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Forensic Accounting Experts Help with Business Valuation in Divorces

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

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

There’s nothing simple about a divorce. Even a seemingly easy marriage dissolution can have its complications.

When you factor in a situation where one spouse owns a business that must be valued and divided, the assistance of a forensic accounting expert who has served as a marital dissolution accountant and business valuation expert can unravel the complexities and help the parties reach a fair valuation of the business.

“The issues a forensic accountant will consider in these matters are not those people normally think about or are generally understood,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley.  “A forensic accountant must take the spouses – and their attorneys — through an educational process to show them how a forensic accounting expert addresses valuation issues in a divorce.”

There are four key aspects of business valuation that quite often arise in marital dissolutions, said Anderson, a Certified Valuation Analyst who also has served as a marital dissolution accountant in Philadelphia and the Delaware Valley. These are:

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

This article, the second of a four-part series, will explore the second of these issues — personal goodwill and its impact on the business being valued.

Personal goodwill is the portion of a business’s value and income that is attributable to the personal reputation, expertise, or contacts of one or more of the business’s owners, according to Anderson, a divorce accountant and business valuation expert whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes marital dissolution and business valuation services in Philadelphia.  This issue comes into play mostly in professional services businesses, such as physicians, attorneys, accountants, engineers, etc.

In Pennsylvania, a divorce accountant must disregard personal goodwill when valuing a business because it is assumed the in-spouse’s reputation, expertise or contacts would not accompany the business if it was sold.

Anderson, a Certified Valuation Analyst who is a business valuation expert and marital dissolution accountant in Philadelphia, recalled a case in which he was asked to value an anesthesiology practice whose senior member (the in-spouse) had a stellar reputation on the east coast.

During his investigation, Anderson discovered the practice regularly received referrals from other doctors because of the in-spouse’s widespread, excellent reputation.  Further Anderson found the business that came from the referrals represented a significant percentage of the practice’s revenues.  As a result, Anderson a forensic accounting expert in Philadelphia and the Delaware Valley, reduced the value of the practice to reflect that the personal goodwill of this senior member was responsible for a large percentage of revenues.

“The out-spouse clearly expected a higher value would be placed on the business,” said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “But so much of the practice’s business came from the anesthesiologists’ highly regarded reputation.  If the in-spouse left the practice or it was sold, the business would have dropped off precipitously, meaning the true value or the business was far less than it seemed.”

The next segment of this four-part series on valuation issues a forensic accountant must consider in divorce cases will be an examination of the presence and impact of unreported cash sales.

If you require 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.

Forensic Accounting Experts Ease Divorce Valuation Issues

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

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

When determining the value of a business is at the heart of divorce settlement calculations, coming to an agreement that is equitable for both parties can be a challenging task. One of the best ways to help the parties reach a fair valuation number is to consult a forensic accounting expert who also has served as a marital dissolution accountant and is a business valuation expert.

“It’s a rare case when the parties in a divorce fully understand the issues that must be considered by a forensic accountant in these matters,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley.  “The process often begins as an educational one in which a forensic accountant must explain to the spouses and their attorneys how a forensic accounting expert addresses valuation issues in a divorce.”

Anderson, a Certified Valuation Analyst who has served for many years as a marital dissolution accountant in Philadelphia and the Delaware Valley, said there are four key business valuation issues that repeatedly arise in marital dissolutions:

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

This article, the beginning of a four-part series, will explore the first of these issues — the cost of the in-spouse’s services to the business being valued.

Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, said he once was asked to value a one-person ophthalmology practice in which the in-spouse earned about $200,000 a year.  The out-spouse and his attorney believed the business would be valued at more than $1 million, but Anderson assigned a value of less than $150,000.

“The out-spouse and his attorney did not consider the cost of the in-spouse’s services to the practice,” said Anderson, a divorce accountant and business valuation expert whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes marital dissolution and business valuation services in Philadelphia.  “If a hypothetical buyer of the practice was not an ophthalmologist, the buyer would have to hire an ophthalmologist at a cost of $180,000 a year for a person with the same level of education and experience as the in-spouse.  Hence, the annual net income of the business available to the buyer would be only about $20,000, not $200,000.

“If another ophthalmologist purchased the practice, that person would know he or she could earn $180,000 working for another practice without having to invest money in a practice.  Why would anyone spend more than $1 million to earn only an extra $20,000 per year?  They wouldn’t,” said Anderson, a business valuation expert and marital dissolution accountant in Philadelphia.  “The practice simply was not worth as much as the out-spouse thought.”

Of course, a valuation can go either way.  Anderson, who also is a Certified Valuation Analyst, once was asked to value a retail furniture business whose CEO (the in-spouse) had an annual salary of more than $1 million and whose business had annual net income of less than $50,000.  The in-spouse expected the business to be valued at about $300,000 and was shocked when Anderson valued it at approximately $3 million.

