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Detailed Financial Data Needed for Litigation Support Services and Expert Witness Testimony

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

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. But too often, attorneys engage the services of forensic accountants late in the process after having requested insufficient financial data from the opposition.

“There have been a number of times that I have been retained late in discovery or even after discovery has closed,” 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. “In some of those cases, the only financial records counsel requested were income tax returns and bank statements, believing 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, according to 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, he said.

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, according to Anderson, a Philadelphia forensic accountant.

“Attorneys can overcome bank statement shortcomings 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,” he said.

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, 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.

The Role of the Forensic Accountant in Fraudulent Conveyance Litigation

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

Faced with losses that come as a result of foreclosures, divorces and other legal proceedings, less-than-scrupulous business owners sometimes resort to the fraudulent conveyance or transfer of property or other assets to lessen or eliminate their losses essentially by hiding valuable assets. When that happens, it is the role of the forensic accountant to uncover the improperly transferred assets and determine their value.

“Black’s Law Dictionary defines fraudulent conveyance or fraudulent transfer as ‘the illegal transfer of property by a debtor to avoid creditors or claims’,” 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 a blatant action intended to undermine often legitimate claims filed by creditors, ex-spouses and other parties.

Anderson said the resulting fraudulent conveyance litigation typically involves civil suits bought by creditors or bankruptcy trustees seeking to recover improperly transferred assets or business. Examples of these transfers include:

  • Payments to related parties, including other businesses in which the debtor has an ownership interest, and relatives, friends or business partners of the debtor;
  • Transfer of title of assets from the debtor to related parties, including other businesses in which the debtor has an ownership interest, and relatives, friends or business partners of the debtor;
  • Sales of assets at bargain prices from the debtor to related parties, including other businesses in which the debtor has an ownership interest, and relatives, friends or business partners of the debtor;
  • Transfer of business (sales) to other entities in which the debtor or relatives, friends or business partners of the debtor have an ownership interest; and
  • Gifts made by the debtor during a period of financial stress, including donations to charity.

In cases of fraudulent conveyance litigation, attorneys rely on forensic accountants to document the alleged fraudulent transfer; identify and locate improperly transferred assets, and calculate the lost value of improperly transferred assets or business, said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia.

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley who has performed forensic work in multiple fraudulent conveyance matters, recalled one such case that later became the basis for his case study, “The Sore Losers.”

He said the case involved business owners who wanted to avoid a creditor’s foreclosure action by draining funds from the company. Anderson, 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 business owners improperly paid themselves special bonuses and distributions, drastically increased rents charged to the business on real estate owned separately by the business owners, and ran personal expenses through the company. Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia, was able to identify each of the transactions and calculate the total amount of the payments, thereby facilitating the creditor’s recovery of the payments.

Anderson, a forensic accounting expert in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, recalled another case in which a husband who planned to divorce his wife sought to reduce the value of his business so as to decrease the amount of his future divorce settlement.

The husband sold certain assets to his girlfriend at a bargain price and also had a friend set up a competing business, to which the husband directed his own customers. After the divorce was completed, the plan was to have the friend sell a majority interest in the new business to the husband at a bargain price, according to Anderson, a Philadelphia forensic accountant.

The fraudulent transactions were discovered after Anderson was engaged by the wife’s counsel to value the husband’s business. “During my investigation, I noted a significant decline in the business as well as the sale of certain assets during the two years preceding the divorce,” he said. “The investigation revealed the transfer schemes, and I was able to value the husband’s business as if these improper transfers had never occurred, thereby increasing the divorce settlement paid to the wife.”

If you are in need of 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, 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. 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.

Forensic Accountant Advises Caution in Interpreting Financial Statements

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

Recipients of company financial statements that are “associated” with Accounting Firms often assume that the financial statements are accurate, fairly presented, have undergone a rigorous examination by the Accounting Firm, and are not subject to fraud or misstatement. While that may be true in some cases, it very often is an inaccurate assumption that can result in unwanted consequences, cautions a forensic accountant in Philadelphia.

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

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

  • when the financial statements are in a binder with the name of the Accounting Firm on it;
  • when the Accounting Firm performs a Compilation;
  • when the Accounting Firm performs a Review; and
  • when the Accounting Firm performs an Audit.

