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What Is Qui Tam and Why Is It Relevant Today?

Posted by & filed under Blog Articles, Company News, Forensic Accounting.

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

Over the last several months, the term “whistleblower” has become commonplace in the news.  However, for well over 100 years, the term “whistleblower” has been commonly used with regards to companies that are accused of defrauding the Federal government.  It is used with what are known as writs of Qui Tam.

To gain a better perspective on Qui Tam, I spoke with David Heim, Esquire, a partner in the Philadelphia law firm of Bochetto & Lentz, P.C.  Attorney Heim is one of the Bochetto & Lentz partners who handle Qui Tam cases.

Attorney Heim stated that the concept of Qui Tam goes back to Roman and Anglo-Saxon law.  In fact, Qui Tam is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur” which means “he who sues in this matter for the king as well as for himself.”

In the United States, the American Civil War provided the impetus for the modern application of Qui Tam.  During the early part of the Civil War, unscrupulous contractors sold deficient supplies to the Union Army, including faulty rifles and ammunition, rancid food, and poorly made uniforms, shoes and other supplies.

This led to the passage of the False Claims Act in 1863.  The False Claims Act allowed for people not affiliated with the Federal government to file suit against Federal contractors, claiming fraud against the Federal government.  As an additional incentive, the False Claims Act included a Qui Tam provision which permitted those who filed such suits to receive a percentage of the amount recovered.  The False Claims Act uses an alternative name for “whistleblower” – “relator”.

Attorney Heim described the way a Qui Tam case works, as follows:

  • A person (the “relator”) approaches a law firm such as Bochetto & Lentz with the allegation that a business is defrauding the Federal government.
  • The relator’s law firm, if they decide to take the case, perform significant due diligence and investigation in order to support the specific fraud asserted. The law firm may engage forensic accountants and other experts as part of their investigation (Note:  if the pre-filing investigation is unable to uncover sufficient proof to support the specific fraud asserted, the case cannot proceed).
  • If there is sufficient proof to support the specific fraud asserted, the relator’s law firm files a complaint in the U. S. District Court. The complaint, which is captioned with the name of the individual on behalf of the United States versus the business, is sealed.  Because it is a Qui Tam matter, the case is not docketed.  Hence, no one outside of the relator and the relator’s law firm knows about the case.
  • The relator’s law firm approaches the U. S. District Attorney’s office (Department of Justice) about the Qui Tam case.
  • The U. S. District Attorney meets with the relator’s law firm and the “relator”. Its office conducts a secret investigation which may include interviews, analysis of the complaint and supporting documents, etc.  The U. S. District Attorney’s Officer may even approach the business which is the subject of the complaint (defendant) and obtain documentation (under seal).  Such an investigation may take months and even years.
  • Based upon the results of its investigation, the U. S. District Attorney decides whether to intervene. If it chooses to intervene, the Federal government will take over the case and file the complaint itself (not under seal).
  • Attorney Heim explained that if the U. S. District Attorney chooses not to intervene, the “relator” and his/her law firm may choose to pursue the case themselves. However, because most Qui Tam cases are very large, most law firms lack the resources to pursue such a case.  Additionally, since the U. S. Attorney has decided that pursuing the case is not likely to be successful, the private law firm must also weigh the similar risk that it’s case will be unsuccessful.
  • Once the Federal government pursues the case, Attorney Heim stated that it is typically the case that the defendant and the Federal government negotiate and settle the case without going to trial (this is because being the subject of such a Federal investigation can be very expensive, and can generate considerable negative publicity).
  • The False Claims Act provides for the “relator” to receive between 10% and 25% of the amount recovered from the defendant. When the Federal government takes over a case from them, Bochetto & Lentz will negotiate the fee with the Federal Government on behalf of the relator. Bochetto & Lentz will then receive a percentage of the relator’s payment (based upon the original terms of the engagement when it agreed to take the case).