“At the time, a hypothetical buyer could hire a CEO for about $350,000 per year, not the $1 million-plus salary the in-spouse was taking,” said Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.  “The $650,000-per-year salary differential had to be added to the business’s bottom line, thereby resulting in a higher-than expected valuation.  These are the types of issues a divorce accountant has to consider when determining the fair value.”

Part Two in this four-part series will explore the valuation issues a forensic accountant must consider in divorce cases where an examination of personal goodwill and its impact on the business being valued is necessary.

If you need 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.

Are Banks Unwittingly Facilitating Small Business Fraud?

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley. 

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

As mentioned in recent blogs, a trusted employee is one who – by virtue of such factors as longevity with the company, past demonstrations of loyalty and/or hard work, and social and/or familial relationships with management – has earned a level of trust and faces less oversight than other employees.  Add to this the fact that many small businesses are unable to install the internal controls related to separation of duties – primarily because they lack enough knowledgeable and experienced employees to allow for separation of incompatible duties – and you can end up with an employee who can write checks, enter the paid check information into the company’s accounting system, and sometimes even perform bank account reconciliations.  Because the employee is trusted, management is less likely to closely monitor the employee’s activities.  These kinds of situations could lead to the trusted employee misappropriating funds which, because of the reduced likelihood of detection, could result in significant losses.

In the past, I recommended the owner or CEO (not the Controller or CFO because of the separation of duties and oversight issues) have the bank send the monthly bank statements directly to him/her so that he/she can review the paid checks (or copies) to identify any unusual payees (either in name, frequency of payment, or in amounts paid).  Beginning about ten years ago, many banks stopped returning the paid, cancelled checks with the bank statements as a means of reducing operating costs.  Instead, they provided reduced size copies of the front of each paid, cancelled check.

However, in the last few years, many banks also have stopped providing these check copies.  Instead, the banks give companies the means to access a copy of each paid check online.  Accessing each paid check online can be quite time consuming, especially when a company issues hundreds of checks each month.  As a result, it has become impractical for the owner or CEO to conduct this review.  In one instance of fraudulent activity by a trusted employee, the owner turned to his trusted employee to conduct the review, unaware that the trusted employee was the one writing the improper checks.

Given that banks have not been providing paid, cancelled checks or copies, here is a new set of recommendations I’m suggesting to the small business owner:

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

Additionally, I recommend the small business owner:

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

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

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

About David Anderson & Associates

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

Don’t Keep This to Yourself: Trade Secrets Have Value

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley. 

Business valuation experts often are asked to value intangible assets of companies.  A major component of such assets is intellectual property, which is defined by the World Intellectual Property Organization as creations of the mind such as inventions; literary and artistic works; designs; and symbols, names and images used in commerce.  The four most well-known categories of intellectual property are:  patents, copyrights, trademarks, and trade secrets.  This blog post will focus on valuing trade secrets.

To obtain a better understanding of trade secrets, I spoke with Charles S. Marion, Esq., an intellectual property and business litigation partner with the Philadelphia law firm of Pepper Hamilton, LLP.  He defined a trade secret as information that derives economic value for not being generally known or readily accessible by others, and for which the owner has taken steps to protect its secrecy.  He cited the formula for Coca-Cola and the recipe for Kentucky Fried Chicken as two of the more well-known examples of trade secrets.

When I asked why someone would not just patent the intellectual property instead of keeping it a trade secret, Marion provided several reasons, most notably:

  • The limited patent monopoly (up to 20 years from the time an application is filed);
  • The expense of applying for the patent in the United States;
  • The expense of applying for the patent in other countries throughout the world; and that
  • The patent could provide enough detail to allow a competitor to reverse engineer it and design an alternative that would allow the competitor to avoid infringing on the patent.
    • For example, Marion said a trade secret can exist universally and, if protected properly, can last forever – again citing the Coca-Cola formula.

Marion said that until May 2016, trade secrets generally were protected under state laws (usually under the Uniform Trade Secrets Act).  However, about a year ago, the Defend Trade Secrets Act (“DTSA”) was signed into law creating a federal cause of action for misappropriation of trade secrets.  The DTSA allows for injunctive relief, monetary damages, and civil seizure of property as potential remedies for companies from whom trade secrets have been misappropriated. The DTSA also provides for whistleblower protection.

Marion said about 20 states have adopted the doctrine of inevitable disclosure, under which a former employer may be able to prevent its former employee from working in certain areas for its new employer (and the former employer’s competitor) where doing so would inevitably result in the former employee using or disclosing trade secrets and other confidential and proprietary information or know how the former employee learned and used while working for the former employer. Marion said the act most often applies to software designers and engineers who leave one company for another.

