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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.

Forensic Accountants Help Jurors Understand Complex Information

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, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

The task of explaining complex matters to jurors and presenting them with reams of financial information can seem nearly impossible.  In most cases, individuals serving on a jury have little to no understanding of financial analysis or statements and the job of introducing complex spreadsheets and large amounts of data can be intimidating and mind boggling.

However, it’s a key role played by forensic accountants called on to offer expert witness testimony to make even the most complicated financial data understandable.

“Presenting complex financial information in a way that allows jurors to grasp its meaning can have a significant impact in the presentation of a case,” 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.  “It is the financial data that often can make a difference between winning a case and losing a case, or between a significant jury award or a paltry one.”

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, recalled one case in which he was asked to prepare detailed financial reports for a jury and provide expert witness testimony during the trial.  Anderson said the case centered around a claim by his client (the plaintiff) that the actions of the defendants had caused the client to lose sales and, therefore, profits.  (Note:  The company name, amounts and dates in the examples below have been changed to protect client confidentiality.)

As a result of a thorough analysis of the data, Anderson’s report to the plaintiff’s counsel included the following three spreadsheets

 

 

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“Imagine yourself sitting on a jury and being confronted with these schedules,” said Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia.  “The columns of numbers would have been difficult to remember and even harder to understand.  And they would not have had the intended impact on the jury.”

Anderson did not present the schedules as they appeared in his report to the counsel, but instead reduced the information to a simplified set of color-coded charts:

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“These charts made it much easier for the jury to see the impact of the defendant’s actions and to visualize the amount of losses suffered by the plaintiff in each quarter,” said Anderson, a forensic accounting expert in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Anderson said another method of getting the point across to a jury is with the strategic use of color and the intensity of the color.  Another chart from Anderson’s expert witness testimony before the same jury was the following:

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“The dark blue color evokes a feeling of strength as opposed to the light blue color, which appears to be weaker,” explained Anderson, a forensic accountant who provides litigation support services in both civil and criminal cases. “It’s this strategic use of color that can leave the subtle impression in the jurors’ minds that my loss calculation for the plaintiff is stronger and, therefore, more reliable than the defendant’s loss calculation.”

These are just two examples of how a forensic accountant providing expert witness testimony can assist in the successful presentation of a case to a jury.

If you require litigation support services or expert witness testimony in Philadelphia, or 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 accounting consultant on both civil and criminal cases.

Calculating the Value of Forensic Accountants in Termination, Discrimination Cases

Posted by & filed under Blog Articles, Company News, Expert Witness, 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, fraud deterrence programs, and forensic accounting services in Philadelphia and the Delaware Valley.

In many wrongful termination and employment discrimination, attorneys depend on forensic accountants to calculate damages and, if necessary, provide expert witness testimony.

“Whether you are dealing with wrongful termination or employment discrimination, the methodology for calculating damages is similar,” 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.

“The key basis for calculating damages is the difference between what the plaintiff would have earned over his/her lifetime had the wrongful termination or employment discrimination not occurred and the actual and expected earnings of the plaintiff after having experienced the wrongful termination or employment discrimination,” explained Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.

Anderson outlined the steps of the damage calculation this way:

  • To begin with, the date the damages started is determined. This typically is the date that the plaintiff was allegedly wrongfully terminated or the date that the employment discrimination allegedly began.
  • Next, the wage or salary rate and associated benefits as of the beginning date of damages are identified.
  • Then, these rates and benefits are extrapolated through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • This is followed by identifying the actual wage or salary rate and associated benefits earned by the plaintiff from the beginning date of damages until the date of the damages calculation.
  • The forensic accountant must then extrapolate these rates and benefits through the normal date of retirement, or another date if there is a reasonable basis to assume that the plaintiff would have retired earlier or later than normal retirement age.
  • Finally, the difference between the two different extrapolations are calculated.