Attorney Heim described two recent Qui Tam cases with which he was involved:

  • Case number one involved a contractor hired by the government of a U. S. territory based in the Caribbean which had been hit by a hurricane. Using Federal funds, the island’s government hired the contractor to clear roadways and cut up downed trees.  One of the contractor’s employees reported to company management that the company was overbilling the Federal government by over-reporting the number of downed trees it had cut up.  The company fired the employee who then approached Bochetto & Lentz with whistleblower complaint.  Bochetto & Lentz filed suit, and the U. S. Attorney intervened in the case, charging the contractor with defrauding the Federal government.
  • Case number two involved a publicly held pharmaceutical company which had manipulated the system to get around being paid agreed-upon Medicare rates for certain expensive drugs. The company shipped smaller amounts of the drugs to Medicare authorized pharmacies.  Because these pharmacies were not able to fill all the Medicare demand for these drugs, hospitals and other facilities needing these drugs were forced to go to non-Medicare pharmacies for the drugs.  Because the drugs were purchased from non-Medicare pharmacies, Medicare was forced to pay a higher price for the drugs than it would have paid if the drugs were purchased from Medicare authorized pharmacies.  The whistleblower/relator came to Bochetto & Lentz.  Bochetto & Lentz filed suit, and the U. S. Attorney intervened in the case, charging the pharmaceutical company with defrauding Medicare.

Attorney Heim also noted that other common Qui Tam cases involve Medicare providers (such as nursing homes and durable medical equipment companies) billing for procedures not performed, improper coding of billed procedures (in order to receive higher payments), and improper billing for durable medical equipment provided (such as providing a piece of equipment to a patient but billing a monthly rental fee instead of a one-time purchase fee).

I also asked about various state whistleblower laws.   Attorney Heim stated that most of these laws are designed to protect the whistleblower instead of allowing the whistleblower to sue on behalf of the state government.  For example, Pennsylvania allows a whistleblower to sue for retaliation.  In New Jersey, the applicable statue is known as CEPA (for the “Conscientious Employee Protection Act) and is also designed to protect whistleblowers from retaliation.

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If you require the 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.  Anderson also has served as a divorce accountant or marital dissolution accountant in Philadelphia and the Delaware Valley.

 NOTE: David Anderson’s weekly forensic accounting blog will be on hiatus through the new year and will return on Monday, January 6. Have a safe and enjoyable holiday season!

Cash Transactions Can Complicate Business Valuations During a Divorce

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Marital Dissolution.

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

The decision to end a marriage is a messy affair that becomes undoubtedly more complicated when the division of property includes a business that must be valued; the situation becomes even trickier when claims of unreported cash transactions taking place in that business are involved.

In these cases, determining a fair value for the business is best left in the hands of a forensic accounting expert who has experience serving as a marital dissolution accountant and a business valuation expert.

“The issues that have to be considered in a business valuation during divorce proceedings are complex and numerous,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley. Such issues can be particularly thorny, he emphasized, when the business in question may or may not have had unreported cash sales.

The overall valuation process, he said, “usually begins in an educational vein as the forensic accountant explains to the spouses and their attorneys how a forensic accounting expert addresses valuation issues in a divorce.”

Four key business valuation issues arise repeatedly in marital dissolutions, said Anderson, a Certified Valuation Analyst and marital dissolution accountant in Philadelphia and the Delaware Valley. These valuations issues are:

  • The cost of the in-spouse’s services to the business being valued (the in-spouse is the spouse who owns the business interest being valued as opposed to the out-spouse who does not have ownership in the business);
  • Personal goodwill and its impact on the business being valued;
  • Personal expenses charged to the business; and
  • The presence and impact of unreported cash sales. (This blog will explore the issue of unreported cash sales and their impact on business valuation.)

During divorce proceedings, an out-spouse often will tell the divorce accountant the in-spouse’s business has unreported cash sales, explained Anderson, a divorce accountant and business valuation expert who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The forensic accountant must then determine if the claim is true, and, if so, uncover the amount of the unreported sales.

This task is accomplished by performing a variety of analyses, including:

  • Investigating deposits into the in-spouse’s bank and investment accounts to determine how many of the deposits were cash;
  • Analyzing the gross margin of the business (sales less the cost of sales) and comparing that gross margin to industry averages; and
  • Searching for missing invoice or receipt numbers (very often the in-spouse will complete an invoice or receipt for a cash sale, but not record it on the books of the business).

Other specific analyses also may be required depending on the type of business, said Anderson, a Certified Valuation Analyst forensic accounting expert in Philadelphia and the Delaware Valley.  These analyses will allow a forensic accountant to confirm or deny the out-spouse’s claim, and, if confirmed, estimate the amount of the unrecorded cash sales that need to be added to the business’ revenues, he said.

“I once had a case in which the out-spouse told me her husband kept cash from unrecorded sales in his dresser at home,” recalled Anderson, a business valuation expert whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “I actually went to the home and counted the cash in the dresser as part of my forensic investigation.”

If you need a marital dissolution accountant 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.  Anderson also has served as a divorce accountant or marital dissolution accountant in Philadelphia and the Delaware Valley.