Marion further stated that if a company wishes to file trade secret litigation to prove its case, it will eventually be required to disclose its trade secret, subject to differing levels of confidentiality (such as attorney’s eyes only and/or subject to a protective court order).

In valuing a trade secret, the business valuation expert must be able to identify each specific trade secret as a separate asset.  The value of the trade secret is equal to the economic benefit the owner receives from the ownership or use of the trade secret.  This could include:

  • Sales or market share related to the trade secret;
  • Price premiums or cost savings related to the trade secret;
  • Licensing fees received; and/or
  • Royalties avoided from having to be licensed from others.

With a trade secret, these economic benefits can be enjoyed for as long as the trade secret can be maintained and if it remains relevant (for example, if a dial telephone contained a trade secret, its economic benefit would have been lost as dial telephones were phased out).

The business valuation expert may work closely with an intellectual property attorney such as Marion to answer such questions as:

  • Does the property qualify as a trade secret under either state or federal law?
  • Is the information not generally known?
  • Has the owner taken reasonable steps to keep it a secret, including:
    • using encryption and password protection on electronic files;
    • using confidentiality and non-competition agreements; and
    • taking other necessary steps to protect the trade secret after a knowledgeable employee leaves the company?

As with any valuation, the business valuation expert uses the same three valuation approaches:  income, asset and market:

  • Under the income approach, the expert must be able to quantify the specific economic benefits derived, such as increased revenue, increased profits and/or reduced costs as well as the expected time frame over which the economic benefits are derived.
  • Under the asset approach, the expert must be able to quantify either the historical costs of the trade secret or what it would cost to recreate the trade secret as of the valuation date.
  • Under the market approach, the expert must be able to identify market transactions for comparable trade secrets.

For trade secrets, the market approach is usually the most difficult method to use, as public information is usually not available regarding the sale of a trade secret and, even if such information is available, the trade secret may not be directly comparable to the trade secret being valued (for example, if the public information is about a formula/recipe for a salad dressing, how closely comparable is this to either Coca-Cola’s formula or Kentucky Fried Chicken’s recipe?).

Additionally, the asset approach will usually yield the lowest value because it does not consider the ongoing economic benefits of the trade secret.  As a result, most trade secret valuations rely upon the income approach as their most likely basis for valuation.  Also, as discussed above, the business valuation expert must determine a reasonable time frame over which the trade secret’s economic benefits are expected.  This can be especially difficult for technology trade secrets due to the increased pace of technological innovation.

If you require the services of a Certified Valuation Analyst 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.

Not All Financial Statements Are “Associated” With Reliability

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley. 

When you learn a company is “associated” with an accounting firm, don’t automatically assume the financial statements that are issued as part of that relationship are necessarily reliable, are fairly presented, or have been rigorously examined, 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.

“Simply being ‘associated’ with an Accounting Firm does not mean the financial statement has undergone a thorough examination for reliability,” Anderson said. “Investors, litigants and other interested parties need to understand the true implications of having Accounting Firms ‘associated’ with financial statements.”

Anderson, a forensic accountant in Philadelphia who also is a Certified Fraud Examiner in Philadelphia, said there are four primary ways in which an Accounting Firm is “associated” with financial statements:

  • when the financial statements are in a binder with the name of the accounting firm on it;
  • when the accounting firm performs a compilation;
  • when the accounting firm performs a review; and
  • when the accounting firm performs an audit.

Binders

Anderson said Accounting Firms provide clients with some form of financial statements in a binder usually when the Accounting Firm is performing a special analysis or projection for internal use only. These types of financial statements usually do not reflect actual financial performance, and are referred to as “pro-forma,” he said.

Financial statements found in a binder usually are stamped with the words “Confidential,” “Unaudited” and/or “For Internal Use Only,” Anderson noted. Accounting Firms usually do not verify or authenticate the underlying information used in “pro-forma” financial statements, said Anderson, a forensic accounting expert in Philadelphia. Furthermore, he added, the Accounting Firm generally does not issue a letter to accompany these financial statements (other than perhaps a transmittal letter).

Compilations

Compilations performed by an Accounting Firm and accompanied by a Compilation letter are limited to presenting information that is the representation of management, Anderson explained. Substantially all disclosures and financial statement notes are usually omitted from a Compilation, he said.

The Accounting Firm does not audit or review the statements, does not express any opinion about presentation of the information in the statements and provides no assurance about their reliability, according to Anderson, a forensic accountant in Philadelphia whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Reviews

Reviews, accompanied by corresponding Review letters, consist primarily of inquiries of company personnel and analysis of the financial statements, including ratio analysis, explained Anderson, a forensic accounting expert in Philadelphia who also is a Certified Fraud Examiner in Philadelphia.

