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Substitution Schemes and How to Avoid Them

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.

Although most fraudsters go after cash because it is easier to misappropriate, more and more organizations are being hit with misappropriation of inventory and fixed assets (equipment, furniture, computers, vehicles, etc.).

In this article, Anderson, a Certified Fraud Examiner in Philadelphia, focuses on one key type of such misappropriation – substitution schemes.  Simply put, he explains, the fraudster in these schemes substitutes a less expensive item of inventory or a less expensive fixed asset for the actual item, and then sells the misappropriated item for personal profit.

Here are some examples of substitution schemes:

  • The Parts Department manager of a large auto dealership purchased cheaper aftermarket auto parts and substituted them for the auto parts purchased from the manufacturer. He then sold the manufacturer’s parts to other auto dealers, pocketing the cost difference.
  • The Technology manager at an advertising agency was responsible for implementing a computer replacement program that required him to replace existing high-end Apple computers with new ones every two years. He was supposed to remove the advertising and design software from each replaced computer and sell it to a used computer dealer.  Instead, he purchased cheap, older-model used Apple Computers, substituted them for the replaced computers (which were then sold to the used computer dealer), and sold the replaced high-end computers (with the advertising and design software still on each computer) via a website he set up.
  • A trusted employee at a commodities broker was given access to the company’s precious metals safe, and over time replaced dozens of 10-ounce platinum bars (worth approximately $10,000 each) with 10-ounce silver bars (worth approximately $180 each). Part of the reason he could get away with this substitution scheme was that the bars were stacked, looked almost the same to the casual observer, and he made sure that the top several bars were platinum ones.
  • A Fortune 1000 company furnished its New York City sales office with over $500,000 worth of artwork. Although the company was audited, because there were no financial transactions handled by the New York City sales office, and because its total fixed assets (including the artwork) were low relative to the company’s total fixed assets, the auditors never even visited the New York City sales office.  Responding to a tip provided on the company’s fraud hotline, forensic accountants found that employees of the New York City sales office had substituted cheap artwork (including, in one case, a paint-by-numbers piece that had been painted by a child) for the more expensive artwork.  Most of the replaced artwork had been sold off by the employees, although several pieces were found in their homes.
  • The owners of a financially failing paper products company removed tens of thousands of dollars of paper products from their boxes, filled the boxes with trash and used paper, and resealed the boxes. After the bank took over the failed company, it hired an auctioneer to sell off the boxes of inventory.  Only after the auction did buyers discover that they (and the bank who had to reimburse them for their purchases) were the victims of a substitution scheme.

So, how can your business avoid becoming the victim of a substitution scheme?  Here are some basic steps:

  • For inventories, implement a scheme of classifying inventory items by their relative value and frequency of sale. High dollar and high volume medium dollar inventory should have the top classification, followed by medium dollar and high volume low dollar inventory, and at the bottom, low dollar inventory.  Employees from a separate department (usually the accounting department or, if it is not practical to use internal employees, from an outside company such as a forensic accounting firm) should conduct periodic physical checks of the inventories based upon the classification.  For example, checking the highest classification biweekly or monthly; checking the middle classification bimonthly or quarterly, and checking the lowest classification at least annually.
  • For fixed assets, institute a fixed asset tracking system. Under such a system, each fixed asset is tagged with a bar coded label.  The system will have a database that separately identifies each fixed asset with date purchased, description of the fixed asset, purchase price, location of the fixed asset and the bar code label number.  Then, as in the above inventory checking methodology, institute a periodic checking of fixed assets based upon dollar values (highest dollar value items most frequently, lowest dollar value item least frequently).  This regular checking should include retired or replaced fixed assets that are still on the books.
  • For fixed assets that are being disposed/sold, again have employees from a separate department or third party company inspect the assets prior to sale to ensure that the assets being sold are the correct ones, and are in the condition the company expects.

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.

Take Some Time (Off) to Help Prevent Fraud

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.

While your fraud deterrence program should be on the job 24/7, you should require your employees to regularly take vacations.