Binders

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

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

Compilations

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

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

Reviews

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

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

Audits

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

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

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

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

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

If you require the services of a 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.

Forensic Accountant Recommends Strategies to Maximize Cash Flow

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

Having sufficient cash on hand to finance operations, pay debts and provide income to the owners is an ongoing struggle for most small businesses. But there are recommended strategies from a forensic accountant in Philadelphia that small businesses can employ to maximize cash flow.

“Cash flow problems can be challenging for even the most organized, savvy small business owners,” 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. “But there are definitely ways you can squeeze cash out of sales, assets and business debts to maximize your available cash.”

Consider these recommended strategies:

  • Get cash up front from customers. Attorneys, consultants and others do it. You should too, especially if the sale is for services, if you have to 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% to 50% of the sales price up front, he said.
  • Offer discounts for faster payment. Are you offering a small discount (1% or 2%) for payment within 10 days of the invoice date? If not, consider doing so, Anderson suggests, since the discount motivates 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.
  • Keep up on 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, according to 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, have slow moving items, or have obsolete items? Consider discounting these items to turn them into cash, Anderson Or, 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 items), but they aren’t producing cash if they’re just sitting on the shelf, he said.
  • Squeeze cash out of 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 forensic accountant in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

David Anderson & Associates is a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. The experienced professionals at David Anderson & Associates provide forensic accounting, business valuation, fraud investigation, 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.

Forensic Accountants Tackle Complexities of Economic Damages Calculation

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

When a business suffers financial or economic damages as the result of the actions of another or due to a catastrophic event, business owners, attorneys and the courts rely on forensic accountants to calculate damages and determine the amount of financial or economic recovery necessary to restore the business to the position it would have been in had the damaging actions or catastrophe not occurred.  But it might surprise you to know that there is more than one way for the forensic accountant to calculate economic damages.

“There are two distinctly different methodologies forensic accountants generally use to calculate these damages – calculation of lost profits and calculation of lost business value,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides economic damage analysis,  litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.  “Although there are similarities in the calculations, the two methodologies operate differently and can result in different damage amounts being calculated for the same set of circumstances.”

Anderson, a forensic accounting expert in Philadelphia and the Delaware Valley, said some courts have ruled in favor of the calculation of lost profits as the basis for recovery of economic damages, while others have ruled in favor of the calculation of lost business value.  What the courts generally do agree on is that the business may not recover economic damages by using the total of both calculations, he said.

Determining which methodology should be used depends on the facts of each case, according to Anderson, a forensic accountant in Philadelphia whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes economic damage analysis, litigation support services and expert witness testimony in Philadelphia.

Generally, the lost profits methodology is used when there is a breach of contract, intellectual property infringement or catastrophic loss from which the business is able to recover, Anderson said.  The loss in business value methodology is normally used in instances of total destruction of a business, permanent impairment of business value (such as slander and defamation), shareholder oppression (or dissenting shareholder), marital dissolution or for certain tax matters, he explained.

Under the lost profits methodology, the various factors that make up the discount rate applied to lost profits (for example, rate adjustments for industry-specific and company-specific risks) can influence the calculation of the loss, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, including expert witness testimony in Philadelphia.

Because the loss in business value methodology considers not just the income method (which serves as the basis for calculating lost profits) but also the asset and market methods, the calculation results may differ, Anderson said.  For example, the market may place a premium or discount on the value of the business that is different from that calculated under the lost profits methodology, he said.

Regardless of which methodology is employed, the forensic accountant must consider reasonable assumptions for the time period of the damages, the future profit expectations of the business “but for” the actions of another or the occurrence of the catastrophic event, the future profit expectations of the business due to the actions of another or the catastrophic event, and the business’s efforts to mitigate the damage, Anderson said.

“With so many variables, these calculations obviously can be quite complex,” said Anderson, a forensic accounting expert in Philadelphia.  “That is precisely why businesses, attorneys and the courts turn to forensic accountants to navigate the complex calculations needed to determine economic damages.”

If you require the services of a forensic accountant 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.

Business Valuation the First Step in Selling A Business

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

Selling a business is not dissimilar from selling a house.  There are a number of steps a business owner must take to prepare the business for sale and it starts with relying on a business valuation expert to determine what your business is worth.