The Accounting Firm does not perform any audit procedures and does not express an opinion about presentation of the information contained in the financial statements, he said. However, the Accounting Firm does provide limited assurance that the financial statements do not require any material modification, Anderson noted.

Audits

Audits performed by an Accounting Firm, which also produces an accompanying Audit letter, are detailed examinations of financial statements intended to provide assurance that the financial statements are free of material misstatement, Anderson explained. The Accounting Firm expresses an opinion that the financial statements present fairly, in all material respects, the financial position of the company, he said.

However, Anderson cautioned, an Audit does not guarantee there is no fraud. He said fraud may be present but not identified by the Accounting Firm if: (1) there is management collusion (such as with Enron, Tyco International, WorldCom, etc.); (2) there is management override of internal controls (such as with Adelphia Communications and HealthSouth Corporation); (3) the Accounting Firm fails to adequately plan and execute the audit (such as with ZZZZBest); or (4) the Accounting Firm or its affiliates earn significant non-audit fees from the company (such as with Enron and Bernard L Madoff Investment Securities, LLC).

An Accounting Firm also may perform an Audit and issue an Audit letter that questions the ability of the company to continue in business, said Anderson, a forensic accountant in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. This type of Audit letter is known as a “Going Concern” audit letter, according to Anderson.

“When considering financial statements with which an Accounting Firm is “associated, it is critically important to carefully read any accompanying letter from the Accounting Firm,” Anderson said. “These letters provide insight regarding the degree to which the Accounting Firm has performed assurance services, if any.”

Anderson, who has conducted numerous fraud investigations, also recommends the recipient carefully analyze the financial statements themselves, along with notes to financial statements and supplemental schedules, if any, to gain a more complete understanding of the statements.

If you require the services of a forensic accountant, a Certified Fraud Examiner, or any other financial expert to help with disaster planning or other 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.

Don’t Underestimate the Importance of Contingency Planning

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

Many businesses have no disaster or contingency plans in place.  Others have only disaster plans to address such natural disasters as hurricanes, tornadoes, fires, or earthquakes.  As United Airlines learned this past week, not having comprehensive crisis and contingency plans in place can cost millions of dollars in damages and lost market value (by the end of last week – Friday, April 14, United’s market value had dropped by more than $750 million).

In past blog articles, I have addressed the importance of disaster planning.  However, natural disasters are only part of the potential catastrophes that can impact on a business; such catastrophes can be just as damaging as natural disasters.

A well-prepared, up-to-date business contingency plan addresses a wide range of potential catastrophes, and can help a business avoid the significant financial and public relations damages that can result from such issues. Effective contingency planning begins with brainstorming among employees, management and stakeholders at all levels.  Such brainstorming is designed to identify all potential calamities that can affect a business.  Participants in these brainstorming sessions are asked to imagine any scenario that can adversely affect a business, including:

  • Death, disability or departure of key employees
  • Attacks by hackers and/or viruses
  • Major product failures (think Takata airbags or Chipolte food)
  • Criminal or negligent activity by employees (think Volkswagen)
  • Public scandal involving key employees
  • Theft of customers or proprietary information by former employees
  • Hostile takeover attempts
  • Major infrastructure damage or failure (think the recent I-85 fire and collapse in Atlanta)
  • Major changes in government or regulatory policy (think the Philadelphia soda tax)
  • Major changes in technology (think dial telephones or taxicabs)
  • Loss of a major lawsuit
  • Death or injury of a customer or customers
  • Workplace violence

In the initial brainstorming, no scenario should be immediately rejected to keep a positive focus on the process. This means initially accepting such bizarre scenarios as alien invasions, asteroids hitting the Earth, nuclear war, zombie apocalypse, etc. which can be later culled from the planning process.

Following the brainstorming, teams of relevant employees, management and stakeholders should be created to address, validate responses to, and test plans for each of the scenarios.   Contingency plans are rolled out and all relevant parties are educated as to their roles in such plans.

An effective contingency plan, of course, is a living document.  Instead of merely placing such plans on the shelf to be later “dusted off” when a catastrophe occurs, companies need to regularly review and update the plans for such events as new technology, new government administrations, significant changes in political control of legislative bodies, acquisitions of other businesses, new products and new markets, etc.

While there is a material investment in time and cost to develop such contingency plans, the potential return on investment from savings can be significant.

Imagine the costs that could have been avoided if United Airlines had invested in addressing such an incident as occurred this past week.

If you require the services of a forensic accountant, a Certified Fraud Examiner, or any other financial expert to help with disaster planning or other 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.

Let Potential Fraudsters Know You Have an Eye on Them

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

It might not exactly be Big Brother, but letting your employees know you are watching them and have fraud deterrence measures in place is one of the most effective ways to thwart illicit activities.

