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Key Frauds of 2025 and What to Look Out For in 2026

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 business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

 Each year, the Association of Certified Fraud Examiners (ACFE) publishes its list of the top fraud trends for the upcoming year.

This year’s list includes the following:

  • Synthetic identity fraud has now increased to be the most prevalent fraud – Various AI tools continue to be used to create deepfakes as well as image, document and text generation of fraudulent persons or organizations. These range from such scams as the phone call from a relative claiming to have been arrested and needing money to post bail to companies receiving e-mails purportedly from a traveling executive requesting the immediate wiring of funds. Criminals will continue to perpetuate frauds using synthetic identities.  These synthetic identities will also be used to fraudulently create new bank and financial accounts, take out loans, obtain government benefits, and persuade companies to pay fraudulent invoices.  Fraudsters can also build credit histories over time by making small payments to gain trust before eventually defaulting on high credit limit credit cards.
  • Cryptocurrency scams have grown to be the second most-prevalent fraud – Well-organized networks are targeting both consumers and larger companies. Using romance and other scams, cyber-criminals are steering their victims to fake investment platforms located abroad.  Victims are convinced to make investments in cryptocurrencies through these platforms, but find they are unable to access their funds or that their funds have mysteriously disappeared.
  • Account takeover scams involve cyber-criminals posing as bank or investment company representatives who convince their victims to divulge login credentials and/or authentication codes. Once they have access to victim accounts, these fraudsters are using technological advancements to bypass multi-factor authentication, hijack victim accounts, and make unauthorized transactions.  As of November 2025, the FBI reported more than 5,100 complaints and over $262 million in losses.
  • Document fraud has also been increasing – Advances in generative AI have helped increase the sophistication of document fraud by giving fraudsters the opportunity to create financial documents that are entirely synthetic and lack any original source file or trail. These include fraudulent pay stubs, bank statements, invoices, and tax records which are constructed with realistic formatting, logos, and signatures designed to bypass intense document checks.
  • Digital injection deepfake attacks have also increased – These involve the use of AI-generated media fed directly into biometric and identity verification systems. Fraudsters use synthetic faces, manipulated videos or fabricated voices to complete a “liveness” check or authentication steps required for an account to be created or logged in to.  These attacks bypass the camera entirely by injecting falsified media at the software level.

So, which industries are most affected by these frauds?

  • Financial institutions and banks are the top victims, continuing to face high exposure as fraud schemes become more complex and automated. Large banks are currently reporting fraud losses nearly four times the industry average.  In addition, 46 percent of financial institutions noted an increase in fraud sophistication, driven by synthetic identities, account takeovers, and other of the frauds discussed above.
  • Health care also ranks very high as a sector being targeted by fraudsters. Common health care schemes include billing fraud, kickbacks, identity theft, fraudulent tele-med operations, and misuse of government programs.
  • Technology companies face continued risk from data breaches, vendor compromises, and credential exposure. Interconnected systems and third-party integrations can amplify and exploit vulnerabilities. Data breaches often lead to downstream fraud, including account takeovers, phishing campaigns, and identity creation using compromised data.
  • Government agencies face persistent threats from fraud schemes targeting benefits programs, procurement processes, and taxpayer data. Impersonation of government officials remained a frequent tactic in 2025, often being supported by deep-fake audio or video.  Synthetic identities are also being used to submit fraudulent applications for government benefits.
  • Retail organizations saw continued increases in payment fraud, account takeovers, refund abuse and real-time payment scams. Online retailers are projected to lose around $52 billion in online payment fraud in 2025.  These losses are projected to grow to more than $225 billion by 2029.

These fraud trends will require companies and professionals to develop better understanding of how AI is being used as well as to develop new tools and technology to fight these frauds.  This includes implementing stronger identity verification, better detection models, and updated education and training on AI capabilities.

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.

Part Five: Taking a Closer Look at Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence, Marital Dissolution.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

This is the last of a five-part series in which Anderson reviews the basics of business valuation.

The process of determining the worth of a business is a complicated one. A business valuation expert must undertake a series of preliminary steps to set the groundwork and then consider the value of the business from three very distinct approaches before forming a professional opinion as to the initial value. With this process completed, there remains just one final step: considering potential adjustments to the initial value.

“The process is complex,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley. “There are myriad factors that must be considered and weighed by the valuator to reach the point of establishing initial value. But that initial value still is not accurate until possible adjustments to the value are considered.”

