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

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.

This blog continues the analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – focuses on how companies and organizations react after a fraud has been discovered, and what their experiences are in attempting to recover fraud losses:

  • Sixty-six percent of victim companies/organizations terminated the perpetrator while another 10 percent permitted the perpetrator to resign.
  • However, 14 percent of companies/organizations allowed the perpetrator to remain with the organization either with probation/suspension (nine percent) or no punishment at all (five percent).
  • Only 45 percent of all owners/executives were terminated by the victim company/organization.
  • Fifty-nine percent of victim companies/organizations referred the matter to law enforcement. This percentage has steadily declined from 69 percent of companies/organizations which did so in 2008.
  • Twenty-eight percent of victim companies/organizations filed civil suit against the perpetrator. This increased over the 20-to-25 percent average during the past ten years.
  • Fifty-six percent of perpetrators referred to law enforcement pled guilty or no contest while another 23 percent of perpetrators were convicted at trial.
  • In 12 percent of cases referred to law enforcement, the authorities declined to prosecute (most likely due to either the size of the loss not being large enough or because the company/organization could not produce sufficient documentation and other evidence for the authorities to be confident that they could obtain a conviction).
  • Only two percent of cases referred to law enforcement resulted in the perpetrator being acquitted.
  • Forty-one percent of companies/organizations that filed civil suits received a judgment in their favor while another 36 percent of such suits were settled before a verdict was reached.
  • Perpetrators obtained a favorable judgment in 21 percent of civil cases (most likely because the company/organization could not produce sufficient documentation and other evidence to convince the trier of fact of the perpetrator’s guilt).
  • Victim companies/organizations which decided not to refer cases to law enforcement cited the following reasons for their decision:
    • A belief that internal discipline was sufficient (46 percent of non-referred cases)
    • Fear of bad publicity (32 percent of non-referred cases)
    • The company/organization reached a private settlement with the perpetrator (27 percent of non-referred cases)
    • The belief that pursuing a conviction would be too costly (17 percent of non-referred cases)
    • The lack of sufficient evidence to persuade law enforcement to pursue the matter (10 percent of non-referred cases)
  • Fifty-four percent of victim companies/organizations recovered nothing from either the perpetrator or other sources (such as insurance).
  • Thirty percent of victim companies/organizations made a partial recovery and another 16 percent made a full recovery.

The next and final blog article in this series will examine how non-profits were affected by fraud over the past two years.

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.

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

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.

This blog continues the analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – focuses on corruption:

The organization “Transparency International,” a global coalition against corruption (www.transparency.org), defines corruption as: “The abuse of entrusted power for private gain. It can be classified as grand, petty, or political, depending on the amounts of money lost and the sector where it occurs.”

The 2020 ACFE report shows that 43 percent of all frauds involve some form of corruption with the median loss from corruption being $200,000, and the fraud lasting an average of 18 months.

The 2020 Report identifies four main types of corruption:

  • Conflicts of interest, including purchasing schemes and sales schemes
  • Bribery, include invoice kickbacks and bid rigging
  • Illegal gratuities
  • Economic extortion

Corruption is the most pervasive form of fraud worldwide:

  • Sixty-two percent of corruption cases were perpetrated by someone in a position of authority (owners/executives or managers).
  • The Purchasing Department is the department most at risk for corruption. 81 percent of cases involved Purchasing Department fraud.

The industries with the highest proportion of corruption cases are:

  • The Energy Sector (66 percent)
  • Telecommunications (56 percent)
  • Transportation and warehousing (52 percent)

Corruption is the most likely fraud committed by employees of any size companies/organizations (those with fewer than 100 employees and those with 100+ employees).

Conflict of interest cases principally involve:

  • Purchases from favored parties regardless of whether the party provides the best quality and/or lowest prices.
  • Sales to favored parties at bargain prices. Often these sales are lower than those offered to other parties (or at a price unusually reserved for larger customers). NOTE: Favored parties are often friends, relatives or parties in which the purchaser has a financial interest.

Bribery cases principally involve:

  • Kickbacks to the purchaser for purchasing either more goods or services than would be normally purchased or at higher prices than would normally be paid.
  • Bid rigging whereby the purchaser provides inside information to a favored vendor in return for payments/kickbacks. NOTE: Bid rigging also can be achieved by working with the favored vendor to write the request for proposal (RFP) in such a way that only the favored vendor can meet the RFP’s requirements.

