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Forensic Accountants Help Keep Divorce Proceedings Equitable

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.

The end of a marriage never is easy. Besides the obvious emotional issues and possible child custody decisions, there are assets that need to be equitably divided, whether they were brought into the relationship or were earned during the marital period.

In such situations, a forensic accounting expert can help devise and navigate the route to a financial settlement that works for all parties involved.

“Marital dissolution can be a long, involved and costly process,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and other litigation support services in Philadelphia and the Delaware Valley.  “A marital dissolution accountant is uniquely qualified to analyze even the most complicated portfolio a couple can build during a marriage and help both sides resolve key financial issues.”

Anderson, an experienced marital dissolution accountant in Philadelphia and the Delaware Valley, said forensic accounting experts can assist in divorce cases in such areas as:

  • Identifying and valuing the couple’s assets at the date of marriage
  • Tracking and accounting for each spouse’s financial activities during the marriage
  • Identifying and valuing assets of the spouses at the date of separation or other applicable dissolution date
  • Searching for hidden assets or hidden income
  • Analyzing each spouse’s income and personal expenses to determine support and alimony
  • Accounting for post-separation transactions of each spouse.

“When couples wed, they each bring assets into the marriage,” Anderson said. “There may be securities, real estate, ownership interests in private businesses and other investments.  Or they may own a home or a vacation house, or perhaps cars, motorcycles, boats or airplanes.  And, of course, there is personal property, such as furniture, antiques, collectibles and artwork, to be considered.”

Anderson, a divorce accountant who provides such forensic accounting services in Philadelphia and the Delaware Valley as marital dissolution and other litigation support services in Philadelphia, said many states allow each spouse to retain the assets they brought into the marriage.

The problem, he said, is that in many marriages, some or all of the couple’s assets may have been sold during the marriage with the proceeds invested elsewhere, or the proceeds from the sale of one spouse’s pre-martial assets may have been commingled with funds of the other spouse.  Attorneys rely on forensic accounting experts to sort out these transactions and account for the assets each spouse brought into the marriage.

The analytical skills of a marital dissolution accountant also can be invaluable when couples use marital income to acquire new assets together during the marriage, or when they use marital income to invest in a business that one spouse brought into the marriage.  In the latter case, Anderson said, the spouse who was not involved in the business before the marriage would be entitled to share in the increased value of the business that occurred during the marriage.

Divorce accountants often are asked to identify and account for the couple’s total assets and to value them as of the date of separation or other applicable dissolution date as this information is crucial to the divorce settlement, Anderson said.

An already-complex marital dissolution can become contentious when one spouse accuses the other of failing to list certain assets or income.  In these cases, a forensic accounting expert will launch an investigation to determine if the assets or income actually exist, said Anderson, a marital dissolution accountant in Philadelphia.  The divorce accountant will examine public records, analyze both bank and investment account statements and review income tax returns for evidence of the missing assets or income.

One case in which Anderson served as a marital dissolution accountant providing litigation support services in Philadelphia involved a spouse who claimed her husband owned commercial real estate in Philadelphia.  By analyzing the couple’s income tax returns and brokerage accounts, Anderson was able to identify a property tax deduction that was taken on the income tax return, as well as regular monthly payments made to a brokerage account.  He said the payments did not come from either spouse’s employer or from any of the couple’s known bank accounts.

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, discovered that the husband’s limited liability company owned a building in Philadelphia and that the checks being sent to the brokerage account were rent checks from the building’s tenant.

Forensic accounting experts also are called on to analyze the income and expenses of each spouse to assist the court in determining how much support and/or alimony one spouse must pay another.  A divorce accountant also may be needed to analyze income earned by the spouses after the date of separation, or other transactions involving marital assets that the spouses engaged in after the date of separation.

“Unwinding a marriage often can be a mind-boggling process involving complex financial matters that are best left to a forensic accounting expert to evaluate,” said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Putting the financial issues into the hands of a marital dissolution accountant can ease tensions in sometimes stressful situations and keep things moving toward an amicable resolution.”

If your divorce case would benefit from the expertise of 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.

Strangers in Strange Lands: Avoiding Fraud on Foreign Soil

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.

You are looking to expand your company by either opening an office or manufacturing facility abroad, or you want to start selling your products beyond U.S. borders.

