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Interview Replies Can Separate Fraudsters from Non-Fraudsters

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

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.

Interviews with employees, customers, vendors, and other key individuals are an important part of any fraud investigation.  Such interviews, says a leading Philadelphia forensic accountant, can help provide an understanding of the business, uncover potential fraud, frame the size and scope of the fraud, and identify potential fraudsters.

However – according to David Anderson, a Certified Fraud Examiner – the suspected fraudster(s) typically are the last to be interviewed because the certified fraud examiner wants to be able to confront the suspected fraudster(s) with all or most of the facts and other information order to elicit an admission.

Based upon his experience with such interviews, Philadelphia forensic accountant Anderson said he has observed some significant differences between fraudsters and non-fraudsters.  Some of these observations are:

  • Non-fraudsters, said Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley, are typically eager to provide information as part of the interview process. For example, Anderson said that when he has asked about areas of weakness that could permit someone to commit fraud, non-fraudsters will usually provide such information (of which they are aware), and even try to speculate about areas of potential weakness of which they have little or no knowledge. Fraudsters will typically claim that they are not aware of any such weaknesses, and that it is impossible for someone to commit fraud at the company.
  • Non-fraudsters are typically emphatic about how a potential fraudster should be punished. For example, they will state that the person should be fired immediately. Fraudsters will be significantly less emphatic. Certified Fraud Examiner Anderson said they will often suggest that there might have been an acceptable reason as to why the potential fraudster would have committed the fraud.  They will also typically suggest that the company should be lenient with such a person, including giving that person a second chance.
  • Non-fraudsters do not typically hesitate in their answers to questions. As 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 – explained, fraudsters will be hesitant and may even repeat the interviewer’s question (to buy time to think about their answer), especially when the question starts to touch on areas related to their fraud.
  • Non-fraudsters, Anderson said, are also typically emphatic when asked if they have ever done anything improper. For example, the typically non-fraudster will immediately and forcefully say “No!” Fraudsters are typically less emphatic and may even deflect. In one case, the fraudster responded (earlier in the interview), “Well, to be honest, I have taken home paper clips, pens, and paper a few times, and I remember that once, there was a fifty-cent error on my expense reimbursement which I never told anyone about”.  (It was only much later in the interview that the fraudster admitted to having taken tens of thousands of dollars in a billing scheme).

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.

A Basic Action You Can Take to Reduce Business Fraud

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation, forensic accounting, and marital dissolution services in Philadelphia and the Delaware Valley. . . . In this blog installment, Anderson discusses a simple change every business can take to help stem internal fraud.

During the past two years, the most frequent fraud I have investigated has involved a trusted employee with the ability to write and sign checks. In such instances, these individuals write checks to themselves or a compatriot but record the checks in the company’s accounting system as having been written to either a vendor or another employee. Each employee was able to take more than $100,000 from their employer using this simple scheme. In most cases, these frauds were perpetrated over many months.

In every case investigated, the employer failed to take the one basic action that could have prevented the fraud:  reviewing the monthly bank statements and copies of the paid checks.  In each case, performing this one action – which typically takes less than one hour a month – would have allowed the business owner to notice the multiple checks written to each employee or compatriot.  Additionally, the business owner also may notice that account balances as shown on the bank statement are lower than the business owner may have been told.

Here are a few additional factors to consider:

  • In about 50 percent of the cases I investigated, the trusted employee was not able to sign the checks but was provided with a signature stamp of the owner’s signature. This situation puts the business at even higher risk of fraud.
  • If your bank doesn’t routinely provide hard copies of paid checks with its bank statement, you should spend the extra money to obtain them. Going online to inspect each paid check is considerably more time consuming, and asking your trusted employee to print out each check affords the employee the opportunity to “hide” the evidence. For example, not printing out the suspect checks by claiming that they haven’t been paid yet.
  • You also should consider having bank statements sent directly to your house instead of to the office. Again, this prevents your trusted employee from potentially altering the bank statements. In one case, the employee downloaded a copy of the bank statement as a .pdf, and then used software to alter the document and hide the evidence of fraud.
  • If you believe that this action is still too time consuming for you, you should consider having either your outside accountant or a third party (such as a forensic accountant) regularly perform this action for you.