It’s not only good for their emotional health and morale, but also a key anti-fraud component in your firm’s financial safety program.

Industry experts report a mandatory vacation policy reduces an organization’s median dollar loss to fraud by 33.3 percent and cuts the median length of time a fraud occurs by 40 percent, 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.

“Fraudsters work very hard to conceal their fraud,” Anderson said. “It requires a great deal of time and attention on a consistent basis to maintain the cover-up.  Very often, an employee’s illicit activities are uncovered only when he or she is on vacation or out sick.”

In fact, it is the very act of maintaining the cover-up that makes these employees seem like the most loyal, dedicated, hard-working employees on the payroll.

“They never miss a day of work,” said Certified Fraud Examiner Anderson. “They never take vacation.  They’re often the first ones at the office in the morning and the last ones to leave at night.  They work evenings, weekends and holidays.  They even come to work when they are sick.  From all outward appearances, they are an owner or manager’s dream employee.  What they really are doing is working hard to hide the fraud.”

Two recent fraud cases illustrate how a mandatory vacation policy can separate dream employees from fraudsters.

  • In one case, an employee created a phony service vendor with a phony address. The employee then produced phony invoices for non-existent services that the company paid.  At work, the employee intercepted the check before it was mailed and then deposited it in a bank account set up by the employee.  The fraudulent activity was discovered when the employee took a vacation day on the day a check was mailed to the phony vendor.  When the envelope was returned as undeliverable, a manager tried to contact the vendor and discovered that not only the address, but also the phone number was phony.  A fraud investigation ensued, and the employee was caught.
  • Another case involved a manager who was engaged in a skimming scheme — intercepting and diverting cash payments before they were entered into the company’s accounting system. The manager went on vacation, forgetting that he had left incriminating evidence in his desk drawer.  The manager filling in for him found the incriminating evidence and turned it over to senior management.  In this case, Anderson was engaged to perform a comprehensive fraud investigation and found that hundreds of thousands of dollars had been diverted by the fraudster.

“Forensic accountants love vacations,” said Anderson, who recommends every organization enact and maintain a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. “All sorts of fraudulent activities can surface during an employee’s absence.”

Anderson said most anti-fraud experts recommend employees be required to take at least one full week off from work and that their work activities be covered by someone else while they are gone.  This simple step prevents an employee from covering their tracks, he said.

Do your employees, and yourself, a favor; enact a mandatory vacation policy.  They will return to work more relaxed, and you can relax a bit as well because you will have instituted the most pleasant of anti-fraud controls.

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.

The Impact of Different Conventions for Projecting Future Damages, Part II

Posted by & filed under Blog Articles, Business Valuation, Company News, Litigation Support.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley. This is the second of two blogs on how to accurately and fairly calculate financial damages and losses.

The valuation of damages is designed to put the harmed party back into the same economic position that would have existed if the harm had not occurred. The most difficult part of that equation is to project the economic conditions one would have expected without the harm. An analysis of historical results is often used to assist in making that forecast.

In my last blog post, I discussed the pros and cons of four of the most commonly used methods to analyze a series of events, namely the mean, the median, exponential smoothing and regression analysis. This post will present two examples and show how each method impacts the damages calculation under each.

Our first example involves projecting damages from the theft of customer lists when subsequent sales show an upward trend:

Hypothetical ABC Co. is a distributor of household cleaning products to small retail stores. Although sales and profits fell during the beginning of the financial crisis in 2007, since then both have steadily increased.

At the beginning of 2011, the national sales manager left ABC and took with him all of the contact information for ABC’s customers. He then went to work at a competitor and ABC experienced a drop in sales and profits. ABC has sued to recover damages from 2011 for lost profits caused by this theft of customer lists.

Net profits from 2007 through 2011 were:

chart2

Let’s apply each of the four methods to project what 2011 profits would have been but for the theft of customer lists:

Mean: The average of 2007 to 2010 profits is $20,000 (the sum of the four year’s profits divided by four).

