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Look for Fraud in Every Corner of Your Business

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.

When asked to cut costs during a recent business downturn, the Director of Operations at a large national financial services firm did a good job.

A very good job, in fact.

It was such a good job that he saved the company more than $150,000 a year by centralizing the nationwide purchase of office supplies.

The problem was, the company only saw $50,000 of those savings each year as the Director pocked the other $100,000 for himself.

“The fraud perpetrated by this trusted employee was ingenious in that the very program he initiated to save the company money was, in fact, the same program that allowed him to siphon a significant amount of money out of the company and into his own hands,” 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.  “The company was thrilled that the program performed as well as the Director said it would.  There was not a single person in the company who had any reason to suspect illicit activity.”

The fraud investigation found that the Director of Operations could set the wheels in motion on the fraud from the very beginning.  He negotiated a deal for a significant discount on office supplies with a major office products company that would become the sole supplier of office products for the company’s more than 100 offices in all 50 states, Anderson said.  He then set up a system that allowed each office to submit a requisition for office supplies monthly.

As the requisitions came in each month, the Director consolidated them into a single order with deliveries scheduled for each office.  He then used the monthly invoice from the office products supplier to assign costs to the applicable offices and forward the approved invoice to the corporate accounts payable department for payment, said Anderson, a Certified Fraud Examiner who recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

During the fourth year of the program, a newly hired accounts payable clerk was processing the latest invoice when she noticed an oddity.  One of the shipments had been delivered to a small eastern Montana town that was near her own hometown, but it was charged to the Helena office more than 300 miles away.

Anderson said the clerk reported the discrepancy to the Corporate Controller, who contacted the Helena office to inquire about the shipment.  The Helena office manager denied any knowledge about the shipment and denied receipt of the items shipped.  Suspicious, the Controller checked all the shipments on that month’s invoice and found that while some shipments went to company offices, many them went to locations nowhere near company offices.  He took the information to senior management and a forensic accounting expert was engaged to conduct a comprehensive fraud investigation.

What the fraud investigation uncovered — and the Director of Operations admitted — was that once the agreement with the office products supplier had been negotiated, the Director set up his own website to sell office supplies at discounted prices.  As buyers placed orders and paid for them through the website, the Director forwarded the orders to the office products supplier to fill.  When the monthly invoice arrived from the supplier, the Director assigned the cost of each invoiced shipment to the nearest company office.  So, the Helena office — the only office in Montana — was charged for all shipments to Montana, both those ordered by the office and those ordered on the website by unrelated companies or individuals in Montana.

The Director admitted to the forensic accounting expert that his website transactions exceeded more than $100,000 per year, meaning he had shaved $450,000 off the company’s office supplies expenditures over the three years, but stole $300,000 of that for himself.

“He really was very good at his job,” Anderson said.  “He also, unfortunately, was a crook.”

Had the alert accounts payable clerk not noticed the discrepancy with the Montana shipment, Anderson said the theft might have continued much longer.  He added that the entire scheme could have been short circuited simply by having the accounting department assign the invoice costs to each office instead of allowing the Director of Operations to do so.

If your fraud deterrence measures need an overhaul, it’s time to engage a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  A Certified Fraud Examiner can examine your accounting and purchasing programs and procedures and make recommendations for enacting strong fraud deterrence measures that will help safeguard your company, 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.

Firm Forensically Finds Phony, Fraudulent Vendors

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.

A relatively successful and difficult to uncover scheme used by deceptive employees to steal money on the job is creating phony vendors. These non-existent suppliers receive payments for services never rendered or goods never delivered.  There are, however, fraud deterrence steps organizations can take to help find these fictional foes of your business.

“It really is a popular tactic among fraudsters,” 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.  “It’s not easy to root out phony vendors, but there are things you can do to help identify them.  Ultimately, you might need to seek professional help to make sure all your vendors really are legitimate.”

Anderson said it helps your efforts in finding out if you are paying phony vendors if you understand how an employee goes about building this house of cards in the first place.

The first thing a fraudster must do is establish a vendor name, either by creating a new one that has not been entered the accounting system or by using an existing vendor already in the system but for whom there has been no activity for a year or more.  Anderson said savvy fraudsters will invent service or supply vendors because it is more difficult to determine whether the services were performed and because supplies are sometimes expensed and not tracked in a company (When was the last time you checked your thumb tack supply?)