Do you need the services of a Certified Fraud Examiner? If so, you should speak with one from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do this by contacting the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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

Your Best Expert Witness is an Independent Expert Witness

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

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

Expert witnesses who are called to testify in litigation are not – contrary to what some people believe – supposed to be advocates for the side that hired them, but rather serve as independent experts applying their education and experience to the matter.

It should, instead, be the client’s attorney who serves as the advocate for his or her client, 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.

Forensic accountants, business valuators, and CPAs engaged as expert witnesses are subject to professional standards that generally require them to maintain their independence (there are some exceptions, such as those related to preparation of tax returns).  Additionally, expert witnesses also may be required by certain government regulations to maintain their independence.

In discussing independence, Anderson, a Certified Fraud Examiner who recommends 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 the professions generally identify two sub-categories of independence:

  • Independence in fact, and
  • Independence in appearance.

Independence in fact refers to the expert’s mental attitude regarding the matter.  It most often reveals itself in the expert’s reports and/or testimony.  It should not matter which side has engaged the expert.  The expert’s conclusions should be the same (subject to certain assumptions).

However, the expert’s independence could be called into question if:

  • The expert has made certain assumptions (at either the request of the client or the attorney) that clearly are unreasonable, and which benefit the side that engaged him or her. For example, if the expert has assumed a mature business would have been able to grow its revenues at a 20 percent rate solely from its existing products for each of the next 10 years or has assumed employees would accept a 50 percent wage decrease for the next ten years.
  • The expert asserts, without providing any corroborating evidence, certain questionable actions of the side that engaged him or her were reasonable. For example, testifying that certain funds improperly taken by an employee without authorization were advances on his or her inheritance because the employee expected to eventually inherit the business.

Independence in appearance, said Certified Fraud Examiner Anderson, refers to how an uninterested third party might view the expert’s independence considering certain facts.  For example:

  • Does the expert have a financial stake in the side that engaged him or her?
  • Does the expert have a familial relationship with anyone on the side that engaged him or her?
  • Is the expert currently performing work for the attorney on another matter or does the expert have an ongoing working relationship with client that engaged him or her?
  • Is the expert owed money by the side that engaged him or her? If so, is it possible that the expert’s report or testimony could be affected by the potential of non-payment in the event the client does not like his or her conclusions or testimony? This is one of the reasons Anderson said he requires upfront retainers and payment in full prior to releasing a draft report or testifying.
  • Does the expert have, or has the expert had, a past adverse relationship with one or more of the parties or attorneys on the opposing side?
  • Has the expert agreed to make certain changes to his or her report or proposed testimony due to pressure or specific direction from either the attorney or the client? This also touches on the concept of making unreasonable assumptions. A recent prominent Federal Tax Court case – Exelon Corp v. Commissioner – was lost, in part, to the expert doing just that.
  • Is most of the expert’s work performed for either plaintiffs or defendants – the so-called “hired gun” – and not a balance of both?

Independence is a critical aspect of being an expert witness.  The decider of fact – whether a judge, jury, or arbitrator – often will consider the expert’s independence in deciding on the credibility of the expert.  As a result, expert witnesses must be independent in both fact and appearance.

If you are involved in, or are anticipating, a legal proceeding, either as a plaintiff or defendant, make sure you have an expert witness who truly is independent. David Anderson is a Certified Fraud Examiner with experience providing forensic accounting services in Philadelphia and the Delaware Valley.

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

About David Anderson & Associates

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

 NOTE: David Anderson’s forensic accounting blog will be on hiatus through the holidays and the beginning of the new year; it will return on Monday, January 11, 2021. Have a safe and enjoyable holiday season!

 

A Look at How Forensic Accountants Assess the Reliability of Documents

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

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

My previous blog discussed how forensic accountants assess the credibility of interviewees.  This blog focuses on how I assess the reliability of documents I analyze in performing my work.

As a forensic accountant, I am asked to analyze various information provided to me, including that contained in documents, business databases, and testimony.  Generally, in performing this analysis for litigation, I assign the highest reliability to preprinted historical documents (concurrent with the time of the matter giving rise to the litigation) that have been filed with a governmental agency or a court, and which contain a signed affidavit attesting to the truthfulness and completeness of the document.