Anderson said business valuation experts must consider four types of potential adjustments:

  • Non-operating asset adjustments
  • Control adjustments
  • Marketability adjustments
  • Other adjustments

Non-operating asset adjustments involve assets and associated liabilities that are not part of the normal operations of a business, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley. As an example, Anderson explained, a food processing company may own a collection of artwork that is not related to its business operations. Or a computer consulting firm may own an office building (with a mortgage) that it does not use but leases out to other companies.

Valuators may remove these assets and liabilities from consideration during the business valuation process to assess more accurately the worth of the actual business operations, Anderson said. But once the initial value of the business has been established, these assets and liabilities must be considered because they are owned by the business and therefore affect their overall value.

Control adjustments may be warranted if a business valuation expert is considering the value of some, but not all, of the shares of a business, Anderson said. If the shares being valued would give a buyer control of the business, they carry a higher value than other shares.

For example, Anderson said, a buyer would have control of the company if either the shares are more than 50 percent of the total or they give the buyer more than 50 percent of the total voting rights (assuming a simple majority is all that is required). However, if the shares represent a “minority interest” in the company, the buyer will not have control or significant influence in company operations. Under that circumstance, Anderson said, the buyer is likely to demand a price adjustment known as a discount for lack of control. The specific discount (usually a percentage of the price per share) is typically based on data from sales of shares in publicly held corporations.

Marketability adjustments come into play when privately held businesses are being valued, Anderson said. Typically, there are no readily available public markets for privately held businesses. As a result, it is more difficult to sell shares in a privately held business because it likely will take longer and cost more to find a buyer.

A buyer of shares in a privately held business, therefore, is likely to demand a price discount known as a discount for lack of marketability. The specific discount (usually expressed as a percentage of the value of the business or of the price per share) is typically based on the valuation method(s) selected by the business valuation expert, information regarding marketability discounts of comparable companies, and the particular facts and circumstances of the business being valued.

Other adjustments the business valuation expert must consider determining if they are applicable include:

  • Built-in gains discount
  • Blockage discount
  • Key person discount (also known as personal goodwill discount)
  • Restrictive agreement discount
  • Investment company discount
  • Lack of voting rights discount

Once all potential adjustments have been applied as necessary, the business valuation expert can finally arrive at a final value for the business.

“As you can see, the process of valuing a business is quite involved,” Anderson said. “When a business valuation is made for tax, divorce or litigation purposes, the best way to properly protect the rights of the persons for whom the valuation is being performed is to have the valuation conducted by a qualified, experienced business valuation expert who follows professional business valuation standards.”

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst, and a business valuation expert in Philadelphia.

Part Four: Taking a Closer Look at Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence, Marital Dissolution.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

 This is the fourth of a five-part series in which Anderson reviews the basics of business valuation.

Business valuation experts must undertake a series of preliminary steps to set the groundwork for determining the worth of a business. Once those steps are complete, valuators must consider three very distinct approaches to valuing a business.

In earlier postings, David Anderson, principal of David Anderson & Associates, explained the first three steps of the business valuation process — determining the standard of value, deciding on the premise of value, and normalizing financial statements.

In this installment, Anderson reviews the three most-commonly-used approaches to valuing a business: The Income Approach, the Asset-based Approach, and the Market Approach.

“Professional business valuators are required to consider all three approaches,” said Anderson, a business valuation expert in Philadelphia and the Delaware Valley. “In the end, a business valuation expert must use his or her judgment to determine the best approach or combination of approaches to arrive at a business valuation that is as fair and accurate as possible.”

The most common approaches a business valuation expert will consider are the three noted below:

  • Income Approach values a business by using one or more methods to convert anticipated economic benefits (earnings or cash flow) into a single present amount. There are two primary methods under this approach:
    • Capitalization of Earnings/Cash Flows Method, which is used when there has been a steady level of historical growth, and the
    • Discounted Earnings/Cash Flow Method, which is used when there have been fluctuations in historical growth and when the company can reasonably project earnings for the next five or more years.
  • Asset-based Approach values a business by calculating the value of net assets, which is the difference between total assets and total liabilities. There also are two primary methods under this approach:
    • The Book Value Method, which calculates the net asset value as shown on the books of the business – typically at historical cost, and the
    • Adjusted Net Asset Method, which adjusts the value of assets and liabilities to the fair market value as of the valuation date.
  • Market Approach values a business by comparing it to sales of similar businesses. There are four primary methods under the Market Approach:
    • Analyze transactions of comparable publicly held companies;
    • Analyze transactions of comparable privately held companies;
    • Analyze prior transactions involving shares of the company itself, and lastly,
    • Analyze the ability of the company to pay shareholder dividends and compare that to dividends paid by comparable companies.