“The parallels in selling a house and selling a business are strong,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides business valuation services in Philadelphia and the Delaware Valley.  “In either case, you must understand the value of what you are selling.  You also should hire a good broker and have your records and your physical structure in order.  And you need to anticipate and be ready to address issues or questions from potential buyers.”

Anderson, a forensic accounting expert in Philadelphia who also is a Certified Valuation Analyst, outlined the following recommended steps to prepare a business for sale:

Determine the Worth of Your Business

To make sure your expectations are realistic, you need to have 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,” explained 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 request a less expensive calculation of value to get an idea of what their business generally is worth.  However, Anderson, a Certified Valuation Analyst and forensic accounting expert in Philadelphia, cautions that while a calculation of value is 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, as long as the business owner understands its limitations, he said.

Find a Good Business Broker

Unless a business owner has extensive industry contacts and experience in selling businesses, Anderson recommends that sellers utilize the services of a business broker.

“Just as 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 your 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, explaining that both the business broker and 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 in order for showings, you need to do the same for your books and records,” he said.

Among Anderson’s recommendations:  Collect financial statements, general ledgers and income tax returns for the past five years if possible; secure copies of all leases, contracts and agreements; and gather organized documentation of any intangible assets or intellectual property.  Business owners also must assure that 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 that 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, take a look at 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 recommends that business owners take a critical look at their actual business premises.  Among his recommendations:  Straighten up and better organize the premises; dispose of obsolete inventory, old furniture and retired equipment; make repairs and perform maintenance so that the facilities look fresh and are in working order; and make 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 if providing a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “Making sure your physical premises look the best they can will help you get the best possible price for your business.”

Prepare for Questions

Anticipate the questions buyers will ask and have the answers ready, Anderson recommends.  “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 key employees, key customers, key vendors, key products and services, key industry trends and your vision for the future of the business.”

If you are in need of a business valuation expert 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 and marital dissolution accountant in Philadelphia and the Delaware Valley.

Fraud Investigations Identify Lesser Known Fraud Schemes

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

Employers generally are savvy about the more common types of fraud that plague businesses and may have enacted fraud controls and fraud deterrence programs to prevent them.  But fraud investigations have shown that equally savvy fraudsters know their employers often overlook lesser-known fraud schemes — an oversight that leaves them free to pursue fraudulent activity.

“Fraudsters usually are very smart people,” 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 have to be smart to hide their fraudulent activity for long periods of time and also to identity those lesser-known fraud schemes that are unlikely to be on their employer’s radar.”

Anderson, a forensic accountant who also is a Certified Fraud Examiner in Philadelphia, said one type of lesser-known — but still lucrative — fraud schemes involves the fraudulent manipulation of checks by employees.

One of these check schemes involves the diversion of customer checks, Anderson said.  Typically, this type of scheme is carried out by a fraudster who has the ability to intercept a customer’s check before it is recorded or entered into the company’s accounting system.

The employee sets up a bank account with the same or similar name in order to deposit the check in his/her bank account, said Anderson, a forensic accounting expert in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

To cover the amount of the customer’s check, Anderson said the employee enters a credit adjustment to the customer’s accounts receivable account for the amount of the check, effectively reducing the amount owed by the customer and eliminating any possible notice that the check was diverted.  The employee usually hides his/her action by charging the credit adjustment against returns and allowances or some other revenue adjustment account, Anderson explained.

Yet another type of scheme involves tampering with checks paid to the employee, according to Anderson, a forensic accountant and Certified Fraud Examiner in Philadelphia.  Under this scheme, the employee changes the payment amount on the check.  To successfully pull off this scheme, Anderson said the fraudster must be in charge of bank account reconciliation so that he/she can manipulate the reconciliation to hide the difference between what was recorded on the books and what was paid by the bank.

A third type of these lesser-known check schemes involves the use of out-of-sequence checks, said Anderson, a forensic accounting expert in Philadelphia.  The perpetrator of this fraud generally is an employee who has access to a company’s checks and is in charge of the bank account reconciliation.