Median: There are two midpoints – ($5,000) and $35,000 – so the median would be the point halfway between the two, or $15,000.

Exponential Smoothing: Applying weights to each of the four years (1 for 2007, 2 for 2008, and so on) and then dividing the total by 10 – the sum of the weights – yields a projection of $44,500.

Regression analysis: There is a clear upward trend that would imply that 2011 profits should be higher than previous year’s profits. Regression analysis yields a projection of $142,500.

In this example, regression analysis not only yields the highest projected value, but it supports the fact that profits had been steadily increasing over each of the past several years.

Our second example projects damages from the theft of customer lists when there are fluctuating levels of Profits:

Using the same facts as in the first example, suppose profits were fluctuating up and down over the past few years:

chart3

Applying each of the four methods to calculate damages for 2011 provides the following results:

Mean: The average of 2007 to 2010 profits is $3,750.

Median: The median would be the point halfway between ($10,000) and $50,000 or 20,000.

Exponential Smoothing: Yields a projection of $5,500.

Regression analysis: Yields a projection of $12,500.

In this example, the median yields the highest value. Because there is no clear trend of growth or decline, and a wide range of swings in value, the mean may be the most supportable of the values.

The above calculations are made in a vacuum and clearly there is not enough information in the fact patterns to suggest the best option in each case. The illustrations do highlight some of the mechanics behind the damages calculation, and the impact of using different conventions.

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

About David Anderson & Associates

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

The Impact of Different Conventions for Projecting Future Damages, Part I

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley. This is the first of two blogs on how to accurately and fairly calculate financial damages and losses. 

When calculating damages for future periods – such as for lost profits, loss of income in wrongful death cases, etc. – experts are often charged with expressing an opinion as to what would happen in the future but for the wrongful act. These projections typically rely upon either industry trends or on the historical operating results of the injured party. Four of the most commonly used projection conventions when relying upon the operating results of the injured party are: the mean, the median, exponential smoothing and regression analysis. This blog post will define each of these conventions and discuss the pros and cons of each.

The Mean

The mean describes the central tendency of a set of numbers and is calculated as the arithmetic average. When there is only a limited amount of historical data available and no clear trend of growth or decline exists, relying upon the mean may be the most reliable method to project future periods. However, if more historical data is available and/or there is a clear trend of growth or decline shown in the historical data of the injured party, then using the mean will render projections that are less reliable or indicative of the future than other projection conventions and will be difficult for the expert to defend.

The Median

The median also represents the central tendency of a set of numbers, but in this convention it is calculated by reference to the middle number after the set of numbers are arranged in order by value from highest to lowest. Because the inclusion of extreme outlying values (e.g., if the historical data is 5, 6, 8, 9, 40) can render distorted projections, relying upon the median may be the most reliable convention to project future periods. However, once again when there is a clear trend of growth or decline, using the median will produce projections that are less reliable than exponential smoothing or regression analysis.

Exponential Smoothing

The mean and the median conventions treat each observation equally. The exponential smoothing convention (also known as weighted averaging) assumes that the oldest observation should receive the least weight and the most recent observation should command the most weight in projecting future performance. It applies a weighting factor to each historical observation and then calculates an arithmetic average of the weighted historical observations.

For example:

david-for-10-17-16

 

Use of exponential smoothing can be particularly effective if sufficient historical data exists and there are no extreme outlying values.

Regression Analysis

Regression analysis uses mathematical calculations to fit a line or curve to a set of historical numbers. The more common form of regression analysis used to project future periods is known as trend-based regression analysis or least squares analysis. This methodology seeks to fit a straight line to a set of historical numbers and then project future periods along that line. Like exponential smoothing, regression analysis can be particularly effective if sufficient historical data exists and if there are no extreme outlying values.

When calculating future damages based upon historical information, experts may rely upon a variety of conventions and projection methods. This post has discussed four of the most commonly used conventions – the mean, the median, exponential smoothing and regression analysis. In the second part of this two-part series, I’ll provide specific examples and show how each method impacts the damages calculation under each example.