“The specific methods used depends on the facts and circumstances surrounding the business being valued,” said Anderson, whose company – David Anderson & Associates – is a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

“For example,” Anderson said, “if there are no comparable market transactions or an insufficient number to be meaningful, the Market Approach may not be useful.”

Once the value of the business has been set under each of the approaches, the business valuation expert must determine whether one of the values is the best representation of the true value of the business or if a weighted blend of the values provides a more accurate final business value, he said.

Anderson gives the example of valuing a startup business with little profitability. The Income Approach might yield a very low value because the startup hasn’t had time to show historical growth, while the Market Approach might result in a considerably higher value based on the sales of comparable businesses.

“Under this scenario, some valuators would select the Market Approach as being most indicative of value and others might choose a blend of the Income Approach and Market Approach with a higher weight on the Market Approach,” he explained. “It all comes down to the professional judgment of the business valuator, based on his or her experience and knowledge about the business being valued.”

At this point, the complex process of business valuation is nearing an end, but there is still one major step remaining before a final determination on the worth of a business can be made: Consideration of certain adjustments for non-operating assets as well as control, marketability, and other adjustments.

Anderson will explore these adjustments in the next and final installment of “Taking a Closer Look at Business Valuation.”

If you require the services of a business valuation expert 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

Part Three: Taking a Closer Look at Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence, Marital Dissolution.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

This is the third of a five-part series in which Anderson reviews the basics of business valuation.

Determining the worth of your business can be quite complicated. Before the actual business valuation can begin, several steps must be taken.

“The value of a business often depends on the earnings it generates,” said David Anderson, a business valuation expert in Philadelphia and the Delaware Valley and principal of David Anderson & Associates.

“Small business owners” he said, “have a fair amount of latitude in choosing how they report the financial operations of their business, often selecting alternative accounting practices that lessen their income tax obligation.”

In two earlier posts, Anderson explained the first two steps of the business valuation process — determining the standard of value and deciding on the premise of value.  This third in a series of articles examines the steps a business valuation expert sometimes must take to bring a company’s financial statement in on an equal footing.

Because of these alternative practices, he explained, a business valuation expert frequently needs to adjust the historical financial statements before implementing selected business valuation approaches and methods.  Making these adjustments is often referred to as “normalizing” the financial statements.

“Normalizing the financial statements should provide the valuator with a more economically realistic picture of the value of the assets and the financial operating results of the business,” Anderson explained.

These financial statement adjustments represent estimates and often fall into one of the three categories as noted below:

  • Comparability adjustments are intended to make the company more comparable to guideline companies or companies within the industry group that were used in comparative ratio analyses.
    • For example, if the company being evaluated used the last in, first out (“LIFO”) inventory method of accounting while the industry group uses the first in, first out (“FIFO”) inventory method, this adjustment would give a valuator a clearer picture of how the company’s financial statement compares to others in its industry.
  • Non-operating or non-recurring adjustments are removed from the income statement because they are either unrelated to the business operations or unlikely to recur in the future. Non-operating assets or liabilities are elements of the balance sheet that are removed so a more appropriate value of the operating company may be determined. These assets or liabilities are then added or subtracted to the resulting computed value to arrive at the total equity value of the company.
    • An example of these types of adjustments would be the costs associated with discontinuing a portion of the business or costs associated with a one-time lawsuit settlement.
  • Discretionary adjustments are those expenses that are usually under the sole discretion of management, or more typically, the owners of the business. Often these expenses are between the company and the owners of the company (i.e., related party transactions). These adjustments are most appropriately made when valuing a controlling interest in the company and they generally represent the difference between the actual recorded book expense and the expense that would be incurred if transacted between the company and an independent third party.
    • Examples of these types of adjustments include:
      • Officer’s and owner’s compensation,
      • Owner’s perquisites,
      • Entertainment expenses,
      • Automobile expenses (e.g., personal use of company cars),
      • Compensation to family members, and other related party transactions.