Anderson said the fraudster takes one or more checks from near the bottom of the company’s stock of checks.  For example, if the company is using checks with check numbers in the 3300 range, the employee takes checks in the 9400 range to use for the scheme, Anderson said.  The employee than makes payments to himself/herself with the out-of-sequence checks, and as with the previous scheme, hides this by manipulating the bank account reconciliation, according to Anderson, a forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Anderson said companies can fight these check schemes by following these effective fraud deterrence measures:

  • First, separate the duties of the employees who open the mail, record the receipt of the customer checks, enter the checks into the accounting system, deposit the checks and perform the bank reconciliations;
  • Assign a higher level manager (other than the person who performs the bank reconciliation) to review bank reconciliations and copies of cancelled checks;
  • Ensure that the stock of blank checks is secured and can be released only by a higher level manager; and
  • Periodically inspect the check stock to ensure that no checks are missing.

In some companies, Anderson noted, there are not enough employees to allow for the separation of duties or to follow all of the recommended fraud deterrence steps.  In these cases, he said, the company should consider engaging an outside fraud deterrence specialist to conduct periodic reviews that will ensure employees are not engaging in fraudulent check schemes.

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.

Adjusting Executive Compensation in Business Valuations

Posted by & filed under Blog Articles, Business Valuation, Forensic Accounting.

Establishing the fair value of a business requires a business valuation expert to adjust the revenues and expenses of the business to reflect “normal” operations.  Non-recurring and unusual expenses and revenues are eliminated, and recurring expenses and revenues are adjusted to reflect amounts that would be incurred if the owners were “hypothetical” independent investors in the business.

These “normalization” adjustments are not made because the business valuation expert believes anything is wrong with the revenues or expenses but rather that the hypothetical independent investor would not expect the pre-adjusted level of revenues or expenses to occur under his/her stewardship.  One important area for “normalizing” expenses is executive compensation.

When business valuation experts analyze executive compensation for potential “normalization” adjustments, they ignore the fact that an executive’s current compensation level may have been adjusted to make up for past underpayments of compensation or that the executive’s current compensation is based on the executive’s past unique or superior contributions to the success of the business.

Instead, business valuation experts generally consider three main issues that can affect the adjustment of executive compensation in business valuations:

  • The actual duties and responsibilities of the executive versus the executive’s title;
  • The amount of time the executive actually devotes to the business;
  • The executive’s compensation (including base salary, bonuses and other cash compensation, non-cash compensation and fringe benefits) versus the “normal” compensation for such a position.

“When it comes to executive titles, I find that some executives hold the title of a much higher position than a title that more closely corresponds to their actual duties, especially in closely held or family businesses,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides business valuation services in Philadelphia and the Delaware Valley.

“In one family-owned business, a Vice President told me his only responsibilities consisted of (1) reading The Wall Street Journal and certain publications to keep current on issues affecting the company’s industry, and (2) entertaining select customers  at golf outings or lunches and dinners,”  said Anderson, a forensic accounting expert in Philadelphia who also is a Certified Valuation Analyst.

“In another business, the CEO position was occupied by a figurehead father who only occasionally even visited the business, and whose duties were primarily to “schmooze” with certain long-time customers,” Anderson said.  “Meanwhile, his son, a Vice President, was responsible for long-term business strategy and planning, as well as for running the daily operations of the business.  In all of these instances, I adjusted the position title of the executive to match that of the actual duties and responsibilities.”

The amount of time an executive actually devotes to the business also is a key element in adjusting executive compensation for a business valuation, explained Anderson, a business valuation expert in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

“I had one executive who served as CEO for three separate businesses that had a common ownership,” said Anderson, a Certified Valuation Analyst and forensic accounting expert in Philadelphia.  “In valuing each of the three businesses, I extensively interviewed the CEO to determine how much of his time was spent with each business.  Based on this, I divided the CEO’s time ratably between the three businesses, even though the CEO’s salary was paid by only one of the three businesses.”

