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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.

Forensic Accounting Investigations Unearth Medicare, Medicaid 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 and fraud deterrence, litigation support, and forensic accounting services in Philadelphia and the Delaware Valley.

Government payments to providers under the Medicare and Medicaid programs are based on an “honor billing system,” meaning it is up to providers to honestly and accurately bill the government for services or goods provided.  Not surprisingly, fraud investigations routinely uncover fraudulent activities that cost the government (and, ultimately, taxpayers) billions of dollars each year.

“As a forensic accountant, I have been asked to investigate Medicare and Medicaid billing fraud both by the government and by private companies that suspected some of their employees were involved in fraudulent activities,” 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.  “My fraud investigations have unearthed some of the most common Medicare and Medicaid fraud schemes as well as some that were quite creative.”

Medicare is a federal government health insurance program established in 1966 to provide health insurance to people 65 and older and to certain disabled people, said Anderson, who also is a Certified Fraud Examiner in Philadelphia.  The program is funded through payroll tax deductions and is administered by the federal government.  Medicaid is a government program established in 1965 to provide health insurance to low-income individuals in all 50 states, Anderson said.  Medicaid is funded jointly by the state and federal governments and is administered by the states.

The so-called “honor billing system” puts the onus on healthcare providers, including durable medical equipment suppliers and pharmacies, to truthfully bill the two agencies for services and goods, said Anderson, whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  As a result, Medicare and Medicaid billing fraud generally is detected only after the fact, based either on tips from whistleblowers or after-the-fact data analysis that detects unusual billing patterns, he said.

Among the fraudulent Medicare and Medicaid schemes Anderson’s fraud investigations have uncovered are:

  • Upcoding Schemes: These frauds involve healthcare providers who charge for a more expensive procedure than was performed, said Anderson, a forensic accounting expert in Philadelphia. For example, he said, because Medicare pays more for a comprehensive annual physical exam than it does for a routine office visit, some providers will improperly bill a routine office visit as a comprehensive annual physical exam to receive the higher fee.  Or, a physical therapist may schedule a group session to provide physical therapy for multiple individuals at the same time, but bill Medicare/Medicaid for individual treatments at a much higher rate.
  • Unbundling Schemes: This fraud occurs when a group of medical tests typically billed as a single procedure are instead billed individually, thereby increasing the total fees for the tests. An excellent example of this, said Anderson, a Certified Fraud Examiner in Philadelphia, is the Chemistry Panel and Complete Blood Count test.  This panel includes tests for cholesterol, triglycerides, blood glucose, calcium, potassium, iron, and complete blood count, as well as several other tests.  By performing a Chemistry Panel and Complete Blood Count but billing for each test individually, the laboratory can make a much higher fee for its services.
  • Non-Existent Services Schemes: These fraud schemes occur when a healthcare provider bills for goods or services never provided, Anderson said. In his work as a forensic accountant, Anderson uncovered a dentist who billed Medicaid for removing the same tooth from a patient four different times. Another example, he said, is a gynecologist who billed for performing an internal pelvic exam on a man.  Anderson, a forensic accounting expert in Philadelphia, said Medicare and Medicaid recently have cracked down on home health care companies, for example, for providing eight hours of home health care but billing for 24 hours of care.
  • Medical Equipment Schemes: These schemes have many variations but generally involve providers who bill for new medical equipment but deliver used equipment, or who bill for equipment that was not delivered at all.
  • Prescription Drug Schemes: There are numerous variations on this scheme, which include pharmacies that provide patients with generic drugs, but bill for more expensive name brands, or pharmacies that bill for a higher dosage or number of pills than was provided to the patient.

“The FBI estimated that in one recent year, Medicare fraud alone cost the government as much as $250 billion,” said Anderson, a forensic accountant and Certified Fraud Examiner in Philadelphia.  “Add to that the many billions of dollars lost to Medicaid fraud annually, and you can see how big a problem this is.  Hopefully, both federal and state governments will implement new procedures to reduce Medicare and Medicaid fraud in the future.”

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 Fraud Examiner and a Certified Valuation Analyst.

Data-Mining Software Helps Forensic Accountants Keep Litigation Costs in Check

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

The use of special data-mining software in complex litigation support and forensic accounting cases can yield significant cost and time savings, according to a noted Philadelphia forensic accountant.

In most forensic accounting engagements, time is of the essence and, when litigation is involved, deadlines for discovery or accepting proposed settlement offers can become a major issue. If it normally takes several weeks to analyze large amounts of data, and the analysis produces no meaningful results, the use of data-mining software can be especially valuable in affording time to conduct alternate analyses.

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, once had an engagement that required only one person working for three days as opposed to a team of two people working for several weeks to perform the analyses and obtain the results.