Anderson, a forensic accounting expert in Philadelphia whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, said the extrapolations rely upon several assumptions, including:

  • What the expected career path of the plaintiff would have been had the wrongful termination or employment discrimination not occurred.
  • What the actual and expected career path of the plaintiff is due to the wrongful termination or employment discrimination. Typically, the wrongfully terminated person will have a period of unemployment and is likely to have to take a lower-level position or a position paying less, etc. Similarly, the person experiencing employment discrimination will either have a harder time finding employment or, if already employed, will have a slower or lower career path.
  • What the associated wage or salary and benefits growth rates would have been for each of the above.
  • What the associated benefits would have been for each of the above. This includes insurances, pension or profit-sharing benefits, 401-K contributions and company matches, etc.
  • What mitigating steps the plaintiff has taken or is expected to take to obtain employment, and the reasonableness of those steps. For example, if the plaintiff previously was a high-powered executive, what is the plaintiff doing to find alternative employment? Also, what is a reasonable amount of time for finding a new job? If the plaintiff has found a new job, is it comparable to what would be expected?
  • The rate to use to discount the differences back to present value. Please note that under Pennsylvania law, neither inflation-based wage increases nor discounting to present value are allowed.
  • Any applicable permitted interest on past differences.

Anderson, a forensic accountant whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, including expert witness testimony in Philadelphia, said the forensic accountant/expert witness generally will rely on an associated report by a qualified employment and compensation expert regarding the expected career paths and associated salaries over time, unless the forensic accountant/expert witness also is a qualified expert in that area.

If you need help in calculating damages for wrongful termination or employment discrimination cases, or if you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for 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.

Before Selling Your Business, Learn Its True 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 programs, and forensic accounting services in Philadelphia and the Delaware Valley.

Selling a house is an important decision, one that’s not made capriciously but undertaken only after solid research and planning and consultation with industry experts.

Selling a business is a very similar process. You’ve invested time, money, and sweat equity into your company and you want top dollar when you put it on the market. As you do your research and make your plans, strongly consider working with a forensic accountant experienced in business valuation to maximize the benefits of the transaction.

“Whether selling a house or a business,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm providing business valuation services in Philadelphia and the Delaware Valley, “you must understand the value of what you are selling.  Hire a good broker, have your records and physical structure in order, and be prepared to address issues or questions from potential buyers.”

Anderson, a forensic accounting expert in Philadelphia who also is a Certified Valuation Analyst, offers these guidelines to help business owners prepare for a sale:

Determine the Worth of Your Business

To make sure your expectations are realistic, you need a reasonable idea of what your business is worth, Anderson said.

“Unfortunately, websites like Zillow that cater to home sales don’t exist for the sale of businesses and there simply aren’t other readily available sources to provide you with that information,” said Anderson, a business valuation expert in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Your best bet is to use a professional business valuator.”

Anderson said most businesses don’t need a full business valuation, but can instead use a less expensive calculation of value to get a general idea of what their business is worth.  However, Anderson, a Certified Valuation Analyst and forensic accounting expert in Philadelphia, said while a calculation of value may be less expensive, it also is less reliable than a full business valuation, and generally cannot be used in litigation.  It is a perfectly reasonable tool to use to determine the worth of a business, but, he said, the business owner needs to understand its limitations.

Find a Good Business Broker

Unless a business owner has extensive industry contacts and experience in selling businesses, Anderson said sellers should work with a business broker.

“Just as you would do with a real estate broker you hire to sell your home, you’ll want to interview the business broker. Check references and have the broker analyze your business before you agree to hire them,” said Anderson, whose company specializes in business valuation services in Philadelphia and the Delaware Valley.

Get Your Books and Records in Order

This is a crucial step in the process, Anderson said, because your business broker and any potential buyers are going to want to examine your books and records as part of their due diligence.

“Just as you would get your house ready for showings,” he said, “you need to do the same for your books and records.”