“Today, people are used to being watched,” 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.  “Cameras are everywhere — at red lights, private residences, inside stores, and outside in parking lots too. And everyone’s got a camera on their cell phone. It’s no wonder criminal activity is down in areas where people are — or think they are — under surveillance.  The same is true regarding fraud.”

Anderson doesn’t advocate actual video surveillance of employees, but rather that organizations convey clearly to employees that they constantly are watching for fraudulent activities. By implementing several relatively inexpensive steps, Anderson said organizations can let employees know that fraud deterrence is a critical organizational goal.

The first step is to develop and publish a code of conduct and an anti-fraud policy that lets employees know:

  • Fraud is unacceptable and will not be tolerated;
  • Every employee is responsible for being alert to the possibility of fraud;
  • It is the duty of every employee to not turn a blind eye to fraud; and
  • Management will be actively instituting one or more anti-fraud measures, including surprise audits, regular management review, mandatory job rotation, mandatory vacations, fraud training for employees and managers, and (possibly) the institution of a fraud hotline.

The next key step is to follow through on those anti-fraud measures.

“Your fraud deterrence program isn’t going to work if you make a point about being on the lookout for fraud but then do nothing to indicate you are actually watching,” Anderson said.  “Besides, you don’t want to wait until you get to the point where you have to hire a Certified Fraud Examiner to conduct a fraud investigation.  You want to prevent fraud from happening.  If employees think you are watching, they might not be inclined to steal in the first place.”

Carrying out anti-fraud measures does not need to be expensive.  Anderson suggests a few well-timed surprise audits – of petty cash, bank accounts and inventory – sprinkled throughout the year.

“I particularly like a surprise count of petty cash at 4:00 p.m. on a Friday or the day before a holiday because there is a greater chance of petty cash being taken for use in those instances,” said Anderson, a Certified Fraud Examiner who encourages companies, non-profits and government offices to enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

Anderson notes that inventory need not be counted in total, but certain items that are high value, have a high turnover, or are prone to fraud could be subject to a surprise count once a month.  Annual fraud training for employees and managers also is not financially burdensome – nor is a fraud hotline, he said.

“These measures let your employees know that your organization is serious about fraud deterrence and that employees are, in effect, under surveillance for illicit activities,” Anderson said.  “Enacting these measures and then carrying them out will greatly reduce 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.

Petty Cash Fraud Can Be Anything but Insignificant

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

When it comes to the relatively small amount of money that’s kept in your company or organization petty cash account, you could be facing large losses unless there are fraud deterrence measures in place.

It might surprise you to learn that fraud investigations have uncovered cases of petty cash fraud that resulted in major losses, according to forensic accountant David Andersons.  It is, however, not the amount of money that is available in petty cash at any moment, but the cumulative amount that is in there over weeks, months, or years.

“Nearly every business keeps an amount of cash on hand to pay unexpected cash expenses, reimburse employees for small expenditures or provide cash advances to employees who will be traveling,” said David Anderson, a 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.

“I have seen petty cash funds as low as $50 and as high as $10,000,” he said.  “While this might not seem like a lot, consider that companies with multiple locations usually have petty cash at each location.  In addition, the petty cash fund can be replenished as often as several times a week.  This means a company with a single petty cash fund of $1,000 that is replenished twice a week could have petty cash expenditures of as much as $100,000 per year.”

Anderson, a forensic accountant who also is a Certified Fraud Examiner in Philadelphia, notes that management usually looks at only the petty cash available at a given time (for example, $1,000) and not the amount of cash passing through the petty cash fund over time.  As a result, he said, the amount of cash at risk is considered insignificant and the petty cash fund is usually maintained by a single “trusted” employee who is responsible for disbursing the funds, obtaining receipts for expenditures and requesting that the petty cash fund be replenished when needed.

“There seldom is any oversight or controls over the employee’s management of the petty cash fund, and therein lies the potential for fraud,” said Anderson, a forensic accounting expert in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

The petty cash fund can be the starting point for an employee to commit fraud, Anderson said.  It often starts off small as the employee simply “borrows” a few dollars for the weekend or until the next pay date.  Initially, the employee may even leave an “IOU” note in the petty cash box or a check made payable to the company, and the employee usually returns the “borrowed” money as soon as possible, he explained.

But as time goes on and the employee realizes no one is watching, the dollar amounts “borrowed” get larger and the time it takes to return the money gets longer until the employee eventually stops returning the money at all, according to Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations.  When the amount of “borrowed” money approaches the petty cash fund limit, he said, the employee will manufacture reimbursable expenses so that the petty cash fund can be replenished.

