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Guidelines to Help Ensure the Reliability of Financial Statements “Associated With” an Accounting Firm

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

Seeing the label “associated with” a specific accounting firm on a financial statement you receive is not a guarantee the information you are receiving has actually been examined rigorously, presented fairly, or carries even a shred of credibility, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.

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

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

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

Binders

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

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

Compilations

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

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

Reviews

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

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

Audits

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

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

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

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

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

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

About David Anderson & Associates

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

Business Valuation Experts Provide Critical Analysis in Collaborative Divorces

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

Throughout his career, David Anderson has served as a business valuation expert on both sides of traditional divorces.

Sometimes Certified Valuation Expert Anderson is retained by the attorney for the out-spouse (the spouse who either does not have an ownership interest in the business at all or who has a non-controlling ownership interest in the business when the other spouse has a controlling ownership interest in the same business); in other cases by the attorney for the in-spouse (the spouse who has either a controlling interest in the business, or a non-controlling ownership interest in the business when the out-spouse has no ownership interest).

In a typical traditional divorce, the in-spouse’s attorney may fight vigorously against providing information which the out-spouse’s business valuation expert has requested to perform the valuation.  Depending on the amount of rancor between the parties and level of antagonistic determination between the attorneys, Anderson – of David Anderson & Associates – said he may have to perform the valuation without all the relevant information which he believes is necessary for the valuation.  In the absence of such information, the business valuation expert may have to make reasonable assumptions regarding the missing information.

For example, if the out-spouse’s business deducts 100 percent of the cost of a company-provided vehicle, and the out-spouse does not provide mileage logs or other written documentation of business use of the vehicle, the business valuation expert may have to make assumptions regarding the percentage of personal use which is not considered a valid business expense.  Such assumptions, said forensic accounting expert Anderson can form the basis of a difference of opinion between the out-spouse’s business valuation expert and the in-spouse’s business valuation expert (who is usually retained to analyze and rebut the opposing expert’s valuation).

In such situations, the parties often may expend significant time and incur significant costs in using these business valuation experts.  Especially when there are significant differences of opinion between the two business valuation experts, the experts’ fees and attorney fees can be even higher.  According to Anderson, both spouses may also come away with confusion and misunderstanding regarding how the relevant business’s value was determined because they may only speak with the expert retained by their attorney and must rely upon the deposition and/or courtroom testimony of the opposing expert without being able to ask their own questions.

Collaborative divorce presents a significant alternative to traditional divorce.  While not for everyone, collaborative divorce gives each party and their attorneys the option to work together as a team.  As necessary, the team can be expanded to include financial specialists (such as business valuation experts), child specialists (to help with parenting plans and custody arrangements) and coaches (licensed mental health professionals who help the parties address emotional issues).  The goal of collaborative divorce is to help the parties determine the key outcomes of their divorce themselves as opposed to having a judge or third-party mediator determine those outcomes.

All the team members in a collaborative divorce, said Certified Fraud Examiner Anderson, have undergone specialized training which helps foster cooperation, respect and open exchange.  Yet, because each spouse is represented by a collaboratively trained attorney, he/she can feel confident that his/her views will be adequately considered, and his/her needs will be adequately addressed by the team.

So how does the role of the collaboratively-trained business valuation expert differ in a collaborative divorce?

  • First, the business valuation expert is retained by both parties as opposed to by just one party in a traditional divorce.
  • Next, because of the joint retention of the business valuation expert, both parties are more cooperative and better able to share all the necessary information needed by the business valuation expert. Thus, there is also usually less of a need to make assumptions.
  • Finally, Anderson explained, the business valuation report can be openly reviewed with both parties. Because this is a collaborative effort, the business valuation expert can be more open and informative with both parties, and stand ready to fully answer either party’s questions. This helps to eliminate confusion and lack of understanding regarding the business valuation and business valuation expert’s process.

In a collaborative divorce, the cost for the business valuation expert can be less, because only one expert is retained instead of two, and because the cost of depositions and/or courtroom testimony can be eliminated.

If you need a business valuation professional 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 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.

Combat Fraudsters by Regularly Reviewing Your Organization’s Financial Statements

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.

It’s good common sense – and even better financial sense – to review on a regular basis the financial statements issued by companies, government entities or organizations to deter fraud. However, many executive officers rarely check these documents, and often when they do, they might not fully understand what they are reading.

Knowing your financial statements, and understanding what to look for, are important components both in fraud identification and fraud deterrence.