Next up, the fraudster sets up a bank account in the name of the phony company, Anderson said.  Because banks require proof that a company exists, fraudsters often use their own home address and phone number or a post office box in their town.  Finally, the fraudster creates and submits invoices from the phony vendor, arranges for the company to pay the invoices, receives and deposits the company’s checks, and withdraws the funds for personal use.

“There are two things you can do to see whether any of your vendors might be bogus,” said Anderson, a Certified Fraud Examiner who encourages companies, non-profits and government offices to enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  “These procedures are not foolproof, but they will uncover most phony vendors.”

First, Anderson said, run a vendor activity report for the past three or four years and identify both new vendors with less than a year of activity, as well as vendors with a gap in activity (for example, a vendor your organization stopped using in 2012 then again started paying in 2014).

Vendors who fit these criteria should be contacted to verify their validity, but the contact should be made by a manager who is not in the accounting department or in the department that purchased from these vendors, or by an independent third party such as a firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

Anderson said the second procedure is to analyze three pieces of vendor information against the same three pieces of employee information:  mailing addresses, phone numbers for both landlines and mobile phones, and for vendors with post office box addresses, zip codes.  In large cities, you also will need to look at the location of the post office box.

If an employee used a home address or phone number on the bank account for the bogus company or on the invoice from the phony company, the accounting system will show a match.

Post office box matches often warrant further analysis.  A payment that goes to a bank-owned post office box usually gets sent to the business center in larger cities.  If you find that the post office box is in a small town or in a non-business section of a large city, you will want to investigate further.

“This step in a fraud investigation can take a lot of time if it is performed manually,” said Anderson, who uses special data analysis software to significantly reduce the time it takes to match addresses, phone numbers or zip codes.

If you already suspect your organization is paying invoices to phony vendors, it is likely in the best interest of your company, non-profit or government office to hire a Certified Fraud Examiner to conduct a comprehensive fraud investigation.

“Don’t wait until you have paid out thousands and thousands of dollars to non-existent vendors,” Anderson said.  “Take the time to make sure every vendor in your system really is a vendor.”

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 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.

Proposed U.S. Treasury Regulation Could Significantly Change Business Valuations

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

For nearly 100 years, business valuators have used Fair Market Value to define the value of business interests.  Fair Market Value, as defined by the U.S. Treasury Department is “the amount at which a property would change hands between a willing seller and a willing buyer when neither is acting under compulsion and when both have reasonable knowledge of the relevant facts.”

Under the Fair Market Value methodology, explained Anderson, a Certified Valuation Analyst in Philadelphia, business valuators have recognized that interests in non-publicly traded businesses require discounts for lack of marketability and lack of control.

The lack-of-marketability discount recognizes that, to sell an interest in a non-publicly traded business, a seller would have to incur added costs – such as marketing costs and business brokerage fees, due diligence costs, business “clean-up” costs, and opportunity costs due to the length of time it will take to sell the business interest.  These expected costs are incorporated into the discount for lack of marketability.

Similarly, the lack-of-control discount recognizes that a buyer of a non-controlling interest will not have the right to make the company pay dividends; force liquidation; determine compensation, especially to officers and shareholder employees; and control expenditures that may benefit other shareholders.

Accordingly, a buyer of a non-controlling interest would expect to pay less for that interest.  This price differential is incorporated into the discount for lack of control.  The combined discounts for lack of marketability and lack of control typically reduce the Fair Market Value of a business interest from the proportionate value by between 15 percent and 70 percent.

Business valuators have used these Fair Market Value principles to value business interests subject to federal estate, gift, and generation-skipping transfer taxes.  Tax planners have long used such valuations as part of plans to transfer interests between older and younger generations of family-owned businesses to maintain family continuity.

Now, the U.S. Treasury has proposed an entirely new methodology to apply to these transfers.   The proposed change in Internal Revenue Code section 2704 would replace Fair Market Value with “Minimum Value,” which essentially is the value of the business interest without applying either the discount for lack of marketability or the discount for lack of control.