In this specific case, a multi-location retailer believed its controller may have been defrauding the company through a variety of means. It was suspected the controller was purchasing goods from the company without payment and making fraudulent payments to one or more of her own businesses through accounts payable.

The controller had been married multiple times and had been known by eight different names including alternate spellings. In addition, she had lived at six different addresses during her tenure as controller.

The investigator from Anderson’s office obtained an electronic copy of all company sales and accounts receivable transactions for the 10 years the controller had been with the company. This totaled more than 1 million transactions in upwards of 250,000 customer accounts.

Using specialized data-mining software, the investigator analyzed customer accounts and transactions for matches with any of the controller’s names or known addresses. The write-offs of any balances in such customer accounts also were reviewed.

This showed the controller had purchased goods through eight different customer accounts; a former spouse had purchased goods through two different customer accounts; and a former live-in boyfriend had purchased goods through yet two other customer accounts.

During further research of nonpayment account reductions in balance, it was discovered that, on 13 different occasions the controller had written and processed either credit memos or write-offs to these accounts. Each of these nonpayment account reductions was determined to be improper and had been processed without the proper approvals.

In addition, by subjecting the company’s vendor files to this same data-mining software, the billing and payment addresses of the company’s 1,200 vendors were compared with the known addresses of the controller. This revealed that payments had been made over several years to a consulting company with the same address as one of the controller’s known addresses.

As demonstrated by this engagement, the benefits of using specialized data-mining software in complex litigation support and forensic accounting engagements can be substantial and should be seriously considered in such cases for cost and time savings.

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

About David Anderson & Associates

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

Forensic Accountants Take on Complex Calculations of Economic Damages

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

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

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

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

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

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

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

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

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

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

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

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

About David Anderson & Associates

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

The Effect of Personal Goodwill in a Divorce-Related Valuation

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.

When determining the value of professional services businesses – such as law firms; medical practices; or accounting, engineering or consulting operations – it is important, according to a noted Philadelphia forensic accountant and Certified Valuation Analyst, to consider the personal goodwill associated with the professional or business owner.

David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley, explains the Internal Revenue Service defines “goodwill” as “the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.”  Recent court decisions, Anderson said, have recognized a distinction between the goodwill of a business itself and the goodwill attributable to the owners/professionals of that business.  This second type is typically referred to as personal goodwill.

Personal goodwill differs from overall business goodwill in that personal goodwill represents the value stemming from an individual’s personal service to that business, and is an asset owned by the individual, not the business itself, said Anderson, a forensic accounting expert in Philadelphia with experience conducting business valuation services in the Delaware Valley  This value would encompass an individual’s professional reputation, personal relationships with customers or suppliers, technical expertise, or other distinctly personal abilities that provide economic benefit to a business.  Anderson said this economic benefit is in excess of any normal return earned by the company.

An example of this can be seen from one of past cases overseen by Anderson, a Certified Valuation Analyst. This situation involved the divorce of a specialist physician who had a reputation as being one of the top doctors in his field on the East Coast.  As a result, he was sought out by patients up and down the East Coast – a far greater geographic area than most of the practice served.  Because of the larger than normal number of patients that visited the practice to see him and because he performed more expensive and complex procedures than most of the other doctors in his practice, he generated considerably more income for the practice than any of the other doctors.

In order to calculate the personal goodwill of this physician, Anderson – principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation services in the Delaware Valley – obtained compensation and productivity data for the “typical” physician in his specialty with the same level of education and experience.  He compared this to the husband’s actual earnings and productivity.

Anderson then capitalized the stream of income arising from differences in revenue generated minus the differences in compensation.  This capitalized amount was the personal goodwill associated with the husband.  He subtracted the personal goodwill from the value of the practice in order to determine the business value of the practice.  It was this value that was used in the marital dissolution proceeding.  In this case, the personal goodwill of the physician represented almost half of the value of the entire practice.

In another case, involving a physician who did not possess such a significant reputation or level of expertise, Anderson calculated the amount for personal goodwill was less than 5 percent of the value of the entire practice.

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.

Make Prosecution the Final Step in Your Fraud Deterrence Plan

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

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

So, you’ve been the victim of fraud.

You knew something was amiss.  You hired a Certified Fraud Examiner.  A thorough fraud investigation uncovered the fraud and identified the perpetrator.  You fired the fraudster — or punished them internally — and implemented stronger anti-fraud controls and forensic accounting measures as part of your overall fraud deterrence program.

So, it’s over, right?

Not quite.

“You really need to refer the matter to law enforcement,” said Anderson. “Simply ridding your organization of the offending employee isn’t the answer.  You are effectively letting him or her off the hook and allowing that employee to move on to potentially victimize another unsuspecting organization.”

