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The Latest Trends in Anti-Fraud Controls

David Anderson is 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.

As a Certified Fraud Examiner, I belong to the Association of Certified Fraud Examiners (“ACFE”).  This international organization has more than 75,000 members in more than 150 countries throughout the world dedicated to fighting fraud through rigorous fraud investigation and fraud deterrence programs.

Every two years, the ACFE conducts a global fraud survey to study the costs, schemes, perpetrators and victims of fraud.  This month, the ACFE released its 2016 Report to the Nations, detailing the results of its latest survey.  In the next several blog articles, I will present updates to previous articles which were based upon the 2014 Report to the Nations.  First up, the latest trends in anti-fraud controls installed by businesses and other organizations.

The 2016 Report identified the fastest growing anti-fraud control as use of confidential hotlines for reporting fraud.  The implementation rate grew by almost nine percent in the past two years to more than 60 percent – meaning that more than 60 percent of businesses and other organizations currently use these hotlines.  What also is new is that more businesses are using not just telephone-based hotlines but also are providing for confidential reporting of fraud via their websites and/or e-mail.

The next fastest growing anti-fraud control is the implementation of fraud training for employees.  Approximately 52 percent of all businesses and other organizations provide this to their employees – an increase of nearly 8 percent from the 2014 survey.

Other anti-fraud controls whose implementation has increased by more than 5 percent during the past two years include:

  • Adoption of an anti-fraud policy
  • Adoption of a code of conduct
  • Increased management review of operating results
  • Surprise audits
  • Fraud training for managers and executives

What all of these anti-fraud controls have in common is that they show a “tone at the top” which says management does not condone fraud and is committed to fighting it.  None of these anti-fraud controls is overly expensive, especially in light of the continuing fact that the cost of fraud to the typical company is approximately 5 percent of revenues.

Look for more details on these and other findings from the ACFE 2016 Report to the Nations in my next series of blogs.

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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.

Revisiting the Fraud Triangle – A Closer Look at Rationalization

The Fraud Triangle is a troika of troublesome tendencies – Opportunity, Pressure and Rationalization – that often are present when fraud is taking place. 

In previous posts, David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away. 

In this article, Anderson takes a closer look at the final leg of the triangle – Rationalization.

Rationalization is the mental process that a potential fraudster goes through to justify committing the fraud.

“Without being able to rationalize to oneself why it is OK to commit the fraud,” said Anderson, who provides forensic accounting services in Philadelphia, “a potential fraudster with the opportunity and pressure will not proceed. “

Anderson said examples of rationalization can include:

  • I’m only temporarily “borrowing” the money to meet my financial obligations, and I intend to pay back the “loan” in full;
  • I’m not being paid what I am worth, so I’m making up the difference through fraud;
  • The company makes a lot of money, so it won’t be missed/ be affected by the small amount I am taking;
  • The owner/management is committing fraud, so why shouldn’t I?
  • I have been “wronged” by the company/owner/management, so this is how I can get back at them.

Owners/managers can influence the rationalization process and discourage the rationalization to commit fraud by taking several anti-fraud steps:

  • Provide anti-fraud training to all employees which, among other things, includes specific statements that committing fraud is wrong and unacceptable; that management is dedicated to preventing fraud; and that encourages employees to be on the lookout for fraud;
  • Establishing a “hotline” which allows employees to confidentially report suspected fraud;
  • Establishing a “tone at the top” that demonstrates that management is committed to fighting/preventing fraud (and not merely paying lip service to the fraud);
  • Establishing policies and procedures which allow an employee to pursue complaints about being “wronged” (real or imagined);
  • Letting employees know that management is watching and is implementing such anti-fraud measures as surprise audits and regular management reviews.

Taking these steps as well as steps discussed in the previous two articles (establishing strong internal controls and getting to know one’s employees better) are all part of dismantling the three legs of the fraud triangle.

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.

Socially Engineered Fraud Is Nothing to LOL About

We are constantly reminded to create difficult-to-guess passwords, change our passwords frequently, install security hardware and software and regularly update our software to protect against cyber-based fraud.

However, according to David Anderson, a Certified Fraud Examiner and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, some of the most effective and costly frauds – socially engineered frauds – are capable of completely ignoring and bypassing such safeguards.

“Socially-engineered frauds are accomplished primarily through phone calls or emails,” Anderson said, “which seek to persuade the recipient to voluntarily provide the caller or emailer with either passwords and other login information or sensitive personal financial information.”