The next blog article in this series will discuss how companies/organizations react after a fraud has been discovered and what their experiences are in attempting to recover fraud losses.

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.

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

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.

This blog continues the dissection and analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – discusses the various controls that companies/organizations put in place to prevent fraud and how effective these controls are:

The 2020 Report identified 18 specific anti-fraud controls and noted that all 18 were associated with lower fraud losses and quicker detection of the frauds.

The most common anti-fraud controls employed by companies/organizations were:

  • Having an external audit of the company’s/organization’s financial statements (present in 83 percent of the companies/organizations)
  • Putting in place a code of conduct (present in 81 percent of the companies/organizations)
  • Having an active internal audit department (present in 74 percent of the companies/organizations)
  • Having management certification of the company’s/organization’s financial statements (present in 73 percent of the companies/organizations)
  • Having an external audit of the internal controls over the company’s/organization’s financial reporting (present in 68 percent of the companies/organizations)
  • Regular management review of financial reporting (present in 65 percent of the companies/organizations)
  • Having a confidential tip reporting hotline (present in 64 percent of the companies/organizations)
  • Having an independent audit committee (present in 62 percent of the companies/organizations)

The effectiveness of these most common controls were:

  • Having an external audit of the company’s/organization’s financial statements reduced the median loss by 46 percent and the duration of the fraud by 38 percent
  • Putting in place a code of conduct reduced the median loss by 51 percent and the duration of the fraud by 50 percent
  • Having an active internal audit department reduced the median loss by 50 percent and the duration of the fraud by 50 percent
  • Having management certification of the company’s/organization’s financial statements reduced the median loss by 50 percent and the duration of the fraud by 50 percent
  • Having an external audit of the internal controls over the company’s/organization’s financial reporting reduced the median loss by 50 percent and the duration of the fraud by 37 percent
  • Regular management review of financial reporting reduced the median loss by 50 percent and the duration of the fraud by 50 percent
  • Having a confidential tip reporting hotline reduced the median loss by 49 percent and the duration of the fraud by 33 percent
  • Having an independent audit committee reduced the median loss by 33 percent and the duration of the fraud by 33 percent

Despite the heavy reliance upon external audits to prevent or reduce fraud, it was either equal to or less effective than other less expensive/less intrusive controls.

Over the past decade, four anti-fraud controls have seen significant increases in use:

  • Use of tip hotlines – an increase of 13 percent
  • Implementing an anti-fraud policy – an increase of 13 percent
  • Providing fraud training for employees – an increase of 11 percent
  • Providing fraud training for managers/executives – an increase of 11 percent

Other anti-fraud controls used less frequently by companies/organizations included:

  • Creating employee support programs (especially for those suffering from addictions/dependencies or experiencing depression)
  • Having formal fraud risk assessments performed by outside parties
  • Proactive data monitoring/analysis
  • Surprise audits
  • Implementing job rotation and/or mandatory vacations
  • Providing rewards for whistleblowers

The next blog article in this series will discuss corruption and its impact on companies/organizations.

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.

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

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.

This blog continues the dissection and analysis by forensic accounting expert David Anderson of the Association of Certified Fraud Examiners’ (ACFE) “2020 Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.”  This week, Anderson – from David Anderson & Associates, a Certified Fraud Examiner in Philadelphia – discusses how frauds are detected and the characteristics of the people who commit fraud:

  • Most people believe having a financial audit will detect fraud. However, the 2020 Report found that only 4 percent of all frauds were detected by external auditors.  The percentage of frauds detected by accident was 5 percent – higher than the audit rate.
  • The most frequent method by which frauds were detected came from tips – the 2020 Report found that 43 percent of all frauds were detected from tips. Employees were the source of 50 percent of all tips, followed by customers (22 percent), anonymous tips (15 percent) and vendors (11 percent).
  • Internal auditors detected 15 percent of all frauds.
  • Management review detected 12 percent of all frauds.
  • The 2020 Report found that although owners and executives committed only 20 percent of all frauds, the median loss from such frauds was $600,000. Managers committed 35 percent of all frauds with a median loss of $150,000, and lower level employees committed 41 percent of all frauds with a median loss of $60,000.
  • Tenure with the organization correlated with the amount of fraud loss. The median fraud loss from employees with 5 years or less tenure was about $100,000.  This grew to $190,000 for employees with 6 to 10 years tenure, and to $200,000 for employees with more than 10 years tenure.
  • Men were responsible for 72 percent of all frauds with a median loss of $150,000. Women were responsible for 28 percent of all frauds with a median loss of $85,000.  The lower loss level is most likely due to the lower number of women in senior positions.
  • The perpetrator’s age followed a bell curve with 67 percent of all frauds committed by persons between the ages of 30 and 50. The median loss correlated directly with the perpetrator’s age in that the older the person, the higher the median loss.  This is most likely because the older the person, the higher up they are likely to be in the business or organization.
  • 89 percent of all perpetrators had no criminal background.
  • 85 percent of perpetrators displayed at least one behavioral red flag. These included:
    • Living beyond their means
    • Having known financial difficulties
    • Having an unusually close relationship with a customer or vendor
    • Having control issues, including an unwillingness to share duties
    • Experiencing divorce or other known family problems
    • Having a “Wheeler-Dealer” attitude
    • Displaying frequent irritability, suspiciousness or defensiveness
    • Having known addiction problems (drugs, gambling, alcohol, etc.)
    • Frequent complaining about inadequate pay

Given the financial difficulties (loss of wages, furloughs, medical costs, loss of other income, etc.) that many people are facing due to the COVID-19 virus, it is likely that the incidence of red flags will increase over the next two years.

David Anderson’s next blog article will discuss the various anti-fraud controls that businesses/organizations employ, and the effectiveness of each of the controls.

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.

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

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.

Every two years, the Association of Certified Fraud Examiners (ACFE) commissions a survey of fraud in the United States and abroad.  The ACFE recently released its 2020 study entitled “Report to the Nations – 2020 Global Study on Occupational Fraud and Abuse.” Over the next several weeks, forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia, will discuss some of the key findings from the 2020 report.

Up first, some general observations regarding fraud:

  • The ACFE study estimates that the typical business/organization (including non-profit organizations) is losing about 5 percent of revenue each year to fraud.
  • The median loss from fraud is $125,000. This is down 4 percent from the $130,000 median loss identified in the 2018 Report;
  • Twenty-five percent of all frauds result in a loss of over $600,000;
  • The median duration of reported frauds is 14 months, down 12.5 percent from the 2018 Report duration of 16 months;
  • Smaller businesses (those with fewer than 100 employees) lost twice as much to fraud from billing and payroll schemes as larger businesses. Smaller businesses also lost four times as much to fraud from check alteration and payment schemes as larger businesses.
  • Asset misappropriation schemes (frauds involving the theft of cash, inventory, supplies, equipment or other company assets) remained the most common scheme, comprising 86 percent of all fraud schemes (versus 89 percent in the 2018 Report). Median asset misappropriation losses fell from $114,000 in the 2018 Report to $100,000 in the 2020 Report;
  • Financial statement fraud remains the least common scheme at 10 percent but results in the highest losses – $954,000 per fraud in the 2020 Report. The loss amount is up 19 percent from the $800,000 median loss shown in the 2018 Report;
  • Internal control weaknesses, including inadequate separation of duties, were responsible for nearly one-third of all frauds reported in the 2020 Report;
  • The 2020 Report identified 18 different anti-fraud controls that companies had implemented (Anderson will discuss these controls in greater detail in an upcoming blog in this series.) The report found that every control implemented resulted in a reduction in both the duration and amount of fraud.

Anderson’s next blog article will discuss how frauds are detected and the characteristics of the people who commit fraud.

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.

Count on a Forensic Accountant to Ferret Out Hidden Assets

Posted by & filed under Blog Articles, Company News, Forensic Accounting, Fraud, Fraud Deterrence, 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 divorce proceedings and certain types of commercial litigation, counsel may suspect that the opposing side has hidden some assets. A forensic accountant can be of great assistance in formulating discovery information requests and conducting the analysis that will aid in the identification and location of potentially hidden assets.

In order to identify hidden personal and/or business assets, forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia, says counsel must address his/her discovery requests not just to the known (items identified on the tax return, items of which his/her client is aware, etc.) but also to the potentially unknown.

