Most asset misappropriation frauds are focused on cash, and maybe inventory. However, frauds involving fixed assets, primarily equipment and furniture, are also prevalent. Accordingly, fraud deterrence and prevention programs also should address protecting fixed assets from fraud, said forensic accounting expert David Anderson of David Anderson & Associates, Certified Fraud Examiner in Philadelphia.
Some of the more common fixed asset frauds, according to Anderson, a forensic accounting expert in Philadelphia, are:
- Replacement of a fixed asset with another of lesser value: In his role as a forensic accountant, Anderson encountered such a situation when he was asked to analyze the fixed assets at the regional offices of a mid-sized public corporation. Among the fixed assets were paintings, prints and sculptures with a total value of almost $1 million. However, Anderson was unable to locate a single item on the company’s list of artwork. Instead, he found a number of paintings, prints and sculptures of lesser or even dubious value. A couple of the paintings appeared to have been purchased at Walmart or K-mart. Anderson’s subsequent investigation revealed that employees would take home artwork that they wanted, and replace the artwork with something that they either had at home or purchased from a store. Management was focused on selling their products and, therefore had turned a blind eye to the substitutions. Because no one was tracking these items, management was unable to identify who took most of the artwork. In the end, this fraud cost the company over $700,000.
- Purchases of fixed assets of lesser value or quality than was authorized and paid for: In one scheme, David Anderson – a forensic accounting expert in Philadelphia – learned that the manager of a new office had been given a budget of $300,000 to furnish the office (furniture, fixtures, and office equipment). The manager submitted purchase orders totaling almost $300,000 for these items. However, the manager schemed with an office furnishings vendor to actually spend less than $200,000 by substituting lesser quality items. The manager than split the over $100,000 in extra payments with the office furnishings vendor. This scheme was only discovered when the office experienced a fire, and an insurance claim was submitted. However, the insurance company investigator had the furniture portion of the claim significantly reduced because none of the furniture matched what the company showed in its records.
- False reports of theft or loss of fixed assets: These schemes typically involve smartphones, tablets, laptops or other “mobile” items. Certified Fraud Examiner in Philadelphia David Anderson was asked by a local government agency to assist it with establishing a fixed asset tracking system – one of the recommended fraud prevention measures. The security department of the agency had a number of expensive walkie-talkie/radios in its inventory. In tracking the serial numbers of the walkie-talkie/radios, more than 25 such items that were found to have been reported lost or stolen in the past were actually still in the inventory. However, the corresponding replacement items could not be located. Subsequent investigation revealed that a number of security employees over a multi-year period had engaged in the scheme of reporting the walkie-talkie/radios as lost or stolen (when they really weren’t), and had conspired with a purchasing department employee to pocket the funds for the purchase of replacement walkie/talkie radios.
- Frauds involving “retired” assets: These schemes involve assets that have been taken out of service (no longer actively used in the business). Such assets are typically stored in an out-of-the-way location, and occasionally are sold to used equipment/furniture dealers or even to junk dealers. Companies have usually fully depreciated these assets, and tend to forget about them once they are retired. But, they still have some value to the company. In one instance, a client company was hit by a scheme that originated in the IT department. IT had a replacement program in effect. Any computer that was more than three years old and any printer, copier, scanner, etc. that was more than five years old was replaced. The old equipment was stored in a corner of the warehouse, and was essentially ignored by the company. However, when the company sold the warehouse and relocated, it discovered that only a small portion of the retired IT equipment was present. An investigation by the Philadelphia forensic accounting firm of David Anderson & Associates revealed that an IT employee routinely sold newly retired computers and other office equipment to used equipment dealers, and pocketed the proceeds. The employee subsequently admitted to having been paid over $100,000 over a five-year period.
So, what fraud deterrence and prevention measures can a company put in place to avoid these frauds? Certified Fraud Examiner David Anderson of the Philadelphia forensic accounting firm of David Anderson & Associates has the following recommendations for fraud deterrence and prevention measures a company can put in place to avoid these problems: The first is to establish a fixed asset tracking program. Under this program, a scannable bar code label is attached to each fixed asset. The fixed asset information from purchase orders/invoices is then entered in a database. All asset additions and dispositions are also entered into the database. Finally, the company establishes a periodic physical inventory (such as inventorying 1/12 of the inventory each month) that allows the inventory team to scan the bar code label of each selected item. If the bar code label is missing (assuming that the company has used a reliable method of affixing the labels) or if the bar code scan does not match the item in the database, the company is able to investigate immediately. “Retired” assets should also be tracked until disposed of. This type of program will prevent or significantly reduce the likelihood of the schemes above. In addition, the company should install tip lines, make sure that employees are aware of the company’s anti-fraud stance, and provide educational programs for management and employees which teach fraud deterrence prevention.
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 firstname.lastname@example.org.
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.