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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.
This is the final blog in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.
As part of the normal procedure of analyzing financial and accounting information, a forensic accountant will look closely at the numbers themselves.
Such tight scrutiny can help unearth potential fraud or other abuse of financial information, according to David Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.
A prime example that proves the value of this practice, Anderson said, is the analysis of auto mileage claimed on small business tax returns, typically Schedule C. In one marital dissolution case, the husband was a physician who operated out of two offices located eight miles apart and regularly claimed over 20,000 miles per year in deductible auto mileage, explained Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia. (NOTE: The IRS allows deductions for mileage between offices when both are visited on the same day).
“If I assumed the physician visited both offices every day, and worked six days per week with no vacations or holidays, the maximum mileage he would have had in any year would be eight miles a day times six days per week times 52 weeks per year = 2,496 miles, which is considerably fewer than the 20,000-plus miles claimed each year,” said Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley.
In another instance, Anderson said the husband claimed to have driven exactly 30,000 miles each year. Statistically, he noted, it is very unlikely that someone can hit the same exact round number of miles each year. For each of the previous four years, explained Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, the husband claimed to have driven this number of business miles in his four-year-old Chrysler, in addition to normal commuting mileage which he estimated to be about 20,000 miles per year.
“When I visited his office, I asked to check the odometer in his car, which he still had at the time, and the odometer showed fewer than 70,000 miles,” Anderson said. “Based on his claims, the total mileage should have exceeded 200,000 miles.”
Another area that Anderson, a Certified Fraud Examiner in Philadelphia, said a forensic accountant can analyze is the numbers associated with non-descriptive general ledger accounts. These can include such accounts as: Exchange, Transfer, Reserve, Miscellaneous Expenses, Other Expenses, Other Services, Cash Over and Short, and Consulting. Depending on the name of the account, Anderson said a forensic accountant will analyze the transaction detail and period-ending balance.
For example, the first three accounts – “Exchange,” “Transfer” and “Reserve” – typically are used to temporarily balance a transaction entry which requires further research to determine the correct account to be used, explained Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley.
This means a forensic accountant will expect to see amounts come into these accounts from other transactions, and corresponding amounts come out of the account as the company determines the correct account to use, said Certified Fraud Examiner and forensic accounting expert Anderson. If a forensic accountant sees significant balances at the end of the year, or significant differences in amounts going into and out of the account, he said it could indicate fraud.
Accounts with “Miscellaneous” or “Other” in their title should typically be used for relatively small amounts that cannot reasonably fit any other expense category. Again, explained Anderson, a Philadelphia forensic accountant and principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of fraud investigation and fraud deterrence programs in the Delaware Valley, if a forensic accountant sees significant balances in these accounts, it merits further detailed analysis because of the potential for fraud or abuse.
The categories “Cash Over” and “Short” are used by retail businesses, said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia, to account for the difference between the cash in cash registers versus what the point of sale accounting system says the cash balance should be. It is not unusual, Anderson said, to have small differences.
In one marital dissolution case, however, a restaurant regularly experienced large cash shortages (over $100 each time) two to three times a week. By the end of the year, total cash shortages exceeded $20,000. The husband, who owned this business, did not seem particularly alarmed by this shortage. Further investigation by Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley, revealed the husband regularly took cash out of the register and pocketed it to reduce his profits and, by extension, the value of his business.
If you have questions about any finance or fraud issues, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. The Philadelphia forensic accounting firm of David Anderson & Associates can be reached by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com if you require the services of a Certified Fraud Examiner or any other forensic accounting services in Philadelphia and the Delaware Valley.
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.