There are, of course, many logistical factors to be considered, not the least of which is understanding which types of payments to foreign government officials are allowed and which are considered fraudulent.

“In today’s global economy, failing to understand the laws that affect business operations in a foreign country can land your company in a heap of trouble,” 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.  “There are laws both in the United States and in foreign countries that you have to be concerned about.”

A forensic accounting expert, Anderson said, can help you navigate this complex international maze and work with you to establish internal policies and procedures as part of a comprehensive fraud deterrence program. Such actions, he said, can protect your company from unwittingly participating in fraudulent financial activities abroad.

Anderson offered as an example a U.S. company that wanted to open a new factory in Thailand.  Although the company’s product was sold in Great Britain and other countries, this would be the company’s first factory operation outside the U.S.

The factory was two months from opening, he said, when the general manager of the Thailand subsidiary called the U.S. parent company with the news that the provincial governor in Thailand had just told him there was a two-year backlog in approving factory licenses.  The provincial governor also said that if the company paid him a “fee” in cash, he would be able to expedite the process and issue the license by the time the factory was ready to open.

“The senior executive in the U.S. was in a quandary,” 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.  “The company needed to get the factory open on time, but, if it made the payment to the provincial governor, was it breaking any laws?  Was making a payment to get a license issued faster a violation of the Foreign Corrupt Practices Act and, therefore, an act of fraud?”

The Foreign Corrupt Practices Act of 1977 and its 1988 amendments (FCPA) make it a crime, Anderson said, for a business or its officers, directors, employees, agents or shareholders to bribe a foreign official for the purpose of influencing that official in order to obtain or retain business. However, he said, the law does permit facilitation payments.

Facilitation payments are payments to foreign officials to expedite routine governmental actions — such as processing papers, issuing permits or other normal procedures — that the officials are bound to perform anyway.  Facilitation payments are not intended to influence the official’s decision, only the timing.  The payment to the provincial governor met the FCPA’s definition of a facilitation payment, meaning the company had no risk of violating U.S. law.

Unfortunately, the U.S. law wasn’t the only law the company had to worry about.  Because the company sold its product in Great Britain, they also were subject to the provisions of the United Kingdom Bribery Act of 2010 (UKBA), which holds that all payments to foreign officials — including facilitation payments — are illegal.

Under the UKBA, it doesn’t matter where the payment is made.  As long as a company does business in the UK, any facilitation payment in any country in the world is still illegal, Anderson said.  However, the U.S. company discovered that the UK agency charged with enforcing the law — the Serious Fraud Office — primarily focused on situations it deemed to be “serious or complex.”

Counsel to the U.S. company advised that “serious or complex” situations generally involved significantly large payments and/or multiple payments for the same purpose, neither of which was the case with the facilitation payment in Thailand.  Anderson said the company made the payment, documented and recorded it in its accounting system, received the factory license and opened the factory on time.

“Companies need to be careful when operating on foreign soil,” said Anderson, a forensic accounting expert with experience in both fraud investigations and fraud deterrence programs.  “As with the case of the U.S. company opening a plant in Thailand, you don’t necessarily need to have physical operations in a country to be subject to their laws.”

If your company operates in foreign countries or sells products overseas, or is thinking about doing so, it might be time to contact a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.   A forensic accounting expert can design a comprehensive fraud deterrence program that includes policies and procedures regarding financial activities in foreign countries, 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.

Untrustworthy ‘Trusted’ Employees Can Strike at Any Time

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.

Every company or organization has them: “Trusted” employees.

These are the long-time, seemingly loyal men and women whose work and tenure has earned them a high degree of trust from their employers/business owners.

However, said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, you never should forget that these “trusted” employees can pose a significant fraud threat to businesses and organization.

“They may be family members, employees who have worked their way up the management ladder over the years, employees who are hardworking and who put in long hours, and/or employees who have contributed to the past success of the business,” he said.

Because of this “trusted” status, Anderson said, business owners and senior managers tend to exert lesser oversight over these employees than they do over the typical employee.