While a majority of organizations victimized by fraud do refer the matter to law enforcement, the number may be lower than you might think.

In its most recent Report to the Nations, the Association of Certified Fraud Examiners (ACFE) – the world’s largest anti-fraud organization, dedicated to fighting fraud through its more than 85,000 members in more than 150 countries worldwide – found that only 58 percent of fraud cases were referred to law enforcement.  The remaining 42 percent were not.  This finding represents a downward trend from each of the previous two Reports.

Of the cases referred for prosecution, more than 83 percent resulted in a guilty plea or a conviction.  Only about two percent resulted in an acquittal.  In most of the other cases, law enforcement declined to prosecute.

With such a high percentage of convictions and guilty pleas, why did so many companies decline to seek prosecution?  The ACFE survey – a biennial global survey on the costs, schemes, perpetrators and victims of fraud – identified the top four reasons:

  • Nearly 38 percent said fear of bad publicity kept them from referring the case to law enforcement;
  • More than 33 percent thought internal punishment was sufficient;
  • More than 21 percent reached a private settlement with the fraudster, and
  • Almost 24 percent thought referring the case to law enforcement and helping with prosecution would be too costly.

Anderson, a Certified Fraud Examiner and an ACFE member, strongly encourages companies, non-profits and government offices to refer fraud cases to law enforcement.  He said he is particularly reluctant to advocate for internal punishment without criminal consequence.

“Internal punishment alone means the fraudster not only evades criminal prosecution, but also gets to keep his or her job,” Anderson said.  “Now, you have an employee who not only is skilled at committing fraud, but also has learned from the mistakes he or she made that led to the discovery of the fraud.  The result is that the person often ends up further defrauding the organization.”

He recalled a case in which a company controller who committed fraud was allowed to remain in his job by agreeing to repay the stolen money through regular payroll deductions.

After some time passed, Anderson was retained by the company to conduct another fraud investigation, which found that the controller was again defrauding the company in a variety of ways, including having instructed the payroll department to stop the payroll deductions designed to repay the previous fraud.  The company terminated the fraudster, but again declined to prosecute.

“I have no doubt that today the employee is working at another company and perpetrating a fraud there,” he said.

There also is a key benefit to your fraud deterrence efforts that comes from referring fraud cases to law enforcement, Anderson said.

“Seeking prosecution of a fraudster is one of the strongest fraud deterrence messages you can send,” he said.  “It tells every other employee that fraud will not be tolerated and, in fact, will be prosecuted to the fullest extent of the law.”

Anderson 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.

If you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia the and 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.

A Refresher on the Elements of Fraud; Look for the Warning Signs

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 forensic accounting services including fraud investigation and fraud deterrence programs in Philadelphia and the Delaware Valley.

In several earlier blogs, I discussed the three key elements of fraud – Pressure, Opportunity, and Rationalization – a.k.a. The Fraud Triangle – which must be present for a fraud to be perpetrated.  This past week, one of my clients discussed a fraud in which her company had unknowingly been involved.  This brought to my mind the need to refresh my readers on these three elements of fraud.

Here is what happened:

  • A little over six months ago, my client ordered and received certain products from one of its vendors. Upon receipt of the vendor’s invoice, my client paid the invoice in full.  The check cleared my client’s bank, and as far as her company was concerned, the transaction was completed and over.
  • It turns out that what my client didn’t know was that the vendor’s employee who processed receipt of my client’s check had stolen the check, altered the payee name, and deposited the check in his own bank account.
  • When caught, the vendor’s employee confessed to stealing customer checks so that he could use the money to support his drug problem (Pressure).
  • My client learned the vendor’s employee had responsibility for opening mail containing customer payments, entering those payments into the vendor’s accounting system, and processing credits against customer accounts. These credits were for such items as:  mischarges on the vendor’s invoices; short shipments; and shipment of defective merchandise.  The vendor had a practice that all orders over $2,000 for which the customer claimed the merchandise was defective required that the customer return the entire order so that the vendor’s quality control staff would examine the defective merchandise. However, for orders under $2,000, the vendor would tell the customer to just dispose of the defective merchandise, and then the vendor would process a credit for that defective merchandise.  It is this practice that was exploited by the fraudster.  The fraudster would look for certain orders under $2,000, steal and alter the customer’s check, and instead post a credit for defective merchandise to the customer’s account (Opportunity).
  • The vendor only learned of the fraud when it noticed an uptick in the amount of credits for defective merchandise. The vendor engaged a quality control consultant to help it address the issue.  When the quality control consultant contacted several customers for whom defective merchandise credits were applied, the consultant learned that none of the customers had ever contacted the vendor about defective merchandise.  This in turn sparked a forensic investigation which uncovered the fraud.
  • As part of the fraudster’s confession, he said he thought the vendor company expected to lose a certain amount of profit due to its policies regarding defective merchandise, and that it could therefore afford to lose the income from his theft of customer checks (Rationalization).