My scale of reliability for these types of information goes from highest reliability to lowest reliability as follows:

  • Preprinted historical documents (concurrent with the time of the matter giving rise to the litigation) that have been filed with a governmental agency or a court, and which contain a signed affidavit attesting to the truthfulness and completeness of the document (for example, a signed Federal income tax return which was timely filed);
  • Signed preprinted historical documents (concurrent with the time of the matter giving rise to the litigation) that have been filed with a governmental agency or a court, and which do not contain a signed affidavit attesting to the truthfulness and completeness of the document (for example, a fully signed and dated contract filed with a regulatory agency);
  • Unsigned preprinted historical documents (concurrent with the time of the matter giving rise to the litigation) that have been filed with a governmental agency or a court, and which do not contain a signed affidavit attesting to the truthfulness and completeness of the document (for example, non-contract documents filed concurrently with the above-cited contract);
  • Publicly available or proprietary databases commonly used by forensic accountants and investigators (for example, Bureau of Labor Statistics Compensation tables);
  • Signed preprinted historical documents subject to audit (for example, signed and dated contracts examined by financial auditors);
  • Unsigned preprinted historical documents subject to audit (for example, vendor invoices examined by financial auditors);
  • Signed preprinted historical documents not subject to audit (for example, signed and dated purchase orders);
  • Unsigned preprinted historical documents not subject to audit (for example, customer billing invoices);
  • Signed handwritten historical documents subject to audit (for example, a signed and dated handwritten explanation provided to a financial auditor as to why a customer was granted a credit against a billing invoice);
  • Sworn testimony of third parties not named in or involved in the litigation (for example, a customer’s sworn affidavit that he/she did not receive certain billed shipments);
  • Unsigned handwritten historical documents subject to audit (for example, dated handwritten notes about a customer’s complaint that he/she did not receive certain billed shipments which were examined by financial auditors);
  • Signed handwritten historical documents not subject to audit (for example, the same as above but signed and dated by the employee at the time, and which was never examined by financial auditors);
  • Unsigned handwritten historical documents not subject to audit (for example, the same as above, but never signed by the employee and which was never examined by financial auditors);
  • Sworn testimony of parties involved in the litigation.

It may seem strange I would assign the lowest level of reliability to sworn testimony from the parties in litigation, but this is because such testimony can be colored by the stake each party has in the litigation.

The same applies to certain documents supplied by each party; for example, in one recent case, one side presented me with unfiled, unsigned, and undated business tax returns as evidence of their income (loss), but then refused to provide me access to their books and records to verify the reliability of the business tax returns.

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

About David Anderson & Associates

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

Making Sure Your Forensic Investigation Interviewees are Credible

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

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

A key part of any fraud or forensic-based investigation – says 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 – is to interview people involved in the matter.

Here’s a first-person description by Anderson on how a Certified Fraud Examiner, such as himself, vets the information from, and performance of, interviewees in an investigation of financial malfeasance.

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As a forensic accountant, I not only must interview individuals who play key roles in a case I am investigating, but also determine each one’s credibility.  In such situations, I have the same issues when judging credibility and reliability as a juror does when hearing testimony in court.

When documentation and independent verification is lacking, a forensic accountant must rely upon the credibility of these interviewees.  To determine the credibility and reliability of such persons, the forensic accountant must consider the factors detailed below.

To begin with, I consider the totality of what each person is saying to me and ask myself if he or she has been consistent within each interview and across multiple interviews.  If the interviewee has been consistent, that is a point in favor of credibility.

I also seek to determine if the interviewee’s information is consistent with other interviewees, and with documentation and other evidence I have gathered.  If these factors are consistent, I place more credibility in that interviewee.

Another key factor is the extent to which an interviewee requests me to focus or not focus my investigation in a direction or on a person.  I must also consider how that affects his or her credibility.

For example, if I have been hired by a family-owned business to investigate potential fraudulent activities on the part of a family member, and an interviewee is extremely negative about the family member, I must question whether his or her information is truly reliable or has been colored by interviewee’s animosity towards the other family member.

Additionally, if the interviewee requests I present findings that are inconsistent with documented information and/or information provided by other interviewees, this also affects my view of the interviewee’s credibility.

