Anderson, whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  That requirement often results in large amounts of information being reported to the licensor and the subsequent need for the royalty auditor to employ specialized software for data analysis, he said.

As a forensic accounting expert in Philadelphia, Anderson recently conducted a royalty audit for a well-known musician whose music was licensed throughout the world in many forms – albums, singles, sheet music and Internet downloads, as well as songs used for commercials, movies and television programs, by cover bands, and by commercial music services, among others.  In addition, the royalty rates paid differed by form and licensee, he said.

Much of the financial information was provided in electronic format and involved many thousands of lines of data, according to Anderson, a Philadelphia forensic accountant with expertise in royalty audits.  Anderson said he relied on specialized data analysis software to help facilitate the audit, thereby eliminating hundreds of fee hours and significantly reducing the time needed to conduct the audit.

Anderson also noted that a key benefit of royalty audits is the proactive use of audit techniques to regularly monitor licensee compliance and avoid waiting until year end (or beyond) to determine compliance.  In the case of the world-famous musician, the routines Anderson developed in the specialized data analysis software were adapted for monthly use. This allowed for regular analysis of financial data, which, in turn, reduced the amount of work required for the year-end royalty audits and allowed for faster reaction to underpayments by licensees.

Regular royalty audits and the proactive analysis of licensee data assures holders of intellectual property licenses and franchisors that their licensees/franchisees are paying royalties/fees at the correct rate and in a timely manner.

If you require the services of a Philadelphia forensic accountant with expertise in royalty audits or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.

Forensic Accountants Can Bring Value in Termination, Discrimination Cases

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

Among the many duties a forensic accountant may be asked to undertake in a typical work cycle is calculating damages for wrongful termination and employment discrimination lawsuits.

“Whether you are dealing with wrongful termination or employment discrimination, the methodology for calculating damages is similar,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.

“The key basis for calculating damages is the difference between what the plaintiff would have earned over his/her lifetime had the wrongful termination or employment discrimination not occurred, and the actual and expected earnings of the plaintiff after having experienced the wrongful termination or employment discrimination,” explained Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.

Anderson outlined the steps of the damage calculation this way:

  • To begin with, the date the damages started is determined. This typically is the date that the plaintiff was allegedly wrongfully terminated or the date that the employment discrimination allegedly began.
  • Next, the wage or salary rate and associated benefits as of the beginning date of damages are identified.
  • Then, these rates and benefits are extrapolated through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • This is followed by identifying the actual wage or salary rate and associated benefits earned by the plaintiff from the beginning date of damages until the date of the damages calculation.
  • The forensic accountant must then extrapolate these rates and benefits through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • Finally, the difference between the two different extrapolations are calculated.

Anderson, a forensic accounting expert in Philadelphia whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, said the extrapolations rely upon several assumptions, including:

  • What the expected career path of the plaintiff would have been had the wrongful termination or employment discrimination not occurred.
  • What the actual and expected career path of the plaintiff is due to the wrongful termination or employment discrimination. Typically, the wrongfully terminated person will have a period of unemployment and is likely to have to take a lower-level position or a position paying less, etc. Similarly, the person experiencing employment discrimination will either have a harder time finding employment or, if already employed, will have a slower or lower career path.
  • What the associated wage or salary and benefits growth rates would have been for each of the above.
  • What the associated benefits would have been for each of the above. This includes insurances, pension or profit-sharing benefits, 401-K contributions and company matches, etc.
  • What mitigating steps the plaintiff has taken or is expected to take to obtain employment, and the reasonableness of those steps. For example, if the plaintiff previously was a high-powered executive, what is the plaintiff doing to find alternative employment? Also, what is a reasonable amount of time for finding a new job? If the plaintiff has found a new job, is it comparable to what would be expected?
  • The rate to use to discount the differences back to present value. Please note that under Pennsylvania law, neither inflation-based wage increases nor discounting to present value are allowed.
  • Any applicable permitted interest on past differences.

Anderson, a forensic accountant whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, including expert witness testimony in Philadelphia, said the forensic accountant/expert witness generally will rely on an associated report by a qualified employment and compensation expert regarding the expected career paths and associated salaries over time, unless the forensic accountant/expert witness also is a qualified expert in that area.

If you need help in calculating damages for wrongful termination or employment discrimination cases, or if you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for any other reason, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support services, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.  Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

 

Forensic Accountants Can Help Effectively Referee Family Inheritance Battles

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting and marital dissolution services in Philadelphia and the Delaware Valley.

Any parent, grandparent, aunt or uncle, or other guardian is quite familiar with the squabbling that can take place among young siblings fighting over toys, chores, or family rules.

Sadly, in more situations than you might think, these individuals grow up and end up in similar internecine arguments; this time, however, over trusts, estates, or other inheritance issues.

This is where the services of a forensic accountant can come into play.

“Unfortunately, there rarely is a family member who can step in as the ultimate arbiter to settle the conflict,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm.  “Instead, the unhappy beneficiaries often turn to the courts to resolve the dispute, ending up in litigation that can be very contentious and very expensive.”