So how could the vendor have avoided this fraud from occurring?  The answer is by removing one or more of the elements of the fraud triangle.  Although it’s unlikely the vendor could have removed the Pressure that caused the fraudster to act, it could have removed the Opportunity by separating the three financial duties performed by the employee (so that the employee couldn’t steal the checks and process credits) and by changing its procedures for processing customer credits (such as by requiring a manager to approve each credit and/or by requiring the sales department to contact each customer who claimed defective merchandise in order to find out about the defective merchandise, and then requiring a copy of the sales department’s report be attached to each customer credit).

Additionally, the vendor company could have helped remove or reduce Rationalization by regularly educating its employees about fraud, reinforcing the fact that management does not condone fraud, and letting employees know that it is regularly looking for fraud.

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

About David Anderson & Associates

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

Getting Personal with Expenses in a Divorce-Related Business Valuation

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 forensic accounting services including fraud investigation and fraud deterrence programs in Philadelphia and the Delaware Valley.

Determining the equitable value of a business at the center of a divorce case can be a tricky circumstance to begin with; however, the situation can be even more vexing if the two sides disagree on the charging of certain personal expenses against the profits of the business.

In such cases, most attorneys turn to a forensic accounting expert who also is business valuation expert and has served as a marital dissolution accountant to determine the appropriateness of those expenses and, subsequently, a fair value for the business.

“We’ve all been in situations where we know to rely on a professional with experience in the matter at hand.  Handling a business valuation in a divorce proceeding is one of those situations,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley.

“The spouses may not agree on the value of the business, and their attorneys may have partisan opinions as well,” Anderson said. “What it boils down to educating everyone involved on how a forensic accounting expert addresses valuation issues in a divorce.”

Anderson, a Certified Valuation Analyst and marital dissolution accountant in Philadelphia and the Delaware Valley, said there are four distinct business valuation issues that surface regularly in marital dissolutions. They are:

  • The cost of the in-spouse’s services to the business being valued (the in-spouse is the spouse who owns the business interest being valued as opposed to the out-spouse who does not have ownership in the business);
  • Personal goodwill and its impact on the business being valued;
  • The presence, and impact, of unreported cash sales; and
  • Personal expenses charged to the business.

Anderson said it is common for in-spouses to charge non-business-related expenditures to a business and just as common for them to become an issue in a divorce case.  Anderson, a business valuation expert whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley, said a forensic accountant must analyze the expenditures and deduct them from the business’ expenses.

“I had one extreme case in which an attorney in-spouse charged his business more than $150,000 for shore house renovations that included the addition of a movie-screening room,” said Anderson, a Certified Valuation Analyst forensic accounting expert in Philadelphia and the Delaware Valley.  “The attorney claimed he needed a comfortable, presentable place to work when he visited the shore house, and business-related visitors needed to see a home office that fit his reputation. I reduced the expenses of the business by the cost of the renovation.”

In another case, explained Anderson, a divorce accountant and business valuation expert who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, said the in-spouse was a wholesale distributorship owner who attended semi-annual meetings of a trade association.  The in-spouse always brought the out-spouse (because some colleagues also brought their spouses) and their two children (because they did not want to pay a babysitter).  The in-spouse charged the business for the cost of travel, hotel rooms, meals and entertainment (including tickets to amusement parks, museums, etc.) for the out-spouse and two children — the same amount that Anderson later deducted from the expenses of the business.

“There is no limit to the creativity some in-spouses will employ in justifying the personal expenses they charged to their businesses,” said Anderson.  “Most divorce accountants have heard it all.  That is not to say there are no legitimate reasons for charging seemingly personal expenses to the business.  There are.  And it is the forensic accountant’s job to figure out which expenses are justified, and which are not.

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

About David Anderson & Associates

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

What Is Qui Tam and Why Is It Relevant Today?

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

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

Over the last several months, the term “whistleblower” has become commonplace in the news.  However, for well over 100 years, the term “whistleblower” has been commonly used with regards to companies that are accused of defrauding the Federal government.  It is used with what are known as writs of Qui Tam.

To gain a better perspective on Qui Tam, I spoke with David Heim, Esquire, a partner in the Philadelphia law firm of Bochetto & Lentz, P.C.  Attorney Heim is one of the Bochetto & Lentz partners who handle Qui Tam cases.