Among Anderson’s recommendations:  Collect financial statements, general ledgers and income tax returns for the past five years; secure copies of all leases, contracts and agreements; and gather organized documentation of any intangible assets or intellectual property.  Business owners also must assure their books accurately reflect the financial position of the company, he said.  This includes writing off old accounts receivable, adjusting inventory for obsolete and slow-moving items, removing retired fixed assets from the books, making sure all liabilities and debt are accurately reflected on the books, and identifying non-business and/or one-time expenses that have been recorded.

It’s often a good idea to have an independent expert, such as a forensic accountant, review your books and records to make sure you haven’t missed anything, said Anderson, a Certified Valuation Analyst and forensic accounting expert in Philadelphia.

Get Your Business Premises in Order

Beyond the books and records, Anderson said business owners should take a critical look at their actual business premises.  Among his recommendations:  Straighten up and organize; dispose of obsolete inventory, old furniture, and retired equipment; make repairs and perform maintenance so the facilities are in working order and look fresh; and be sure you have keys to all locks.

“These are the same things you would do when you are selling a house,” said Anderson, a business valuation expert in Philadelphia who specializes in providing a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Making sure your physical premises are in top shape will help you get the best possible price for your business.”

Prepare for Questions

Anticipate what buyers will ask and have the answers ready, Anderson said. “This will speed up the due diligence process and impress buyers by showing them you truly know your business,” said Anderson, an expert in business valuation services in Philadelphia.  “Be prepared to discuss employees, customers, vendors, products and services, industry trends, and your vision for the future of the business.”

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.

Forensic Accounting Strategies for Cash Flow Maximization

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 programs, and forensic accounting services in Philadelphia and the Delaware Valley. 

Many small businesses engage in an ongoing struggle to keep sufficient cash on hand to finance operations, pay debts, and provide income to the owners. If your company could use some assistance in this area, a forensic accountant in Philadelphia has several strategies you can employ to maximize cash flow.

“Even the most savvy and organized small business owners can experience cash flow problems from time to time, said 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. “There definitely are ways, however, that you can squeeze cash out of sales, assets, and business debts to maximize your available cash.”

Here are some of Anderson’s top cash flow recommendations:

  • Get cash up front from customers: Attorneys, consultants, and others do it. You should too, especially if the sale is for services, if you must purchase materials to fulfill the order, or if there is more than a month between the date the customer places an order and the product is delivered or service is completed, said Anderson, a forensic accounting expert in Philadelphia.   Depending on the size and type of the order, you should ask for anywhere from 10 percent to 50 percent of the sales price up front, he said.
  • Offer customers a discount for faster payment: Many companies offer a one or two percent discount for payment within 10 days of the original invoice. Such an offer, Anderson said, can motivate customers to pay you quickly. Of course, you need to consider the impact of such discounts on your profitability and ensure that your sales price includes the impact of the discounts, he said.
  • Accept credit card payments: Some customers may not have adequate cash in their bank account to pay quickly, but they do have business or personal credit cards they can use, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley. You’ll pay a small fee of about 3% to the credit card company, he said, but you’ll get paid faster by accepting credit card payments.
  • Stay on top of your past due accounts: How long do you let a customer’s account go past due before you pursue them for payment? The answer should be not at all, Anderson said. Consider establishing a policy of calling customers five days prior to the due date to remind them that the payment is coming due. And, wait no more than two days past the due date (allowing for the customer to have mailed the payment on the due date) to begin calling the customer, Anderson recommends. Remember, the squeaky wheel gets the oil, he said.
  • Consider factoring your accounts receivable: If your industry has payment terms that extend beyond 30 days from the invoice date, or if your sales are for relatively large amounts, consider selling your accounts receivable, or invoices, to a third party. By factoring your accounts receivable, your invoices are paid much faster, said Anderson, a forensic accounting expert in Philadelphia. Remember to consider the cost of factoring and how it impacts upon your profitability, since factors can charge a significant fee, he noted.
  • Squeeze more cash out of your inventory: When was the last time your analyzed your inventory to determine if you have too much of certain items, slow-moving items, or obsolete items? Consider discounting these items to turn them into cash. Or, Anderson said, you may prefer to sell slow-moving or obsolete items to liquidators or scrap dealers at drastically reduced prices. Sure, you won’t make much, if any, profit from selling these items (particularly the slow moving or obsolete ones), but they aren’t producing cash if they’re just sitting on the shelf, he said.
  • Do the same with your older fixed assets: Most businesses have an inventory of retired fixed assets that aren’t being used and are just taking up space. Consider selling these assets to liquidators or scrap dealers, said Anderson, a forensic accountant in Philadelphia. You’ll free up space and maybe some cash, too.
  • Negotiate longer payment terms with vendors: Have you ever had a customer ask to stretch out his or her payment terms? You are a customer, too, Anderson reminds business owners. It never hurts to ask, particularly when you won’t get paid by your own customer for 30 or more days, he said. In that scenario, it’s likely your vendor will understand and allow you to stretch out your payments.