Upon receipt of this information, the forensic accountant will perform analyses and asset searches that may identify or point to the potential existence of such items as:

  • Income or other payments received that have not been deposited to known accounts.
  • Funds deposited for which there is no documentation as to the source of the funds.
  • Funds withdrawn for which there is no documentation as to where the funds went.
  • Direct wire transfers made to or from unknown accounts.
  • Unusual activity involving the safe deposit box (this could be indicative of cash or other assets being placed in or removed from the box).
  • The existence of previously unknown offshore bank accounts, or investment accounts or other assets.
  • The substitution of lower value assets for higher value assets (for example, substituting an inexpensive work of art for an expensive work of art)
  • The proceeds of expense reimbursements, loans or advances or other non-payroll payments from the spouse’s company.
  • The existence of off-balance sheet accounts.
  • The existence of intangible assets with a value more than the book value.
  • The existence of fixed assets with a value more than the book value.
  • Transactions with related parties (this may be indicative of non-arm’s length transactions that could have been used to reduce the value of the company).
  • Unusual company transactions with third parties (this could be indicative of attempts to reduce the value of the company by transferring funds or assets to third parties).
  • Hidden insurance policies for which the defendant is the beneficiary.
  • Trusts for which the defendant is a beneficiary.

Because each divorce or commercial litigation matter has its own set of circumstances, it is critical that the review of the discovery request between counsel and the forensic accountant occur as early as possible in the discovery process. The forensic accountant can help identify specific documents that should be included in the discovery request. This will allow the forensic accountant to conduct thorough analysis and asset searches to identify or point to the existence of such assets.

Do you need help finding hidden assets or unseen fraud? If so, you should speak with a Certified Fraud Examiner 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.

An Outsourced CFO Might Be the Answer to Your Accounting Needs

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

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

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

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

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

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

These activities might include such outsourced CFO tasks as:

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

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

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

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

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

If your business is in need of outsourced CFO services in Philadelphia and the Delaware Valley or any other forensic accounting services in Philadelphia, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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

Vigilance Can Stave Off These Common Payroll Fraud Schemes

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.

Payroll fraud, says forensic accounting expert David Anderson of David Anderson & Associates, a Certified Fraud Examiner in Philadelphia, is one of the most common frauds perpetrated upon businesses and other organizations. This crime can take numerous forms, including:

  • Ghost Employees: In this scheme, the fraudster creates a non-existent employee in the payroll system. The fraudster then enters time for the non-existent employee, resulting in production of a paycheck. The fraudster intercepts the paycheck and either deposits it in an account under his/her control or has a confederate either cash the check or deposit it in an account under the confederate’s control.
  • Terminated Employees: In this scheme, the fraudster works with a terminated employee. The fraudster keeps the terminated employee on the books and enters time for the terminated employee, resulting in production of a paycheck. As with a ghost employee, the fraudster intercepts the paycheck and forwards it to the terminated employee.  The terminated employee either cashes the check or deposits it in an account under the terminated employee’s control (and shares the proceeds with the fraudster).
  • Fraudulent Hours: In this scheme, the fraudster enters a higher number of hours worked either for him/herself or for another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster.  This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Pay Rate: In this scheme, the fraudster adjusts either his/her pay rate or that of another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster. This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Bonus Pay: In this scheme, the fraudster either adds him/herself to the list of employees receiving a bonus; or adjusts his/her bonus amount; adds a confederate to the list of employees receiving a bonus; or adjusts the confederate’s bonus amount. If entered for a confederate, that person shares the increased proceeds with the fraudster. This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Expense Reimbursement: In this scheme (which applies to companies/organizations that reimburse employee business expenses through payroll), the fraudster enters a higher expense reimbursement amount either for him/herself or for another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster.

So, how can companies and organizations avoid being victimized by these payroll frauds?  They can take some or all the steps identified below:

  • Separate the hiring and human resources functions from the payroll function.
  • If this is not possible, ensure there is adequate separation of duties so different employees are responsible for different steps in the payroll process. For example, the employee who sets up other employees in the payroll system (including pay rates) should be different from the employee who enters employee time.
  • Require two levels of review and approval for timecards and pay sheets.
  • Maintain a list of terminated employees and periodically check the list against payroll data.
  • Require someone other than the employee’s supervisor to distribute paychecks.
  • Require either multiple signoffs for pay changes (especially for manager and executive salaries) as well as for approvals of vacation and sick pay.
  • Have either a higher-level manager or a third party, such as a forensic accountant, periodically review payroll, including pay rates, hours/time and total payroll funding amounts.