Attorney Heim stated that the concept of Qui Tam goes back to Roman and Anglo-Saxon law.  In fact, Qui Tam is an abbreviation of the Latin phrase “qui tam pro domino rege quam pro se ipso in hac parte sequitur” which means “he who sues in this matter for the king as well as for himself.”

In the United States, the American Civil War provided the impetus for the modern application of Qui Tam.  During the early part of the Civil War, unscrupulous contractors sold deficient supplies to the Union Army, including faulty rifles and ammunition, rancid food, and poorly made uniforms, shoes and other supplies.

This led to the passage of the False Claims Act in 1863.  The False Claims Act allowed for people not affiliated with the Federal government to file suit against Federal contractors, claiming fraud against the Federal government.  As an additional incentive, the False Claims Act included a Qui Tam provision which permitted those who filed such suits to receive a percentage of the amount recovered.  The False Claims Act uses an alternative name for “whistleblower” – “relator”.

Attorney Heim described the way a Qui Tam case works, as follows:

  • A person (the “relator”) approaches a law firm such as Bochetto & Lentz with the allegation that a business is defrauding the Federal government.
  • The relator’s law firm, if they decide to take the case, perform significant due diligence and investigation in order to support the specific fraud asserted. The law firm may engage forensic accountants and other experts as part of their investigation (Note:  if the pre-filing investigation is unable to uncover sufficient proof to support the specific fraud asserted, the case cannot proceed).
  • If there is sufficient proof to support the specific fraud asserted, the relator’s law firm files a complaint in the U. S. District Court. The complaint, which is captioned with the name of the individual on behalf of the United States versus the business, is sealed.  Because it is a Qui Tam matter, the case is not docketed.  Hence, no one outside of the relator and the relator’s law firm knows about the case.
  • The relator’s law firm approaches the U. S. District Attorney’s office (Department of Justice) about the Qui Tam case.
  • The U. S. District Attorney meets with the relator’s law firm and the “relator”. Its office conducts a secret investigation which may include interviews, analysis of the complaint and supporting documents, etc.  The U. S. District Attorney’s Officer may even approach the business which is the subject of the complaint (defendant) and obtain documentation (under seal).  Such an investigation may take months and even years.
  • Based upon the results of its investigation, the U. S. District Attorney decides whether to intervene. If it chooses to intervene, the Federal government will take over the case and file the complaint itself (not under seal).
  • Attorney Heim explained that if the U. S. District Attorney chooses not to intervene, the “relator” and his/her law firm may choose to pursue the case themselves. However, because most Qui Tam cases are very large, most law firms lack the resources to pursue such a case.  Additionally, since the U. S. Attorney has decided that pursuing the case is not likely to be successful, the private law firm must also weigh the similar risk that it’s case will be unsuccessful.
  • Once the Federal government pursues the case, Attorney Heim stated that it is typically the case that the defendant and the Federal government negotiate and settle the case without going to trial (this is because being the subject of such a Federal investigation can be very expensive, and can generate considerable negative publicity).
  • The False Claims Act provides for the “relator” to receive between 10% and 25% of the amount recovered from the defendant. When the Federal government takes over a case from them, Bochetto & Lentz will negotiate the fee with the Federal Government on behalf of the relator. Bochetto & Lentz will then receive a percentage of the relator’s payment (based upon the original terms of the engagement when it agreed to take the case).

Attorney Heim described two recent Qui Tam cases with which he was involved:

  • Case number one involved a contractor hired by the government of a U. S. territory based in the Caribbean which had been hit by a hurricane. Using Federal funds, the island’s government hired the contractor to clear roadways and cut up downed trees.  One of the contractor’s employees reported to company management that the company was overbilling the Federal government by over-reporting the number of downed trees it had cut up.  The company fired the employee who then approached Bochetto & Lentz with whistleblower complaint.  Bochetto & Lentz filed suit, and the U. S. Attorney intervened in the case, charging the contractor with defrauding the Federal government.
  • Case number two involved a publicly held pharmaceutical company which had manipulated the system to get around being paid agreed-upon Medicare rates for certain expensive drugs. The company shipped smaller amounts of the drugs to Medicare authorized pharmacies.  Because these pharmacies were not able to fill all the Medicare demand for these drugs, hospitals and other facilities needing these drugs were forced to go to non-Medicare pharmacies for the drugs.  Because the drugs were purchased from non-Medicare pharmacies, Medicare was forced to pay a higher price for the drugs than it would have paid if the drugs were purchased from Medicare authorized pharmacies.  The whistleblower/relator came to Bochetto & Lentz.  Bochetto & Lentz filed suit, and the U. S. Attorney intervened in the case, charging the pharmaceutical company with defrauding Medicare.