Other interview aspects I must also assess include:

  • Inconsistencies in memory about an event – does the person display good memory about certain events and poor memory about others? What if the poor memories occur only for suspected items?
    • In one case, the interviewee identified the step-by-step procedures and bases for approval of certain valid transactions, but then could not remember why she approved certain improper transactions.
  • Does the person act defensively when interviewed about suspected items, even when not accused of wrongdoing?
  • Does the person claim others approved his or her improper actions?
    • For example, in one instance, the interviewee claimed the company’s tax accountant authorized him to not report certain revenues on the company’s tax return.
    • In another instance, the interviewee told me a now-deceased executive had long ago informed him the certain improper transactions were acceptable to company management, and that was why the interviewee approved more recent improper transactions.
  • Does the person promise to get back to me with documentation for certain transactions, but later fails to provide such while attempting to avoid speaking with me?

Only after considering such factors as I have detailed above can the forensic accountant determine whether to rely on such persons, especially when documentation and independent verification is lacking.

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If you’re not getting the answers, or results, you want in your internal investigations, maybe you should be working with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

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

About David Anderson & Associates

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

Anderson to Present National Webinar on Forensic Accounting Services

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

On Tuesday, November 24, David Anderson, CPA, CFE, CVA — 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 — will co-present a nationally broadcast webinar entitled Forensic Accounting Services: AICPA Standards, Engagement Considerations, Analyzing Data, Expert Witness Testimony.

The webinar – hosted by Strafford Publications, Inc., an online legal education firm based in Atlanta – will discuss the ins and outs of providing litigation consulting, and forensic accounting services and give a presentation on the Statement on Standards for Forensic Services from the American Institute of Certified Public Accountants (AICPA).

There are a limited number of free tickets available through David Anderson and Associates on a first-come, first-served basis. Interest individuals should contact David Anderson at david@davidandersonassociates.com

In addition, Anderson and his co-presenter, Yigal Rechtman, CPA, CFE, CITP, CISM, a partner at RSZ Forensic Associates in New York, will discuss techniques for giving expert testimony and facing cross-examination.  Anderson and Rechtman also will provide information about key caveats when it comes to accepting forensic accounting engagements, and the circumstances under which such engagements should be declined.

Another segment of the webinar will analyze how these forensic accounting engagements are structured; how relevant data is accumulated and analyzed; and how a forensic accounting report is prepared.

The AICPA is the national professional organization of Certified Public Accountants in the United States, with more than 418,000 members in 143 countries in business and industry, public practice, government, education, student affiliates, and international associates

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

About David Anderson & Associates

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

Forensic Accountants Employ Graphics to Aid Courtroom Comprehension

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

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

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

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

“Presenting complex financial information in a way that allows jurors to grasp its meaning can have a significant impact in the presentation of a case,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides litigation support services and expert witness testimony in Philadelphia and the Delaware Valley.  “It is the financial data that often can make a difference between winning a case and losing a case, or between a significant jury award or a paltry one.”

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

The Unexpected Impact of COVID-19 on Fraud

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

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

I hope you, your families, and loved ones have so far successfully navigated the COVID-19 crisis. This blog is devoted to discussing an unexpected impact of COVID-19 that I have seen in new client cases and have learned about from other fraud experts.

In a number of cases, changes in business operations caused by the COVID-19 crisis have led to the discovery of ongoing fraud schemes that otherwise might not have been discovered for many more months.  I have detailed some of these below:

Accounts Payable Fraud

 Because many businesses were closed for a period of time in the Spring (or are still closed), many business owners began collecting their business’s mail themselves.  As a result, several owners who had never opened their bank statements previously now opened and reviewed their bank statements.  Some of them found such distressing information as:

  • Bank balances that were considerably lower than the balances shown on reports provided to them by their CFO, controller or bookkeeper
  • Multiple bounced vendor checks due to lack of funds
  • Checks written to employees (when they would not have expected such checks to have been written)
  • Checks written to either unknown vendors or vendors with whom they had not done business for many years.

Additionally, some of these owners were also surprised, upon opening mail from vendors, to see vendor statements stamped as past due or in collection (again due to an unexpected lack of funds).

In each of these cases, if the owner had regularly reviewed the bank statements and paid checks (a procedure which takes a short time every month), the owner would have discovered the frauds much sooner.  And, if not for the COVID-19 crisis, these same owners are likely to not have discovered the fraud for many more months.