Most “trusted” employees are worthy of the trust they have earned.  However, a number of other “trusted” employees have used the trust and lack oversight to commit fraud.  Over the past year, investigations of “trusted” employees conducted by David Anderson & Associates have identified the following frauds perpetrated on their employers:

  • Use of employers’ business credit cards to charge personal expenses
  • Use of expense reimbursements to have the business pay for personal expenses or non-existent expenses
  • Manipulation of payroll to take improper salaries and bonuses
  • Use of vacation, personal and sick days in excess of those earned
  • Running purchases for their own personal business through the purchase accounts of their employer, and having the employer pay for these purchases
  • Diverting customer cash payments to themselves, and covering up the diversion by manipulating the employer’s accounting system
  • Removing inventory from the employer’s warehouse, and covering up the diversion by manipulating the employers accounting system
  • Diverting customers and sales from the employer’s business to their own personal or a friend’s business
  • Selling the employer’s fully depreciated assets to a third party and pocketing the proceeds.

In each case, Anderson said, the employer had no fraud deterrence program in place.  These companies could have significantly reduced the likelihood of fraud occurring if management had instituted such procedures as:

  • Regular top management or third party consultant review of credit card statements and expense reimbursement requests
  • Regular top management or third party consultant review of payroll journals
  • Regular top management or third party consultant review of monthly bank statements and monthly financial statements
  • Regular periodic review of operations by top management or a third party consultant
  • Instituting an anti-fraud policy, disseminating it to all managers and other employees, and holding periodic training sessions on spotting and report fraud
  • Letting all employees know that top management does not condone fraud, and is actively watching out for it.

“Trusted” employees continue to be a problem for employers who provide reduced oversight to them.  However, Anderson said, by instituting relatively simple and relatively inexpensive fraud deterrence procedures, management can significantly reduce the risk of such “trusted” employees becoming untrustworthy.

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.

It’s Your Choice: Pay to Deter Fraud, Or Pay Fraud Losses

We rotate and change the tires on our cars, we have insurance on our homes, we try to eat healthy and stay active.

Why? To prevent bad things from happening in the future.

It’s the same for a business owner and business fraud, 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 makes much more sense, he said, to implement anti-fraud measures now to save you from incurring big losses later.

So, Anderson rhetorically asked, why don’t more businesses, non-profits and government offices implement fraud deterrence procedures?

“My experience shows that there are two main reasons more organizations don’t have fraud deterrence programs,” he said, “and they boil down to management not understanding how easily fraud occurs or how easily and cost effectively it can be prevented.”

Anderson said the initial issue is that business leaders don’t believe fraud ever could occur in their organization. Most managers feel their employees are trustworthy and loyal and also because they believe that they would inherently somehow “know” if fraud was occurring.  Secondly, he said, owners and executives think, incorrectly, that fraud deterrence programs are expensive and time-consuming, making the cost outweigh the benefit.

“In reality, given the appropriate opportunity, even the most trustworthy and loyal employees can find themselves under pressure to commit fraud,” said Anderson, a Certified Fraud Examiner.  “In fact, it often is the most highly trusted employee who turns out to be the fraudster.”

He said management is generally so focused on running its business that it has neither the time nor the inclination to examine financial details that might reveal evidence that fraud is occurring.

On the cost issue, Anderson said organizations need to understand that the median cost of fraud has been set by the Association of Certified Fraud Examiners at approximately $145,000 for each occurrence.  But basic fraud deterrence procedures – such as management review of financial reports; a fraud hotline; a code of conduct; mandatory vacations; job rotation, and surprise audits – cost significantly less than that.  Even with the addition of fraud deterrence training for managers and employees, the cost remains significantly lower than the median cost of just one case of fraud, he said.

“We all take preventative measures to forestall bad things from happening,” Anderson said.  “We brush with fluoride to prevent tooth decay.  If a faucet or pipe starts to leak, we call the plumber before it worsens.  And we spend $40 to change the oil and oil filter on our car to avoid paying hundreds or thousands of dollars in engine repair bills down the road.

“Establishing anti-fraud controls is the same thing,” Anderson said.  “If you engage a Certified Fraud Examiner to design a cost-effective fraud deterrence program for your organization now, you are greatly lessening the chances that you will be the victim of a more expensive fraud in the future.”

If you have reason to suspect that fraudulent activity is already occurring in your business, non-profit or government office, Anderson recommends that you immediately request a comprehensive fraud investigation be conducted by a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  The longer you postpone a fraud investigation, the greater your losses are likely to be, he 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 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.