“I recall one fraud investigation in which I discovered that the perpetrator had submitted multiple photocopies of the same receipt in the petty cash replenishment requests,” said Anderson, a Certified Fraud Examiner in Philadelphia.  “In another case, I found handwritten “receipts” from service vendors for cash payments.  Handwriting analysis showed that the signatures of the individuals who signed each receipt call came from the same person – the perpetrator.”

So, how do you combat petty cash fraud?  There are several fraud deterrence measures that companies can implement to lessen the chance that petty cash fraud will occur in their business, explained Anderson, a forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

First, he said, management should conduct irregular “surprise” checks of the petty cash fund at least once a month during the year.  These mini audits should occur at different times and different intervals.  The day before pay day, late on a Friday and the day before a holiday are all times when the trusted employee might not expect anyone to be looking, Anderson said.  In addition, check should be conducted two weeks apart, four weeks apart, or perhaps two checks close together.  It is important that checks be conducted randomly to prevent the trusted employee from anticipating when they will occur, he said.

Next, someone at a higher level than the trusted employee should randomly and irregularly scrutinize petty cash replenishment requests, including comparing the latest request with several earlier requests, said Anderson, a forensic accounting expert in Philadelphia.

These two measures will go a long way toward ensuring that petty cash fraud is not occurring at your company, and that the petty cash employee knows that you are watching even this seemingly insignificant fund.

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.

Cut Down on Expense Reimbursement Fraud with These Forensic Accounting Tips

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

One of the most insidious types of fraud affecting small and large corporations and organizations is expense reimbursement fraud. While, for the most part, the actual amount of money wrongfully gained by each individual fraudster is relatively low, if many of your workers or volunteers are cheating on their reports, your bottom line could be taking a significant hit.

“Many employees don’t see padding their expense reports as being immoral or illegal,” 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. “They think it is their right, just as much as a paid vacation or a safe work environment.”

“Some see it as a common practice their employer overlooks because the dollar amount stolen is insignificant in the greater scope of things,” said Anderson, a Certified Fraud Examiner.  “Still others see the money they pocket as an unauthorized bonus for putting up with the hassles of business travel.  Employees have all kinds of justifications for padding their expenses, but the bottom line is that when you add it up, companies are dealt a hard blow from expense reimbursement fraud.”

The following types of expense reimbursement schemes have been identified by forensic accounting experts as those most commonly used by employees.  Following each scheme are recommendations companies can use to combat the fraud.

Air Travel

The Scheme:  Some companies allow employees to travel in first or business class or to book coach tickets that allow flight plan changes without incurring an additional change fee.  Fraud occurs when an employee buys a ticket with a personal credit card, submits the cost for reimbursement and then returns the ticket to the airline for reimbursement and replaces it with less expensive travel, according to Anderson, a forensic accountant who also is a Certified Fraud Examiner.  The employee may fly coach instead of first or business class; replace a non-change fee ticket with a less expensive ticket that carries a change fee; use frequent flyer miles; or even travel by train or car instead of plane.

Fraud Deterrence Measures:  Companies should book tickets and pay for them on a company credit card so if a ticket is returned, funds are applied to the company card instead of the employee’s card, Anderson said.  Companies also should require employees to submit boarding passes as documented proof of the expense.  A company manager well versed in boarding passes can verify the pass was used, he said.  And because most airlines require boarding passes be printed within 24 hours of the scheduled flight time, it is harder for employees to print a pass and then change the ticket.

Meal and Entertainment Fraud

The Scheme:  The most common fraud is for an employee to pay for meals or entertainment with cash, obtain a blank receipt from the restaurant/venue and then enter a higher amount on the blank receipt, said Anderson, a forensic accounting expert.  Another scheme involves a group of people dining together and one employee charging the entire bill to a credit card while everyone else pays cash.  The employee pockets the cash but submits the entire bill for reimbursement.  A third method is for an employee to claim a personal meal as a business expense.  Another scheme is for the employee to submit a phony restaurant receipt (available at websites such as www.salesreceiptstore.com) for an amount greater than what the employee spent.

Fraud Deterrence Measures:  These schemes are difficult to detect and validate because it is impossible to know where employees ate or what they paid, Anderson said.  But companies can require employees to use company credit cards for all charges, thereby eliminating the need to reimburse them for meal and entertainment expenses.  Companies must scrutinize credit card charges to make sure employees do not charge personal expenses and must require employees to identify the attendees and business purpose of each charge.  One other alternative that limits a company’s total meal cost is to use the per diem tables issued by the federal government and reimburse employees at the per diem rate regardless of what the actual expenses were, Anderson said.

Taxi, Parking and Tolls Fraud

The Scheme:  An employee reports having paid cash for a taxi, parking or bridge/highway tolls and failing to obtain a receipt.  Many companies allow claims up to $20 or $25 for each of these types of expenditures without a receipt.