Why is the U.S. Treasury Department proposing these changes?  Primarily because certain Treasury officials believe 1) the normal costs of selling a non-publicly traded business interest are eliminated when transferring such interests from one family member to another, and 2) because family members usually will act in concert – a non-controlling interest that is part of a family whose total interests provide control – and will not experience the same limitations as a non-controlling interest that is not part of such family.

Business valuators are concerned this proposed regulation is not only in conflict with the existing U. S. Treasury definition of Fair Market Value, but also could create the potential for multiple conflicting values for the same business interest.

For example, suppose a business owner wanted to gift 10 percent of his stock to his son and another 10 percent of his stock to a charity.  Under the proposed regulation, the value of the gift to his son would be higher than the value of his gift to the charity.  Furthermore, estates could also face multiple conflicting values depending upon whether business interests would remain in the family or be sold to outsiders.

Business valuators also are concerned adoption of this proposed regulation could be the beginning of a change in the way that all business interests are valued.

The Treasury Department is holding a hearing this December 1 regarding this change.  Professional valuators from such organizations as the National Association of Certified Valuators and Analysts and the American Institute of Certified Public Accountants plan to speak at the hearing regarding their concerns about the proposed changes.

This column will keep you up to date as this issue continues to unfold.

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.

Meet the New Socially Engineered Fraud: The CEO Scam

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.

John Jenkins was a hardworking and loyal corporate controller for Zest Products, a mid-sized wholesale distributor of cleaning products.  So, when he received an email from Howard Robertson, the CEO – who was out of town at the time – directing him to immediately wire $40,000 to a new vendor, he unhesitatingly did so, and confirmed it in an email.  It was only after Howard returned from his trip that he questioned John’s email.  They both came to the realization John had been duped by a new type of socially engineered fraud – the CEO scam.

This past April, Anderson, a Certified Fraud Examiner in Philadelphia, wrote a blog about socially engineered frauds.  In it, he discussed how these frauds are primarily perpetrated through the phone or emails which seek to obtain passwords or other private/personal information that the scammer can use to exploit the victim. The CEO scam works in much the same way.

The CEO scammer begins by calling the company – and/or visiting its website – to obtain information about the CEO and the firm’s financial and accounting staff to discover who might have access to bank accounts.  Included in this information are the email addresses of the individuals who will be scammed.  The scammer also may call or email the CEO to determine when the CEO is out of the office. Think how many of us post an automatic “out-of-office” email response when we are away.

The scammer next “spoofs” the CEO’s email address – in the example offered above, the scammer could have used easily obtainable spoofing software to make it appear as if the email came from Howard – and sends the email request to the target, requesting an immediate wire transfer of funds.  Sometimes, the scammer will embellish the email with a discussion of how this is part of a top-secret project – such as secret negotiations to buy another company, or to sell part of the company, or for development of a new product line. This embellishment is meant to further hide the fraud. While most CEO scams are one-shot deals, some scammers may try this multiple times to see how long it might continue to work.

Here are some basic steps to help prevent your organization from being victimized by the CEO scam:

  • Make sure your CEO, other senior executives and accounting/financial staff are aware of the scam.
  • Add additional controls to any wire transfer requests. For example, if Zest Products had a procedure that required the controller to verbally confirm the request with Howard – by, for example, calling Howard’s cell phone – the scam would have been discovered before it could be completed. Other controls can include requiring signed requests for all wire transfers, or for those over a certain dollar amount.
  • Advise employees to not reveal the CEO’s schedule or location to unknown individuals, and never in response to an email. This means that if they do send an email response, they should do so by composing a new email message and not just hit “Reply.”
  • Consider adding additional security software to verify the actual sending address of incoming emails.

Taking these few precautions can make your company less vulnerable to the CEO scam.

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.

Substitution Schemes and How to Avoid Them

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.

Although most fraudsters go after cash because it is easier to misappropriate, more and more organizations are being hit with misappropriation of inventory and fixed assets (equipment, furniture, computers, vehicles, etc.).

In this article, Anderson, a Certified Fraud Examiner in Philadelphia, focuses on one key type of such misappropriation – substitution schemes.  Simply put, he explains, the fraudster in these schemes substitutes a less expensive item of inventory or a less expensive fixed asset for the actual item, and then sells the misappropriated item for personal profit.