Once these three types of “normalization” adjustments have been made to the financial statements, Anderson said, the business valuation expert can begin to analyze the value of the business under each of the different valuation approaches and methods.

In upcoming weeks, Anderson will continue to explore the process business valuation experts undergo to determine the worth of a business.

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst, and a business valuation expert in Philadelphia.

Part Two: Taking a Closer Look at Business Valuation

Posted by & filed under Blog Articles, Business Valuation, Company News, Forensic Accounting, Fraud, Fraud Deterrence, Marital Dissolution.

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

 This is the second of a five-part series in which Anderson reviews the basics of business valuation.

Knowing how to calculate a value of your business that is fair and accurate is a skill with which every corporate principal should be familiar.

“You don’t want to rely on estimates, gut instinct, or rumored calculation methods to determine business value,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley. “When you need to know the true worth of your business, you need to understand the process. And you need the expertise of a highly qualified business valuation expert.”

Earlier in this five-part blog series, Anderson covered the first step of business valuation: Determining the standard of value.

“The second step in ascertaining a company’s worth,” he said, “is to decide on the premise of value.”

The premise of value is the type of transactional circumstances underlying the business or property being valued, Anderson said, adding that there are four premises of value:

  • Going Concern Value
  • Book Value
  • Liquidation Value
  • Replacement Value

Going Concern Value is the most frequently used premise of value. This method assumes the business is operating and producing revenues . . . and will continue to do so.

Book Value is the difference between a company’s total assets that have been adjusted for depreciation, depletion, and amortization and the amount of total liabilities as listed on the balance sheet. Assets such as real estate, collectibles, and artwork are recorded at historical cost and therefore may be undervalued on the balance sheet. Intangible assets such as patents, copyrights and trademarks also may be undervalued.

Interestingly, many buy-sell and shareholder agreements use Book Value to establish share value when a shareholder wishes to sell shares back to the company or when shares are purchased after a shareholder is terminated or dies. In these cases, disputes often arise when the Book Value of the shares is significantly less than the Going Concern value.

Liquidation Value is the net amount realized if the business is terminated and the assets are sold individually. Liquidation Value typically results in the lowest of the premises of value, Anderson said.

Replacement Value generally is used for specific assets and refers to the current cost of property equivalent to the property being valued. Replacement Value is often used in insurance contracts for calculations involving real estate or tangible personal property and in construction or manufacturing agreements.

“Determining these two crucial steps – the standard of value and the premise of value – will allow a business valuation expert to select the appropriate valuation methodology to decide your company’s worth,” Anderson said.

Over the next several weeks, Anderson will post additional articles on the specific methods business valuation experts use to establish value, the effect non-operating assets have on business valuation and discounts for lack of control and lack of marketability.

  Coming up next in Part Three: An examination of the steps a business valuation expert sometimes must take to bring a company’s financial statement on an equal footing.

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst, and a business valuation expert in Philadelphia.

Part One: Taking a Closer Look at Business Valuation

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

David Anderson is principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

This is the first of a five-part series in which Anderson reviews the basics of business valuation.

—–     —–     —–

Do you know what your business is worth? If not, you probably should.

There are many reasons why it’s important to know. These can range from business reasons, such as calculations related to any acquisitions or mergers, to personal issues of estate planning and resolution to marriage dissolution. When the time comes, understanding how a fair and accurate business valuation is determined is of paramount importance.

“The first step in valuing a business is to determine the standard of value,” said David Anderson, principal of David Anderson & Associates, a Philadelphia forensic accounting firm that provides a full range of business valuation and other forensic accounting services in Philadelphia and the Delaware Valley.

“This is the type of value that is being requested for the business,” he continued. “The three most common standards of value are fair market value, fair value and strategic/investment value.”

The IRS defines fair market value as “The price at which the property would change hands between a willing buyer and a willing seller, when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.”

Fair market value is the most widely recognized and accepted standard of value, according to Anderson, a business valuation expert in Philadelphia and the Delaware Valley.  Fair market value is used to establish value for all Federal tax matters, including estate tax, gift tax and income tax, he said.

This standard also is used for many purchase, sale, and merger transactions; for buy-sell agreements; for regulatory valuations; and for most litigation matters, including partner/shareholder disputes, divorces, and economic damage cases. Fair market value takes into consideration discounts for lack of control and lack of marketability.