Payroll Fraud

 In several instances, business owners who applied for funds under the CARES Act Payroll Protection Program (PPP) discovered they were the victims of payroll fraud.  In applying for the PPP program, these business owners reviewed payroll reports which they had not previously reviewed.  These business owners discovered one or more of the following:

  • “Ghost” employees – non-existent employees who had been paid via direct deposit
  • Terminated employees who were still on the payroll and had been paid via direct deposit
  • Current employees who had been paid at higher pay rates than the business owner had authorized
  • Current employees who had been paid for more hours worked than the business owner had authorized

In each of these cases, a trusted employee (either payroll manager, controller or CFO) had perpetrated these schemes, and the fraud was only caught because of the owner’s payroll review for the PPP program.  If the owner had regularly reviewed the payroll reports (a procedure which, again, takes a short time every month), the owner would have discovered the frauds much sooner. As above, if not for the COVID-19 crisis, these same owners are likely to not have discovered the fraud for many more months.

Accounts Receivable Fraud

 With their businesses being closed, many business owners also began to review accounts receivable and make collection calls to customers.  By doing so several business owners discovered that they had been the victims of accounts receivable fraud.  These frauds took two forms:

  • Open accounts receivable balances resulting from diverted payments: In two of my cases, the business owner learned, upon speaking with his customers about past due invoices, that the invoices had actually been paid. We obtained copies of the paid customer checks and determined that they had been deposited into third-party bank accounts (which we traced to accounting department employees in each company).
  • Accounts receivable balances to which internal credits had been applied in order to eliminate outstanding balance amounts: In one case, the business owner, upon reviewing accounts receivable, noticed an unusual number of large internal credits having been posted to certain customer accounts. Upon speaking to these customers, the owner learned that the customers had actually paid the invoices to which the large internal credits had been applied.  As with the above cases, we obtained copies of the paid customer checks, and determined that they had been deposited into a bank account owned by the controller’s spouse.

In each of these cases, the fraud was only caught because of the owner’s review of outstanding accounts receivable balances.  If the owner had regularly reviewed accounts receivable reports (a procedure which takes a short time every month), the owner would have discovered the frauds much sooner.  And, if not for the COVID-19 crisis, these same owners are likely to not have discovered the fraud for many more months.

The above cases show that regular management review of bank statements, payroll reports and accounts receivable reports can help pick up existing frauds and provide a deterrent against potential future frauds.  We noted an unexpected positive from the COVID-19 crisis has been that many business owners were forced to perform these reviews as a result of their companies being closed, and they picked up on certain frauds much earlier than they normally would have.

If you require the services of a Certified Valuation Analyst 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.

Anderson Presents to Pennsylvania Township Supervisors

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

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

Information on how to keep your municipality’s financial operations safe from fraud was the main message of a recent presentation to the Pennsylvania State Association of Township Supervisors (PSATS) by David Anderson, CPA, CFE, CVA.

Anderson co-presented a Webinar entitled “Ten Key Anti-Fraud Controls to Protect Your Township” last month that provided updates to Keystone State municipal officials on the nature of fraud and the Fraud Triangle.

Opening with a discussion of the three Fraud Triangle elements that must be present in order for fraud to occur – Opportunity, Pressure and Rationalization (for more on the Fraud Triangle, see Anderson’s September 14, 2020 blog) – before reviewing key findings from the “2020 Association of Certified Fraud Examiners (ACFE) Report to the Nations on Occupational Fraud and Abuse.”

This year’s ACFE report showed the typical township loses 5 percent of its operating budget to occupational fraud.  Anderson also presented other relevant findings regarding fraud risk, duration, and amount of loss as well as how fraud is detected and who reports the fraud.