An Overview of Business Valuation – Part V

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 final installment of a five-part series in which Anderson reviews the basics of business valuation.

The process of determining the worth of a business is a complicated one.  A business valuation expert must undertake a series of preliminary steps to set the groundwork and then consider the value of the business from three very distinct approaches before forming a professional opinion as to the initial value.  With this process completed, there remains just one final step: considering potential adjustments to the initial value.

“The process is complex,” said David Anderson, 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.  “There are myriad factors that must be considered and weighed by the valuator to reach the point of establishing initial value.  But that initial value still is not accurate until possible adjustments to the value are taken into account.”

Anderson said business valuation experts must consider four types of potential adjustments:

  • Non-operating asset adjustments
  • Control adjustments
  • Marketability adjustments
  • Other adjustments

Non-operating asset adjustments involve assets and associated liabilities that are not part of the normal operations of a business, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  As an example, Anderson explained, a food processing company may own a collection of artwork that is not related to its business operations.  Or, a computer consulting firm may own an office building (with a mortgage) that it does not use, but leases out to other companies.

Valuators may remove these assets and liabilities from consideration during the business valuation process in order to more accurately assess the worth of the actual business operations, Anderson said.  But once the initial value of the business has been established, these assets and liabilities must be taken into account because they are owned by the business and therefore affect its overall value.

Control adjustments may be warranted if a business valuation expert is considering the value of some, but not all, of the shares of a business, Anderson said.  If the shares being valued would give a buyer control of the business, they carry a higher value than other shares.

For example, Anderson said, a buyer would have control of the company if either the shares are more than 50% of the total or they give the buyer more than 50% of the total voting rights (assuming a simple majority is all that is required).  However, if the shares represent a “minority interest” in the company, the buyer would not have control or significant influence in company operations.  Under that circumstance, Anderson said, the buyer is likely to demand a price adjustment known as a discount for lack of control.  The specific discount (usually a percentage of the price per share) is typically based on data from sales of shares in publicly held corporations.

Marketability adjustments come into play when privately held businesses are being valued, Anderson said.  Typically, there are no readily available public markets for privately held businesses.  As a result, it is more difficult to sell shares in a privately held business because it likely will take longer and cost more to find a buyer.

A buyer of shares in a privately held business, therefore, is likely to demand a price discount known as a discount for lack of marketability.  The specific discount (usually expressed as a percentage of the value of the business or of the price per share) is typically based on the valuation method(s) selected by the business valuation expert, information regarding marketability discounts of comparable companies, and the particular facts and circumstances of the business being valued.

Other adjustments that the business valuation expert must consider to determine if they are applicable include:

  • Built-in gains discount
  • Blockage discount
  • Key person discount (also known as personal goodwill discount)
  • Restrictive agreement discount
  • Investment company discount
  • Lack of voting rights discount

Once all of the potential adjustments have been applied as necessary, the business valuation expert can finally arrive at a final value for the business.

“As you can see, the process of valuing a business is quite involved,” Anderson said.  “When a business valuation is made for tax, divorce or litigation purposes, the best way to properly protect the rights of the persons for whom the valuation is being performed is to have the valuation conducted by a qualified, experienced business valuation expert who follows professional business valuation standards.”

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.

An Overview of Business Valuation – Part IV

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 fourth of a five-part series in which Anderson reviews the basics of business valuation.

Business valuation experts must undertake a series of preliminary steps to set the groundwork for determining the worth of a business.  Once those steps are complete, valuators must consider three very distinct approaches to valuing a business.

In earlier postings, David Anderson, principal of David Anderson & Associates, explained the first three steps of the business valuation process — determining the standard of value, deciding on the premise of value and normalizing financial statements.

In this fourth installment of the series, Anderson reviews the three most commonly used approaches to valuing a business:  the Income Approach, the Asset-based Approach and the Market Approach.

“Professional business valuators are required to consider all three approaches,” said Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  “In the end, a business valuation expert must use his or her judgment to determine the best approach or combination of approaches to arrive at a business valuation that is as fair and accurate as possible.”