Fair value generally is defined as fair market value without considering discounts, Anderson said. Fair value principally is used to value the shares held by a company owner with a minority interest when that person believes he is being forced to receive less than adequate compensation for his shares. Fair value is the standard of value used in divorce cases in New Jersey. Additionally, fair value with a discount for lack of marketability is used in divorce cases in New York.

Strategic/investment value is the value to a particular investor based on individual requirements and expectations, according to Anderson. This standard most often is used for a purchase, sale, or merger in which the buyer expects to realize certain synergies with the seller’s business. Strategic/investment value typically is higher than fair market value because of these synergies.

“The standard of value is one of the key components used to determine the valuation methodology to be employed and, ultimately, the business valuation expert’s decision on the value of your business,” Anderson said.

—–     —–     —–

Over the next several weeks, Anderson will post additional articles on the specific methods business valuation experts use to determine value, the effect non-operating assets have on business valuation and discounts for lack of control and lack of marketability.

Up next in “Part Two: Taking a Closer Look at Business Valuation:” Determining the premise of value, the type of transactional circumstances that underlie the business or property being valued.

If you require the services of a business valuation expert 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, 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, a Certified Valuation Analyst, and a business valuation expert in Philadelphia.

Revisiting the Fraud Triangle – A Closer Look at Rationalization

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

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

The Fraud Triangle is a troika of troublesome tendencies – Opportunity, Pressure and Rationalization – that often are present when fraud is taking place.

In previous posts, David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away.

In this article, Anderson takes a closer look at the final leg of the triangle – Rationalization.

Rationalization is the mental process that a potential fraudster goes through to justify committing fraud.

“Without being able to rationalize to oneself why it is OK to commit the fraud,” said Anderson, who provides forensic accounting services in Philadelphia, “a potential fraudster with the opportunity and pressure will not proceed. “

Anderson said examples of rationalization can include:

  • “I’m only temporarily “borrowing” the money to meet my financial obligations, and I intend to pay back the ‘loan’ in full;”
  • “I’m not being paid what I am worth, so I’m making up the difference through fraud;”
  • “The company makes a lot of money, so it won’t be missed or be affected by the small amount I am taking;”
  • “The owner or management is committing fraud, so why shouldn’t I?”
  • “I have been ‘wronged’ by the company or owner or management, so this is how I can get back at them.”

Owners/managers can influence the rationalization process and discourage the rationalization to commit fraud by taking several anti-fraud steps:

  • Provide anti-fraud training to all employees which, among other things, includes specific statements that committing fraud is wrong and unacceptable, that management is dedicated to preventing fraud; and that employees are encouraged to be on the lookout for fraud;
  • Establishing a “hotline” which allows employees to confidentially report suspected fraud;
  • Establishing a “tone at the top” that demonstrates that management is committed to fighting/preventing fraud (and not merely paying lip service to the fraud);
  • Establishing policies and procedures that allow an employee to pursue complaints about being “wronged” (real or imagined);
  • Letting employees know that management is watching and is implementing such anti-fraud measures as surprise audits and regular management reviews.

Taking these steps as well as steps discussed in the previous two articles (establishing strong internal controls and getting to know one’s employees better) are all part of dismantling the three legs of the fraud triangle.

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.

Revisiting the Fraud Triangle – A Closer Look at Pressure

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

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

The Fraud Triangle is a triumvirate of factors – Opportunity, Pressure and Rationalization – that must be present in order for a fraud to occur.

In previous posts, David Anderson, of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away.

In this article, Anderson takes a closer look at the second leg of the triangle – Pressure.  In the third article of this series, he will zero in on Rationalization.

Pressure refers to the personal situation of the potential fraudster that can induce the person to commit the fraud.  Even if the opportunity to commit fraud is present, if the person feels no pressure to commit the fraud, he or she won’t.

“Eliminating such pressures,” said Anderson, who provides forensic accounting services in Philadelphia, “can be key to a successful fraud deterrence program.”

The primary pressure the potential fraudster experiences is the need for money.  Other potential pressures (which are significantly less likely to occur) include revenge (the fraudster feels wronged by the business, its owners or management) and the thrill (the fraudster has no need for money, but wants the excitement of committing and getting away with the fraud).