Once the valuator determines each executive’s appropriate position title and percentage of time devoted to the business, the next step is to calculate a “normal” total compensation for each executive, according to Anderson.  Two of the widely accepted databases used by valuators for this task are Risk Management Associates and ERI Economic Research Institute, which will be used to collect information about:

  • Position title, duties and responsibilities
  • Industry
  • Geographic location
  • Company sales
  • Database percentile

Database percentile shows the range of actual compensation data (from 1% to 99%) for the combination of the other factors, explained Anderson, whose company specializes in business valuation services in Philadelphia and the Delaware Valley.  Many valuators compare the company’s performance against similar companies in its industry to determine where the company ranks within the 1% to 99% range, and apply that same percentile to the executive compensation, Anderson said.  The valuator then adjusts the database-determined compensation for the percentage of time that the executive devotes to the company, he added.

Anderson, a business valuation expert in Philadelphia with expertise in a full range of forensic accounting services in Philadelphia and the Delaware Valley, said the final step in determining the “normalization” adjustment is to compare the calculated compensation for each executive with the actual compensation.  The difference between the two becomes the amount of the “normalization” adjustment.

This adjustment is particularly important when an executive’s actual compensation is much more than or much less than the calculated compensation, said Anderson, for example, when the key executive in a privately held business takes no compensation when the company’s sales are down significantly.

By “normalizing” the executive compensation, the business valuator is able to more closely reflect the executive compensation that would be paid to the executives by a hypothetical independent investor, said Anderson, an expert in business valuation services in Philadelphia.

If you are in need of a business valuation expert 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 and marital dissolution accountant in Philadelphia and the Delaware Valley.

Fraud Deterrence Measures Can Lessen Petty Cash Fraud

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

Petty cash fraud may seem, well, petty.  After all, your company keeps only a few dollars in the petty cash fund at any given time and it’s always secured in the company safe or otherwise locked up.  It’s hardly worth the effort of enacting fraud deterrence measures to protect petty cash, right?  You might be surprised to learn that fraud investigations have uncovered cases of petty cash fraud that resulted in significant losses.  It is not the amount of money that is available in petty cash at any one time, but the amount that is at risk over an extended period of time.

“Nearly every business keeps an amount of cash on hand to pay unexpected cash expenses, reimburse employees for small expenditures or provide cash advances to employees who will be traveling,” said David Anderson, a forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware  Valley.

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

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

Fraud Investigations Identify Financial Statement Fraud As Costliest

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

The most expensive frauds in the business world don’t involve the theft of cash or other assets, but rather the falsification of financial statements.  Repeated fraud investigations have found that these financial statement frauds usually are perpetrated by or at the direction of senior management.

“This is fraud at the very highest levels of a company,” 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.  “These cases generally involve big money and can have a significant impact on the value of a company’s stock, the purchase price of a company, the amount of investment funds a company can attract, the amount of taxes a company pays and on and on.  And financial statement fraud can affect anyone from a shareholder to an investor to a divorcing spouse.”

Anderson, a forensic accountant in Philadelphia who also is a Certified Fraud Examiner in Philadelphia, said there are two methods by which management perpetrates financial statement fraud:

  • Falsifying financial statements to make the company appear more profitable and/or with more net balance sheet value;
  • Falsifying financial statements to make the company appear less profitable than it actually is.

The first method is used primarily when management wants to maintain or increase the price of its publicly traded shares so as to appease shareholders, or when management wants to make the company appear more attractive to potential investors, purchasers or lenders, explained Anderson, a forensic accounting expert in Philadelphia who has conducted numerous fraud investigations.

The second method, he said, is used for two potential purposes — to reduce the company’s income tax liabilities or to reduce the value of the company so that the spouse who owns an equity interest will have less to pay in a divorce.

For management to make a company appear more profitable, it must either increase revenues or decrease expenses, according to Anderson, a Certified Fraud Examiner in Philadelphia whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Creating fictitious revenues can be accomplished in a variety of ways, Anderson said, including entering fake transactions on the company’s books; creating fictitious sales to related entities; or shipping unwanted product to customers and booking the shipments as sales (and when the product is returned, crediting the customers in a subsequent financial reporting period).

Fictitious decreased expenses can be achieved by booking certain expenditures as assets instead of expenses (also known as improperly capitalizing expenses) and by using book entries to transfer expenses to related entities, said Anderson, a forensic accountant in Philadelphia.  The telecommunications giant Worldcom used both of these methods (booking fictitious revenues and improperly capitalizing expenses) to maintain high share prices in perpetrating what was once the largest financial statement fraud in American history.