When You Collect Taxes, Be Sure to Remit Them in a Timely Fashion

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

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.

Almost every organization is responsible for collecting and remitting taxes. These taxes, which occur on the Federal, state, county or local levels, can include payroll taxes – such as income tax, Social Security tax, Medicare tax, and unemployment tax – as well as sales taxes, excise taxes, fuel taxes, and others.

“These taxes belong to the governmental taxing authorities,” said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, “and should not be used by the business at any time for any reason.”

He explained these tax types often are referred to as “trust fund taxes,” evoking the concept that the organization is holding the tax monies “in trust” for the government because they have been withheld from taxpayers by the business.

Some organizations that are experiencing cash flow or financial difficulties have used these funds for financing operations, Anderson said, instead of remitting the funds in a timely manner to the governmental taxing authorities.

Their logic, he said, usually is that if they can’t continue to operate, then they will have to lay off employees – which would cost the taxing authorities both payroll taxes and unemployment payments – and they will lose sales – which, similarly, would cost the authorities sales taxes, excise taxes and fuel taxes.

However, taxing authorities believe the taxes become their property the minute the organization withholds them from employees or collects them from customers, said Anderson.

The failure to remit these collected taxes when they should be, he said, can result in penalties and interest being charged to the organization.  In addition, such failure can trigger trust fund penalties of up to 100 percent of the unpaid taxes, a practice commonly known as the “100 percent penalties.”

Under these penalties, Anderson said, not only is the organization responsible for the unpaid taxes, but also any person – termed by the law as “responsible persons” – who can effectively control the finances or determine which bills should or should not be paid and when.

Under the law, he said, the term responsible person is very broad and can include employees and shareholders/partners, as well as others outside of the formal organization – including, potentially, sureties and lenders.  Additionally, taxing authorities don’t have to wait to see if they will be paid by the organization; they can, Anderson said, go after the responsible person at any time.

As if the 100 percent penalties aren’t enough, the fraud deterrence professional said, taxing authorities also can pursue criminal fraud complaints if they view that the owners – or officers, in the case of non-profit organizations – have used the unpaid taxes to benefit themselves.  This includes compensation, fringe benefits, expenses paid on their behalf, distributions or dividends, loan repayments, and retirement plan contributions.

A failure to remit taxes collected on behalf of governmental taxing authorities in a proper and timely fashion, Anderson said, can have significant and dire consequences.  One way to avoid this issue in the case of payroll taxes is to employ a professional payroll service to withhold and pay such taxes.

In addition, many of these same companies offer similar services for sales, excise, and fuel taxes.  Organizations in financial need should consult their professional advisors and other financial companies – such as lenders, factors, floor plan providers, etc. – in order to find other ways to finance the operations of their organizations without resorting to the improper use of collected and withheld trust fund taxes.

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.

Retain Forensic Accountants Early for More Effective Litigation Support

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, Litigation Support.

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.

A forensic accounting expert in Philadelphia or elsewhere in the U.S. often requires very specific, detailed financial documents for analysis before providing litigation support services and expert witness testimony during legal proceedings. The effectiveness of such a strategy, however, can be compromised if that expert is engaged late in the process.

“On some occasions, I have been brought on board after the legal team requested and received insufficient financial data from the opposition.,” 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.

“When I was retained late in discovery or even after discovery has closed,” he said, “I learned the only financial records counsel requested were income tax returns and bank statements. The attorneys believed those documents contained sufficient financial information for my analyses and reports. Unfortunately, they did not.”

Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, notes that income tax returns contain only summary level information. For example, he said, sales revenue is shown as a single amount. No detail is provided concerning the dollar amounts or numbers of specific products or services sold.

“In one of my cases, counsel wanted to know how much was being paid to non-officer family members,” explained Anderson, a Philadelphia forensic accountant. “But counsel had obtained only the income tax return, which merely showed total wages and salaries paid to all employees, not to each individual. The tax return could not be used to answer the question.” Anderson said the attorney could have overcome this hurdle if detailed company payroll information had been requested during discovery.

In another case, explained Anderson, a forensic accounting expert in Philadelphia, counsel suspected that the majority shareholders were running personal expenses through the company – such as auto expenses, travel, meals, entertainment, etc. But again, because the income tax returns showed only summary level information, Anderson was unable to determine whether any of the expenses were of a personal nature.