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

About David Anderson & Associates

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

To Survive a Disaster, Have a Recovery Plan in Place

Posted by & filed under Blog Articles, Business continuity, Disaster Recovery, Forensic Accounting.

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.

Hurricane Matthew, in addition to tragically killing more than 900 people this past week, is believed to have caused between $4 billion and $6 billion in damage in the Caribbean and southeastern United States.

Yes, that’s billion with a “B.”

Countless buildings – including many homes and businesses – were destroyed and while most homeowners and business operators here in the U.S. probably had insurance to cover the financial loss, what about the loss those businesses suffered involving sales orders, customer lists, software programs, business contracts, and other critical documents and data?

A well-prepared, up-to-date disaster recovery program can help a firm stay in business or get back to business sooner than companies without such plans in place. As high as 80 percent of companies affected by a disaster never reopen or shutter their doors within two years of reopening.

“The businesses that do survive are the ones who prepared in advance for something they fervently hoped would never happen,” says David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, including development, implementation and management of comprehensive contingency and disaster recovery plans.  “Creating a business continuity plan is just smart business.  It greatly enhances the chances that your business will survive the disaster and that your livelihood — and that of your employees — will be protected.”

Anderson said some business owners think they are covered as long as they have purchased insurance and backed up their computer files.  But a comprehensive contingency and disaster recovery plan covers myriad details of a business’ operations, some of them not always obvious.  And every business, no matter how big or small, needs to have a business continuity plan in place, Anderson said.

Can your business survive a disaster?  Ask yourself these questions:

  • Are both your electronic and paper business records protected? Is vital information backed up in case a computer hard drive crashes?
  • If one or more of your offices or production facilities are severely damaged or destroyed, where will you relocate?
  • What steps need to be taken to resume operations and how fast can you be up and running again?
  • Do your employees know what to do and where to go?
  • Do you have adequate insurance to rebuild your business?
  • How do you assure your customers will keep paying you?
  • Will your vendors continue to extend credit to you?
  • How will you replace key employees injured or killed by the disaster?
  • Are you prepared with step-by-step procedures to react to different types and severities of disasters?

Having a comprehensive contingency and disaster recovery plan (business continuity plan) in place can minimize your financial loss and help your business survive a disaster.

If you are in need of a comprehensive contingency and disaster recovery plan or require 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.

Time Is Money, So Don’t Delay When Hiring an Expert Witness

Posted by & filed under Blog Articles, Company News, Litigation Support.

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.

It’s surprising how many trial attorneys wait until the last minute to engage the help of forensic accounting experts for litigation support services.

Lawyers clearly understand the value such experts bring to their cases, said Certified Fraud Examiner David Anderson, but the timing of when an attorney brings in such an expert can have a direct bearing not only of the level of success, but also on whether the case is won or lost.

“The earlier a forensic accounting expert is called in to consult,” he said, “the greater the chances the expert will be able to contribute information crucial to winning.”

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, said forensic accounting experts who are engaged too late in the process often cannot have the impact on the case the attorney needs.

Recently, Anderson said he was asked by an attorney to provide expert witness testimony in Philadelphia for ongoing litigation.  The attorney’s client, a minority shareholder in a medium-sized distribution business, claimed the majority shareholders were taking outsized salaries and benefits; paying significant salaries and benefits to family members who performed little or no work; paying exorbitant office rent to entities owned by the majority shareholders; and running personal expenses through the business.

The attorney said he and his client expected to resolve the litigation without going to trial, but that didn’t happen and, when Anderson was called in, the deadline for an expert report was just two weeks away. Complicating matters was the fact that discovery had closed several months before.

One potential positive, according to the attorney, was that the minority shareholder had the company’s federal income tax returns for the past five years. This, he told Anderson, should be enough for the forensic accountant to create a comprehensive report detailing the transgressions of the majority shareholders.

Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, agreed to examine the tax returns and let the attorney know that same day if he would be able to produce the rushed report that was needed.

“Unfortunately, certain schedules were missing from the returns, and the information presented was in summary form – merely totals of overall expense categories with no specifics, said Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.