Here are some examples of substitution schemes:

  • The Parts Department manager of a large auto dealership purchased cheaper aftermarket auto parts and substituted them for the auto parts purchased from the manufacturer. He then sold the manufacturer’s parts to other auto dealers, pocketing the cost difference.
  • The Technology manager at an advertising agency was responsible for implementing a computer replacement program that required him to replace existing high-end Apple computers with new ones every two years. He was supposed to remove the advertising and design software from each replaced computer and sell it to a used computer dealer.  Instead, he purchased cheap, older-model used Apple Computers, substituted them for the replaced computers (which were then sold to the used computer dealer), and sold the replaced high-end computers (with the advertising and design software still on each computer) via a website he set up.
  • A trusted employee at a commodities broker was given access to the company’s precious metals safe, and over time replaced dozens of 10-ounce platinum bars (worth approximately $10,000 each) with 10-ounce silver bars (worth approximately $180 each). Part of the reason he could get away with this substitution scheme was that the bars were stacked, looked almost the same to the casual observer, and he made sure that the top several bars were platinum ones.
  • A Fortune 1000 company furnished its New York City sales office with over $500,000 worth of artwork. Although the company was audited, because there were no financial transactions handled by the New York City sales office, and because its total fixed assets (including the artwork) were low relative to the company’s total fixed assets, the auditors never even visited the New York City sales office.  Responding to a tip provided on the company’s fraud hotline, forensic accountants found that employees of the New York City sales office had substituted cheap artwork (including, in one case, a paint-by-numbers piece that had been painted by a child) for the more expensive artwork.  Most of the replaced artwork had been sold off by the employees, although several pieces were found in their homes.
  • The owners of a financially failing paper products company removed tens of thousands of dollars of paper products from their boxes, filled the boxes with trash and used paper, and resealed the boxes. After the bank took over the failed company, it hired an auctioneer to sell off the boxes of inventory.  Only after the auction did buyers discover that they (and the bank who had to reimburse them for their purchases) were the victims of a substitution scheme.

So, how can your business avoid becoming the victim of a substitution scheme?  Here are some basic steps:

  • For inventories, implement a scheme of classifying inventory items by their relative value and frequency of sale. High dollar and high volume medium dollar inventory should have the top classification, followed by medium dollar and high volume low dollar inventory, and at the bottom, low dollar inventory.  Employees from a separate department (usually the accounting department or, if it is not practical to use internal employees, from an outside company such as a forensic accounting firm) should conduct periodic physical checks of the inventories based upon the classification.  For example, checking the highest classification biweekly or monthly; checking the middle classification bimonthly or quarterly, and checking the lowest classification at least annually.
  • For fixed assets, institute a fixed asset tracking system. Under such a system, each fixed asset is tagged with a bar coded label.  The system will have a database that separately identifies each fixed asset with date purchased, description of the fixed asset, purchase price, location of the fixed asset and the bar code label number.  Then, as in the above inventory checking methodology, institute a periodic checking of fixed assets based upon dollar values (highest dollar value items most frequently, lowest dollar value item least frequently).  This regular checking should include retired or replaced fixed assets that are still on the books.
  • For fixed assets that are being disposed/sold, again have employees from a separate department or third party company inspect the assets prior to sale to ensure that the assets being sold are the correct ones, and are in the condition the company expects.

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.

Take Some Time (Off) to Help Prevent 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 your fraud deterrence program should be on the job 24/7, you should require your employees to regularly take vacations.

It’s not only good for their emotional health and morale, but also a key anti-fraud component in your firm’s financial safety program.

Industry experts report a mandatory vacation policy reduces an organization’s median dollar loss to fraud by 33.3 percent and cuts the median length of time a fraud occurs by 40 percent, 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.

“Fraudsters work very hard to conceal their fraud,” Anderson said. “It requires a great deal of time and attention on a consistent basis to maintain the cover-up.  Very often, an employee’s illicit activities are uncovered only when he or she is on vacation or out sick.”

In fact, it is the very act of maintaining the cover-up that makes these employees seem like the most loyal, dedicated, hard-working employees on the payroll.

“They never miss a day of work,” said Certified Fraud Examiner Anderson. “They never take vacation.  They’re often the first ones at the office in the morning and the last ones to leave at night.  They work evenings, weekends and holidays.  They even come to work when they are sick.  From all outward appearances, they are an owner or manager’s dream employee.  What they really are doing is working hard to hide the fraud.”