“Had counsel asked for detailed general ledger information and copies of invoices supporting all expenses, I would have had the necessary information to conduct my forensic examination,” explained Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Bank statements also are frequently requested in discovery, but they too lack detailed information. The Philadelphia forensic accountant said bank statements seldom show deposit detail – what checks, cash and/or incoming wire transfers made up each deposit and from where the checks or incoming wire transfers came.

In addition, bank statements do not provide detail regarding checks written against the account – only check number, amount and date charged against the account, said Anderson, whose Philadelphia forensic accounting firm provides litigation support services and expert witness testimony in Philadelphia. Bank statements may show debits or credits posted against the account as well as cash withdrawals and transfers to/from the account, but with little detail.

Generally, the only real details contained in bank statements are for outgoing wires (showing to whom the wire was sent), for debit card purchases, and for recurring ACH (automated clearinghouse) payments, said Anderson, a Philadelphia forensic accountant.

“Attorneys can overcome bank statement shortcomings,” he said, “by requesting copies of all deposited items, including deposit slips; copies of all cancelled checks; copies of all documents supporting debits, credits, transfers to/from and withdrawals from the bank account; detailed general ledger information; and copies of invoices supporting each cancelled check.”

However, Anderson cautions, each case is different and carries with it its own unique set of circumstances. The best way an attorney can be sure he or she has requested the financial documentation necessary to generate the reports that will support the case is to retain the services of a forensic accounting expert early in the discovery process.

If you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for litigation support or expert witness testimony, 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. Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Maximize Cash Flow with These Forensic Accounting Strategies

Posted by & filed under Blog Articles, Company News, Forensic Accounting.

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.

For many small businesses, it’s an ongoing struggle to keep enough cash on hand to finance operations, pay debts, and provide income to the owners. If your company could use some assistance in this area, an experienced forensic accountant in Philadelphia has several strategies to help maximize cash flow.

“Even the most organized and savvy small business owners can experience cash flow problems from time to time, 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. “There definitely are ways, however, you can squeeze cash out of sales, assets, and even business debts to maximize your available cash.”

Here are some of Anderson’s top cash flow recommendations:

  • Get cash up front from customers: Attorneys, consultants, and others do it. You should too, especially if the sale is for services, if you must purchase materials to fulfill the order, or if there is more than a month between the date the customer places an order and the product is delivered or service is completed, said Anderson, a forensic accounting expert in Philadelphia. Depending on the size and type of the order, you should ask for anywhere from 10 percent to 50 percent of the sales price up front, he said.
  • Offer customers a discount for faster payment: Many companies offer a one or two percent discount for payment within 10 days of the original invoice. Such an offer, Anderson said, can motivate customers to pay you quickly. Of course, you need to consider the impact of such discounts on your profitability and ensure that your sales price includes the impact of the discounts, he said.
  • Accept credit card payments: Some customers may not have adequate cash in their bank account to pay quickly, but they do have business or personal credit cards they can use, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley. You’ll pay a small fee of about 3 percent to the credit card company, he said, but you’ll get paid faster by accepting credit card payments.
  • Stay on top of your past due accounts: How long do you let a customer’s account go past due before you pursue them for payment? The answer should be not at all, Anderson said. Consider establishing a policy of calling customers five days prior to the due date to remind them that the payment is coming due. And, wait no more than two days past the due date (allowing for the customer to have mailed the payment on the due date) to begin calling the customer, Anderson recommends. Remember, the squeaky wheel gets the oil, he said.
  • Consider factoring your accounts receivable: If your industry has payment terms that extend beyond 30 days from the invoice date, or if your sales are for relatively large amounts, consider selling your accounts receivable, or invoices, to a third party. By factoring your accounts receivable, your invoices are paid much faster, said Anderson, a forensic accounting expert in Philadelphia. Remember to consider the cost of factoring and how it impacts upon your profitability, since factors can charge a significant fee, he noted.
  • Squeeze more cash out of your inventory: When was the last time you analyzed your inventory to determine if you have too much of certain items, slow-moving items, or obsolete items? Consider discounting these items to turn them into cash. Or, Anderson said, you may prefer to sell slow-moving or obsolete items to liquidators or scrap dealers at drastically reduced prices. Sure, you won’t make much, if any, profit from selling these items (particularly the slow moving or obsolete ones), but they aren’t producing cash if they’re just sitting on the shelf, he said.
  • Do the same with your older fixed assets: Most businesses have an inventory of retired fixed assets that aren’t being used and are just taking up space. Consider selling these assets to liquidators or scrap dealers, said Anderson, a forensic accountant in Philadelphia. You’ll free up space and maybe some cash, too.
  • Negotiate longer payment terms with vendors: Have you ever had a customer ask to stretch out his or her payment terms? You are a customer, too, Anderson reminds business owners. It never hurts to ask, particularly when you won’t get paid by your own customer for 30 or more days, he said. In that scenario, it’s likely your vendor will understand and allow you to stretch out your payments.