“For example, individual employee wages were not shown and there were no details for benefits, travel, professional fees, meals and entertainment and other categories the minority shareholder suspected were being inappropriately paid by the company,” he said, adding that “a $50,000-line item for ‘Miscellaneous Expenses’ appeared on one year’s return, but with no breakdown.”

Without the full accounting detail that is often not found in the income tax returns, but instead in the company’s accounting records and detailed financial reports, Anderson was unable to produce the comprehensive report the attorney needed to assure a win in the case.

Engaging a forensic accountant for litigation support services at the very beginning of a case can help attorneys establish the foundation of the case and determine the most effective course for the litigation, said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Forensic accounting experts such as Anderson provide litigation support services and expert witness testimony for both plaintiffs and defendants in civil cases, as well as both prosecutors and defense attorneys in criminal cases.

Early involvement allows the expert witness to provide advice in areas such as:

  • Assistance in identifying and formulating arguments for the complaint (if for the plaintiff)
  • Initial evaluation of the plaintiff’s claims and identification of the information or testimony needed to support those claims
  • Assistance with preparation of discovery requests and interrogatories, including identifying the format(s) for delivery of the requested information (for example, if requesting detailed accounting system information, identifying acceptable formats for the delivered information so that it can be analyzed in a timely and cost-effective manner)
  • Analysis of the complaint and assistance with identifying arguments for the response (if for the defendant)
  • Assistance with identification of individuals to be deposed
  • Preparation of a report identifying and calculating damages or business value
  • Follow-up on information delivered in response to discovery requests and responses to interrogatories in order to identify either missing information or additional information needed
  • Assistance with development of questions for the deponents, including for the expert witness’s own deposition
  • Preparation of rebuttals for opposing expert reports (if necessary)

“Engaging a forensic accountant from the start provides expert analysis of your case before the discovery and deposition phases are closed,” Anderson said.  “In any financial dispute, the insights and advice of a forensic accounting expert can make the difference between winning and losing the case.”

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, 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 Non-Profits and Charities Safe from Fraud

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.

While non-profit organizations and charities spend most of their time helping people and providing valuable services, fraudsters often are busy helping themselves to the valuable financial assets of these groups.

The leaders of these houses of worship, youth sports teams, volunteer fire companies and other such groups, in most cases, focus on their mission and leave the financial operations to volunteers, 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.

Since these volunteers, Anderson said, often have other commitments, they generally are able to devote only a limited amount of time towards these duties. This, he said, puts these organizations at a much higher than normal risk of fraud.

As a result, they must rely on a few trusted employees and volunteers to oversee their operations and to handle their finances. With such limited resources, explained Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, most small to medium-sized non-profits are not able to effectively implement the necessary internal financial and accounting controls to adequately protect against fraud.

Furthermore, he added, most organizations such as these are often unable to afford an audit or other external examination of their books and records.

The result is that certain unscrupulous employees and volunteers can take advantage of these weaknesses and embezzle funds.  Here are just three examples:

  • The bookkeeper for a Montgomery County, Pa., church was convicted of embezzling more than $150,000 from the church.
  • A 45-year non-paid member of a Chester County, Pa., volunteer fire company was convicted of embezzling more than $300,000 from the fire company.
  • The chief operating officer of a Philadelphia non-profit for the homeless was indicted for charging more than $75,000 in personal expenses on the non-profit’s credit cards.

So, what can a small to medium-sized non-profit organization do in order to protect itself from fraud?  Here are a few suggestions:

  • Arrange for at least two members of the internal financial review committee to receive copies of the organization’s bank statements directly from the bank before any reconciliation takes place;
  • Require all checks to receive two signatures;
  • Seek help from volunteers who are in government or law enforcement, or who are attorneys, to conduct background checks for new and existing employees (in accordance with the law);
  • Create an internal financial review committee of three or more knowledgeable people (with backgrounds in forensic accounting, accounting and/or business finance) to review the finances of the organization on a regular basis, such as quarterly or semi-annually.(Steve, make this the first “bullet” point)
  • Whenever large amounts of cash are collected (for example, weekly offerings collection or concession stand sales), require two or more people to jointly oversee the counting of the cash and preparation of deposit slips;
  • When employees of volunteers resign or leave their positions, immediately remove them from computer system access and from bank signatory cards/credit cards/debit cards, etc.;
  • If fraud is suspected, immediately engage outside counsel. Such counsel can best advise the organization as to the steps to take to protect itself from potential litigation and to properly investigate the suspected fraud, which may include retaining a forensic accountant to conduct the investigation.