The most common approaches a business valuation expert will consider are the three noted below:

Income Approach values a business by using one or more methods to convert anticipated economic benefits (earnings or cash flow) into a single present amount.  There are two primary methods under this approach:

Capitalization of Earnings/Cash Flows Method, which is used when there has been a steady level of historical growth, and the

Discounted Earnings/Cash Flow Method, which is used when there have been fluctuations in historical growth and when the company can reasonably project earnings for the next five or more years.

Asset-based Approach values a business by calculating the value of net assets, which is the difference between total assets and total liabilities.  There also are two primary methods under this approach:  the Book Value Method, which calculates the net asset value as shown on the books of the business – typically at historical cost, and the Adjusted Net Asset Method, which adjusts the value of assets and liabilities to the fair market value as of the valuation date.

Market Approach values a business by comparing it to sales of similar businesses.  There are four primary methods under the Market Approach:  analyze transactions of comparable publicly held companies; analyze transactions of comparable privately held companies; analyze prior transactions involving shares of the company itself, and lastly, analyze the ability of the company to pay shareholder dividends and compare that to dividends paid by comparable companies.

“The specific methods used depends on the facts and circumstances surrounding the business being valued,” said Anderson, whose company – David Anderson & Associates – is a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley. “For example, if there are no comparable market transactions or an insufficient number to be meaningful, the Market Approach may not be useful.”

Once the value of the business has been set under each of the approaches, the business valuation expert must determine whether one of the values is the best representation of the true value of the business or if a weighted blend of the values provides a more accurate final business value, he said.

Anderson gives the example of valuing a startup business with little profitability.  The Income Approach might yield a very low value because the startup hasn’t had time to show historical growth, while the Market Approach might result in a considerably higher value based on the sale of comparable businesses.

“Under this scenario, some valuators would select the Market Approach as being most indicative of value and others might choose a blend of the Income Approach and Market Approach with a higher weight on the Market Approach,” he explained.  “It all comes down to the professional judgment of the business valuator, based on his or her experience and knowledge about the business being valued.”

At this point, the complex process of business valuation is nearing the end.  But there is still one major step remaining before a final determination on the worth of a business can be made: consideration of certain adjustments for non-operating assets as well as control, marketability and other adjustments.  Anderson will explore these adjustments in the next and final installment of “An Overview of Business Valuation.”

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.

An Overview of Business Valuation – Part III

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 third of a five-part series in which Anderson reviews the basics of business valuation.

Determining the worth of your business can be quite complicated. Before the actual business valuation can begin, a number of steps must be taken.

“The value of a business often depends on the earnings it generates,” said David Anderson, a business valuation expert in Philadelphia and the Delaware Valley and principal of David Anderson & Associates.

“Small business owners” he said, “have a fair amount of latitude in choosing how they report the financial operations of their business, often selecting alternative accounting practices that lessen their income tax obligation.”

In two earlier posts, Anderson explained the first two steps of the business valuation process — determining the standard of value and deciding on the premise of value.  This third in a series of articles examines the steps a business valuation expert sometimes must take to bring a company’s financial statement on an equal footing.

Because of these alternative practices, he explained, a business valuation expert frequently needs to adjust the historical financial statements before implementing selected business valuation approaches and methods.  Making these adjustments is often referred to as “normalizing” the financial statements.

“Normalizing the financial statements should provide the valuator with a more economically realistic picture of the value of the assets and the financial operating results of the business,” Anderson explained.

These financial statement adjustments represent estimates and often fall into one of the three categories as noted below:

Comparability adjustments are intended to make the company more comparable to guideline companies or companies within the industry group that were used in comparative ratio analyses.  For example, if the company being evaluated used the last in, first out (“LIFO”) inventory method of accounting while the industry group uses the first in, first out (“FIFO”) inventory method, this adjustment would give a valuator a clearer picture of how the company’s financial statement compares to others in its industry.

Non-operating or non-recurring adjustments are removed from the income statement because they are either unrelated to the business operations or unlikely to recur in the future.  Non-operating assets or liabilities are elements of the balance sheet that are removed so a more appropriate value of the operating company may be determined.

These assets or liabilities are then added or subtracted to the resulting computed value to arrive at the total equity value of the company.  An example of these types of adjustments would be the costs associated with discontinuing a portion of the business.