Two recent fraud cases illustrate how a mandatory vacation policy can separate dream employees from fraudsters.

  • In one case, an employee created a phony service vendor with a phony address. The employee then produced phony invoices for non-existent services that the company paid.  At work, the employee intercepted the check before it was mailed and then deposited it in a bank account set up by the employee.  The fraudulent activity was discovered when the employee took a vacation day on the day a check was mailed to the phony vendor.  When the envelope was returned as undeliverable, a manager tried to contact the vendor and discovered that not only the address, but also the phone number was phony.  A fraud investigation ensued, and the employee was caught.
  • Another case involved a manager who was engaged in a skimming scheme — intercepting and diverting cash payments before they were entered into the company’s accounting system. The manager went on vacation, forgetting that he had left incriminating evidence in his desk drawer.  The manager filling in for him found the incriminating evidence and turned it over to senior management.  In this case, Anderson was engaged to perform a comprehensive fraud investigation and found that hundreds of thousands of dollars had been diverted by the fraudster.

“Forensic accountants love vacations,” said Anderson, who recommends every organization enact and maintain a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. “All sorts of fraudulent activities can surface during an employee’s absence.”

Anderson said most anti-fraud experts recommend employees be required to take at least one full week off from work and that their work activities be covered by someone else while they are gone.  This simple step prevents an employee from covering their tracks, he said.

Do your employees, and yourself, a favor; enact a mandatory vacation policy.  They will return to work more relaxed, and you can relax a bit as well because you will have instituted the most pleasant of anti-fraud controls.

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.

The Impact of Different Conventions for Projecting Future Damages, Part II

David Anderson is principal 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. This is the second of two blogs on how to accurately and fairly calculate financial damages and losses.

The valuation of damages is designed to put the harmed party back into the same economic position that would have existed if the harm had not occurred. The most difficult part of that equation is to project the economic conditions one would have expected without the harm. An analysis of historical results is often used to assist in making that forecast.

In my last blog post, I discussed the pros and cons of four of the most commonly used methods to analyze a series of events, namely the mean, the median, exponential smoothing and regression analysis. This post will present two examples and show how each method impacts the damages calculation under each.

Our first example involves projecting damages from the theft of customer lists when subsequent sales show an upward trend:

Hypothetical ABC Co. is a distributor of household cleaning products to small retail stores. Although sales and profits fell during the beginning of the financial crisis in 2007, since then both have steadily increased.

At the beginning of 2011, the national sales manager left ABC and took with him all of the contact information for ABC’s customers. He then went to work at a competitor and ABC experienced a drop in sales and profits. ABC has sued to recover damages from 2011 for lost profits caused by this theft of customer lists.

Net profits from 2007 through 2011 were:

chart2

Let’s apply each of the four methods to project what 2011 profits would have been but for the theft of customer lists:

Mean: The average of 2007 to 2010 profits is $20,000 (the sum of the four year’s profits divided by four).

Median: There are two midpoints – ($5,000) and $35,000 – so the median would be the point halfway between the two, or $15,000.

Exponential Smoothing: Applying weights to each of the four years (1 for 2007, 2 for 2008, and so on) and then dividing the total by 10 – the sum of the weights – yields a projection of $44,500.

Regression analysis: There is a clear upward trend that would imply that 2011 profits should be higher than previous year’s profits. Regression analysis yields a projection of $142,500.

In this example, regression analysis not only yields the highest projected value, but it supports the fact that profits had been steadily increasing over each of the past several years.

Our second example projects damages from the theft of customer lists when there are fluctuating levels of Profits:

Using the same facts as in the first example, suppose profits were fluctuating up and down over the past few years:

chart3

Applying each of the four methods to calculate damages for 2011 provides the following results:

Mean: The average of 2007 to 2010 profits is $3,750.

Median: The median would be the point halfway between ($10,000) and $50,000 or 20,000.

Exponential Smoothing: Yields a projection of $5,500.

Regression analysis: Yields a projection of $12,500.

In this example, the median yields the highest value. Because there is no clear trend of growth or decline, and a wide range of swings in value, the mean may be the most supportable of the values.