“The only time officials in most organizations, government entities and companies actually look at the financial statements is after year-end,” said David Anderson, a Certified Fraud Examiner and 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 fraud investigation and fraud deterrence programs.  “They are doing themselves a major disservice.  Financial statements can have red flags that can alert you to potentially fraudulent activity.”

A full forensic accounting analysis of your financial statements can help point out the warning signs of fraud, Anderson said.  There are things to consider in analyzing the statement, he said.

If your business is growing, do your financial statements indicate regular increases in sales or do they show relatively flat sales?  If it’s the latter, you’ll want to know why.  In one recent fraud case, a dishonest employee was diverting sales and cash receipts.  Had the business owner checked the company’s financial statements regularly, the fraud could have been detected sooner, Anderson noted.

If your business is not growing and sales are down, and your financial statement is showing an increase in inventory purchases, there may be an issue. Someone could be fraudulently diverting inventory.

If the difference between your sales and the cost of sales or cost of goods sold – also known as your gross margins – are decreasing, there could be a reason why. If certain operating expenses — such as office supplies/expense, travel and entertainment expense, etc. — are rising faster than expected, investigate it.  If the cash balance on your financial statements doesn’t approximately equal the balances on the corresponding bank statements (allowing for some outstanding checks), look for missing funds.

The reason behind any of these “red flags” may be completely legitimate, Anderson said, but they may also indicate illicit activity.  If you are not sure that a “red flag” is completely legitimate, you may need a fraud investigation to determine the cause.  At the very least, a consistent examination of your financial statements may identify business inefficiencies that can be resolved.

Lastly, regular financial statement analysis shows your workers you care about the company, government entity or organization, and that you are watching the flow of money to assure operating efficiency and to identify potential fraud.  It’s one of the strongest fraud deterrence messages you can send, Anderson advises.

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.

Fight Fraud by Staying Current on Your Company’s Bank Reconciliations

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.

One of the most effective ways for a business to help prevent fraud is, according to one of the top forensic accountants and Certified Fraud Examiners in the Philadelphia region, to closely monitor and control its bank reconciliations and other account-related activities.

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, previously has written about various aspects of the role that bank reconciliations play in enabling or preventing fraudsters from embezzling or diverting funds.

In this article, Anderson looks at various features of such types of fraud and the steps that can be taken to prevent them.

To start, there’s the diversion of bank deposits or improperly receiving cash from bank deposits. To prevent this fraud from occurring, according to Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – the duties of preparing deposit slips, making the bank deposits, recording the deposits in the company’s accounting system and performing the bank reconciliation should be separated from one another.

Another typical fraud pattern involves the improper withdrawal of funds via the use of counter checks, or out of sequence checks. To keep this from taking place, the duties of check signatory, physical control of checks and bank reconciliation should be separated from one another, says Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

One more commonly seen scheme also deals with the improper withdrawal of funds but, in this case, fraudsters use transfers to other accounts at the same bank, ACH (automated clearing house) payments and wire transfers to receive their ill-gotten gain.  Anderson, a Certified Fraud Examiner in Philadelphian, said this fraud plan can be thwarted by keeping persons who have the authority to perform these transactions separated from the bank reconciliation function.

Also, the improper use of business ATM cards, according to Anderson, can be prevented by keeping the persons who have the use of these cards separated from the bank reconciliation function.

While 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, said he recognizes that – especially in smaller companies – it might not be possible to separate such functions, he suggests adding these controls:

  • Have bank statements (along with copies of paid checks) mailed directly to the home of the business owner or senior executive (other than the executive who performs the bank reconciliations).
  • Have that person open and peruse the bank statements looking for unusual transactions and checks. These actions, said Certified Fraud Examiner in Philadelphia Anderson, can include the improper use of ATM cards, lower amounts of deposits than expected, unexpected ACH payments and wire transfers, transfers to unknown bank accounts, out of sequence checks, counter checks, checks paid to unknown parties, and checks paid to known parties but for larger amounts than expected. Only after these items have been inspected (which doesn’t take much time) should the documents be given to the person performing the bank reconciliation.
  • Have the completed bank reconciliations reviewed by the business owner or a senior executive. The reviewer, said Anderson – a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley – should ask questions about such items as deposits in transit (bank deposits that have been already recorded on the company’s accounting system but which were not received by the bank as of the bank statement cut-off date) and unpaid checks that are more than 90 days old as well as anything else that seems out of the ordinary or unusual. Many small companies utilize an outside expert such as a forensic accountant or Certified Fraud Examiner to regularly review completed bank reconciliations.