Discretionary adjustments are those expenses that are usually under the sole discretion of management, or more typically, the owners of the business.  Often these expenses are between the company and the owners of the company (i.e., related party transactions).  These adjustments are most appropriately made when valuing a controlling interest in the company and they generally represent the difference between the actual recorded book expense and the expense that would be incurred if transacted between the company and an independent third party.

Examples of these types of adjustments include: Officer’s and owner’s compensation, owner’s perquisites, entertainment expenses, automobile expenses (e.g., personal use of company cars), compensation to family members, and other related party transactions.

Once these three types of “normalization” adjustments have been made to the financial statements, the business valuation expert can begin to analyze the value of the business under each of the different valuation approaches and methods, Anderson said.

In upcoming weeks, Anderson will continue to explore the process business valuation experts undergo to determine the worth of a business.

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.

An Overview of Business Valuation – 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 a five-part series in which Anderson reviews the basics of business valuation.

Knowing how to calculate a value of your business that is accurate and fair is a skill every corporate principal should be familiar with.

“You don’t want to rely on estimates, gut instinct or rumored calculation methods to determine business value,” said David Anderson, 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.  “When you need to know the true worth of your business, you need to understand the process.  And you need the expertise of a highly qualified business valuation expert.”

In a recent posting, Anderson covered the first step of business valuation — determining the standard of value.

“The second step in ascertaining a company’s worth,” he said, “is to decide on the premise of value.”

The premise of value is the type of transactional circumstances underlying the business or property being valued, Anderson said, adding that there are four premises of value:

  • Going concern value
  • Book value
  • Liquidation value
  • Replacement value.

Going concern value is the most frequently used premise of value. This method assumes the business is operating and producing revenues . . . and will continue to do so.

Book value is the difference between a company’s total assets that have been adjusted for depreciation, depletion and amortization and the amount of total liabilities as listed on the balance sheet.  Assets such as real estate, collectibles and artwork are recorded at historical cost and therefore may be undervalued on the balance sheet.  Intangible assets such as patents, copyrights and trademarks also may be undervalued.

Interestingly, many buy-sell and shareholder agreements use book value to establish share value when a shareholder wishes to sell shares back to the company or when shares are purchased after a shareholder is terminated or dies.  In these cases, disputes often arise when the book value of the shares is significantly less than the going concern value.

Liquidation value is the net amount realized if the business is terminated and the assets are sold individually.  Liquidation value typically results in the lowest of the premises of value, Anderson said.

Replacement value generally is used for specific assets and refers to the current cost of property equivalent to the property being valued.  Replacement value is often used in insurance contracts for calculations involving real estate or tangible personal property and in construction or manufacturing agreements.

“Determining these two crucial steps — the standard of value and the premise of value — will allow a business valuation expert to select the appropriate valuation methodology to decide your company’s worth,” Anderson said.

Over the next several weeks, Anderson will post additional articles on the specific methods business valuation experts use to establish value, the effect non-operating assets have on business valuation and discounts for lack of control and lack of marketability. Coming up next in Part Three, an examination of the steps a business valuation expert sometimes must take to bring a company’s financial statement on an equal footing.

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.

An Overview of Business Valuation – 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 a five-part series in which Anderson reviews the basics of business valuation. 

Do you know what your business is worth? If not, you probably should.

There are many reasons why it’s important to know. These can range from business reasons, such as calculations related to any acquisitions or mergers, to personal issues of estate planning and resolution to marriage dissolution.  When the time comes, understanding how a fair and accurate business valuation is determined is of paramount importance.

“The first step in valuing a business is to determine the standard of value,” said David Anderson, 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 type of value that is being requested for the business.  The three most common standards of value are fair market value, fair value and strategic/investment value.”

The IRS defines fair market value as “The price at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”

Fair market value is the most widely recognized and accepted standard of value, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  Fair market value is used to establish value for all Federal tax matters, including estate tax, gift tax and income tax, he said.  This standard also is used for many purchase, sale and merger transactions; for buy-sell agreements; for regulatory valuations; and for most litigation matters, including partner/shareholder disputes, divorces and economic damage cases.  Fair market value takes into consideration discounts for lack of control and lack of marketability.

Fair value generally is defined as fair market value without considering discounts, Anderson said.  Fair value principally is used to value the shares held by a company owner with a minority interest when that person believes he is being forced to receive less than adequate compensation for his shares.  Fair value also may apply to divorce cases in some states.