Fraud Deterrence Measures:  The two most effective means of combating this fraud is to require use of a company credit card or to deny reimbursement without the required receipt for these expenses.  Many taxis, parking venues and toll booths produce receipts electronically now, so it is difficult for employees to claim that a receipt was not available.

The Copy of a Receipt Fraud

The Scheme:  An employee submits a copy of a receipt, keeping the original receipt or another copy of it to be submitted for additional reimbursement later.

Fraud Deterrence Measures:  Companies should require employees to submit original receipts and deny reimbursement for photocopies.

“Some of these fraud schemes are actually easy to prevent,” said Anderson, a forensic accountant who recommends that every organization enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  “But many companies think the loss is so low that it is not worth the effort to combat it.  If they added up the ‘minor’ pilfering for each employee for the full year or multiple years, it would likely no longer be a ‘minor’ loss.”

When was the last time your expense reimbursement procedures were examined by a forensic accountant?  A forensic accounting expert from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley can recommend fraud deterrence measures that will strengthen your expense reimbursement measures and help prevent losses, 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.

Knowing “The Fraud Triangle” Can Keep Employee Fraud at Bay

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

While there are many facets to fraud deterrence, there is a seemingly simple approach to this unquestionably complex issue that can help keep fraud out of your business or organization: Understanding “The Fraud Triangle” and using it to your advantage.

“When forensic accountants mention the ‘The Fraud Triangle,’ they are referring to the three elements that are necessary for fraud to occur — pressure, opportunity and rationalization,” says David Anderson, a Certified Fraud Examiner 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.

“If those three elements are not in place, then fraud cannot occur,” he continued. “It then goes to reason that if successfully eliminate one of the elements, fraud will not be a problem for you.  It’s really a rather straightforward, proactive approach to fraud deterrence.”

Pressure, the first element of The Fraud Triangle, is the motivation or incentive to commit fraud, Anderson said.  Pressure often comes from one’s personal life, such as the expensive illness of a loved one, a spouse’s unemployment, a gambling or drug problem, the practice of living beyond one’s means, or other situations that carry a heavy financial burden.  In these cases, Anderson said, an employee may feel extreme pressure to find more money and that can open the door to fraud.

The second element of The Fraud Triangle, opportunity, indicates the ability of the employee to carry out the fraud through the misappropriation of cash or other company assets, Anderson explained.  Opportunity arises when a company lacks critical anti-fraud controls, such as separation of duties, dual signature requirements for checks over a certain amount, management review of bank accounts and financial statements, and other necessary controls.  Opportunity also can occur when excessive trust is placed in employees with the ability to override or circumvent anti-fraud controls.

The third element of The Fraud Triangle, rationalization, refers to an employee’s justification for committing fraud, Anderson said.  It can start as an employee’s simple rationalization the theft is just a temporary loan that will be paid back before anyone ever finds out about it.  That type of thinking, however, can quickly mushroom into grander rationalizations, such as “I’m underpaid and just getting my due.” or “My boss is stealing; why can’t I?” or “They’re making a lot of money and won’t even miss what I have taken.”

“If you’ve got all three elements,” Anderson said, “you’ve got a potential fraud brewing. Remove one of the elements and the potential for fraud evaporates.”

Anderson recommends employers get to know their employees better so they are more aware of any high-pressure financial situations the workers may be dealing with in their private lives.  Prevent opportunity, he said, by enacting comprehensive anti-fraud controls and establishing a strong fraud deterrence program, he said.  This sends a clear message, as a part of your fraud deterrence program, there is absolutely no acceptable rationalization for committing fraud.

If you have reason to believe fraudulent activity has infiltrated your business — or if you believe “The Fraud Triangle” exists with any of your employees — Anderson recommends you act immediately by hiring a Certified Fraud Examiner from a firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  A comprehensive fraud investigation will determine the extent of your losses, if any, and an experienced Certified Fraud Examiner will identify weak spots in your internal anti-fraud controls and set up a strong fraud deterrence program.

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.

Detailed Financial Data Plays Critical Role in Litigation Support, Expert Witness Testimony

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, fraud deterrence, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

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

“On some occasions, I have been brought on board after the legal team requested and received insufficient financial data from the opposition.,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.

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

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

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

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

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

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

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

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

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

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

If you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for litigation support or expert witness testimony, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support, economic damage analysis, business consulting and outsourced CFO services. Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst. Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Specialized Software Helps Forensic Accountants Reduce Litigation Costs

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

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

The use of specialized data-mining software in complex litigation support and forensic accounting engagements can yield significant cost and time savings. In most forensic accounting engagements, time is of the essence and, when litigation is involved, deadlines for discovery or accepting proposed settlement offers can become a major issue.