The above calculations are made in a vacuum and clearly there is not enough information in the fact patterns to suggest the best option in each case. The illustrations do highlight some of the mechanics behind the damages calculation, and the impact of using different conventions.

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst and a business valuation expert in Philadelphia.

The Impact of Different Conventions for Projecting Future Damages, Part I

David Anderson is principal 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. This is the first of two blogs on how to accurately and fairly calculate financial damages and losses. 

When calculating damages for future periods – such as for lost profits, loss of income in wrongful death cases, etc. – experts are often charged with expressing an opinion as to what would happen in the future but for the wrongful act. These projections typically rely upon either industry trends or on the historical operating results of the injured party. Four of the most commonly used projection conventions when relying upon the operating results of the injured party are: the mean, the median, exponential smoothing and regression analysis. This blog post will define each of these conventions and discuss the pros and cons of each.

The Mean

The mean describes the central tendency of a set of numbers and is calculated as the arithmetic average. When there is only a limited amount of historical data available and no clear trend of growth or decline exists, relying upon the mean may be the most reliable method to project future periods. However, if more historical data is available and/or there is a clear trend of growth or decline shown in the historical data of the injured party, then using the mean will render projections that are less reliable or indicative of the future than other projection conventions and will be difficult for the expert to defend.

The Median

The median also represents the central tendency of a set of numbers, but in this convention it is calculated by reference to the middle number after the set of numbers are arranged in order by value from highest to lowest. Because the inclusion of extreme outlying values (e.g., if the historical data is 5, 6, 8, 9, 40) can render distorted projections, relying upon the median may be the most reliable convention to project future periods. However, once again when there is a clear trend of growth or decline, using the median will produce projections that are less reliable than exponential smoothing or regression analysis.

Exponential Smoothing

The mean and the median conventions treat each observation equally. The exponential smoothing convention (also known as weighted averaging) assumes that the oldest observation should receive the least weight and the most recent observation should command the most weight in projecting future performance. It applies a weighting factor to each historical observation and then calculates an arithmetic average of the weighted historical observations.

For example:

david-for-10-17-16

 

Use of exponential smoothing can be particularly effective if sufficient historical data exists and there are no extreme outlying values.

Regression Analysis

Regression analysis uses mathematical calculations to fit a line or curve to a set of historical numbers. The more common form of regression analysis used to project future periods is known as trend-based regression analysis or least squares analysis. This methodology seeks to fit a straight line to a set of historical numbers and then project future periods along that line. Like exponential smoothing, regression analysis can be particularly effective if sufficient historical data exists and if there are no extreme outlying values.

When calculating future damages based upon historical information, experts may rely upon a variety of conventions and projection methods. This post has discussed four of the most commonly used conventions – the mean, the median, exponential smoothing and regression analysis. In the second part of this two-part series, I’ll provide specific examples and show how each method impacts the damages calculation under each example.

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst and a business valuation expert in Philadelphia.

To Survive a Disaster, Have a Recovery Plan in Place

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.

Hurricane Matthew, in addition to tragically killing more than 900 people this past week, is believed to have caused between $4 billion and $6 billion in damage in the Caribbean and southeastern United States.

Yes, that’s billion with a “B.”

Countless buildings – including many homes and businesses – were destroyed and while most homeowners and business operators here in the U.S. probably had insurance to cover the financial loss, what about the loss those businesses suffered involving sales orders, customer lists, software programs, business contracts, and other critical documents and data?

A well-prepared, up-to-date disaster recovery program can help a firm stay in business or get back to business sooner than companies without such plans in place. As high as 80 percent of companies affected by a disaster never reopen or shutter their doors within two years of reopening.

“The businesses that do survive are the ones who prepared in advance for something they fervently hoped would never happen,” says 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, including development, implementation and management of comprehensive contingency and disaster recovery plans.  “Creating a business continuity plan is just smart business.  It greatly enhances the chances that your business will survive the disaster and that your livelihood — and that of your employees — will be protected.”

Anderson said some business owners think they are covered as long as they have purchased insurance and backed up their computer files.  But a comprehensive contingency and disaster recovery plan covers myriad details of a business’ operations, some of them not always obvious.  And every business, no matter how big or small, needs to have a business continuity plan in place, Anderson said.