Examples of the need for money include:

  • The potential fraudster’s spouse becomes unemployed or unable to work, and, as a result, the family’s household income has dropped significantly;
  • The potential fraudster has previously lost a higher paying job, and the current job pays significantly less;
  • A member of the potential fraudster’s family has become ill or was injured, and the family is unable to pay the resulting medical bills;
  • The potential fraudster has a drug or gambling problem, and needs additional money to support the problem;
  • The potential fraudster (and/or family) has adopted a lifestyle that requires more money than is currently being earned;
  • The potential fraudster is going through a divorce or other family problems that require more money than is currently being earned.

Although the specific circumstances experienced by the potential fraudster are generally beyond the control of a business’s owners and/or management, the owners and managers should be on the lookout for these types of problems.  It is often as simple as getting to know better the employees who could have the opportunity to commit fraud.

For example:

  • Has the owner or manager noticed whether an employee is driving a more expensive car or wearing more expensive jewelry and/or clothing than would be expected?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) an employee discussing expensive vacations, the purchase of an expensive home or vacation home or the purchase of an expensive boat that would appear to be more than the employee would be capable of handling?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing family problems, a family member’s illness or injury or a family member’s loss of employment?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee discussing gambling winnings or losses?
  • Has the owner or manager noticed (or has it been reported to the owner or manager by another employee) an employee exhibiting signs of a drug problem?
  • Has the owner or manager heard (or has it been reported to the owner or manager by another employee) the employee complaining about being underpaid or passed up for a deserved raise, bonus or promotion?

If the answer to any of these questions is “yes”, the next step would be to consult with the company’s attorney before taking any action (including confronting the employee or questioning other employees).

By being proactive with getting to know one’s employees better, the owner or manager can help identify when an employee is facing pressure which could potentially turn the employee into a fraudster.

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.

Revisiting the Fraud Triangle – A Closer Look at Opportunity

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

The Fraud Triangle is a combination of three factors – Opportunity, Pressure and Rationalization – that must be present in order for a fraud to occur.

 In previous posts, David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, has mentioned that if at least one of the three factors can be eliminated, the potential for fraud and the need for a fraud investigation is either significantly reduced or goes away.

 In this article, Anderson takes a closer look at the first leg of the triangle – Opportunity.  In subsequent articles, he will examine the other two legs.

Businesses install a set of policies and procedures as part of their fraud deterrence programs that are designed to protect systems and safeguard assets.  These policies and procedures are often referred to as “internal controls”.  If such internal controls are lacking, are poorly designed, or are easily overridden, it presents the potential fraudster with the opportunity to commit fraud.

“Let’s look at two common businesses situations,” said Anderson, who provides forensic accounting services in Philadelphia, “and how internal controls should be designed to prevent or significantly reduce the potential for fraud.”

The first, he said, is for handling payments made by customers.  In a well-designed internal control system structured with fraud deterrence in mind, the person who opens the mail will be different from the person who prepares the deposit slip for the bank.  Furthermore, neither of these people will actually make the bank deposit or record the receipt of funds and bank deposit in the company’s accounting system.  In addition, the entire process would be overseen by a manager or supervisor.  This step helps in fraud deterrence and lessens the need for a fraud investigation.

However, as this example indicates, these controls require that there be at least five different people involved.  Many smaller businesses don’t have enough staff to separate these functions.

As a result, some employees end up performing more than one of these functions.  This creates an opportunity for the employee to commit fraud.

For example, the employee who opens the mail could also prepare the deposit slip and record the receipt of funds and bank deposit in the company’s accounting system.  If that employee is trusted by the manager/supervisor, the manager/supervisor might not actively review the employee’s activities.  This creates the opportunity for the employee to divert certain customer payments.

A second common business situation is for processing vendor invoices.  In a well-designed internal control system, the person who sets up the vendor in the company’s accounting system is different from the person who approves the vendor invoice.  Furthermore, neither of these people actually enter the invoice in the company’s accounting system, process the payment or sign the payment check.

As with the previous example, the entire process would be overseen by a manager or supervisor.  If a company is unable to separate these duties, it creates an opportunity to commit fraud.  If the employee who sets up the vendor in the company’s accounting system can also enter vendor invoices and process payments, that employee would have the opportunity to create a phony vendor (or change the address of an actual vendor), process phony invoices and produce payments that the employee could divert for his/her own use.

Well-designed internal control systems help prevent the opportunity for the fraudster to commit fraud.  This, in turn, “knocks out” one leg of the fraud triangle, thereby preventing or significantly reducing the potential for fraud.

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.