Attorney Heim also noted that other common Qui Tam cases involve Medicare providers (such as nursing homes and durable medical equipment companies) billing for procedures not performed, improper coding of billed procedures (in order to receive higher payments), and improper billing for durable medical equipment provided (such as providing a piece of equipment to a patient but billing a monthly rental fee instead of a one-time purchase fee).

I also asked about various state whistleblower laws.   Attorney Heim stated that most of these laws are designed to protect the whistleblower instead of allowing the whistleblower to sue on behalf of the state government.  For example, Pennsylvania allows a whistleblower to sue for retaliation.  In New Jersey, the applicable statue is known as CEPA (for the “Conscientious Employee Protection Act) and is also designed to protect whistleblowers from retaliation.

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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, economic damage analysis, business consulting, and outsourced CFO services.  Company principal David Anderson is a forensic accounting expert in Philadelphia with more than 30 years of experience in financial and operational leadership positions. He is a Certified Public Accountant, a Certified Fraud Examiner, and a Certified Valuation Analyst.  Anderson also has served as a divorce accountant or marital dissolution accountant in Philadelphia and the Delaware Valley.

 NOTE: David Anderson’s weekly forensic accounting blog will be on hiatus through the new year and will return on Monday, January 6. Have a safe and enjoyable holiday season!

Cash Transactions Can Complicate Business Valuations During a Divorce

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 forensic accounting services including fraud investigation and fraud deterrence programs in Philadelphia and the Delaware Valley.

The decision to end a marriage is a messy affair that becomes undoubtedly more complicated when the division of property includes a business that must be valued; the situation becomes even trickier when claims of unreported cash transactions taking place in that business are involved.

In these cases, determining a fair value for the business is best left in the hands of a forensic accounting expert who has experience serving as a marital dissolution accountant and a business valuation expert.

“The issues that have to be considered in a business valuation during divorce proceedings are complex and numerous,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides marital dissolution and business valuation services in Philadelphia and the Delaware Valley. Such issues can be particularly thorny, he emphasized, when the business in question may or may not have had unreported cash sales.

The overall valuation process, he said, “usually begins in an educational vein as the forensic accountant explains to the spouses and their attorneys how a forensic accounting expert addresses valuation issues in a divorce.”

Four key business valuation issues arise repeatedly in marital dissolutions, said Anderson, a Certified Valuation Analyst and marital dissolution accountant in Philadelphia and the Delaware Valley. These valuations issues are:

  • The cost of the in-spouse’s services to the business being valued (the in-spouse is the spouse who owns the business interest being valued as opposed to the out-spouse who does not have ownership in the business);
  • Personal goodwill and its impact on the business being valued;
  • Personal expenses charged to the business; and
  • The presence and impact of unreported cash sales. (This blog will explore the issue of unreported cash sales and their impact on business valuation.)

During divorce proceedings, an out-spouse often will tell the divorce accountant the in-spouse’s business has unreported cash sales, explained Anderson, a divorce accountant and business valuation expert who provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.  The forensic accountant must then determine if the claim is true, and, if so, uncover the amount of the unreported sales.

This task is accomplished by performing a variety of analyses, including:

  • Investigating deposits into the in-spouse’s bank and investment accounts to determine how many of the deposits were cash;
  • Analyzing the gross margin of the business (sales less the cost of sales) and comparing that gross margin to industry averages; and
  • Searching for missing invoice or receipt numbers (very often the in-spouse will complete an invoice or receipt for a cash sale, but not record it on the books of the business).

Other specific analyses also may be required depending on the type of business, said Anderson, a Certified Valuation Analyst forensic accounting expert in Philadelphia and the Delaware Valley.  These analyses will allow a forensic accountant to confirm or deny the out-spouse’s claim, and, if confirmed, estimate the amount of the unrecorded cash sales that need to be added to the business’ revenues, he said.

“I once had a case in which the out-spouse told me her husband kept cash from unrecorded sales in his dresser at home,” recalled Anderson, a business valuation expert whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.  “I actually went to the home and counted the cash in the dresser as part of my forensic investigation.”

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

About David Anderson & Associates

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

When You Collect Taxes, Be Sure to Remit Them in a Timely Fashion

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

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

Almost every organization is responsible for collecting and remitting taxes. These taxes, which occur on the Federal, state, county or local levels, can include payroll taxes – such as income tax, Social Security tax, Medicare tax, and unemployment tax – as well as sales taxes, excise taxes, fuel taxes, and others.

“These taxes belong to the governmental taxing authorities,” said Certified Fraud Examiner David Anderson of the Philadelphia forensic account services firm of David Anderson & Associates, “and should not be used by the business at any time for any reason.”