Can your business survive a disaster?  Ask yourself these questions:

  • Are both your electronic and paper business records protected? Is vital information backed up in case a computer hard drive crashes?
  • If one or more of your offices or production facilities are severely damaged or destroyed, where will you relocate?
  • What steps need to be taken to resume operations and how fast can you be up and running again?
  • Do your employees know what to do and where to go?
  • Do you have adequate insurance to rebuild your business?
  • How do you assure your customers will keep paying you?
  • Will your vendors continue to extend credit to you?
  • How will you replace key employees injured or killed by the disaster?
  • Are you prepared with step-by-step procedures to react to different types and severities of disasters?

Having a comprehensive contingency and disaster recovery plan (business continuity plan) in place can minimize your financial loss and help your business survive a disaster.

If you are in need of 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.

Time Is Money, So Don’t Delay When Hiring an Expert Witness

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.

It’s surprising how many trial attorneys wait until the last minute to engage the help of forensic accounting experts for litigation support services.

Lawyers clearly understand the value such experts bring to their cases, said Certified Fraud Examiner David Anderson, but the timing of when an attorney brings in such an expert can have a direct bearing not only of the level of success, but also on whether the case is won or lost.

“The earlier a forensic accounting expert is called in to consult,” he said, “the greater the chances the expert will be able to contribute information crucial to winning.”

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, said forensic accounting experts who are engaged too late in the process often cannot have the impact on the case the attorney needs.

Recently, Anderson said he was asked by an attorney to provide expert witness testimony in Philadelphia for ongoing litigation.  The attorney’s client, a minority shareholder in a medium-sized distribution business, claimed the majority shareholders were taking outsized salaries and benefits; paying significant salaries and benefits to family members who performed little or no work; paying exorbitant office rent to entities owned by the majority shareholders; and running personal expenses through the business.

The attorney said he and his client expected to resolve the litigation without going to trial, but that didn’t happen and, when Anderson was called in, the deadline for an expert report was just two weeks away. Complicating matters was the fact that discovery had closed several months before.

One potential positive, according to the attorney, was that the minority shareholder had the company’s federal income tax returns for the past five years. This, he told Anderson, should be enough for the forensic accountant to create a comprehensive report detailing the transgressions of the majority shareholders.

Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, agreed to examine the tax returns and let the attorney know that same day if he would be able to produce the rushed report that was needed.

“Unfortunately, certain schedules were missing from the returns, and the information presented was in summary form – merely totals of overall expense categories with no specifics, said Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.

“For example, individual employee wages were not shown and there were no details for benefits, travel, professional fees, meals and entertainment and other categories the minority shareholder suspected were being inappropriately paid by the company,” he said, adding that “a $50,000-line item for ‘Miscellaneous Expenses’ appeared on one year’s return, but with no breakdown.”

Without the full accounting detail that is often not found in the income tax returns, but instead in the company’s accounting records and detailed financial reports, Anderson was unable to produce the comprehensive report the attorney needed to assure a win in the case.

Engaging a forensic accountant for litigation support services at the very beginning of a case can help attorneys establish the foundation of the case and determine the most effective course for the litigation, said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Forensic accounting experts such as Anderson provide litigation support services and expert witness testimony for both plaintiffs and defendants in civil cases, as well as both prosecutors and defense attorneys in criminal cases.

Early involvement allows the expert witness to provide advice in areas such as:

  • Assistance in identifying and formulating arguments for the complaint (if for the plaintiff)
  • Initial evaluation of the plaintiff’s claims and identification of the information or testimony needed to support those claims
  • Assistance with preparation of discovery requests and interrogatories, including identifying the format(s) for delivery of the requested information (for example, if requesting detailed accounting system information, identifying acceptable formats for the delivered information so that it can be analyzed in a timely and cost-effective manner)
  • Analysis of the complaint and assistance with identifying arguments for the response (if for the defendant)
  • Assistance with identification of individuals to be deposed
  • Preparation of a report identifying and calculating damages or business value
  • Follow-up on information delivered in response to discovery requests and responses to interrogatories in order to identify either missing information or additional information needed
  • Assistance with development of questions for the deponents, including for the expert witness’s own deposition
  • Preparation of rebuttals for opposing expert reports (if necessary)

“Engaging a forensic accountant from the start provides expert analysis of your case before the discovery and deposition phases are closed,” Anderson said.  “In any financial dispute, the insights and advice of a forensic accounting expert can make the difference between winning and losing the case.”