Anderson, whose firm conducts fraud investigation and installs fraud deterrence programs, said this information can include, but does not have to be limited to, social security numbers, birthdates and bank account numbers.

To illustrate the pervasiveness of socially engineered fraud, Anderson provided several examples that could be underway today right in front of our fraud-detection-sensitive noses:

First, he said, is “The IRS Scam.” This involves, in its most common form, phone calls or, less commonly, email messages coming from the Internal Revenue Service.

The caller informs the recipient past taxes and penalties are owed, and if the recipient doesn’t immediately pay these amounts, IRS agents are poised to haul the person off to jail, or seize the recipient’s house or cars. The recipient is told to purchase a prepaid debit card for the amount owed and to call back with the debit card information.

This year, a variant of The IRS Scam has appeared, Anderson said. The caller informs the recipient that there is a problem with the recipient’s tax refund, and the caller must verify certain information including names, wage amounts and social security numbers for the recipients and their dependents. The fraudster then uses this information to file phony tax returns which seek large refunds that, of course, are to be mailed to the fraudster.

Please note that while the IRS regularly informs taxpayers of tax issues or problems, it does not phone or email them. Despite this, a significant number of people fall prey each year to this scam.

The second socially engineered fraud issue detailed by Anderson is the “Bank-Amazon-eBay-PayPal Scam.” This one occurs via email, making it a “phishing” variety of fraud. The recipient is informed that either there is a problem with his or her online account, or that password information has expired and must be updated.

The email contains a “convenient” link for the recipient to log in to his or her account.  The link is designed to appear to be from the recipient’s bank or Amazon or eBay or PayPal. For example, it would have a URL address similar to “update.amazon.partnerresults.com.” Because the name of the service or firm appears in the link, the recipient believes the link will take him and her to the named site.

Instead, the link takes the recipient to a dummy site where the recipient unwittingly provides the fraudster with a user ID, password and other personal information.  This enables the fraudster to access the recipient’s actual account and to improperly withdraw funds or to order merchandise paid for from the recipient’s credit card or bank account, if that information previously had been stored in the recipient’s account profile.

As with the IRS, most banks, Amazon, eBay and PayPal advise their customers they do not communicate such matters via email. These services advise clients they should go to their corporate site directly to log in and update information rather than clicking on any email links. Again, despite such alerts and warnings, this remains a popular and effective scam.

Finally, Anderson tells of the “You Have Won!” scam. In this cyber subterfuge, the recipient receives a phone call informing him or her that he or she has won an expensive car or vacation in the caller’s sweepstakes.  The caller informs the recipient that before the prize can be awarded, the recipient must pay taxes on the prize.

The recipient is given the option of having the funds withdrawn from his or her bank account – by providing the bank account information to the caller – or by paying via credit card – again, by providing credit card information. In either case – bank account or credit card – the recipient who provides such information either has his or her bank account “cleaned out” or his or her credit card charged to up to the credit limit for fraudulent purchases.

“We should all be aware,” Anderson said, “that we not only are subject to potential hacking of our sensitive personal security and financial information, but also that we are also at risk from socially-engineered attacks via phone or email.”

He said everyone should be cautious about responding to such “attacks” and never should give out sensitive personal security and financial information unless there is absolute certainty that the entity on the other end of such a transaction is the actual organization we think it is and not a social-engineering-savvy fraudster.

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.

Revisiting the Fraud Triangle – A Closer Look at Pressure

The Fraud Triangle is a triumvirate of factors – Opportunity, Pressure and Rationalization – that must be present in order for a fraud to occur. 

In previous posts, David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away. 

In this article, Anderson takes a closer look at the second leg of the triangle – Pressure.  In the third article of this series, he will zero in on Rationalization.

Pressure refers to the personal situation of the potential fraudster that can induce the person to commit the fraud.  Even if the opportunity to commit fraud is present, if the person feels no pressure to commit the fraud, he or she won’t.

“Eliminating such pressures,” said Anderson, who provides forensic accounting services in Philadelphia, “can be key to a successful fraud deterrence program.”

The primary pressure the potential fraudster experiences is the need for money.  Other potential pressures (which are significantly less likely to occur) include revenge (the fraudster feels wronged by the business, its owners or management) and thrill (the fraudster has no need for money, but wants the thrill of committing and getting away with the fraud).