For management to increase the net balance sheet value, it must either increase the value of assets on its books or decrease the liabilities and debts on its books, explained Anderson, a Certified Fraud Examiner in Philadelphia.

The energy company Enron created special purpose entities that were not reported as part of its financial statements, and then transferred certain of its debts and losses to the special purpose entities, Anderson said.  Mirant (also an energy company) used fictitious accounting transactions to inflate the value of its inventory and accounts receivable, thereby increasing its net balance sheet value, he added.

Anderson said that fraudulent transactions designed to make a company appear more profitable or have a stronger balance sheet are more likely to occur in large- to medium-sized companies, but financial statement frauds designed to make a company appear less profitable are more likely to occur in medium- to small-sized companies.

For a company to appear less profitable, revenues must be reduced and/or expenses must be increased, explained Anderson, a forensic accountant in Philadelphia who recommends that every company enact a comprehensive fraud deterrence program developed by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.   Management usually reduces revenues by not recording cash sales, he said.  Another method is to not record a sale, but instead have the customer make the payment to an affiliated company or directly to the owner.

To fraudulently increase expenses, management usually runs personal (non-business) expenses through the business or has the business pay the expenses of an affiliate, Anderson noted.  One other often-used method of increasing expenses is to have the business make payments to a third party for non-existent services, and to then have the third party pass the funds back to the owner.

“The consequences of these frauds can be enormous,” said Anderson, a forensic accounting expert in Philadelphia.  “Not only can financial statement fraud cost millions and even billions of dollars, but it also can result in myriad devastating outcomes, such as SEC investigations, jail sentences, bankruptcy filings, widespread job loss and massive losses for investors, to mention just a few.”

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.

Damage Calculation and Expert Witnesses Testimony in Employment Cases

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

Attorneys often depend on forensic accountants to calculate damages in both wrongful termination and employment discrimination cases and subsequently to provide expert witness testimony in cases that make it to the courtroom.

“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 said the damage calculation is performed as follows:

  • First, the beginning date of damages is determined. This typically is the date that the plaintiff was allegedly wrongfully terminated or the date that the employment discrimination allegedly began;
  • Then, the wage or salary rate and associated benefits as of the beginning date of damages is identified;
  • Next, 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);
  • Then, 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 are identified;
  • 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 a number of 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, 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 in order to obtain employment, and the reasonableness of those steps (for example, if the plaintiff was previously a high powered executive, what is the plaintiff doing to find alternative employment?; 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;
  • 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.

Fraud Deterrence Measures Combat Computer Hackers

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

Despite heightened awareness about hackers and increased expenditures for cyber security, major businesses and financial institutions continue to fall victim to hackers.  Businesses can bolster their fraud deterrence measures in this area by being aware of the non-computer system exploits that allow hackers to successfully attack computer systems and taking steps to prevent them.

“Most companies refuse to explain how they were hacked, so no one can say with any certainty that a particular exploit was used in any one instance of hacking,” 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.  “But because of the risk these exploits present, it’s important for businesses to understand how hackers can circumvent their computer system security and what steps can be taken to help stop them.”

Anderson, a Certified Fraud Examiner in Philadelphia 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, said business should be on the lookout for three key exploits as outlined below:

Social Engineering

A social engineering “hack attack” relies on the willingness of company employees to share their user IDs and passwords with someone they don’t know, Anderson said, a forensic accountant with extensive experience in fraud investigation and fraud deterrence initiatives.

In this type of attack, he said, the hacker identifies a target employee who has high level access to financial systems and/or confidential information.  The hacker also uncovers the names of several IT employees, usually by calling into the IT Department and posing as an executive recruiter.  Next, the hacker calls the company (usually the sales or purchasing department) and asks for the target employee, who the hacker knows works in a different department.  The employee who answers the phone transfers the hacker to the target employee, who sees a call coming from what appears to an inside line and assumes the caller is another company employee.  The hacker then identifies himself as an IT employee by using one of the previously obtained IT employee names, and informs the target employee that they are having systems problems.  He asks the employee to log out of the computer system and then log back in.  He tells the employee to inform him of what he is entering as the user ID and password, which he then tells the target employee matches what the IT Department has on file.  After the employee successfully logs back in to the system, the hacker indicates that there does not appear to be a problem with the employee’s access, advises the employee to contact IT if there are any future access problems, and thanks the employee for his assistance.