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 provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Keeping Non-Profits and Charities Safe from 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 non-profit organizations and charities spend most of their time helping people and providing valuable services, fraudsters often are busy helping themselves to the valuable financial assets of these groups.

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 in order to protect itself from fraud?  Here are a few suggestions:

  • 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);
  • 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.(Steve, make this the first “bullet” point)
  • 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.

Need short-term help with accounting issues? You might need an outsourced CFO

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.

A number of businesses in the small-to medium-size range often have an accounting manager or controller take care of routine financial matters. For the vast majority of transactions, this can suffice.

However, what happens if a short-term situation arises and these highly competent, hard-working individuals do not have the level of skills required to deal with this change? What happens when the more specialized services of a Chief Financial Officer (CFO) are needed, but the company can’t afford to pay for this type of expertise, or doesn’t need a such a position filled on a permanent basis?

That’s an easy question to answer: Bring in an outsourced CFO.

“Good, experienced controllers and accounting managers are very well suited for activities such as preparing monthly, quarterly and annual financial reports; paying vendors; collecting accounts receivable, and handling payroll and payroll tax reporting,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of outsourced CFO services and other forensic accounting services in Philadelphia and the Delaware Valley.  “But for more complex, specialized issues, a company really needs the expertise and knowledge of a CFO.”

These activities might include such outsourced CFO tasks as:

  • Obtaining bank loans and/or lines of credit
  • Raising additional funds through issuance of equity or hybrid securities
  • Investor relations
  • Insurance, including liability and property and casualty insurance
  • Employee benefits, including health care insurance, dental, vision, 401-K plans, profit-sharing plans, etc.
  • Cash management and short-term investments
  • Human Resources issues, including employee manuals, policies & procedures, training, job succession, etc.
  • Regulatory and compliance reporting of both financial and operational matters
  • Budgeting and long-range financial planning, including strategic plans
  • Information technology, including computer security, systems life-cycle planning, systems maintenance and enterprise software
  • Disaster recovery planning
  • Assisting company ownership in exit strategy planning

While these are the types of matters that are best left in the capable hands of an experienced CFO, Anderson said bringing aboard a full-time CFO is often not an option for small- to medium-sized businesses.

“CFOs can be not only difficult to find, but also quite expensive,” said Anderson, a forensic accounting expert in Philadelphia who provides outsourced CFO services in Philadelphia and the Delaware Valley.  “Many CFOs also expect that part of their compensation package will include an ownership interest in the company and that is something most business owners are reluctant to offer.  The outsourced CFO is the perfect solution for a small- to medium-sized businesses.”

An outsourced CFO is hired on a contract basis for as long or short a time period as the business needs, Anderson said.  Some businesses will engage an outsourced CFO only for the time it takes to complete specific projects.  Other companies contract with an outsourced CFO for an extended period of time to work a certain number of days per week or hours per month, he explained.

“Using outsourced CFO services in Philadelphia or anywhere in the country gives small- to medium-sized businesses access to the knowledge and experience they need whenever they need it,” said Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.  “Companies get all the benefits of having a CFO on staff, but they don’t have to pay top-dollar salary and compensation packages that include benefits and bonuses, nor do they have to worry about relinquishing a partial ownership interest in the company.”

If your business is in need of outsourced CFO services in Philadelphia and the Delaware Valley or any other forensic accounting services in Philadelphia, 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 in Philadelphia and the Delaware Valley.  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.

Arbitrating Inheritance Battles an Important Role for Forensic Accountants

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.

“She has more pie than I do!”

“It’s his turn to do the dishes!”

“Why do they get to stay up late and I don’t?”

Sound familiar? They’re typical kid arguments, especially prevalent in multi-child families. Eventually, Mom or Dad or Grandma or Grandpa would need to jump in and mediate. Eventually, siblings outgrow such obsessive and possessive behavior and learn to get along and share.

Or do they?

One of the least recognized and, in ways, most valuable services of a forensic accountant is helping families fairly and equitably settle trust or estate issues.

“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 of time examined, provides a schedule of assets of the trust or estate at both the beginning and end of the time 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 are in 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.