“These are just some of the strategies that you can use to increase your cash flow and make it easier to keep your business going, pay your debts and keep your own income consistent,” said Anderson, a forensic accounting expert in Philadelphia.

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.

Have You Completed Your Year-End Business and Personal To-Do List?

Posted by & filed under Blog Articles, Company News, Forensic Accounting, 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.

With the winter holidays fast approaching, most of us are looking forward to Christmas, Hanukkah, Kwanzaa, New Year’s Day, and other such events.  But as 2020 draws ever closer, we also need to focus on those important year-end financial activities to help ensure our business and personal financial health.

Here are some of the items leading Philadelphia forensic accountant David Anderson says should be addressed before the end of 2019:

Business

  • Have you finalized a budget for 2020? If not, there is still time.
  • Have you discussed with your tax accountant what you can do to maximize your business deductions for 2019?
  • Have you cleaned up your accounts receivable? This includes collection efforts on past due receivables.
  • Have you made sure all your 2019 payroll, sales, income and other taxes are paid or will be paid on time?
  • Have you scheduled an end of year inventory count (if you have inventory)? Have you made plans to dispose of old and/or non-selling inventory?
  • Do you have old fixed assets that have been removed from use, but are still on your premises? If so, you should make plans to dispose of these also.
  • Is all your software updated to the latest version? This should especially apply to your security and anti-virus software.
  • Are you fully staffed for the coming year? If not, do you have a staffing plan in place? Now is a great time to solicit and interview potential new employees.
  • Is your website current and updated? Have you removed employees, products, links, etc. that you no longer have?
  • Is your bank financing for 2020 in place? Have you spoken with your banker about getting the best rates and services?
  • Are all your insurances current and adequate (not too little or too much)?

Personal

  • Have you discussed with your tax accountant everything that needs to be addressed by the end of the year?
  • Have you made all your estimated payments for 2019 in amounts adequate to avoid penalties?
  • Have you maximized your retirement contributions for 2019? If not, there is still time to address these.
  • Have you reviewed the status of your retirement and non-retirement investments with your investment advisor and planned for any changes for 2020?
  • Have you reviewed your life, disability, long-term disability health, dental, vision, auto, homeowners, personal liability, etc. insurance with your insurance advisor(s) to make sure that you are adequately covered and have properly addressed the needs of your family and you?
  • Have you had your annual physical, dental, vision and other exams this past year? If not, you should schedule them as soon as possible.
  • When was the last time you updated your will, living will, and medical power of attorney agreements? You should review these with your attorney and other advisors and make the necessary changes as soon as possible.

The above list is not meant to be all encompassing, but rather serve as a reminder of the many items you may need to address before the end of the year.

I hope 2019 has treated you well both personally and professionally, and that 2020 will be a successful year for you.

If you require the services of a forensic accountant 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.

Is Your Bank Unknowingly Promoting or Enabling Fraud?

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

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.

Several frauds I have investigated during my tenure as a forensic accountant have been strikingly similar.  In each case, a trusted employee misappropriated funds by writing checks either to themselves or an associate. Management was unaware of the fraud largely because their bank had stopped providing paid, cancelled checks or copies.  When each fraud was finally discovered, the losses were significant because of the long duration of each employee’s scheme.

As regular readers of my column are well aware, a trusted employee is one who – by virtue of such factors as longevity with the company, past demonstrations of loyalty and/or hard work, and social and/or familial relationships with management – has earned a level of trust and faces less oversight than other employees.

Add to this the fact that many small businesses are unable to install the internal controls related to separation of duties – primarily because they lack enough knowledgeable and experienced employees to allow for separation of incompatible duties – and you can end up with an employee who can write checks, enter the paid check information into the company’s accounting system, and sometimes even perform bank account reconciliations.

Because the employee is trusted, management is less likely to closely monitor the employee’s activities.  These kinds of situations could lead to the trusted employee misappropriating funds which, because of the reduced likelihood of detection, could result in significant losses.

In the past, I recommended the owner or CEO (not the Controller or CFO because of the separation of duties and oversight issues) have the bank send the monthly bank statements directly to him/her so that he/she can review the paid checks (or copies) to identify any unusual payees (either in name, frequency of payment, or in amounts paid).