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.

Need short-term help with accounting issues? You might need an outsourced CFO

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

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 number of businesses in the small-to medium-size range often have an accounting manager or controller take care of routine financial matters. For the vast majority of transactions, this can suffice.

However, what happens if a short-term situation arises and these highly competent, hard-working individuals do not have the level of skills required to deal with this change? What happens when the more specialized services of a Chief Financial Officer (CFO) are needed, but the company can’t afford to pay for this type of expertise, or doesn’t need a such a position filled on a permanent basis?

That’s an easy question to answer: Bring in an outsourced CFO.

“Good, experienced controllers and accounting managers are very well suited for activities such as preparing monthly, quarterly and annual financial reports; paying vendors; collecting accounts receivable, and handling payroll and payroll tax reporting,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of outsourced CFO services and other forensic accounting services in Philadelphia and the Delaware Valley.  “But for more complex, specialized issues, a company really needs the expertise and knowledge of a CFO.”

These activities might include such outsourced CFO tasks as:

  • Obtaining bank loans and/or lines of credit
  • Raising additional funds through issuance of equity or hybrid securities
  • Investor relations
  • Insurance, including liability and property and casualty insurance
  • Employee benefits, including health care insurance, dental, vision, 401-K plans, profit-sharing plans, etc.
  • Cash management and short-term investments
  • Human Resources issues, including employee manuals, policies & procedures, training, job succession, etc.
  • Regulatory and compliance reporting of both financial and operational matters
  • Budgeting and long-range financial planning, including strategic plans
  • Information technology, including computer security, systems life-cycle planning, systems maintenance and enterprise software
  • Disaster recovery planning
  • Assisting company ownership in exit strategy planning

While these are the types of matters that are best left in the capable hands of an experienced CFO, Anderson said bringing aboard a full-time CFO is often not an option for small- to medium-sized businesses.

“CFOs can be not only difficult to find, but also quite expensive,” said Anderson, a forensic accounting expert in Philadelphia who provides outsourced CFO services in Philadelphia and the Delaware Valley.  “Many CFOs also expect that part of their compensation package will include an ownership interest in the company and that is something most business owners are reluctant to offer.  The outsourced CFO is the perfect solution for a small- to medium-sized businesses.”

An outsourced CFO is hired on a contract basis for as long or short a time period as the business needs, Anderson said.  Some businesses will engage an outsourced CFO only for the time it takes to complete specific projects.  Other companies contract with an outsourced CFO for an extended period of time to work a certain number of days per week or hours per month, he explained.

“Using outsourced CFO services in Philadelphia or anywhere in the country gives small- to medium-sized businesses access to the knowledge and experience they need whenever they need it,” said Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley.  “Companies get all the benefits of having a CFO on staff, but they don’t have to pay top-dollar salary and compensation packages that include benefits and bonuses, nor do they have to worry about relinquishing a partial ownership interest in the company.”

If your business is in need of outsourced CFO services in Philadelphia and the Delaware Valley or any other forensic accounting services in Philadelphia, 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 in Philadelphia and the Delaware Valley.  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.

Arbitrating Inheritance Battles an Important Role for Forensic Accountants

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

“She has more pie than I do!”

“It’s his turn to do the dishes!”

“Why do they get to stay up late and I don’t?”

Sound familiar? They’re typical kid arguments, especially prevalent in multi-child families. Eventually, Mom or Dad or Grandma or Grandpa would need to jump in and mediate. Eventually, siblings outgrow such obsessive and possessive behavior and learn to get along and share.