Anderson Interviewed About His “Fraud Triangle” By Noted Financial Columnist

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

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

“Owners who cut corners or behave unethically create an environment where employees feel justified in stealing.”

David Anderson, a Certified Fraud Examiner and principal of the Philadelphia forensic accounting firm of David Anderson & Associates, used this tenement in an interview with financial columnist Gene Marks, to point out how company executives can actually encourage their employees to steal.

“If you are not being honest,” Anderson said in the interview that initially appeared in The Philadelphia Inquirer, “the employees see that and rationalize their own fraud.”

Anderson was interviewed by Marks about the column Anderson most recently posted on his website – www.davidandersonassociates.com – about the “Fraud Triangle” . . . the combination of the three elements necessary in a corporation for fraud to occur — pressure, opportunity and rationalization.

You can read Anderson’s column on the “Fraud Triangle” here, and his interview by Marks here.

If you have reason to believe fraudulent activity has infiltrated your business — or if you believe “The Fraud Triangle” exists with any of your employees — Anderson recommends you act immediately by hiring a Certified Fraud Examiner from a firm that provides forensic accounting services in Philadelphia and the Delaware Valley.

A comprehensive fraud investigation will determine the extent of your losses, if any, and an experienced Certified Fraud Examiner will identify weak spots in your internal anti-fraud controls and set up a strong fraud deterrence program.

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 nearly 40 years of experience in financial and operational leadership positions and is a Certified Public Accountant, a Certified Fraud Examiner and a Certified Valuation Analyst.

Using ‘The Fraud Triangle’ Can Help Prevent Scams

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

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

There are an endless number of ways companies can be defrauded by their employees. However, there’s one easy approach that can help keep fraud out of your business or organization: Understanding “The Fraud Triangle” and using it to your advantage.

“When forensic accountants mention the ‘The Fraud Triangle,’ they are referring to the three elements that are necessary for fraud to occur — pressure, opportunity and rationalization,” says David Anderson, a Certified Fraud Examiner 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 those three elements are not in place, then fraud cannot occur,” he continued. “It then goes to reason that if successfully eliminate one of the elements, fraud is not likely to be a problem for you.  It’s really a rather straightforward, proactive approach to fraud deterrence.”

The first element of The Fraud Triangle, pressure, is the motivation or incentive to commit fraud, Anderson said.  Pressure often comes from one’s personal life, such as the expensive illness of a loved one, a spouse’s unemployment, a gambling or drug problem, the practice of living beyond one’s means, or other situations that carry a heavy financial burden.  In these cases, Anderson said, an employee may feel extreme pressure to find more money, and that can open the door to fraud.

The second element of The Fraud Triangle, opportunity, indicates the ability of the employee to carry out the fraud through the misappropriation of cash or other company assets, Anderson explained.  Opportunity arises when a company lacks critical anti-fraud controls, such as separation of duties, dual signature requirements for checks over a certain amount, management review of bank accounts and financial statements, and other necessary controls.  Opportunity also can occur when excessive trust is placed in employees with the ability to override or circumvent anti-fraud controls.

The third element of The Fraud Triangle, rationalization, refers to an employee’s justification for committing fraud, Anderson said.  It can start as an employee’s simple rationalization the theft is just a temporary loan that will be paid back before anyone ever finds out about it.  That type of thinking, however, can quickly mushroom into grander rationalizations, such as “I’m underpaid and just getting my due.” or “My boss is stealing; why can’t I?” or “They’re making a lot of money and won’t even miss what I have taken.”

“If you’ve got all three elements,” Anderson said, “you’ve got a potential fraud brewing. Remove one of the elements and the potential for fraud evaporates.”

Anderson recommends employers learn more about their employees so they are more aware of any high-pressure financial situations the workers may be dealing with in their private lives.  Prevent opportunity, he said, by enacting comprehensive anti-fraud controls and establishing a strong fraud deterrence program, he said.  Send a clear message, as a part of your fraud deterrence program, that there is absolutely no acceptable rationalization for committing fraud.

This is part one of a four-part series on the Fraud Triangle.  Over the next three blogs, I will explore each of the three parts of the Fraud Triangle in greater detail and provide specific recommendations for reducing or eliminating the impact of each of these three elements.