Anderson then introduced the PSATS officials to the 10 key anti-fraud controls townships can implement to greatly reduce or eliminate the risk of fraud.  These ten key anti-fraud controls are:

  • Instituting an anti-fraud policy – including defining fraud; emphasizing that the township does not condone fraud; requiring all management and employees to sign a statement that they have read and understand the anti-fraud policy; and widely publishing the anti-fraud policy.
  • Implementing regular fraud training for supervisors, management and staff.
  • Implementing regular management/supervisor review of budgets and performance against budget; investigation of significant budget variances; and review of bank account reconciliations.
  • Installing a tip hotline.
  • Protecting passwords and other systems access – including prohibiting of password sharing; using hard to guess passwords; and removing system access for terminated employees.
  • Implementing cash controls – including regular and timely bank account reconciliations; separation of cash handling duties; requiring two authorized signatures on larger checks; and requiring original documents for expense reimbursements.
  • Implementing credit card controls – including restricting credit card use; requiring management and employees to submit supporting documents for credit card transactions; and cancelling and destroying credit cards of terminated employees.
  • Implementing purchasing controls – including competitive bidding; requiring two or more authorized approvals of large dollar purchases; and removing stale vendors from the purchasing system.
  • Implementing payroll controls – including management review of all new employee information and all pay changes entered into the payroll system; immediate removal of terminated employees from the payroll system; and regular annual review of payroll lists and W-2s for “ghost” employees.
  • Implementing controls over equipment and inventory – including establishing a system to track all equipment over a certain dollar amount; and regular checks of key inventory and equipment to ensure that nothing is missing.

If you want to learn more about how these key anti-fraud controls can be implemented in your organization, or 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, CPA, CFE, CVA, 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.

“The Fraud Triangle” Can Guide the Way to Preventing Scams

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

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

There are an endless number of ways companies can be defrauded by their employees. However, 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.”

The first element of The Fraud Triangle, pressure, 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.

How COVID-19 Has Affected Business Valuations – Part Two of Two

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

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

In my previous blog article, I discussed how the date of valuation for a business valuation has been affected by the COVID-19 pandemic; in this blog article, I discuss how business income which is used as the basis for valuing a business has been affected.

Most small-sized and many medium-sized businesses do not keep budgets and forward-looking financial projections.  As a result, the valuations of these businesses use historical operating results as the basis for their valuations.  This is used in the Capitalization of Earnings method.

However, this historical information will not take into effect the COVID-19 pandemic.  If no budgets and forward-looking financial projections are available, then the primary way to adjust for the COVID-19 pandemic is to adjust the Company Specific Risk factor and expected long-term growth rates used to capitalize the earnings (alternatively, the Equity Risk Premium could be adjusted).

When calculating the Company Specific Risk factor, the business valuator must consider, among others, the following questions:

  • What industry is the company in?
  • What has been the impact of the COVID-19 pandemic upon the industry?
  • How and to what degree has the company been affected?
  • How long will it take the company to recover to pre-pandemic impact operating levels?
  • If the company has furloughed or laid off staff, how will it re-staff, and how long will it take to achieve the re-staffing?
  • Has the company lost any critical employees? If so, what has the impact been, and how long will it take to replace those employees?
  • Has the company lost customers, will it be able to recover those customers, and how long will it take to do so?
  • Has the company lost key suppliers/vendors, will it be able to recover those suppliers/vendors, and how long will it take to do so?
  • Will the company still be able to retain its outside financing, and if not, will it be able to obtain new outside financing, and how long will it take to do so?
  • Will the company be able to recover at all?

To the extent that the answer to some or all the questions show increased risk, the business valuator can increase the Company Specific Risk factor (and therefore, decrease the capitalized value of the company).

The business valuator can also adjust the long-term expected growth rate for similar factors based upon similar questions regarding the company, the industry, the United States economy and the world economy.  However, remember that this is the long-term expected growth factor – if the company/industry/economy is expected to recover within the next year or so, the reduction in the long-term expected growth factor may not be significant.

If the company does produce forward-looking financial projections, then the business valuator can use the Discounted Cash Flow (DCF) method to value the business under the income approach.  However, there are several caveats which must be followed:

  • The business valuator may not be involved in any way in the creation of the forward-looking financial projections. Otherwise, the business valuator’s independence is impaired.
  • The company cannot “game” the system by retroactively creating forward-looking financial projections. For example, if in March 2021, the company needs a business valuation with a valuation date of June 30, 2020, it cannot create forward-looking financial projections at that point.  Instead, it can only use forward-looking financial projections which had been created as of the June 30, 2020 valuation date.
  • The business valuator cannot accept the forward-looking financial projections “as is”. He/she must test the reasonableness of the underlying assumptions which went into creating the financial projections (for example, if the business is a dine-in restaurant with a valuation date of June 30, 2020, and restrictions on dining in were removed on June 30, 2020, the valuator must consider the reasonableness of projections showing either a return to 100% of pre-pandemic operating levels within 30 days or a projection showing no sales revenues for the next year).  Because something must be known or knowable as of the valuation date (which in this example is June 30, 2020), the business valuator cannot consider using actual operating results from July 1, 2020 to February 28, 2021 as a reasonableness check, since those actual operating results were not known or knowable at June 30, 2020.