Does your company need to enact stronger safeguards against payroll fraud? If so, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do just that 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.

Forensic Measures Can Fend Off Restaurant Fraud, Keep Your Cupboards Full

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

Restaurant Owners, While Your Business is Closed or Reduced Due to the Coronavirus, Here Is Something to Consider for Protecting Your Business’s Future

 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 originally wrote this blog before the coronavirus caused the local and state government officials to close down or reduce the business of most restaurants.  However, while your business is closed or reduced, you might want to consider the issues raised and recommendations offered in this blog for protecting your business when you reopen.” – DAA

Restaurants lose between $3 billion and $6 billion to employee fraud each year, according to the National Restaurant Association.

Recent surveys, 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, show about 75 percent of inventory shortages and 4 percent of sales shortages are due to employee theft.

In fact, approximately three-fourths of employees steal at least once and approximately one-half steal repeatedly.

Given these startling statistics, how can restaurants fight this fraud? Anderson, a Certified Fraud Examiner, wants you to know some of the more common types of restaurant fraud, and ways these different frauds can be prevented or minimized:

Cash Skimming: In these schemes, employees use various methods to divert cash.  These include such practices as:

  • Entering lower sales amounts or less expensive items into the cash registers than were sold and pocketing the difference;
  • Recording unauthorized discounts or refunds but keeping the difference,
  • Voiding sales and pocketing the proceeds; and
  • Giving back more change to an accomplice than that person is entitled to. For example, being paid with a $10 bill, but giving back change as if the person had paid with a $20 bill.
  • Among the ways to combat cash skimming are:
    • Utilizing a point-of-sale ordering and cash register system;
    • Requiring employees to enter their employee number when using the cash register;
    • Limiting each employee to using a single cash register during his or her shift at restaurants with multiple cash registers; and
    • Installing cameras to record cash register usage.

Inventory Theft: In these schemes, employees use various methods to misappropriate inventory.  These include such practices as:

  • Outright theft of inventory;
  • Overpours of liquor. This involves serving more liquor than is recorded by the bartender and often results in a higher cash tip – and
  • Under-charging friends and family for meals. This is like the cash skimming schemes, but instead of pocketing cash, the friends and family receive more expensive meals than those for which they are charged.
  • Among the ways to combat inventory theft are:
    • Utilizing a point-of-sale ordering and cash register system;
    • Having a manager regularly count all inventory, or at least such more expensive items as lobster, steak, etc.;
    • Utilizing liquor control systems to provide precise pours and track liquor usage; and
    • Installing cameras to monitor employee exit doors to see if employees are leaving with inventory.

Payroll Fraud: In these schemes, employees either:

  • Clock other employees in or out even when the other employee is not present; or
  • Managers clock former employees in and out, and then split the pay with the former employee.
  • Among the ways to combat payroll fraud are:
    • Requiring multiple levels of approval for time sheets/time cards, including reconciling schedules with time sheets and time cards;
    • Having a third party – or the owner – hand out paychecks;
    • Using an outside payroll service; and
    • Installing cameras to monitor time clocks.

Of course, the most important way to combat restaurant fraud is to regularly inform employees that fraud and theft will not be tolerated, and that management is watching.

Some restaurant owners have told Anderson that many of these recommendations are too expensive for them to implement.  However, when they learn just how expensive restaurant fraud can be for them (for example, a restaurant with $1,000,000 in annual sales is likely losing $200,000 over a five-year period – using the above-mentioned 4 percent of sales lost to fraud number), they quickly understand that spending a fraction of that number can save them many thousands of dollars.

If you are experiencing restaurant fraud, or fear you might be, 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 him 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.

Cash Isn’t Always the Target in Corporate Fraud Schemes

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

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

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

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

Here are some examples of substitution schemes:

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

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

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

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

About David Anderson & Associates

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

Protect Your Data from Fraud and Theft with More Than Just Passwords

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

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

In last week’s blog, Certified Fraud Examiner David Anderson discussed how using secure passwords can help protect the data of your company or organization from fraud and theft. Passwords alone, he advises this week, will not keep your data secure; you need to address other issues that can potentially compromise your data.