Anderson said, in many cases such as these, families turn to a forensic accounting expert to analyze the management and administration of the trust or estate and to account for the assets and transactions.

“Perhaps one or more beneficiaries, who often are siblings or other relatives, believe the fiduciary (trustee or executor) is mishandling the trust or estate’s finances, is improperly taking funds from the trust or estate, or has improperly or unevenly distributed assets or income of the trust or estate.

“A forensic accounting expert has no stake in the matter and is not a family member.  He or she is concerned only with the facts of the matter at hand,” said Anderson, who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “As a result, both the beneficiaries and the fiduciary can be confident that the forensic accountant’s report will be independent, fair and unbiased.  Engaging a forensic accounting expert to settle the conflict is less contentious and less expensive.”

Anderson said a forensic accountant’s report typically identifies the specific documents that govern the administration of the trust or estate and cites specific passages from those documents regarding management of assets, distribution of funds, payment of fees to and expenses of the fiduciary, and related matters.  The report identifies the period examined, provides a schedule of assets of the trust or estate at both the beginning and end of the period, and lays out (in either detail or summary form) the transactions of the trust or estate.

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, said the report outlines the forensic accountant’s findings regarding the fiduciary’s management of the trust or estate relative to the trust documents, and whether any transactions conflict with the governing documents.  The forensic accountant will review the report with the beneficiaries and the fiduciary and answer any questions regarding the findings.

While the cost of engaging a forensic accounting expert to analyze the handling of a trust or estate is usually significantly less than the cost of actual or threatened litigation, it is the lessening or neutralizing of the emotional aspects of the dispute that can be even more appealing to families.

“A forensic accountant’s involvement reduces the contentiousness,” Anderson said.  “Family members tend to acknowledge that the dispute is in the hands of a professional whose independent analysis will bring peace of mind to everyone involved.  The forensic accountant is, in effect, the ultimate arbitrator we grew up with.  It’s the next best thing to Mom and Dad.”

Anderson recommends that beneficiaries and fiduciaries engage the services of a forensic accounting expert at the first sign of a dispute — before the matter escalates and family relationships are destroyed.

“Don’t let suspicions of mismanagement fester until things have gotten so bad that there is no hope of repairing the relationship,” said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Family is important.  Bring in a third party as soon as a conflict arises.”

If you require a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Charities and Non-Profits Might Be More Exposed to Fraud

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

While charitable and non-profit organizations focus on serving the general good, they’re quite often themselves the focus of fraudsters who target their financial operations as potential low-hanging fruit that’s ripe for picking.

The leaders of these houses of worship, youth sports teams, volunteer fire companies, and other such groups, in most cases, focus on their mission and leave the financial operations to volunteers, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.

Since these volunteers, Anderson said, often have other commitments, they generally are able to devote only a limited amount of time towards these duties. This, he said, puts these organizations at a much higher than normal risk of fraud.

As a result, they must rely on a few trusted employees and volunteers to oversee their operations and to handle their finances. With such limited resources, explained Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, most small- to medium-sized non-profits are not able to effectively implement the necessary internal financial and accounting controls to adequately protect against fraud.

Furthermore, he added, most organizations such as these are often unable to afford an audit or other external examination of their books and records.

The result is that certain unscrupulous employees and volunteers can take advantage of these weaknesses and embezzle funds.  Here are just three examples:

  • The bookkeeper for a Montgomery County, Pa., church was convicted of embezzling more than $150,000 from the church.
  • A 45-year non-paid member of a Chester County, Pa., volunteer fire company was convicted of embezzling more than $300,000 from the fire company.
  • The chief operating officer of a Philadelphia non-profit for the homeless was indicted for charging more than $75,000 in personal expenses on the non-profit’s credit cards.

So, what can a small to medium-sized non-profit organization do to protect itself from fraud?  Here are a few suggestions:

  • Create an internal financial review committee of three or more knowledgeable people – with backgrounds in forensic accounting, accounting and/or business finance – to review the finances of the organization on a regular basis, such as quarterly or semi-annually.
  • Arrange for at least two members of the internal financial review committee to receive copies of the organization’s bank statements directly from the bank before any reconciliation takes place;
  • Require all checks to receive two signatures;
  • Seek help from volunteers who are in government or law enforcement, or who are attorneys, to conduct background checks for new and existing employees (in accordance with the law).
  • Whenever large amounts of cash are collected (for example, weekly offerings collection or concession stand sales), require two or more people to jointly oversee the counting of the cash and preparation of deposit slips;
  • When employees of volunteers resign or leave their positions, immediately remove them from computer system access and from bank signatory cards/credit cards/debit cards, etc.

If fraud is suspected, immediately engage outside counsel. Such counsel can best advise the organization as to the steps to take to protect itself from potential litigation and to properly investigate the suspected fraud, which may include retaining a forensic accountant to conduct the investigation.

If you require the services of a Certified Fraud Examiner in Philadelphia or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia who has more than 30 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Valuation Analyst and a Certified Fraud Examiner in Philadelphia.