“It doesn’t take much effort to obtain the confidential user ID and password of an employee with high level access,” explained Anderson, a forensic accounting expert in Philadelphia whose Philadelphia forensic accounting firm provides a full range of fraud investigation and fraud deterrence services.  “Most companies experience occasional computer problems so users are accustomed to being contacted by the IT Department to resolve the problem.  As a result, it is unfortunately not uncommon for an employee to unwittingly provide key information that allows the hacker to penetrate the company’s systems.”

Forensic accountants such as Anderson recommend that companies defend against this type of hack attack by establishing a set of written procedures specifically related to dealing with computer access problems and by training employees not to give out user IDs and passwords unless they know the IT employee personally or unless they call back the IT employee at that person’s internal system phone number.

Loose Lips Sink Ships

Another easy way hackers or their associates obtain employee passwords is simply to walk through an employee’s work space, Anderson said.  Fearing they will forget their passwords, many employees write the password down and post it in plain sight on their monitor, a cork board, or on their desk near the monitor.  Anderson recommends that employers perform occasional spot checks to make sure that their employees are not displaying their passwords for all to see.

Employees also sometimes willingly share user IDs and passwords with others, Anderson said, a forensic accountant in Philadelphia and the Delaware Valley.  For example, if an employee is out of the office and unable to access information in their computer, the employee may provide his/her user ID and password to a colleague to access the needed information.  Companies should always prohibit the sharing of user IDs and passwords, advises Anderson, forensic accounting expert in Philadelphia.

Similarly, companies often provide a temporary employee with the regular employee’s user ID and password to avoid having to set up the temporary employee in the computer system.  Others provide a guest user ID and password, but fail to change the access information after the temporary employee leaves.  In both cases, the temporary employee has a valid user ID and password that can be passed on to a hacker.  Companies should establish unique user IDs and passwords for temporary employees, and immediately disable them once the temporary employee has left, Anderson notes.

Click on This Link

Another common exploit occurs when hackers send employees of a targeted company an email that encourages them to click on a link.  For example, click on this link to see a nude picture of a certain well-known actress/singer/athlete, or an unbelievable athletic feat/kitten playing the piano/skier in an avalanche, etc.  When the employee clicks on the link, a malicious program is inserted into the user’s computer, thereby allowing user information to be transmitted to a hacker, Anderson said.

A company’s fraud deterrence measures for this type of exploitation should include the use of special software or third-party services to screen e-mail from unknown senders, Anderson said, adding that employers also must educate employees about the dangers of clicking on links in emails from unknown senders or in unusual emails from known senders.  For example, he said, if your sister doesn’t normally send you emails about body part enhancement, receiving such an email from her should raise a red flag.

“Enhancing computer system security to prevent access by hackers requires more than just hardware and software,” said Anderson, a forensic accounting expert in Philadelphia whose company provides forensic accounting services in Philadelphia and the Delaware Valley.  “It also requires being aware of the non-computer system exploits that hackers use and taking steps to prevent these exploits.”

If you aren’t sure that your fraud deterrence measures adequately protect you and your company, it may be time to contact a Certified Fraud Examiner in Philadelphia to conduct a computer security analysis and create a comprehensive fraud deterrence program that will keep hackers at bay.

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 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.

Tales of Fixed Asset Fraud

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

Most asset misappropriation frauds are focused on cash, and maybe inventory.  However, frauds involving fixed assets, primarily equipment and furniture, are also prevalent. Accordingly, fraud deterrence and prevention programs also should address protecting fixed assets from fraud, said forensic accounting expert David Anderson of David Anderson & Associates, Certified Fraud Examiner in Philadelphia.