By adding these controls to bank accounts and bank reconciliations, Anderson said a company can go a long way to preventing many types of fraud.

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 Accountants Can Help Assure Timeliness and Completeness of Royalty Payments

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.

Have you or your clients licensed the use of intellectual property in return for royalty fees?  Are you or your client’s franchisors who receive franchise fees from your franchisees?  If so, are you conducting royalty audits in a timely manner to assure that you are receiving the fees to which you are entitled?  If not, it may be time to turn to a forensic accountant to establish regularly scheduled royalty audits and make sure you are getting the royalty checks you deserve.

“Royalty fees are sometimes fixed so that a certain amount is paid each year, but more often, they are based on production, sales or gross profit by the licensees,” 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.  “In those situations, the license agreements allow for royalty audits.  The problem is that many licensors fail to conduct royalty audits, or they conduct them long after the fees are due, effectively cheating themselves out of money they are owed.”

Royalty audits are a complex undertaking that generally are not conducted by patent holders, copyright holders, trademark/tradename holders or franchisors, but instead by a trained financial expert such as a Philadelphia forensic accountant with experience in conducting royalty audits for licensed intellectual property or for franchisors, Anderson said.  The cost of a royalty audit usually is paid by the licensor, Anderson said.  However, many royalty agreements contain provisions that require the licensee(s) to pay for the royalty audit if the audit discovers willful understating of fees due, he said.

A royalty audit is a detailed examination of the licensee’s financial records intended to ensure that the production, sales or gross profit reported by the licensee matches the actual production, sales or gross profit recorded in their financial records, according to Anderson, a forensic accounting expert in Philadelphia who has expertise in royalty audits.

In situations where different license fee rates apply to different types of items, a royalty audit analyzes the licensee’s fee calculations to make certain that the correct rates have been applied, Anderson explained.  A royalty audit also examines the licensee’s financial data to make sure it is consistent with that of comparable companies, Anderson said.  For example, if a license fee is based on the gross profit of sales of licensed items, the royalty audit will evaluate gross profits reported on comparable sales by comparable companies to determine if the gross profits reported by the licensee are reasonable.

When significant amounts of royalties or multiple licensees are in play, the license holder may require electronic reporting of financial information, said Anderson, whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  That requirement often results in large amounts of information being reported to the licensor and the subsequent need for the royalty auditor to employ specialized software for data analysis, he said.

As a forensic accounting expert in Philadelphia, Anderson recently conducted a royalty audit for a well-known musician whose music was licensed throughout the world in many forms – albums, singles, sheet music and Internet downloads, as well as songs used for commercials, movies and television programs, by cover bands, and by commercial music services, among others.  In addition, the royalty rates paid differed by form and licensee, he said.

Much of the financial information was provided in electronic format and involved many thousands of lines of data, according to Anderson, a Philadelphia forensic accountant with expertise in royalty audits.  Anderson said he relied on specialized data analysis software to help facilitate the audit, thereby eliminating hundreds of fee hours and significantly reducing the time needed to conduct the audit.

Anderson also noted that a key benefit of royalty audits is the proactive use of audit techniques to regularly monitor licensee compliance and avoid waiting until year end (or beyond) to determine compliance.  In the case of the world-famous musician, the routines Anderson developed in the specialized data analysis software were adapted for monthly use. This allowed for regular analysis of financial data, which, in turn, reduced the amount of work required for the year-end royalty audits and allowed for faster reaction to underpayments by licensees.

Regular royalty audits and the proactive analysis of licensee data assures holders of intellectual property licenses and franchisors that their licensees/franchisees are paying royalties/fees at the correct rate and in a timely manner.

If you require the services of a Philadelphia forensic accountant with expertise in royalty audits 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 Accountants Can Bring Value in Termination, Discrimination Cases

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.

Among the many duties a forensic accountant may be asked to undertake in a typical work cycle is calculating damages for wrongful termination and employment discrimination lawsuits.

“Whether you are dealing with wrongful termination or employment discrimination, the methodology for calculating damages is similar,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.

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

Anderson outlined the steps of the damage calculation this way:

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

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

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

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

If you need help in calculating damages for wrongful termination or employment discrimination cases, or if you require the services of a forensic accounting expert in Philadelphia and the Delaware Valley for any other reason, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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

 

Forensic Accountants Can Help Effectively Referee Family Inheritance Battles

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.

Any parent, grandparent, aunt or uncle, or other guardian is quite familiar with the squabbling that can take place among young siblings fighting over toys, chores, or family rules.