Beginning about 15 years or so ago, many banks stopped returning the paid, cancelled checks with the bank statements as a means of reducing operating costs.  Instead, they provided reduced size copies of the front of each paid, cancelled check.

However, even more recently, many banks also have stopped providing these check copies.  Instead, the banks give companies the means to access a copy of each paid check online.  Accessing each paid check online can be quite time consuming, especially when a company issues hundreds of checks each month.

As a result, it has become impractical for the owner or CEO to conduct this review.  In one instance of fraudulent activity by a trusted employee, the owner turned to his trusted employee to conduct the review, unaware that the trusted employee was the one writing the improper checks.

Given that banks have not been providing paid, cancelled checks or copies, here are some updated recommendations I am suggesting to small business owners:

  • Arrange to pay the bank to provide either paid, cancelled checks or copies (the fee will be much less than the potential fraud loss) so that the owner can review them; or
  • If your bank won’t provide such, consider changing banks to one that will provide either paid, cancelled checks or copies; or
  • Engage a reliable outside person, such as a forensic accountant, to regularly review paid checks online.

Additionally, I recommend the small business owner:

  • Establish a company policy, in writing, that fraud is wrong and will not be tolerated by the company. Additionally, the small business owner should have each employee read the policy statement and sign an acknowledgement that he/she has read and understood the company policy.
  • Let employees know that management is watching and has instituted fraud prevention measures (without going into detail regarding the specifics of the measures).
  • Hold periodic training sessions on spotting and reporting fraud.
  • Inform employees management will be conducting surprise audits of bank accounts (again, without going into detail regarding the specifics of when and how the surprise audits will be conducted).
  • Consider having a reliable outside person, such as a forensic accountant, perform bank account reconciliations.

The cost of implementing such measures will be much less than the potential fraud faced by not implementing them.  By instituting the above-mentioned anti-fraud controls, small businesses can significantly reduce the likelihood that the cessation of banks providing paid, cancelled checks or copies will facilitate fraud by trusted employees.

If you require the services of an experienced forensic accountant 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.

Termination, Discrimination Cases Can Benefit from Forensic Accounting Assistance

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, Fraud, Fraud Deterrence, Litigation Support.

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.

There are times when a forensic accountant may be asked to calculate 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.

Marketability and Control are Key Factors in a Privately Held Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting.

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.

Under what conditions does $4 million divided by four NOT equal $1 million? When you are a 25 percent owner of a privately held business, sometimes the math just doesn’t work out the way you’d like it to.

According to David Anderson, of David Anderson & Associates – a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley – experts who are asked to determine the worth of individual shareholder stakes in such a privately held operation consider factors that can significantly reduce the value of an individual’s holdings.

“There are two key factors that can impact the value of a privately held business — lack of marketability and lack of control,” Certified Valuation Expert Anderson said. “Depending on the circumstances, they can pull the value down by as little as 10 percent or less to as much as 90 percent or more.  This is definitely something you want to consider if you own shares in a privately held company or are thinking about buying or selling this type of shares.”

Anderson said lack of marketability refers to the difficulty of selling shares in a privately owned business.  While it is easy to sell shares in a publicly traded company simply by contacting a stockbroker to handle the transaction, the same is not true for a privately held company, he said.

“There is no ready market for the shares of a privately held company,” said Anderson, a business valuation expert in Philadelphia.  “Selling these shares usually requires the services of a business broker and even using a broker takes time.  Of course, the longer it takes to sell the shares, the less the value they hold because they are tying up your money.  If the shares could be sold immediately, you would have the option to reinvest the proceeds immediately.”

In addition, Anderson explained, unless the privately held business pays regular distributions or dividends, the shareholder does not receive interest or dividends on the investment while the stocks are being sold.

A business broker also is likely to require a greater commission or fee to sell shares of a privately held company than a stockbroker would charge for selling shares of a publicly held company, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  Finally, he said, if the ownership stake is subject to a shareholder’s agreement, the agreement may contain additional restrictions on the sale of shares.

“A Certified Valuation Analyst must consider each of these issues to determine the amount of discount that will be applied to the shares due to the lack of marketability,” Anderson said.

Lack of control — the other key factor a business valuation expert must consider in determining the worth of a privately held business — refers to the inability of a minority shareholder to make key decisions affecting the company, Anderson said.  For example, he said, a majority shareholder can set salaries, benefits and bonuses or decide to sell part or all the company.  A minority shareholder lacks the power to make those decisions and usually lacks the ability to compel or influence others to make them.