As with the Capitalization of Earnings method, the business valuator can also adjust the Company Specific Risk (or Equity Risk Premium) and long-term growth rate in calculating the value under the income approach.  However, the business valuator must make sure that these adjustments do not duplicate the assumptions which the company used in creating its forward-looking financial projections or else it will “double” the impact of the adjustments.

If you require the services of a Certified Valuation Analyst 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.

How COVID-19 Has Affected Business Valuations – Part 1

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

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

A number of clients and colleagues have asked me how business valuations have been affected by the COVID-19 pandemic.  After consulting with business valuation experts and reviewing relevant literature, I will discuss the impact over the next two blogs.  Up first, how the date of valuation is impacted.

As I have mentioned in previous blogs, the information relevant to valuing a business must be known or knowable as of the valuation date.  I will explore the impact based upon the following valuation dates:

Valuation date of December 31, 2019 or prior

Valuation experts generally agree that as of December 31, 2019, almost nothing was publicly known about the COVID-19 (I use the term “publicly known” because Federal intelligence community briefings which may have discussed the COVID-19 would not have been known to the general public.  Hence, a willing buyer or seller would not have taken the COVID-19 into consideration.).  In fact, China only notified the World Health Organization (WHO) on December 31, 2019, of several instances of a flu-like illness in Wuhan.

Accordingly, any valuations as of December 31, 2019 or prior would not consider the impact of the COVID-19 pandemic.

Valuation date between January 1, 2020 and January 31, 2020

Although the COVID-19 began to get some attention in January 2020, the following relevant public information was available:

  • January 21, 2020 – 1st case of COVID-19 reported in United States.
  • January 23, 2020 – WHO meets and decides to not declare the COVID-19 a Public Health Emergency of International Concern.
  • January 28, 2020 – United Airlines suspends all flights to China from the United States.
  • January 29, 2020 – Several other airlines suspend all flights to China.
  • January 29, 2020 – White House creates COVID-19 task force.
  • January 31, 2020 – President Trump issues a limited travel ban for persons entering the U.S. from China. The limited travel ban applied to non-U.S. citizens, other than the immediate family of U.S. citizens and permanent residents, who were prohibited from entering the U.S. if they had traveled to China within the previous two weeks.
  • January 31, 2020 – Total COVID-19 cases in the United States – 6. Number of deaths from COVID-19 in the United States – 0.

Based upon the above, it is most likely that the impact of the COVID-19 pandemic was not generally known or knowable to businesses in the United States.  However, if there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at this early date.

Valuation date between February 1, 2020 and February 29, 2020

In February 2020, the following relevant public information was available:

  • February 4, 2020 – In his State of the Union address, President Trump pledges to safeguard Americans from the COVID-19.
  • February 11, 2020 – The worldwide death toll from the COVID-19 surpasses 1,000 – mostly in China.
  • February 19, 2020 – The worldwide death toll from the COVID-19 surpasses 2,000 – mostly in China.
  • February 24, 2020 – The Trump administration sends a request to Congress to provide $2.5 billion in funding to fight the COVID-19.
  • February 24, 2020 – President Trump announces that the COVID-19 is under control in the United States.
  • February 25, 2020 – San Francisco declares a state of emergency over the COVID-19.
  • February 25, 2020 – The Center for Disease Control (CDC) announces that the spread of COVID-19 to the United States is likely and that people should prepare.
  • February 26, 2020 – President Trump states that there are only 15 people with the COVID-19 in the United States and that the COVID-19 is about to disappear.
  • February 29, 2020 – Washington state declares a state of emergency.
  • February 29, 2020 – 1st death reported in the United States attributable to COVID-19. Worldwide death toll is under 2,900 of which less than 100 are outside of China.