Sadly, in more situations than you might think, these individuals grow up and end up in similar internecine arguments; this time, however, over trusts, estates, or other inheritance issues.

This is where the services of a forensic accountant can come into play.

“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 examined, provides a schedule of assets of the trust or estate at both the beginning and end of the 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 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.

Charities and Non-Profits Might Be More Exposed to Fraud

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 charitable and non-profit organizations focus on serving the general good, they’re quite often themselves the focus of fraudsters who target their financial operations as potential low-hanging fruit that’s ripe for picking.

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 to protect itself from fraud?  Here are a few suggestions:

  • 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.
  • 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).
  • 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.

Using “The Fraud Triangle” To Help Stave Off Nefarious Employees

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

There are myriad ways employees can defraud their companies, but there’s one easy approach that can help keep fraud out of your business or organization: Understanding “The Fraud Triangle” and using it to your advantage.

“When forensic accountants mention the ‘The Fraud Triangle,’ they are referring to the three elements that are necessary for fraud to occur — pressure, opportunity and rationalization,” says David Anderson, a Certified Fraud Examiner and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

Why Business Owners Should Have a Transition Plan

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

The statistics are astounding.

Over the next 10 years, more than 4.5 million privately owned businesses will transition . . . but only about 20 to 30 percent of them will sell.  This means more than 3 million business owners will have to find another way to transition their business. Unfortunately, many of those 3 million-plus business owners could realize much less from their businesses if they don’t have a transition plan in place.

Simply put, a business transition plan is a well-thought-out and defined roadmap for transitioning ownership of the business.  But, it’s not a simple as it sounds. A business transition plan includes the following key elements/questions which must be addressed:

What financial results does the business owner want to realize from the transition of the business? – For example, does the business owner expect to realize a specific annual income from the business during the transition period and after the transition is completed?  How about perquisites and other benefits?  How about a lump sum payment versus periodic payments if the business is sold?  These are critical decisions that must be made to help the business owner determine how the business is to be transitioned.

How the business is to be transitioned? – There could be a significant difference if the business is to be sold to a third party, gifted to one or more family members, sold to one or more key non-family managers, sold to an ESOP (Employee Stock Option Plan), liquidated. Each of these options carries different implications for how the business is to be transitioned as well as how the business owner’s expectations regarding income, benefits, and payment are to be realized.  Additionally, the form of transition can have significant implications for taxes. For example, does the business owner sell the stock of the business (realizing capital gains which are taxed at a lower rate) or does the business owner sell the assets of the business (tangible asset sales are taxed at higher ordinary income tax rates)?

How much is the business worth today? – This key question has several implications.  For example, it might be worth considerably less than the business owner believes it to be worth.  This can significantly affect the expected financial results from the transition; the length of time until the business owner transitions the business; and the way the business is transitioned.  If the business is worth less than expected, the business owner may have to devote more time and effort to grow the business to the desired value or accept a lower financial realization.  If the business is worth more than expected, this could shorten the time frame that the business owner expected to make the transition.  It can also affect the form of transition.  For example, if a business owner is expected to make annual tax-free gifts of ownership to family members, a higher valuation will require either a longer period for the gifts or the business owner would have to either pay gift taxes or use up the unified credit faster than expected.

How will key employees, customers, and vendors be affected by the transition? – In many cases, the business owner has relationships with certain key employees, customers, and vendors.  The business owner needs to investigate how the transition to new ownership will affect these relationships.  For example, suppose one or more key managers expected to purchase the business upon the business owner’s retirement, but because of the previously discussed factors the owner intends to sell the business to a third party?  Or suppose the business owner is planning to transition the business to a family member who doesn’t get along with one or more key managers?  Suppose the relationship between the owner and a major customer could be adversely affected by the retirement of the business owner?  All these factors need to be considered in the transition plan.

Addressing the above issues and questions may be more complex than most business owners can handle.  In such cases, the business owners need to seek out qualified, experienced professionals who can help them develop their business transition plan.

Additionally, business owners need to understand that once developed, the business transition plan cannot be set in concrete.  It must be constantly revisited due to changes in technology; changes within the business’s industry; changes in the personal circumstances of the business owner (for example: A divorce, change in family relationships, or a significant illness); change in other business circumstances (for example: Death or departure of a key manager, loss of a key customer or vendor, etc.); change in the regulatory or tax environment (for example: The impact of the Tax Cut and Jobs Act); and/or changes in the economy.