He explained these tax types often are referred to as “trust fund taxes,” evoking the concept that the organization is holding the tax monies “in trust” for the government because they have been withheld from taxpayers by the business.

Some organizations that are experiencing cash flow or financial difficulties have used these funds for financing operations, Anderson said, instead of remitting the funds in a timely manner to the governmental taxing authorities.

Their logic, he said, usually is that if they can’t continue to operate, then they will have to lay off employees – which would cost the taxing authorities both payroll taxes and unemployment payments – and they will lose sales – which, similarly, would cost the authorities sales taxes, excise taxes and fuel taxes.

However, taxing authorities believe the taxes become their property the minute the organization withholds them from employees or collects them from customers, said Anderson.

The failure to remit these collected taxes when they should be, he said, can result in penalties and interest being charged to the organization.  In addition, such failure can trigger trust fund penalties of up to 100 percent of the unpaid taxes, a practice commonly known as the “100 percent penalties.”

Under these penalties, Anderson said, not only is the organization responsible for the unpaid taxes, but also any person – termed by the law as “responsible persons” – who can effectively control the finances or determine which bills should or should not be paid and when.

Under the law, he said, the term responsible person is very broad and can include employees and shareholders/partners, as well as others outside of the formal organization – including, potentially, sureties and lenders.  Additionally, taxing authorities don’t have to wait to see if they will be paid by the organization; they can, Anderson said, go after the responsible person at any time.

As if the 100 percent penalties aren’t enough, the fraud deterrence professional said, taxing authorities also can pursue criminal fraud complaints if they view that the owners – or officers, in the case of non-profit organizations – have used the unpaid taxes to benefit themselves.  This includes compensation, fringe benefits, expenses paid on their behalf, distributions or dividends, loan repayments, and retirement plan contributions.

A failure to remit taxes collected on behalf of governmental taxing authorities in a proper and timely fashion, Anderson said, can have significant and dire consequences.  One way to avoid this issue in the case of payroll taxes is to employ a professional payroll service to withhold and pay such taxes.

In addition, many of these same companies offer similar services for sales, excise, and fuel taxes.  Organizations in financial need should consult their professional advisors and other financial companies – such as lenders, factors, floor plan providers, etc. – in order to find other ways to finance the operations of their organizations without resorting to the improper use of collected and withheld trust fund taxes.

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.

Retain Forensic Accountants Early for More Effective Litigation Support

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, 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, litigation support and expert witness testimony services in Philadelphia and the Delaware Valley.

A forensic accounting expert in Philadelphia or elsewhere in the U.S. often requires very specific, detailed financial documents for analysis before providing litigation support services and expert witness testimony during legal proceedings. The effectiveness of such a strategy, however, can be compromised if that expert is engaged late in the process.

“On some occasions, I have been brought on board after the legal team requested and received insufficient financial data from the opposition.,” 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.

“When I was retained late in discovery or even after discovery has closed,” he said, “I learned the only financial records counsel requested were income tax returns and bank statements. The attorneys believed those documents contained sufficient financial information for my analyses and reports. Unfortunately, they did not.”

Anderson, whose full range of forensic accounting services in Philadelphia and the Delaware Valley includes litigation support services and expert witness testimony in Philadelphia, notes that income tax returns contain only summary level information. For example, he said, sales revenue is shown as a single amount. No detail is provided concerning the dollar amounts or numbers of specific products or services sold.

“In one of my cases, counsel wanted to know how much was being paid to non-officer family members,” explained Anderson, a Philadelphia forensic accountant. “But counsel had obtained only the income tax return, which merely showed total wages and salaries paid to all employees, not to each individual. The tax return could not be used to answer the question.” Anderson said the attorney could have overcome this hurdle if detailed company payroll information had been requested during discovery.

In another case, explained Anderson, a forensic accounting expert in Philadelphia, counsel suspected that the majority shareholders were running personal expenses through the company – such as auto expenses, travel, meals, entertainment, etc. But again, because the income tax returns showed only summary level information, Anderson was unable to determine whether any of the expenses were of a personal nature.

“Had counsel asked for detailed general ledger information and copies of invoices supporting all expenses, I would have had the necessary information to conduct my forensic examination,” explained Anderson, whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley.

Bank statements also are frequently requested in discovery, but they too lack detailed information. The Philadelphia forensic accountant said bank statements seldom show deposit detail – what checks, cash and/or incoming wire transfers made up each deposit and from where the checks or incoming wire transfers came.

In addition, bank statements do not provide detail regarding checks written against the account – only check number, amount and date charged against the account, said Anderson, whose Philadelphia forensic accounting firm provides litigation support services and expert witness testimony in Philadelphia. Bank statements may show debits or credits posted against the account as well as cash withdrawals and transfers to/from the account, but with little detail.