Strategic/investment value is the value to a particular investor based on individual requirements and expectations, according to Anderson.  This standard most often is used for a purchase, sale or merger in which the buyer expects to realize certain synergies with the seller’s business.  Strategic/investment value typically is higher than fair market value because of these synergies.

“The standard of value is one of the key components used to determine the valuation methodology to be employed and, ultimately, the business valuation expert’s decision on the value of your business,” Anderson said.

Over the next four weeks, Anderson will post additional articles on the specific methods business valuation experts use to determine value, the effect non-operating assets have on business valuation and discounts for lack of control and lack of marketability.  Up next in “An Overview of Business Valuation – Part II:” Determining the premise of value, the type of transactional circumstances that underlies the business or property being valued.

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 Consequences of Not Remitting Collected Taxes

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 tax payers by the business.

Some organizations which are experiencing cash flow or financial difficulties have used these funds for financing operations, Anderson said, instead of timely remitting the funds 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 in a timely fashion, 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% of the unpaid taxes, a practice commonly known as the “100% 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 persons at any time.

As if the 100% 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.

(Editor’s Note: David Anderson’s weekly blog will be on hiatus next week for the Independence Day holiday. His column will resume Monday, July 11.)

The Serial Nature of Fraud

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 actually 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 fairly 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 of 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.

Eliminating Opportunity Is Crucial to 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.

Opportunity – the ability for fraudsters to carry out the misappropriation of cash or other company assets – is one of the three key elements necessary for fraud to occur, and it is an element that organizations often can eliminate by enacting strong anti-fraud controls as part of a comprehensive fraud deterrence program.

In its 2016 Report to the Nations, the Association of Certified Fraud Examiners (ACFE) found in almost 30 percent of identified fraud cases, the opportunity that allowed fraud to occur existed solely because the organization lacked the proper internal controls.  In almost another 20 percent of fraud cases, the opportunity for fraud existed because of a lack of management review.

“None of these frauds would have occurred if management had taken adequate preventive steps to eliminate the opportunity,” said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates. “No matter how much pressure an employee is under to steal or how much they can rationalize their illicit actions; they cannot successfully carry out the fraud if the opportunity to do so doesn’t exist.”

Strong internal controls work to safeguard assets, ensure reliable financial reporting and make the organization compliant with laws and regulations, Anderson said.  Some of the more common internal controls include separation of duties (requiring more than one person be involved in processing and recording financial transactions); regular management review to provide oversight; and independent checks or audits, either with an internal audit department or external auditors to provide additional oversight, he said.

Reviewing monthly bank statements and monthly financial statements on a regular basis are critical factors of a strong management review process, Anderson added.

The ACFE report, which is derived from a global survey conducted biennially to study the costs, schemes, perpetrators and victims of fraud, also identified two other situations in which organizations can unintentionally foster opportunity for fraud, Anderson said.  These are:

  • Overriding of existing internal controls, which was responsible for 20 percent of fraud cases.  Fraud investigations indicate these situations occur when a more senior person, usually in management, persuades an employee to ignore or circumvent internal controls.  For example, a manager may ask an employee to print a check for a dollar amount that requires two levels of approval without proving the approvals were obtained.  Or an auto dealership employee may allow a customer to leave without paying for car repairs made by the dealership.
  • Poor tone at the top, a key factor in almost 10 percent of reported frauds.  Fraud investigations show employees take their cues from their supervisors.  If management engages in questionable behavior, such as overriding existing internal controls or running personal expenses through the company, it sends a message to the employee that such behavior is tolerated.

“It’s clear that companies can significantly reduce the chance of fraud occurring by eliminating the opportunity for it to occur,” said Anderson, a Certified Fraud Examiner and an ACFE member.  “It’s not a terribly difficult thing to do.  By enacting a fraud deterrence program with strong internal controls, you are taking a proactive approach to protecting your company.  You simply don’t let the fraudsters get away with it.”

Strong internal controls, regular management review and a strong anti-fraud message that is delivered by word and by action all are important components of comprehensive fraud deterrence programs created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley, he added.