If it normally takes several weeks to analyze large amounts of data, and the analysis produces no meaningful results, the use of data-mining software can be especially valuable in affording time to conduct alternate analyses.

David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley, had a recent engagement that required only one person working for three days as opposed to a team of two people working for several weeks to perform the analyses and obtain the results.

In this engagement, a multi-location retailer believed its controller may have been defrauding the company through a variety of means. It was suspected the controller was purchasing goods from the company without payment and making fraudulent payments to one or more of her own businesses through accounts payable.

The controller had been married multiple times and had been known by eight different names including alternate spellings. In addition, she had lived at six different addresses during her tenure as controller.

The investigator from Anderson’s office obtained an electronic copy of all company sales and accounts receivable transactions for the 10 years that the controller had been with the company. This consisted of more than 1 million transactions in more than 250,000 customer accounts.

Using specialized data-mining software, the investigator analyzed customer accounts and transactions for matches with any of the controller’s names or known addresses. The write-offs of any balances in such customer accounts also were reviewed.

This showed the controller had purchased goods through eight different customer accounts; a former spouse had purchased goods through two different customer accounts; and a former live-in boyfriend had purchased goods through yet two other customer accounts.

During further research of nonpayment account reductions in balance, it was discovered that, on 13 different occasions the controller had written and processed either credit memos or write-offs to these accounts. Each of these nonpayment account reductions was determined to be improper and had been processed without the proper approvals.

In addition, by subjecting the company’s vendor files to this same data-mining software, the billing and payment addresses of the company’s 1,200 vendors were compared with the known addresses of the controller. This revealed that payments had been made over several years to a consulting company with the same address as one of the controller’s known addresses.

As demonstrated by this engagement, the benefits of using specialized data-mining software in complex litigation support and forensic accounting engagements can be substantial and should be seriously considered in such cases for cost and time savings.

If you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for detailed analysis, litigation support, or any other reason, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support services, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.  Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.

Keeping You Up to Date on The Top Tax Scams

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

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

Here, once again, is the annual list released by the Internal Revenue Service of the top tax scams it has come across this past year. Please take a few minutes to read though them, and to share them with your staff, so you don’t fall prey to one of them:

  • Fake e-mails and/or tax websites: Also known as phishing, this scheme usually begins with scammer sending you an e-mail that is purportedly from the IRS or your state or local revenue department. The e-mail says that there is a problem with your return which will either prevent you from receiving your expected refund or which could result in severe penalties and increased taxes.  It asks you to return certain personal information such as your Social Security number, date of birth, credit card number or bank account number.  Other e-mails ask you to go to a website (set up by the scammer) and enter the information.  What most people don’t realize is that the IRS and/or state and local revenue departments not only don’t have your email address, they wouldn’t use it in any correspondence.  The real purpose of these scams is to get your personal information for either identity theft or to take your money.
  • Phone scams: This scam, which I wrote about in a recent blog post, involves receiving a threatening phone call from a scammer posing as an IRS agent. The scammer says you’re under surveillance and you, your house, car and assets will be seized or that you could be arrested and/or deported. They tell you the only way out is to immediately pay taxes that you owe by purchasing a prepaid debit card and giving the card information to the “IRS agent”.  Here is another instance of contact that the IRS doesn’t really use.  Most IRS contact is via mail.
  • Return preparer fraud: This scam involves a tax return preparer who perpetrates a fraud to get you a large refund or one who steals your identity using the personal information you provided to him/her. In the case of the large refund, the preparer may provide fake W-2 forms or claim credits for you that you don’t deserve (for example, adding dependents to your tax return and claiming the child care credit when none is warranted).  In the case of identity theft, the preparer may properly prepare your return, but may arrange for any refund to come to him/her or may later use your personal information to open credit cards or take out loans for his or her benefit.
  • Fake charities: Scammers set up a fake charity – in many cases with a name similar to a real charity – and solicit donations. Because the charity is fake, donations are disallowed by the IRS.
  • Fake business credits: The dishonest taxpayer claims credits for excise taxes paid on fuel and/or phony research tax credits.
  • Claiming business expense deductions for personal expenses paid by a business: In this plan, the dishonest taxpayer has his or her business pay for personal expenses – such as vacations and personal travel, personal automobile expenses, personal cell phone expenses, personal meals and entertainment expenses – and then claims the expenses as valid business expense deductions.
  • Falsely padding deductions: The dishonest taxpayer claims excessive and non-existent deductions for medical expenses, taxes, interest, charitable contributions, casualty and theft losses, and/or miscellaneous deductions.

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

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, fraud deterrence, litigation support services, economic damage analysis, business consulting and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.  Anderson also has provided expert witness testimony in the Greater Philadelphia area and served as a forensic consultant on both civil and criminal cases.