“These are just some of the strategies that you can use to increase your cash flow and make it easier to keep your business going, pay your debts and keep your own income consistent,” said Anderson, a forensic accounting expert in Philadelphia.

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.

When Tip Lines Don’t Work

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 programs and forensic accounting services in Philadelphia and the Delaware Valley. 

In last week’s blog, Certified Fraud Examiner David Anderson reported that tips remain the most frequent source for the discovery of fraud, explaining companies using tip lines – either telephonic or online – were generally able to reduce the length and duration of frauds.

However, some companies report tip lines have either been ineffective or are largely unused.  Why is this?  Based upon Anderson’s experience as well as that of his colleagues, four main reasons have been identified:

Lack of Adequate Communication and Employee Training:

In one instance, Anderson said he discovered the client’s approach to utilizing a tip line was to send an e-mail to all employees advising them that a tip line had been put in place, and then putting up posters throughout the workplace to inform them of the tip line number.  While this may have seemed adequate, employees had many questions that went unanswered.

When Anderson conducted a survey of employees regarding the tip line, many had no idea their tips would be anonymous; no idea of how the investigation of their tips would work; and no idea of how they would be informed of the results of the investigation.  After instituting employee training and frequent communication regarding the tip line (including adding a FAQ section on the company’s intranet), use of the tip line increased.

Improper Investigation of Tips:

Addressing such issues as who is assigned to conduct the investigation and how it is reported, Anderson said, can be keys to the success of a tip line.

In one instance, he was brought into a company to analyze why their tip line wasn’t been used by employees.  One of the key things he learned, Anderson said, was that rather than using an outside forensic professional to investigate the tips, the company assigned the task to a junior human resources manager.  The manager’s primary method of investigation was to immediately confront the target of the tip with the accusation contained in the tip.  He reported that not a single target acknowledged the alleged fraud.  He would then prepare a report, and since the targets denied the fraud, he would close out each case as being unsupported.

In another instance, the company would assign the head of a department to investigate the alleged fraud in the department.  When the head of purchasing was assigned to investigate his own mentee for alleged fraud, he found that no fraud had occurred (without, Anderson said, actually conducting an investigation). In both of these instances, employees who reported fraud through the tip line grew discouraged when nothing was done about the fraud.  This, in turn, contributed to their reluctance to use the tip line in the future.  Companies who use properly trained outside forensic professionals to investigate the frauds find that employees are more willing to use their tip lines.

Real or Imagined Retaliation:

In the case of the aforementioned head of purchasing who was charged with investigating alleged fraud of his mentee, the department head was aware that his mentee had been feuding with another employee.  He guessed (correctly as it turned out, Anderson said) that this other employee had reported the fraud.  He then began a campaign to terminate the reporting employee.  After this employee was terminated, rumors circulated that the departed employee had been terminated because she reported fraud on the company’s tip line.  This had a chilling effect on other employees who then became extremely reluctant to report suspected fraud.   If employees perceive that reporting on the tip line is not truly anonymous and/or that they might face retaliation, the tip line will fail.