Generally, the only real details contained in bank statements are for outgoing wires (showing to whom the wire was sent), for debit card purchases, and for recurring ACH (automated clearinghouse) payments, said Anderson, a Philadelphia forensic accountant.

“Attorneys can overcome bank statement shortcomings,” he said, “by requesting copies of all deposited items, including deposit slips; copies of all cancelled checks; copies of all documents supporting debits, credits, transfers to/from and withdrawals from the bank account; detailed general ledger information; and copies of invoices supporting each cancelled check.”

However, Anderson cautions, each case is different and carries with it its own unique set of circumstances. The best way an attorney can be sure he or she has requested the financial documentation necessary to generate the reports that will support the case is to retain the services of a forensic accounting expert early in the discovery process.

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

About David Anderson & Associates

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

Maximize Cash Flow with These Forensic Accounting Strategies

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

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

For many small businesses, it’s an ongoing struggle to keep enough cash on hand to finance operations, pay debts, and provide income to the owners. If your company could use some assistance in this area, an experienced forensic accountant in Philadelphia has several strategies to help maximize cash flow.

“Even the most organized and savvy small business owners can experience cash flow problems from time to time, said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. “There definitely are ways, however, you can squeeze cash out of sales, assets, and even business debts to maximize your available cash.”

Here are some of Anderson’s top cash flow recommendations:

  • Get cash up front from customers: Attorneys, consultants, and others do it. You should too, especially if the sale is for services, if you must purchase materials to fulfill the order, or if there is more than a month between the date the customer places an order and the product is delivered or service is completed, said Anderson, a forensic accounting expert in Philadelphia. Depending on the size and type of the order, you should ask for anywhere from 10 percent to 50 percent of the sales price up front, he said.
  • Offer customers a discount for faster payment: Many companies offer a one or two percent discount for payment within 10 days of the original invoice. Such an offer, Anderson said, can motivate customers to pay you quickly. Of course, you need to consider the impact of such discounts on your profitability and ensure that your sales price includes the impact of the discounts, he said.
  • Accept credit card payments: Some customers may not have adequate cash in their bank account to pay quickly, but they do have business or personal credit cards they can use, said Anderson, a forensic accountant in Philadelphia whose company offers a full range of forensic accounting services in Philadelphia and the Delaware Valley. You’ll pay a small fee of about 3 percent to the credit card company, he said, but you’ll get paid faster by accepting credit card payments.
  • Stay on top of your past due accounts: How long do you let a customer’s account go past due before you pursue them for payment? The answer should be not at all, Anderson said. Consider establishing a policy of calling customers five days prior to the due date to remind them that the payment is coming due. And, wait no more than two days past the due date (allowing for the customer to have mailed the payment on the due date) to begin calling the customer, Anderson recommends. Remember, the squeaky wheel gets the oil, he said.
  • Consider factoring your accounts receivable: If your industry has payment terms that extend beyond 30 days from the invoice date, or if your sales are for relatively large amounts, consider selling your accounts receivable, or invoices, to a third party. By factoring your accounts receivable, your invoices are paid much faster, said Anderson, a forensic accounting expert in Philadelphia. Remember to consider the cost of factoring and how it impacts upon your profitability, since factors can charge a significant fee, he noted.
  • Squeeze more cash out of your inventory: When was the last time you analyzed your inventory to determine if you have too much of certain items, slow-moving items, or obsolete items? Consider discounting these items to turn them into cash. Or, Anderson said, you may prefer to sell slow-moving or obsolete items to liquidators or scrap dealers at drastically reduced prices. Sure, you won’t make much, if any, profit from selling these items (particularly the slow moving or obsolete ones), but they aren’t producing cash if they’re just sitting on the shelf, he said.
  • Do the same with your older fixed assets: Most businesses have an inventory of retired fixed assets that aren’t being used and are just taking up space. Consider selling these assets to liquidators or scrap dealers, said Anderson, a forensic accountant in Philadelphia. You’ll free up space and maybe some cash, too.
  • Negotiate longer payment terms with vendors: Have you ever had a customer ask to stretch out his or her payment terms? You are a customer, too, Anderson reminds business owners. It never hurts to ask, particularly when you won’t get paid by your own customer for 30 or more days, he said. In that scenario, it’s likely your vendor will understand and allow you to stretch out your payments.

“These are just some of the strategies that you can use to increase your cash flow and make it easier to keep your business going, pay your debts and keep your own income consistent,” said Anderson, a forensic accounting expert in Philadelphia.

If you require the services of a 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.