Or do they?

One of the least recognized and, in ways, most valuable services of a forensic accountant is helping families fairly and equitably settle trust or estate issues.

“Unfortunately, there rarely is a family member who can step in as the ultimate arbiter to settle the conflict,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm.  “Instead, the unhappy beneficiaries often turn to the courts to resolve the dispute, ending up in litigation that can be very contentious and very expensive.”

Anderson said, in many cases such as these, families turn to a forensic accounting expert to analyze the management and administration of the trust or estate and to account for the assets and transactions.

“Perhaps one or more beneficiaries, who often are siblings or other relatives, believe the fiduciary (trustee or executor) is mishandling the trust or estate’s finances, is improperly taking funds from the trust or estate, or has improperly or unevenly distributed assets or income of the trust or estate.

“A forensic accounting expert has no stake in the matter and is not a family member.  He or she is concerned only with the facts of the matter at hand,” said Anderson, who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “As a result, both the beneficiaries and the fiduciary can be confident that the forensic accountant’s report will be independent, fair and unbiased.  Engaging a forensic accounting expert to settle the conflict is less contentious and less expensive.”

Anderson said a forensic accountant’s report typically identifies the specific documents that govern the administration of the trust or estate and cites specific passages from those documents regarding management of assets, distribution of funds, payment of fees to and expenses of the fiduciary, and related matters.  The report identifies the period of time examined, provides a schedule of assets of the trust or estate at both the beginning and end of the time period, and lays out (in either detail or summary form) the transactions of the trust or estate.

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, said the report outlines the forensic accountant’s findings regarding the fiduciary’s management of the trust or estate relative to the trust documents, and whether any transactions are in conflict with the governing documents.  The forensic accountant will review the report with the beneficiaries and the fiduciary and answer any questions regarding the findings.

While the cost of engaging a forensic accounting expert to analyze the handling of a trust or estate is usually significantly less than the cost of actual or threatened litigation, it is the lessening or neutralizing of the emotional aspects of the dispute that can be even more appealing to families.

“A forensic accountant’s involvement reduces the contentiousness,” Anderson said.  “Family members tend to acknowledge that the dispute is in the hands of a professional whose independent analysis will bring peace of mind to everyone involved.  The forensic accountant is, in effect, the ultimate arbitrator we grew up with.  It’s the next best thing to Mom and Dad.”

Anderson recommends that beneficiaries and fiduciaries engage the services of a forensic accounting expert at the first sign of a dispute — before the matter escalates and family relationships are destroyed.

“Don’t let suspicions of mismanagement fester until things have gotten so bad that there is no hope of repairing the relationship,” said Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Family is important.  Bring in a third party as soon as a conflict arises.”

If you require 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.

Forensic Accountants Help Keep Divorce Proceedings Equitable

Posted by & filed under Blog Articles, 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 fraud investigation, forensic accounting and marital dissolution services in Philadelphia and the Delaware Valley.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

If your divorce case would benefit from the expertise of a marital dissolution accountant in Philadelphia, or if you require any other services of a forensic accounting expert in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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

Strangers in Strange Lands: Avoiding Fraud on Foreign Soil

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.

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

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

“In today’s global economy, failing to understand the laws that affect business operations in a foreign country can land your company in a heap of trouble,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.  “There are laws both in the United States and in foreign countries that you have to be concerned about.”

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

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

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

“The senior executive in the U.S. was in a quandary,” said Anderson, a Certified Fraud Examiner who recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  “The company needed to get the factory open on time, but, if it made the payment to the provincial governor, was it breaking any laws?  Was making a payment to get a license issued faster a violation of the Foreign Corrupt Practices Act and, therefore, an act of fraud?”

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

Untrustworthy ‘Trusted’ Employees Can Strike at Any Time

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.

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

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

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

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

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

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

It’s the same for a business owner and business fraud, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.

It makes much more sense, he said, to implement anti-fraud measures now to save you from incurring big losses later.

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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