Those business owners who create and maintain an effective business transition plan will be the ones who can successfully realize their financial expectations from the transition of their business.

If you need a business valuation professional 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 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.

Divorced or Considering Divorce? You Need to Know About These Tax Changes

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

Prior to the December 2017 Tax Cuts and Jobs Act (TCJA), when one spouse paid alimony (or separate maintenance payments) to the other spouse in a divorce, the paying spouse could deduct the alimony payments on his/her Federal income tax form.

At the same time, the spouse receiving the payment was required to report the alimony payment as income.  This arrangement tended to encourage larger alimony payments because the paying spouse typically was in a higher tax bracket and the spouse receiving the payment was in a lower tax bracket.

According to David Anderson, a Certified Valuation Analyst who has served for many years as a marital dissolution accountant in Philadelphia and the Delaware Valley, the TCJA potentially changes all of this.  Here’s how:

For Alimony Agreements currently in effect (as of the date of this blog posting): 

The TCJA won’t change the deductibility of alimony by the paying spouse and requirement for the spouse receiving the payment to report the alimony payment as income if the following requirements are met:

  • The alimony payment must be part of a written divorce or separation decree/agreement that is currently in effect;
  • The alimony payment must be made to the ex-spouse or on behalf of the ex-spouse;
  • The payment cannot be specifically stated in the written divorce or separation decree/agreement as not being alimony nor can the written divorce or separation decree/agreement state that the payment is not deductible by the paying spouse or not reportable as income by the spouse receiving the payment;
  • After the couple is considered divorced for Federal income tax purposes (divorced or legally separated), they cannot file a joint Federal income tax return and cannot live in the same household.
  • The alimony payment must be in cash or in a cash equivalent (the definition of cash equivalent for tax purposes could fill another blog);
  • The payment can not be stated in the written divorce or separation decree/agreement as being for child support.

Additionally, Anderson – whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley – said the paying spouse must list the receiving spouse’s social security number on his/her Federal income tax returns going forward, and, except for delinquent amounts, the written divorce or separation decree/agreement must not provide for ongoing payments after the receiving spouse dies.

For Alimony Agreements executed after the date of this blog up to and including through December 31, 2018: 

The TCJA won’t change the deductibility of alimony by the paying spouse and requirement for the spouse receiving the payment to report the alimony payment as income if the above requirements are met.

For Alimony Agreements executed after December 31, 2018: 

Under the TCJA, alimony will not be deductible by the paying spouse and will not be reportable as income by the spouse receiving the payment.

Based upon the above, Anderson – a divorce accountant and business valuation expert whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes marital dissolution and business valuation services in Philadelphia – strongly recommends the following: Any divorced or legally separated couple currently under a written divorce or separation decree/agreement should check with their attorney(s) to make sure the paying spouse can continue to deduct the alimony payments (and that the spouse receiving the payment can continue to report the payment as income).

Additionally, Anderson said, any couple currently going through a divorce should work with an attorney(s) to complete execution of their written divorce or separation decree/agreement by December 31, 2018, if they want the paying spouse to be able to deduct the alimony payments (and the spouse receiving the payment to report the payment as income).

If you need 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.

“Tricks of the Trade:” Look to The Numbers for Clues to Fraud

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

This is the final blog in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.

As part of the normal procedure of analyzing financial and accounting information, a forensic accountant will look closely at the numbers themselves.

Such tight scrutiny can help unearth potential fraud or other abuse of financial information, according to David 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.

A prime example that proves the value of this practice, Anderson said, is the analysis of auto mileage claimed on small business tax returns, typically Schedule C. In one marital dissolution case, the husband was a physician who operated out of two offices located eight miles apart and regularly claimed over 20,000 miles per year in deductible auto mileage, explained Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia. (NOTE: The IRS allows deductions for mileage between offices when both are visited on the same day).

“If I assumed the physician visited both offices every day, and worked six days per week with no vacations or holidays, the maximum mileage he would have had in any year would be eight miles a day times six days per week times 52 weeks per year = 2,496 miles, which is considerably fewer than the 20,000-plus miles claimed each year,” said Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley.

In another instance, Anderson said the husband claimed to have driven exactly 30,000 miles each year. Statistically, he noted, it is very unlikely that someone can hit the same exact round number of miles each year. For each of the previous four years, explained Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, the husband claimed to have driven this number of business miles in his four-year-old Chrysler, in addition to normal commuting mileage which he estimated to be about 20,000 miles per year.