These other issues include:

  • Access by former employees, former contractors and/or “guests” – Does your company remove ALL access capabilities (including both internal and external access) of employees or contractors who leave? How about guests who are granted temporary system access (such as temporary employees or visitors)? Some companies retain certain accounts for reuse by new employees, contractors, and/or guests. This allows a former employee, contractor, and/or guest to potentially access the company’s data.
  • Physical access – As with system access, does your company require and track the return of keys, keycards, and other access to your physical facilities? Are their access codes removed from the system? Even if you have done so, do you have policies and procedures in place (as well as training and enforcement) that prevent your employees and/or contractors from allowing someone else to simply walk into your facility with them? If not, your company could be at risk.
  • Secure backup – If you backup sensitive data files offsite, how secure is the physical facility or the service that you are using? If the offsite backup service or facility is not secure, your data could be at risk.
  • Software security updates – Do you have policies and procedures in place to ensure that all software updates – particularly those that are security-related – are installed as soon as they are received? If not, security exploits could be used against your systems.
  • Limitation on offsite use of data – Do you allow employees to store data offsite on laptops, tablets, and/or smartphones? If so, you are at risk of the devices being stolen and the data being compromised. (Every month, there are new reports of some major company or government agency suffering from the theft of a laptop, tablet, or cellphone that contained sensitive data.)
  • Locked file cabinets or rooms – Do you still maintain certain sensitive data in paper files? Is access to those files restricted by storage in locked file cabinets or rooms? If not, employees, contractors, and others could gain access to such sensitive data. Even worse, if such paper files are the only source of certain data, your company could be at risk of the data being removed or damaged (as by a fire or severe storm).
  • Socially engineered attacks – Even if you have implemented secure passwords as well as addressed all the issues above, a well-planned socially engineered attack can render these other safeguards useless. Is your staff well-trained in understanding what a socially engineered attack is and how to react to it? Have they been taught to watch out for suspicious phone calls and/or e-mails that seemingly have come from corporate executives or the IT department? If not, your company could be at risk.

Protecting your data from fraud or theft takes more than just changing passwords. It also requires analyzing other areas at risk, and implementing policies, procedures, and training to protect against those risks. If you feel you need assistance in these areas, contact a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley to conduct a computer security analysis and recommend a comprehensive fraud deterrence program.

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

About David Anderson & Associates

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

Create a Secure Password to Help Keep Your Data Safe

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

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

The list of major corporations hit by a crippling data breach is legend; it seems no business is immune to computer hacking, large or small. One simple, oft-overlooked technique to help thwart these nefarious individuals is to create, and routinely update, secure access passwords.

“Having secure passwords is one of the most effective ways to protect your information and your identity,” 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, “yet, the most common passwords people use are still ‘password,’ ‘123456’ and, courtesy of the Jackson Five, ‘abc123.’  These people are incredibly vulnerable to identity theft.”

Anderson, a Certified Fraud Examiner, said another common problem is that people use same password for everything – their home and work computers, personal and business emails, bank accounts, online purchases, etc.  As a result, if just one password is stolen, the hacker can access all their accounts.

At the other end of the password security spectrum, he said, some companies and individuals create very complex and hard-to-guess passwords (for example, a$4QX3d%bGh87i9M).

“These passwords are obviously difficult to remember, especially if there is a requirement that they be changed every 60 to 120 days,” Anderson said.  “So, what do people do?  They write the password on a piece of paper and attach it to their monitor or desk where everyone can see it.”

What can you do to make sure your passwords are secure?  Anderson, who recommends that every organization enact a comprehensive fraud deterrence program created by an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley, suggests the following fraud deterrence measures to help protect your identity:

  • Don’t use easily identifiable passwords such as those above, your birthday, your anniversary, your spouse’s name, etc. And don’t use the same password for everything.
  • Make sure that your passwords are at least eight characters long (unless the system requires fewer).
  • Include a mixture of capital and lowercase letters, numbers, and special symbols ($, %, &, etc., if permitted).
  • Try to have some level of familiarity with the basis for each password so that it’s not too difficult to remember. For example, you could take the city of your birth (say, Chicago) and the year you started your business (say, 2007) to come up with the following password . . . Oga20Cih07C . . . This looks complicated, but it’s not. It’s Chicago spelled backwards in a group of three letters with the first letter capitalized, then the first two digits of the year, then repeat the pattern. After using this password a few times, it is easily memorized.
  • For systems that require four-digit pins, select a four-letter word that you will remember and convert it to numbers using the telephone keypad. For example, you might use your father-in-law’s first name (Alex) to come up with 2539, or if you hail from Utah, you might want to use 8824. If you don’t use birthdays, anniversaries, street numbers or the last four digits of your phone number, it would be hard for someone to guess these converted numbers.
  • Consider using a password manager. Your antivirus software may already contain a password manager, or there are several online password managers. You create a single strong password to log into the password manager, and it stores all your other passwords. As a result, you need to memorize only one strong password.
  • Keep the written record of your password in a secure location. Don’t tape your password to your computer or your desk. And never share your passwords with other people.

Anderson recalled one fraud investigation he conducted that traced a data breach back to a busy company president who gave his email password to his executive assistant so that she could screen his email.  When she was out sick, the company hired a temporary employee to take her place and gave her the password.  The temporary employee shared the password and login information with her boyfriend, who stole confidential company information directly from the president’s emails.

If you aren’t sure that your passwords are strong enough to protect you and your company or if you aren’t confident that your employees are using secure passwords and keeping them in a safe place, it’s time to contact a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley to conduct a computer security analysis and recommend a comprehensive fraud deterrence program.

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

About David Anderson & Associates

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

Fraud Investigation Reveals Loopholes in Checkbook Controls

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

Harry Johnson was a savvy businessman who was aware of the perils of not having the proper fraud deterrence measures in place.  He took great care to see that his successful small business was adequately protected by anti-fraud controls he created.

Then how did Harry end up losing more than $200,000 from fraudulent activity?  This blog tells the story of an actual fraud investigation that uncovered exactly what went wrong in Harry’s business.

“Harry was seemingly meticulous about safeguarding the checkbook used for his business,” 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. “He diligently set up a series of anti-fraud controls he truly believed would prevent fraud.”

Anderson said that although Harry (not his real name) allowed the controller to be listed as a signatory on the checking account, he always carefully watched the controller fill out each check and he always signed each check himself.  Additionally, Harry was the only person who could write in the checkbook, so he vigilantly recorded each check, Anderson said.

The controller was permitted to fill out the deposit slips, but only under Harry’s watchful eye.  And, only Harry could record the amount of the deposit, which he got from the printed bank deposit receipt.  Finally, Anderson said, although the controller performed the monthly bank reconciliation, Harry always matched the amount recorded by the controller in the checkbook to the monthly bank statement.

“To the untrained eye, Harry’s fraud deterrence measures might seem adequate,” said 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.  “But a forensic accounting expert would have seen that the measures were filled with loopholes that the controller exploited, allowing him to steal well over $200,000 before Harry realized anything was wrong.”

How did the controller do it?

The fraud investigation Anderson conducted revealed that because the controller was a signatory on the checking account, he was able to prepare and cash counter checks that were never recorded in the checkbook.  In addition, while the controller prepared each deposit slip in front of Harry, he never totaled the deposit.  The fraud investigation found that once the controller got to the bank, he would enter a total that was less than the deposit, allowing him to take a certain amount out in cash that he then pocketed.  The net amount deposited was printed on the bank deposit receipt, Anderson said, and it was this amount that Harry recorded in the checkbook, never realizing that it was not the amount it should have been.

Finally, the fraud investigation discovered that Harry never kept a running balance in the checkbook, but instead, relied on the controller to perform the bank reconciliation and write the updated bank balance in the checkbook, Anderson explained.  The controller always made sure that the month-end amount recorded in the checkbook equaled the month-end balance shown on the bank statement.

“Protecting your company from devious-minded people who are intent on defrauding you is a complex process,” Anderson said.  “It’s not something to do yourself and hope you get it right.  Creating strong anti-fraud controls as part of a comprehensive fraud deterrence program that will adequately protect your business is something you should entrust to a forensic accounting expert.”

If you aren’t absolutely certain your anti-fraud controls are effective enough to prevent fraud, it’s time to contact a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley to analyze the controls and make recommendations for strengthening them, Anderson said.

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

About David Anderson & Associates

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