In the coming weeks, Anderson will continue to share findings from ACFE’s 2016 Report to the Nations, the results of a global survey conducted biennially to study the costs, schemes, perpetrators and victims of fraud.  The Association of Certified Fraud Examiners is the world’s largest anti-fraud organization, dedicated to fighting fraud through its more than 75,000 members in more than 150 countries worldwide.

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.

Summer Vacation Is Here! It’s Time for Fun . . . and Fraud

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.

With the arrival of Memorial Day, another summer of fun and vacation has begun.  Those employees with vacation homes at the shore or in the mountains will begin regular weekend visits.  Work will slow down or fall behind as employees take vacations, and employers scramble to cover their vacant positions.

While summer is generally fun for all of us, it is especially fun for fraudsters, according to Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates. That fun, he said, comes in two distinct areas: Workplace Fraud and Vacation Fraud.

Workplace Fraud

As employers shift schedules to account for employees on vacation, Anderson said they can unwittingly open up increased risk of fraud.  This potential fraud arises from several sources:

  • Employees who do not normally perform a sensitive financial job may be drafted to fill in for the vacationing incumbents;
  • These “fill-in” employees may not be familiar with fraud deterrence measures in place, and may fail to perform or enforce them;
  • These same employees may be provided with passwords and other access rights to computers and/or software to which they normally do not have access;
  • When incumbents return from vacation, they may not change their passwords and/or technical staff may not remove the access rights of the employees filling in for the incumbents;
  • Reconciling bank accounts and other fraud deterrence measures may be delayed due to backlogs created by vacations;
  • Management may relax fraud investigation and oversight as well as forensic accounting measures due to either employee vacations, their own vacations or both.

To avoid these risks, Anderson said management must take steps to ensure:

  • “Fill-in” employees are properly trained in not only the incumbent’s job but also the applicable fraud deterrence measures;
  • Technical staff sets up separate passwords and access rights for the “fill-in” employees, and promptly removes these access rights as soon as the incumbents return to work;
  • Bank reconciliations and other fraud deterrence measures continue to be applied and performed on an uninterrupted or a delayed basis; and
  • Management continues to exercise either an increased level of oversight or at least the same measure of oversight as it does the rest of the year.

Vacation Fraud

Fraudsters know people on vacation have relaxed vigilance regarding their debit and credit cards and other personal financial information.  Anderson said an increasing number of fraudsters are using skimmers and other measures to obtain this information.

In particular, the use of skimmers has increased.  Skimmers are electronic data collection devices that are placed over ATM card slots, credit card slots and on credit card swipers.  They have become smaller in size and less noticeable to the point that it can be difficult to ascertain whether or not a skimmer has been placed on the device you are using.

While Anderson said people generally are aware if something appears different in the ATMs and other devices they regularly use at home, relaxed vigilance on vacation and unfamiliarity with ATMs and other devices at vacation locations put individuals at greater risk of having their card and other personal financial information stolen. To emphasize this point, Anderson shared a personal experience:

Last summer, Anderson was on vacation in Asheville, North Carolina.  On the Sunday his family was leaving, he went to the ATM at a local bank and withdrew funds.  Unbeknownst to him, fraudsters had placed a skimmer on the ATM machine. Anderson only learned of the theft of his debit card and PIN information on Monday night when he went online to check his bank account and noticed a strange charge made in Washington state approximately 12 hours after he had withdrawn funds from the ATM.

Anderson subsequently learned the fraudsters had used his debit card and PIN information to purchase an iPhone in Washington state.  When he contacted Ashville bank officials the next day, they checked the ATM and found there was no skimmer on it.  However, they later notified him they had had a number of complaints during the week about people who had used their ATM and had fraudulent charges appear on their debit cards.

Bank officials told Anderson they had instituted a new procedure to check the ATM at the end of their business day and first thing the next morning to see if there was a skimmer on it.  However, they admitted they would have no way of knowing that fraudsters had placed and then removed a skimmer outside of normal banking hours unless they reviewed hours of tapes from each ATM every day.

In the future, when he is on vacation, Anderson said he will only use an ATM that is in a bank’s lobby and only during normal business hours.  He also said he will only use his debit card as a credit card to avoid entering my PIN number.  In addition, he said he is determined to have a higher level of vigilance whenever he uses his debit or credit card out of town . . . and he strongly recommends others adopt this same practice.

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.