Examples of the need for money include:

  • The potential fraudster’s spouse becomes unemployed or unable to work, and, as a result, the family’s household income has dropped significantly;
  • The potential fraudster has previously lost a higher paying job, and the current job pays significantly less;
  • A member of the potential fraudster’s family has become ill or was injured, and the family is unable to pay the resulting medical bills;
  • The potential fraudster has a drug or gambling problem, and needs additional money to support the problem;
  • The potential fraudster (and/or family) has adopted a lifestyle that requires more money than is currently being earned;
  • The potential fraudster is going through a divorce or other family problems that require more money than is currently being earned.

Although the specific circumstances experienced by the potential fraudster are generally beyond the control of a business’s owners and/or management, the owners and managers should be on the lookout for these types of problems.  It is often as simple as getting to know better the employees who could have the opportunity to commit fraud.

For example:

  • Has the owner or manager noticed whether an employee is driving a more expensive car or wearing more expensive jewelry and/or clothing than would be expected?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) an employee discussing expensive vacations, the purchase of an expensive home or vacation home or the purchase of an expensive boat that would appear to be more than the employee would be capable of handling?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing family problems, a family member’s illness or injury or a family member’s loss of employment?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing gambling winnings or losses?
  • Has the owner or manager noticed (or has it been reported to the owner or manager by another employee) an employee exhibiting signs of a drug problem?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee complaining about being underpaid or passed up for a deserved raise, bonus or promotion?

If the answer to any of these questions is “yes”, the next step would be to consult with the company’s attorney before taking any action (including confronting the employee or questioning other employees).

By being proactive with getting to know one’s employees better, the owner or manager can help identify when an employee is facing a pressure which could potentially turn the employee into a fraudster.

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.

Revisiting the Fraud Triangle – A Closer Look at Opportunity

The Fraud Triangle is a combination of three factors – Opportunity, Pressure and Rationalization – that must be present in order for a fraud to occur. 

In previous posts, David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away. 

In this article, Anderson takes a closer look at the first leg of the triangle – Opportunity.  In subsequent articles, he will examine the other two legs.

Businesses will install a set of policies and procedures as part of their fraud deterrence programs that are designed to protect systems and safeguard assets.  These policies and procedures are often referred to as “internal controls”.  If such internal controls are lacking, are poorly designed, or are easily overridden, it presents the potential fraudster with the opportunity to commit fraud.

“Let’s look at two common businesses situations,” said Anderson, who provides forensic accounting services in Philadelphia, “and how internal controls should be designed to prevent or significantly reduce the potential for fraud.”

The first, he said, is for handling payments made by customers.  In a well-designed internal control system structured with fraud deterrence in mind, the person who opens the mail will be different from the person who prepares the deposit slip for the bank.  Furthermore, neither of these people will actually make the bank deposit or record the receipt of funds and bank deposit in the company’s accounting system.  In addition, the entire process would be overseen by a manager or supervisor.  This step helps in fraud deterrence and lessens the need for a fraud investigation.

However, as this example indicates, these controls require that there be at least five different people involved.  Many smaller businesses don’t have enough staff to separate these functions.  As a result, some employees end up performing more than one of these functions.  This creates an opportunity for the employee to commit fraud.

For example, the employee who opens the mail could also prepare the deposit slip and record the receipt of funds and bank deposit in the company’s accounting system.  If that employee is trusted by the manager/supervisor, the manager/supervisor might not actively review the employee’s activities.  This creates the opportunity for the employee to divert certain customer payments.

A second common business situation is for processing vendor invoices.  In a well-designed internal control system, the person who sets up the vendor in the company’s accounting system is different from the person who approves the vendor invoice.  Furthermore, neither of these people actually enter the invoice in the company’s accounting system, process the payment or sign the payment check.

As with the previous example, the entire process would be overseen by a manager or supervisor.  If a company is unable to separate these duties, it creates an opportunity to commit fraud.  If the employee who sets up vendor in the company’s accounting system can also enter vendor invoices and process payments, that employee would have the opportunity to create a phony vendor (or change the address of an actual vendor), process phony invoices and produce payments that the employee could divert for his/her own use.

Well-designed internal control systems help prevent the opportunity for the fraudster to commit fraud.  This, in turn, “knocks out” one leg of the fraud triangle, thereby preventing or significantly reducing the potential for fraud.

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.

Regular Review of Financial Statements Can Help in Fraud Deterrence

Financial statements issued by companies, government entities or organizations – when reviewed on a regular basis – can help in fraud deterrence.  In many situations, though, executive officers rarely check these statements and, in cases where they do, they often do not understand what they are reading.