Because of this lack of control, the business valuation expert will further discount the pro-rata value of the interest to satisfy the expectations of potential buyers.

“A business valuation expert must analyze the lack of marketability, the lack of control and many other factors to determine a reasonable discount and, consequently, the true value of your shares,” Anderson said.

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.

Forensic Accountants Can Oversee, Mediate Family Inheritance Issues

Posted by & filed under Blog Articles, Company News, Forensic Accounting.

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.

Family arguments over such minor issues as toys, chores, or family rules are quite common among siblings, cousins, or other relations.

However, these youngsters often grow up and get engaged in more meaningful, and significant, disagreements 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.

What is a Calculation of Value?

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence.

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.

There are many circumstances under which a business valuation is required.  These can include:

  • For estate and gift taxes
  • For divorces
  • For certain business disputes and other litigation, including minority or disaffected shareholder oppression suits
  • As required under certain business or partnership operating agreements, including for shareholder or partner buyouts
  • As required for firms that are audited and have goodwill or purchase price allocation needs
  • When a business is being sold and the acquirer makes a business valuation a requirement of the purchase agreement
  • For insurance purposes (either to obtain business insurance or to support a claim)
  • To meet certain government regulations (such as Department of Labor regulations for Employee Stock Option Plans)

Professional business standards require a business valuator follow certain procedures when performing a business valuation.  These generally include:

  • An analysis of the nature and history of the business
  • Analysis of the economic outlook in general and the condition and outlook of the specific industry in particular
  • A detailed analysis of the business’s economic performance and condition as well as a comparison to other similar businesses in the same industry
  • Making normalization adjustments to the financial statements of the business
  • Consideration of asset-based, income and market approaches in determining business value
  • Application of marketability, control and other premiums and discounts
  • Consideration of non-operating assets and liabilities
  • Preparation of a report documenting all the above items

Sometimes, however, a business owner would merely like to know the value of either his/her business or one which he/she is considering acquiring.  In such cases, while a traditional business valuation can be performed, a less rigorous type of analysis known as a Calculation of Value may be performed instead.

Under a Calculation of Value, the client and the business valuator agree on a more limited scope of procedures to be performed.  For example, they may agree to not analyze the economic outlook and/or industry outlook; to not perform a detailed analysis of the business’s economic performance relative to that of similar businesses in the same industry; to not consider one or more of the three approaches to determining business value; and/or to not consider one or more valuation methods under particular valuation approaches.  By limiting the procedures performed, the cost of the service will likely be reduced.

Typically, a Calculation of Value will result in an estimated range of values for the business (for example, the result may be an estimate of between $500,000 and $800,000).  The Calculation of Value report will include the caveat that this is the result determined based upon the limitations in procedures performed, and that had all the normal business valuation procedures been performed, the results may have been different.

Nevertheless, when a business owner is seeking a reasonable estimate of business value (as opposed to a “scientific” opinion of value as determined under a business valuation), a Calculation of Value may be a reasonable and less costly alternative.

If you require the services of a Certified Valuation Analyst 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.

Serial Fraud Shares Traits with Other Types of Crime Sprees

Posted by & filed under Blog Articles, Forensic Accounting, Fraud, Fraud Deterrence.

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.

Serial crimes, such as murder and arson, have certain characteristics in common with fraud.

According to Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, serial fraudsters tend to start out “small” and their initial crimes may occur in a hasty and sloppy manner.

As time progresses, he said, they learn from their “mistakes,” and the crimes are better planned and better designed to avoid detection of their involvement in the crime.  In addition, Anderson noted, the time period between incidents of the serial crimes may get shorter and shorter as their need for gratification gets stronger and stronger.

There may also be a sudden halt in the serial criminal’s activities or an unusually long period of time between the crimes, he explained, that often is attributed to such factors as incarceration (for another crime), treatment or some other disruptive influence.

Over his years of work as a fraud deterrence expert, Anderson said he has found similar characteristics in frauds. Here are just two examples:

“In one case, the Controller of a medium-sized business found herself short of funds going into a three-day holiday weekend,” he said, going on to say “her solution was to ‘borrow’ from the company’s petty cash.  Because she didn’t consider herself to be a criminal, she left a signed personal check payable to the company for the amount that she “borrowed”.  The next payday, she paid back the funds and took back her check.”

Anderson said the Controller, a month or two later, once again found herself short of funds for several credit card bills.

“She again ‘borrowed’ funds from petty cash,” Anderson said, continuing the explanation, “this time a larger amount, and again left a signed personal check payable to the company for the amount that she ‘borrowed’.”