“When I visited his office, I asked to check the odometer in his car, which he still had at the time, and the odometer showed fewer than 70,000 miles,” Anderson said. “Based on his claims, the total mileage should have exceeded 200,000 miles.”

Another area that Anderson, a Certified Fraud Examiner in Philadelphia, said a forensic accountant can analyze is the numbers associated with non-descriptive general ledger accounts. These can include such accounts as: Exchange, Transfer, Reserve, Miscellaneous Expenses, Other Expenses, Other Services, Cash Over and Short, and Consulting. Depending on the name of the account, Anderson said a forensic accountant will analyze the transaction detail and period-ending balance.

For example, the first three accounts – “Exchange,” “Transfer” and “Reserve” – typically are used to temporarily balance a transaction entry which requires further research to determine the correct account to be used, 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.

This means a forensic accountant will expect to see amounts come into these accounts from other transactions, and corresponding amounts come out of the account as the company determines the correct account to use, said Certified Fraud Examiner and forensic accounting expert Anderson. If a forensic accountant sees significant balances at the end of the year, or significant differences in amounts going into and out of the account, he said it could indicate fraud.

Accounts with “Miscellaneous” or “Other” in their title should typically be used for relatively small amounts that cannot reasonably fit any other expense category. Again, 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, if a forensic accountant sees significant balances in these accounts, it merits further detailed analysis because of the potential for fraud or abuse.

The categories “Cash Over” and “Short” are used by retail businesses, said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia, to account for the difference between the cash in cash registers versus what the point of sale accounting system says the cash balance should be. It is not unusual, Anderson said, to have small differences.

In one marital dissolution case, however, a restaurant regularly experienced large cash shortages (over $100 each time) two to three times a week. By the end of the year, total cash shortages exceeded $20,000. The husband, who owned this business, did not seem particularly alarmed by this shortage. Further investigation by Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley, revealed the husband regularly took cash out of the register and pocketed it to reduce his profits and, by extension, the value of his business.

If you have questions about any finance or fraud issues, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. The Philadelphia forensic accounting firm of David Anderson & Associates can be reached by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com if you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley.

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.

“Tricks of the Trade:” Use Times and Dates to Catch Fraudsters

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

This blog is the third in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.

In conducting investigations, a forensic accountant often will analyze times and dates to determine if fraud or minority shareholder oppression may be present.

Date and time analysis can be used for a variety of purposes, explained David 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.

For example, Anderson said many fraudsters with access to business accounting systems enter transactions after hours or on weekends, so no one can observe them. Hence, in analyzing the date and time of transaction entries, a forensic accountant will conduct additional analysis of transactions entered after hours or on weekends to determine the propriety of those transactions, said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia. He added that the forensic accountant also can investigate online off-hours access to systems to determine whether unauthorized outsiders have accessed the company’s systems.

In minority shareholder oppression cases, as well as in marital dissolution cases, a forensic accountant will analyze the date and time of reimbursable travel, meal, and entertainment expenses, Anderson said.

“In one recent case, I found that over a period of three years the majority shareholder had submitted reimbursable meal expenses for more than 100 meals on Friday nights, Saturdays, Sundays, nights before a holiday, and on the holidays themselves,” said David Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley.

When deposed, Anderson said the shareholder, whose company was a retail business, claimed each of these meals – some of which were for hundreds of dollars – were for entertaining customers. However, no customers were specifically identified with any of the meals.

Furthermore, when the shareholder did provide the names of specific customers that he claimed to have entertained, all but one of the customers had purchased less than $500 from the business over the three-year period, said Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

In a marital dissolution case, Anderson – a Certified Fraud Examiner in Philadelphia – said he noted frequent travel, meal, and entertainment reimbursements that occurred over weekends and holiday periods. This travel included international travel even though the business was a local business. In analyzing the supporting documents, forensic accounting expert Anderson said he found that all the travel was for vacations for the business owner and his girlfriend.

Dates of birth can also be utilized by forensic accountants to verify the validity of employee social security numbers, Anderson said. Certain tables are available that provide approximate information regarding when an individual applied for his/her social security number, 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.

Running these tables against the birthdates of employees can identify potential mismatches, such as a 30-year-old worker whose social security number falls in the range of numbers that were issued prior to 1950, said Certified Fraud Examiner and forensic accounting expert Anderson. These mismatches, he said, can then be further investigated to determine whether the employee has furnished a valid social security number.

If you have questions about any finance or fraud issues, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. The Philadelphia forensic accounting firm of David Anderson & Associates can be reached by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com if you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley.

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.