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

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

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

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

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

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

The reason behind any of these “red flags” may be completely legitimate, Anderson said, but they also indicate a fraud investigation to find illicit activity.  At the very least, a consistent examination of your financial statements may identify business inefficiencies that can be resolved.

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

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

About David Anderson & Associates

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

Strong Business Planning Can Help You Survive a Disaster

Natural and man-made disasters happen every day.  At some point, somewhere in the world, there is a major fire, flood, storm, sinkhole or other event that can threaten to you put out of business, temporarily or permanently.

What would you do if that happened?

You certainly have homeowners insurance, auto insurance, health insurance, life insurance and even business insurance, but do you have an up-to-date, comprehensive disaster recovery plan? Experts in the insurance industry say as many as 80 percent of business shuttered by a disaster either never reopen or financially fail in the first two years after they reopen.

“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. “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, whose company specializes the development, implementation and management of comprehensive contingency and disaster recovery plans, 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:

  • Have you protected your electronic and your paper business records? Is this important data routinely backed up to ensure against computer hard drive crashes?
  • If single, or multiple, offices or production facilities are severely damaged or destroyed, do you know where you will go to get started up again?
  • Do you know exactly what must be done, and in what order, when it’s time to resume operations.
  • Can you estimate to customers how quickly you’ll be in business again?
  • Do your employees know where to go and what to do?
  • Is there enough insurance coverage to rebuild your business?
  • How do you assure your customers will keep paying you?
  • Will your vendors continue to extend credit to you?
  • Is there a process in place to quickly and efficiently 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?

If you have a consistently updated and comprehensive contingency and disaster recovery plan (business continuity plan), you can minimize your financial loss and greatly improve your chances of disaster survival.

When you require comprehensive contingency and disaster recovery plan or need 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.

Anderson Speaks to Bucks County Estate Planning Council

David Anderson, CPA, CFE, CVA, addressed the Bucks County (Pa.) Estate Planning Council in February on the topic of forensic accounting services in Philadelphia and business valuation in a divorce.

Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, discussed the role of a forensic accountant and a certified business valuation expert in valuing the spouses’ business interests as well as how forensic accountants can find hidden assets, hidden income and manipulation of business earnings.

The Bucks County Estate Planning Council is a non-profit organization dedicated to the advancement of estate planning. Our members are accountants, attorneys, financial planners, life underwriters, trust officers and other professionals involved in estate planning.

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, outsourced CFO services and can serve as a certified business valuation expert in legal proceedings.

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.

If you require the services of a certified business valuation expert with experience providing forensic accounting services in Philadelphia, please contact the Philadelphia forensic accounting firm of David Anderson & Associates today by calling 267-207-3597 or emailing david@davidandersonassociates.com.

The Person at the Top Can Best Stop Fraud

As a smart and competent proprietor of a business who has a number of smart and competent people working in key positions, you probably think you might not need to take steps to deter fraud. Everyone knows stealing is bad, correct?

It’s also true, you might believe, that you – as the owner, the man or woman at the top – can bend or break the rules as you see fit while your workers are expected to toe the line. That’s just the way things are, correct?

Wrong and wrong.

“Your actions determine the message you are sending to your employees about fraud,” says 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.  “If you don’t have a strong fraud deterrence program in place, and if you engage in questionable activities yourself, then you’re sending an incorrect message.”

Anderson notes two recent cases of fraud where employees said company management created an environment where fraud was deemed acceptable. In one case, a defendant said her employer never said fraud was wrong. This, to her, was unspoken approval of the illegal acts. In another case, the defendant said when he saw the company president fraudulently running personal expenses through the business and claiming them as business deductions, he felt it was okay for him to defraud the company as well.

“Whether you are a business owner, a corporate executive or an elected or appointed official, your employees look to you for cues regarding what is and what is not acceptable behavior regarding fraud,” Anderson said.  “What kind of messages are you sending?”

Anderson said corporate leaders must make fraud deterrence a key objective by sending employees a strong message that fraud is unacceptable. Those leaders then need to practice what they preach.

Among the steps Anderson outlines are that companies should establish a clear fraud prevention policy and publicize it to employees through employee handbooks, manuals, training, memos, etc.  Employees must be told that fraud investigation is an ever-present aspect of your business and that steps always are underway to unearth fraud.