Some of the more common fixed asset frauds, according to Anderson, a forensic accounting expert in Philadelphia, are:

  • Replacement of a fixed asset with another of lesser value: In his role as a forensic accountant, Anderson encountered such a situation when he was asked to analyze the fixed assets at the regional offices of a mid-sized public corporation.  Among the fixed assets were paintings, prints and sculptures with a total value of almost $1 million.  However, Anderson was unable to locate a single item on the company’s list of artwork.  Instead, he found a number of paintings, prints and sculptures of lesser or even dubious value.  A couple of the paintings appeared to have been purchased at Walmart or K-mart.  Anderson’s subsequent investigation revealed that employees would take home artwork that they wanted, and replace the artwork with something that they either had at home or purchased from a store.  Management was focused on selling their products and, therefore had turned a blind eye to the substitutions.  Because no one was tracking these items, management was unable to identify who took most of the artwork.  In the end, this fraud cost the company over $700,000.
  • Purchases of fixed assets of lesser value or quality than was authorized and paid for: In one scheme, David Anderson – a forensic accounting expert in Philadelphia – learned that the manager of a new office had been given a budget of $300,000 to furnish the office (furniture, fixtures, and office equipment). The manager submitted purchase orders totaling almost $300,000 for these items.  However, the manager schemed with an office furnishings vendor to actually spend less than $200,000 by substituting lesser quality items.  The manager than split the over $100,000 in extra payments with the office furnishings vendor.  This scheme was only discovered when the office experienced a fire, and an insurance claim was submitted.  However, the insurance company investigator had the furniture portion of the claim significantly reduced because none of the furniture matched what the company showed in its records.
  • False reports of theft or loss of fixed assets: These schemes typically involve smartphones, tablets, laptops or other “mobile” items. Certified Fraud Examiner in Philadelphia David Anderson was asked by a local government agency to assist it with establishing a fixed asset tracking system – one of the recommended fraud prevention measures.   The security department of the agency had a number of expensive walkie-talkie/radios in its inventory.  In tracking the serial numbers of the walkie-talkie/radios, more than 25 such items that were found to have been reported lost or stolen in the past were actually still in the inventory.  However, the corresponding replacement items could not be located.  Subsequent investigation revealed that a number of security employees over a multi-year period had engaged in the scheme of reporting the walkie-talkie/radios as lost or stolen (when they really weren’t), and had conspired with a purchasing department employee to pocket the funds for the purchase of replacement walkie/talkie radios.
  • Frauds involving “retired” assets: These schemes involve assets that have been taken out of service (no longer actively used in the business). Such assets are typically stored in an out-of-the-way location, and occasionally are sold to used equipment/furniture dealers or even to junk dealers.  Companies have usually fully depreciated these assets, and tend to forget about them once they are retired.  But, they still have some value to the company.  In one instance, a client company was hit by a scheme that originated in the IT department.  IT had a replacement program in effect.  Any computer that was more than three years old and any printer, copier, scanner, etc. that was more than five years old was replaced.  The old equipment was stored in a corner of the warehouse, and was essentially ignored by the company.  However, when the company sold the warehouse and relocated, it discovered that only a small portion of the retired IT equipment was present.  An investigation by the Philadelphia forensic accounting firm of David Anderson & Associates revealed that an IT employee routinely sold newly retired computers and other office equipment to used equipment dealers, and pocketed the proceeds.  The employee subsequently admitted to having been paid over $100,000 over a five-year period.

So, what fraud deterrence and prevention measures can a company put in place to avoid these frauds? Certified Fraud Examiner David Anderson of the Philadelphia forensic accounting firm of David Anderson & Associates has the following recommendations for fraud deterrence and prevention measures a company can put in place to avoid these problems: The first is to establish a fixed asset tracking program.  Under this program, a scannable bar code label is attached to each fixed asset.  The fixed asset information from purchase orders/invoices is then entered in a database.  All asset additions and dispositions are also entered into the database.  Finally, the company establishes a periodic physical inventory (such as inventorying 1/12 of the inventory each month) that allows the inventory team to scan the bar code label of each selected item.  If the bar code label is missing (assuming that the company has used a reliable method of affixing the labels) or if the bar code scan does not match the item in the database, the company is able to investigate immediately.  “Retired” assets should also be tracked until disposed of.  This type of program will prevent or significantly reduce the likelihood of the schemes above.   In addition, the company should install tip lines, make sure that employees are aware of the company’s anti-fraud stance, and provide educational programs for management and employees which teach fraud deterrence prevention.

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