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 forensic accounting cases involving marital dissolution or disputes between shareholders or businesses, one of the most-often-abused financial categories – says David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley – is meal and entertainment expense deductions.

Anderson often is asked, as a Certified Fraud Examiner, to review the reasonableness of certain expense deductions taken by a business.  Taking improper expense deductions can depress the income and value of a business (affecting the out-spouse in a divorce or a minority shareholder) or inflate the amount to be reimbursed (affecting an employee, contractor or another business), so it is important for a forensic accountant to scrutinize deductions.

Here are some of the most highly questionable meal and entertainment expense deductions/reimbursements he has uncovered in his work:

• Several thousands of dollars in payments to strip clubs – in this case, the majority shareholder claimed the strip clubs (one in Dallas, TX and one in Washington D.C.) were the only local places that served the kind of quality food befitting his customers. He further indicated the costs were so high (over $1,000 each time) because he was purchasing quality alcoholic beverages for his customers and himself.
• Having the business pay for overseas vacations for an extended family to countries where the company did not conduct business – in this case, the company paid for overseas vacations for the majority shareholders, their immediate families, their children’s families and their in-laws (none of the minority shareholders or their families enjoyed such privileges). The majority shareholders claimed these vacations were valid business trips because they were considering the potential of conducting business in these countries, and they took along extended family members, including infants and small children, to obtain a variety of viewpoints regarding conducting such business in the future.
• In another case, having the business pay for a vacation at a resort for the majority shareholder’s wife, college-age children and the family dog – in this case, the majority shareholder explained his wife’s presence by claiming he was meeting a client who would be bringing his own wife, and he felt it would be awkward if his wife were not there. He then explained he brought along his college age children because he did not trust them to be “home alone” in the family house.  Finally, he stated the family dog would be traumatized by being sent to a kennel, and since there was no one he could trust to take care of the dog in his family’s absence, he had no choice but to fly the dog out with the rest of his family.
• A separated but not yet divorced company owner had the company pay for his girlfriend to accompany him on a cruise (and additional three-day stay in the Caribbean). In this case, the cruise was tied to onboard continuing education courses offered to meet the owner’s professional continuing education requirements. The company owner claimed he needed to bring along a “scribe” to record key information from each of the courses he was taking, and his girlfriend offered to be the scribe.  He claimed the additional three-day stay in the Caribbean was really a payment to her in lieu of salary because if he had taken someone else as a scribe he would have had to pay a salary to that person.
• A Philadelphia-area retail business owner had his company pay for the season’s lift tickets for he, his wife and his three children (the youngest of whom was eight years old) at an expensive Vermont ski resort (near where he owned a vacation home). In this case, he claimed he and his family members often met people from the Philadelphia area at the resort, and his entire family was committed to talking up the family business. Accordingly, he considered the family’s lift tickets to be a reasonable marketing expense.
• Having the company pay for visits by the majority shareholder and his wife to their children who were away at college – in this case, the majority shareholder claimed each of his children had previously worked in the family business, and these trips were legitimate business expenses because he discussed the family business with each child on each trip.
• Having the company pay annually for a luxury box rental, food, and alcohol for the majority shareholder’s college fraternity brothers at a professional football game. In this case, the majority shareholder claimed this was a legitimate marketing expense even though not a single attendee had ever conducted business with or referred business to the majority shareholder’s company.
• Billing the client company for a $10,000 plus end-of-project party the subcontractor threw for his staff – in this case, the subcontractor claimed this was a necessary project expense because of how hard his staff had worked to complete the project on time – even though the contract did not provide for such.

Of course, Anderson said he also has uncovered many smaller questionable meal and entertainment expense deductions in his work.

If you are anticipating, or already are dealing with, a financial situation involving questionable meal and entertainment expenses, you should be working with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. When you need the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley, please contact the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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