If you suspect your business has fallen victim to fraud, Anderson recommends you contact a Certified Fraud Examiner to conduct a comprehensive fraud investigation and determine the extent of your losses.  A Certified Fraud Examiner from a firm that provides forensic accounting services in Philadelphia and the Delaware Valley can help you establish a fraud deterrence program to help protect your company in the future.  Always remember the message you send by the example you set can be a powerful deterrent.

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.

General Observations from Interviews with Fraudsters

A key part of any fraud investigation involves interviewing employees, customers, vendors and others.  These interviews, explain a leading Philadelphia forensic accountant and Certified Fraud Examiner, can help provide an understanding of the business, uncover potential fraud, frame the size and scope of the fraud and identify potential fraudsters.

However – according to 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 suspected fraudster(s) typically are the last to be interviewed because the certified fraud examiner wants to be able to confront the suspected fraudster(s) with all or most of the facts and other information order to elicit an admission.

Based upon his experience with such interviews, Philadelphia forensic accountant Anderson said he has observed some significant differences between fraudsters and non-fraudsters.  Some of these observations are:

  • Non-fraudsters, said Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley, are typically eager to provide information as part of the interview process. For example, Anderson said that when he has asked about areas of weakness that could permit someone to commit fraud, non-fraudsters will usually provide such information (of which they are aware), and even try to speculate about areas of potential weakness of which they have little or no knowledge.  Fraudsters will typically claim that they are not aware of any such weaknesses, and that it is impossible for someone to commit fraud at the company.
  • Non-fraudsters are typically emphatic about how a potential fraudster should be punished. For example, they will state that the person should be fired immediately.  Fraudsters will be significantly less emphatic.  Certified Fraud Examiner Anderson said they will often suggest that there might have been an acceptable reason as to why the potential fraudster would have committed the fraud.  They will also typically suggest that the company should be lenient with such a person, including giving that person a second chance.
  • Non-fraudsters do not typically hesitate in their answers to questions. As 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 – explained, fraudsters will be hesitant and may even repeat the interviewer’s question (in order to buy time to think about their answer), especially when the question starts to touch on areas related to their fraud.
  • Non-fraudsters, Anderson said, are also typically emphatic when asked if they have ever done anything improper. For example, the typically non-fraudster will immediately and forcefully say “No!”  Fraudsters are typically less emphatic and may even deflect.  In one case, the fraudster responded (earlier in the interview):  “Well, to be honest, I have taken home paper clips, pens and paper a few times.  And, I remember that once, there was a fifty-cent error on my expense reimbursement which I never told anyone about”.  (It was only much later in the interview that the fraudster admitted to having taken tens of thousands of dollars in a billing scheme).

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.

What Is Your Business Worth? Get a Formal Business Valuation

You read in the paper that a local business just sold for $15 million. You feel your company is about one-third the size of that operation. Does that mean you have a $5 million business?

A friend said she heard you can determine the worth of a business by multiplying its income by six and suggests you do so. Is that the way it’s done?

Both examples, a local expert on the subject says, are incorrect.

“Neither of those business valuation methods are reliable,” says David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley.  “For example, a small software company named WhatsApp would have valued itself at between $50 and $60 million using the six-times-income method.  But last year, they sold themselves to Facebook for $19 billion — more than 300 times higher.”

If you want to learn what your business actually is worth, Anderson says, you need the assistance of a highly qualified and experienced business valuation expert.

There are myriad reasons a company may want to know its actual value. These can include shareholder or partner disputes; gifting a portion of the business; sales, mergers and acquisitions; divorce settlements; estate and trust matters; insolvency and many more.

Acknowledging each case is different, Anderson said there are two basic types of business valuations.  A calculation of value is a less formal process that provides a reliable approximation of the worth of your business while a full-blown formal business valuation is important for estate planning, gifting and litigation.

A Certified Valuation Analyst will calculate your business’s true income by examining salaries, expenses, profits, losses and other information.  Are you paying yourself or your family members more or less than what outside managers would cost?  Do you have company cars or any deferred compensation programs for family members or are there any other expenses a third party would not incur?  Do you have one-time expenses related a lawsuit or losses from a natural disaster?

In calculating your business’s worth, a professional business valuation expert also considers industry, geographic and economic factors, as well as recent sales of businesses like yours.

Determining the value of your business is not a process for psychics or soothsayers, and guessing or ballpark estimating won’t do. Be safe and smart and count on a Certified Valuation Analyst to figure out just what your business is worth.

If you require the services of a certified business valuation expert, please contact the Philadelphia forensic accounting firm of David Anderson & Associates today 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.

