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.
The majority of asset misappropriation fraud cases involve cash, and sometimes inventory. Fixed asset fraud – most often equipment and furniture – can be just as common, and just as costly. Business owners and executives, says forensic accounting expert David Anderson of David Anderson & Associates, Certified Fraud Examiner in Philadelphia, must ensure their internal fraud deterrence and prevention programs also address protecting fixed assets from fraud.
Here are some of the more common fixed asset frauds, according to Anderson, a forensic accounting expert in Philadelphia:
- Replacement of a fixed asset with another of lesser value: In his role as a forensic accountant, Anderson encountered such a situation when he was asked to analyze the fixed assets at the regional offices of a mid-sized public corporation. Among the fixed assets were paintings, prints, and sculptures with a total value of almost $1 million. However, Anderson was unable to locate a single item on the company’s list of artwork. Instead, he found many paintings, prints and sculptures of lesser or even dubious value. A couple of the paintings appeared to have been purchased at Walmart or K-mart. Anderson’s subsequent investigation revealed employees would take home artwork they wanted, and replace the artwork with something they either had at home or purchased from a store. Management was focused on selling their products and, therefore had turned a blind eye to the substitutions. Because no one was tracking these items, management was unable to identify who took most of the artwork. In the end, this fraud cost the company over $700,000.
- Purchases of fixed assets of lesser value or quality than was authorized and paid for: In one scheme, Anderson – a forensic accounting expert in Philadelphia – learned the manager of a new office had been given a budget of $300,000 to furnish the office (furniture, fixtures, and office equipment). The manager submitted purchase orders totaling almost $300,000 for these items. However, the manager schemed with an office furnishings vendor to spend less than $200,000 by substituting lesser quality items. The manager than split the over $100,000 in extra payments with the office furnishings vendor. This scheme was only discovered when the office experienced a fire, and an insurance claim was submitted. However, the insurance company investigator had the furniture portion of the claim significantly reduced because none of the furniture matched what the company showed in its records.
- False reports of theft or loss of fixed assets: These schemes typically involve smartphones, tablets, laptops, or other “mobile” items. Certified Fraud Examiner in Philadelphia Anderson was asked by a local government agency to assist it with establishing a fixed asset tracking system – one of the recommended fraud prevention measures. The security department of the agency had many expensive walkie-talkie/radios in its inventory. In tracking the serial numbers of the walkie-talkie/radios, more than 25 such items that were found to have been reported lost or stolen in the past were still in the inventory. However, the corresponding replacement items could not be located. Subsequent investigation revealed that several security employees over a multi-year period had engaged in the scheme of reporting the walkie-talkie/radios as lost or stolen (when they really weren’t), and had conspired with a purchasing department employee to pocket the funds for the purchase of replacement walkie/talkie radios.
- Frauds involving “retired” assets: These schemes involve assets that have been taken out of service (no longer actively used in the business). Such assets are typically stored in an out-of-the-way location, and occasionally are sold to used equipment/furniture dealers or even to junk dealers. Companies have usually fully depreciated these assets, and tend to forget about them once they are retired. But, they still have some value to the company. In one instance, a client company was hit by a scheme that originated in the IT department. IT had a replacement program in effect. Any computer that was more than three years old and any printer, copier, scanner, etc. that was more than five years old was replaced. The old equipment was stored in a corner of the warehouse, and was essentially ignored by the company. However, when the company sold the warehouse and relocated, it discovered that only a small portion of the retired IT equipment was present. An investigation by the Philadelphia forensic accounting firm of David Anderson & Associates revealed an IT employee routinely sold newly retired computers and other office equipment to used equipment dealers, and pocketed the proceeds. The employee subsequently admitted to having been paid over $100,000 over a five-year period.
So, what fraud deterrence and prevention measures can a company put in place to avoid these frauds? Certified Fraud Examiner David Anderson of the Philadelphia forensic accounting firm of David Anderson & Associates has the following recommendations for fraud deterrence and prevention measures a company can put in place to avoid these problems:
- Establish a fixed asset tracking program: Under this program, a scannable bar code label is attached to each fixed asset. The fixed asset information from purchase orders/invoices is then entered in a database. All asset additions and dispositions should be entered into the database.
- Hold a periodic physical inventory, such as inventorying one-twelfth of the inventory each month: This will allow the inventory team to scan the bar code label of each selected item. If the bar code label is missing – assuming the company has used a reliable method of affixing the labels – or if the bar code scan does not match the item in the database, the company is able to investigate immediately.
- Track “retired” assets until they are disposed: This type of program will prevent or significantly reduce the likelihood of the schemes above.
In addition, the company should install tip lines, make sure that employees are aware of the company’s anti-fraud stance, and provide educational programs for management and employees which teach fraud deterrence prevention.
If you want to make sure your fraud deterrence measures include looking out for your fixed assets, you should think about speaking with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. A Certified Fraud Examiner can examine your accounting and purchasing programs and procedures and make recommendations for enacting strong fraud deterrence measures that will help safeguard your company, 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 firstname.lastname@example.org.
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.