Based upon the above, it is still likely that the impact of the COVID-19 pandemic was not generally known or knowable to businesses in the United States.  There was only one death reported (subsequent updates to this number were not known or knowable until a later date), and as late as February 26, 2020, President Trump was stating that the impact was insignificant.  However, if there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at this early date.

Valuation date between March 1, 2020 and March 31, 2020

The impact of the COVID-19 pandemic began to take off in the United States in March 2020.  During the first week of the March 2020, Florida, California, Maryland and New York declared states of emergency. By March 10, 23 states had declared a state of emergency.  By March 13, President Trump declared a national state of emergency, and Pennsylvania and 15 other states announced school closures.  Almost all major sporting and college sporting events were cancelled/postponed.  On March 21, 2020, New Jersey’s governor implemented a “Stay at Home” order.  This was followed by Philadelphia (March 23), Delaware (March 24) and Pennsylvania (April 1).

Based upon the above, it is likely that the impact of the COVID-19 pandemic could be argued as to having been generally known or knowable to businesses in the United States by the end of the first week in March or at latest by March 13 when the national state of emergency was declared.  If there is documentation which a business possesses (e-mails and other notifications from vendors and/or clients and/or industry sources) which describes projected impacts of the COVID-19 pandemic, this could lend credence to a company’s argument that the impact of the COVID-19 pandemic was known or knowable at one of these early dates.

Valuation date of April 1, 2020 or after

In my professional opinion, the impact of the COVID-19 pandemic was generally known or knowable to businesses in the United States by April 1, 2020 and thereafter.

Divorce Valuations

When valuing a business for a divorce, three valuation dates could be applicable:

  • Date of marriage
  • Date of separation
  • Current date for decline in value claim

The above valuation date information certainly applies for date of marriage and date of separation.  However, if a spouse intends to claim that the current value of his/her business has declined in value due the COVID-19 pandemic, the business valuator would examine the business’s value as of some current date.  To the extent that the current date is April 1, 2020 or thereafter, the impact of the COVID-19 pandemic was generally known or knowable to businesses in the United States.

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

About David Anderson & Associates

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

The State of Fraud in 2020: Final of a Six-Part Series

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

03David 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.

This blog completes a series of narratives by forensic accounting expert David Anderson that analyzes the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  In this final installment, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – focuses on how non-profits were affected by fraud over the past two years:

  • Non-profit organizations can be more susceptible to fraud due to having fewer resources available to prevent and recover from a loss.
  • Non-profit organizations are particularly vulnerable because of less oversight and lack of certain internal controls.
  • The 2020 Report showed that the median loss was $75,000, while the average loss was $639,000 (meaning that several non-profit organizations had very large losses due to fraud).
  • The most prevalent fraud schemes faced by non-profit organizations were:
    • Corruption – 41 percent (see Anderson’s previous blog on corruption schemes)
    • Billing fraud – 30 percent (typically involving diversion of membership dues and contributions)
    • Expense reimbursement fraud – 23 percent
    • Theft of cash on hand – 17 percent
    • Theft of other assets – 16 percent
  • In 39 percent of the cases, an executive perpetrated the fraud, resulting in a median loss of $250,000.
  • In 35 percent of the cases, a manager or supervisor perpetrated the fraud, resulting in a median loss of $95,000.
  • In 23 percent of the cases, a non-management employee perpetrated the fraud, resulting in a median loss of $21,000.
  • The top three control weaknesses at non-profits which enabled the fraud were:
    • Lack of internal controls – 35 percent
    • Lack of management review – 19 percent
    • Override of existing internal controls – 14 percent
  • The top four anti-fraud controls used by non-profits were:
    • Internal audit department – 57 percent (generally practical only for larger non-profits)
    • Management review – 44 percent
    • Formal fraud risk assessments – 24 percent (generally performed by an outside expert such as a CFE)
    • Surprise audits (21 percent)
  • The top four ways that these frauds against non-profits were detected were:
    • Tip – 40 percent
    • Internal audit – 17 percent
    • Management review – 13 percent
    • By accident – 7 percent

Do you need the services of a Certified Fraud Examiner? If so, you should speak with one from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do this by contacting the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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