Failure to Follow-Up with The Tipster:

There needs to be a mechanism to keep the tipster informed, first, that the investigation is ongoing (until it is resolved); and, second, to provide the employee with a general answer concerning the final outcome.

“Based upon your tip,” Anderson suggested this potential conversation could go, “we investigated, found it to be credible, and have taken visible (the specifics revealed depend upon advice from counsel) steps to resolve the fraud” or “We investigated and found no support or insufficient support to take action (the detailed reasons revealed depend upon advice from counsel).”

Without this type of information flow, the tipster may be left guessing as to whether anyone is investigating their allegation, and whether or not it is worth reporting suspected fraud.

It’s not just enough to implement a tip line to fight fraud.  Companies must make sure that they are adequately training and educating employees about the tip line; assigning properly trained outside professionals to investigate tips; preventing potential or actual retaliation for tip reporting; and keeping the tipsters informed as to the progress of the investigation.

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.

NOTE: David Anderson’s blog will be on hiatus next week for the holidays, but will return on Monday, January 2, 2017

Tips Still the Most Common Way Fraud Is Discovered

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 programs and forensic accounting services in Philadelphia and the Delaware Valley. 

Many people believe that if their financials are audited or reviewed, then any existing fraud will be discovered.  However, national statistics have consistently showed that only around four to five percent of frauds are discovered because of an audit or review.  In fact, nearly twice as many frauds are discovered purely by accident.

Instead, approximately 40 percent of frauds are discovered via tips.  These tips come in through telephone tip lines, web-based tip applications or via direct e-mails, phone calls or letters written to company officials.  Almost 50 percent of all tips come from company employees.  Another 40 percent of tips come from customers or vendors.

“Employees can be your first line of defense against fraud,” said Anderson, a Certified Fraud Examiner. Employees may see fraudulent or suspicious activity, but may be reluctant to be identified as the source of a tip, either because they fear retribution from other employees or because they’re not absolutely sure that fraud is occurring.”

So how do you encourage employees to come forward?  The best way is with an anonymous tip hotline or web-based tip application.

“Employees are far more willing to report illicit activity if their anonymity is protected,” Anderson said. “The anonymous tip hotline provides them with the vehicle they need to do the right thing and bring the fraud to the attention of people in charge.”

Companies do not have to set up the tip hotline or web-based application themselves, Anderson said. Third-party companies will step into set up and operate the hotline or applications for a reasonable fee and will maintain the employee’s confidentially.  In fact, having an outside party manage the hotline further assures employees their identity will not be revealed to anyone other than designated parties by something they say or by speaking with someone who recognizes their voice.

Companies that provide tip hotlines for their employees typically find both the duration of fraudulent activity and amount of the losses are reduced by 50 percent.

A tip hotline is an important component of a comprehensive fraud deterrence program that, Anderson said, can be created by a firm that provides forensic accounting services in Philadelphia and the Delaware Valley. Anderson also said he urges organizations to protect themselves by contacting a Certified Fraud Examiner to conduct a thorough fraud investigation at the first sign of suspicious activity.

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.

Look for Fraud in Every Corner of Your Business

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, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley.

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

A very good job, in fact.

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

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

“The fraud perpetrated by this trusted employee was ingenious in that the very program he initiated to save the company money was, in fact, the same program that allowed him to siphon a significant amount of money out of the company and into his own hands,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  “The company was thrilled that the program performed as well as the Director said it would.  There was not a single person in the company who had any reason to suspect illicit activity.”

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

Firm Forensically Finds Phony, Fraudulent Vendors

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, forensic accounting and marital dissolution services in Philadelphia and the Delaware Valley.

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

“It really is a popular tactic among fraudsters,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  “It’s not easy to root out phony vendors, but there are things you can do to help identify them.  Ultimately, you might need to seek professional help to make sure all your vendors really are legitimate.”

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

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

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

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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