The cycle, he said, continued at shorter intervals and for larger amounts until she had ‘borrowed’ the full amount of petty cash and was unable to pay it back from her next paycheck.  Her ‘solution’ to this problem was to submit phony expense documentation (such as copies of already reimbursed expenses and phony receipts obtained from the Internet) to cover the ‘borrowed’ amounts she was unable to repay.

“However,” Anderson said, “she feared the sudden jump in her reimbursable expenses would be noticeable, so she began using other methods to obtain funds including paying phony vendors, ghost employees – keeping certain terminated employees on the payroll and splitting paychecks with them – and accounts receivable fraud — writing off the accounts receivables of friends, neighbors and family members who had purchased items from this business – in return for a portion of the written-off amounts.”

Anderson, a Certified Fraud Examiner, said his company’s investigation showed that over time, the amounts and frequency of the fraud grew until it was discovered.  This pattern of growth in amount and frequency, he said, was typical of other frauds the firm has investigated.

In another recent case, Anderson said one family member of a family-owned retail business began embezzling funds from customer invoices for which the customers paid cash.

Because the company had a manual cash register system, the family member removed both cash and the corresponding invoices from the deposit slips and invoices he provided to the accounting clerk who entered the information into the company’s QuickBooks accounting system. He additionally hid the cash shortages by delaying payments to vendors (telling them that business was bad).

“When I investigated the fraud,” Anderson said, “interviews with employees revealed that this family member frequently gambled in Atlantic City.  This led me to suspect that his embezzlement was tied to his gambling losses.”

Because the family member in question was a member of the comp clubs at each of the four casinos at which he gambled, Anderson said he was able to obtain documentation of his daily cash winnings and losses from each casino.  His embezzlement activities generally mirrored his gambling losses.

“During my initial investigation,” Anderson said, “I also noted an 11-month break in his embezzlement activities.  When I matched his embezzlement activities with his gambling wins and losses, I noted that during that same 11-month period, he had consistent net gambling gains from the casinos.  Since he was winning, there was no need for him to embezzle funds.  However, once he lost all these gains, he went back to embezzling funds again.”

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.

Just Having a Disaster Recovery or Contingency Plan is Not Enough

Posted by & filed under Blog Articles, Business continuity, Disaster Recovery, Forensic Accounting.

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.

Hurricanes; Tornados; Active Shooter/Shelter in Place; Fires; Floods; Terrorist Attacks; Sexual Harassment Scandals; Financial Impropriety.

In today’s world, businesses, governments, and other organizations need to have plans in place to deal with these disasters as well as other unexpected threats.  Sadly, most do not have such plans.  But, even many of those that do find their plans are ineffective.

Why is this so?  Primarily because they have failed to regularly test and update their disaster recovery and contingency plans.

Two weeks ago, the city of Sioux Falls, South Dakota was hit by tornadoes, and activated its contingency plans.  Those plans included setting off sirens to warn the populace.  However, most of the sirens were not activated because, among other failures, Sioux Falls did not regularly test its emergency plans.

Recently when visiting a new business client, I asked whether they had a disaster recovery or contingency plan.  They proudly showed me their plan.  But, when I read through the plan, I noted several serious problems:

  • The plan coordinator no longer worked at the company, and the position had never been reassigned;
  • The company had moved to its present location two years ago, but the plan addressed disasters occurring at the old location;
  • The plan was over five years old.

Additionally, the CEO admitted the plan never had been tested, and that new employees had never been trained to implement the plan.

Regular testing and updating of disaster recovery and contingency plans are main reasons why first responders and many organizations regularly schedule drills (remember fire drills from grade school?). The purpose of such drills is not only to run through the plan, but also to observe problems with the plan (including being outdated) so they can be fixed and tested again.

For example, when I worked for the Resolution Trust Corporation (RTC), we regularly had fire drills.  Each floor of the office building I worked in had a fire drill coordinator who was responsible for making sure that everyone had vacated the floor.

However, in the middle of one day’s drill, the fire drill coordinator was out sick, and the backup person identified in the fire drill plan had previously left the organization.  This problem was identified because of the drill, and a backup person was quickly put in place.  Had the RTC not done so on a timely basis and a real fire occurred, someone might have been hurt.

If your organization does not have a disaster recovery or contingency plan in place, you need to start putting one together now.  But even if you do have such a plan, it needs to be regularly tested and updated in order to continue to protect your organization and employees.

If you need a comprehensive contingency and disaster recovery plan or require 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.