Trusted Employees Often At the Root of Corporate Fraud

Check any online or print news source almost any day; you’ll probably find articles reporting on fraud investigations involving hundreds of thousands and even millions of dollars being pilfered from small and large businesses, governmental entities and charity groups. Far too often, the blame falls to the feet of a trusted employee with years of valued service.

“The person responsible for defrauding the company frequently is the last person the business owner ever would have suspected,” says David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that conducts fraud investigations and offers fraud deterrence programs and fraud deterrence training. “Our fraud investigations often point to the most loyal, trustworthy and reliable employee, someone the boss can’t even imagine running the business without.”

Sadly, it’s this seemingly positive relationship that permits the fraud to continue for unimaginably long periods of time before anyone suspects there’s a problem.

“Business owners are always shocked that fraud has occurred and stunned by the dollar amount stolen,” said Anderson, a Certified Fraud Examiner. “Most of them are busy focusing on their core jobs and necessarily delegate important financial duties to these most trusted employees. As long as things run smoothly and the owners and employees get paid, there is no reason to suspect theft.”

How can you make sure your business is not caught up such a scheme?

One excellent first step you can take is to have your bank statements (originals or copies) mailed to your home instead of to your business. Then, take 15 minutes each month to examine the statements and cancelled checks to see if anything unusual is happening. Anderson said you should look for unknown vendors receiving regular payments, strange check numbers, lower cash receipts or bank balances than expected, or any red flags that indicate you need the expertise of a Certified Fraud Examiner, a highly specialized forensic accountant who can conduct a thorough fraud investigation to determine your company’s exposure.

Fraud investigations from David Anderson & Associates can determine your company’s susceptibility to internal or external fraud, quantify the extent of economic damages if fraud has occurred, uncover missing assets, and provide economic damages expert witness testimony and litigation support in resulting prosecutions.

David Anderson & Associates also can help companies who want to be more proactive in preventing fraud by assisting with risk assessment, fraud deterrence programs and fraud deterrence training.

If you need the services of a Certified Fraud Examiner, please contact the Philadelphia forensic accounting firm of David Anderson & Associates today by calling David Anderson at 267-207-3597 or emailing him.

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the surrounding communities. 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.

How Personal Goodwill Affects Business Valuations

When determining the value of professional services businesses – such as law firms, medical practices or accounting, engineering or consulting operations – it is important, according to a noted Philadelphia forensic accountant and Certified Valuation Analyst, to consider the personal goodwill associated with the professional or business owner.

David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, explains that the Internal Revenue Service defines goodwill as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.”  Recent court decisions, Anderson explained, have recognized a distinction between the goodwill of a business itself and the goodwill attributable to the owners/professionals of that business.  This second type is typically referred to as personal goodwill.

Personal goodwill differs from overall business goodwill in that personal goodwill represents the value stemming from an individual’s personal service to that business, and is an asset owned by the individual, not the business itself, said Anderson, a forensic accounting expert in Philadelphia with experience conducting business valuation services in the Delaware Valley  This value would encompass an individual’s professional reputation, personal relationships with customers or suppliers, technical expertise, or other distinctly personal abilities which provide economic benefit to a business.  Anderson said this economic benefit is in excess of any normal return earned by the company.

An example of this can be seen from one of Certified Valuation Analyst Anderson’s past cases.  This situation involved the divorce of a specialist physician who had a reputation as being one of the top doctors in his field on the East Coast.  As a result, he was sought out by patients up and down the East Coast – a far greater geographic area than most of the practice served.  Because of the larger than normal number of patients that visited the practice to see him and because he performed more expensive and complex procedures than most of the other doctors in his practice, he generated considerably more income for the practice than any of the other doctors.

In order to calculate the personal goodwill of this physician, Anderson – principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley – obtained compensation and productivity data for the “typical” physician in his specialty with the same level of education and experience.  He compared this to the husband’s actual earnings and productivity.

Anderson then capitalized the stream of income arising from differences in revenue generated minus the differences in compensation.  This capitalized amount was the personal goodwill associated with the husband.  He subtracted the personal goodwill from the value of the practice in order to determine the business value of the practice.  It was this value that was used in the marital dissolution proceeding.  In this case, the personal goodwill of the physician represented almost half of the value of the entire practice.

In another case, involving a physician who did not possess such a significant reputation or expertise, Anderson calculated the amount for personal goodwill was less than 5 percent of the value of the entire practice.

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.