If you have reason to believe fraudulent activity has infiltrated your business — or if you believe “The Fraud Triangle” exists with any of your employees — Anderson recommends you act immediately by hiring a Certified Fraud Examiner from a firm that provides forensic accounting services in Philadelphia and the Delaware Valley.  A comprehensive fraud investigation will determine the extent of your losses, if any, and an experienced Certified Fraud Examiner will identify weak spots in your internal anti-fraud controls and set up a strong fraud deterrence program.

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.

Ways You Can Find or Prevent Some Common Payroll Fraud Schemes

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

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

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

  • Ghost Employees: In this scheme, the fraudster creates a non-existent employee in the payroll system. The fraudster then enters time for the non-existent employee, resulting in production of a paycheck. The fraudster intercepts the paycheck and either deposits it in an account under his/her control or has a confederate either cash the check or deposit it in an account under the confederate’s control.
  • Terminated Employees: In this scheme, the fraudster works with a terminated employee. The fraudster keeps the terminated employee on the books and enters time for the terminated employee, resulting in production of a paycheck. As with a ghost employee, the fraudster intercepts the paycheck and forwards it to the terminated employee. The terminated employee either cashes the check or deposits it in an account under the terminated employee’s control (and shares the proceeds with the fraudster).
  • Fraudulent Hours: In this scheme, the fraudster enters a higher number of hours worked either for him/herself or for another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster. This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Pay Rate: In this scheme, the fraudster adjusts either his/her pay rate or that of another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster. This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Bonus Pay: In this scheme, the fraudster either adds him/herself to the list of employees receiving a bonus; or adjusts his/her bonus amount; adds a confederate to the list of employees receiving a bonus; or adjusts the confederate’s bonus amount. If entered for a confederate, that person shares the increased proceeds with the fraudster. This fraud can also result in the fraudster or confederate earning larger pension credits than the credits to which he/she is entitled.
  • Fraudulent Expense Reimbursement: In this scheme (which applies to companies/organizations that reimburse employee business expenses through payroll), the fraudster enters a higher expense reimbursement amount either for him/herself or for another employee. This results in a larger pay amount than that to which the employee or confederate is entitled. If entered for a confederate, that person shares the increased proceeds with the fraudster.
  • Fraudulent Vacation and/or Sick Leave Hours: In this scheme, the fraudster, who has control over tracking and/or reporting vacation and sick leave hours, takes vacation and/or sick leave, but either doesn’t record the hours taken against the available hours or artificially inflates the number of vacation and/or sick leave hours to which he/she is entitled. A variant on this scheme has the fraudster doing the same for other employees in return for cash payoffs from the benefiting employee.
  • Fraudulent Diversion of Employee Pay: In this scheme, the fraudster, who has control over/access to payroll records, adds a new bank account (over which the fraudster has control) for an employee, artificially inflates the employee’s pay (via hours or pay rate changes), and diverts the excess pay to the new bank account. The fraudster counts on the employee not tracking total annual pay (most employees only track their weekly/biweekly pay) and not noticing that the employee’s form W-2 wages are higher than the amount the employee received.

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

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

Does your company need to enact stronger safeguards against payroll fraud? If so, you should speak with a Certified Fraud Examiner from an experienced firm that provides forensic accounting services in Philadelphia and the Delaware Valley. You can do just that by contacting the Philadelphia forensic accounting firm of David Anderson & Associates by calling David Anderson at 267-207-3597 or emailing him at david@davidandersonassociates.com.

About David Anderson & Associates

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

More Than Just Tax Returns and Bank Statements Are Needed for Litigation and Valuation Engagements

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

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

When I am approached by attorneys seeking my expert witness services for either a litigation or valuation engagement (and sometimes for both), I provide these attorneys with a list of information I will need in order to effectively provide my services.

However, several times a year, an attorney will tell me they have obtained copies of relevant tax returns and bank statements, but that because discovery is closed, they are unable to obtain the other information. This presents a potential problem because the information in tax returns and bank statements is often insufficient for me to perform the necessary comprehensive analysis. I will discuss the whys of this below.

Let’s start with tax returns. Business tax returns contain items which are total summaries of information presented. For example, Salaries and Wages are shown as a single line item. Such information is of no value when it is suspected that certain family members or significant others of shareholders are being paid salaries in excess of the actual services they provide to the business.

Another example is Purchases (under the category of Cost of Goods Sold). In a recent litigation matter, more detailed analysis of the Purchases revealed that the majority shareholders were recording all company credit card expenses as purchases. However, when counsel subpoenaed the credit card records, I found that the credit card expenses included many personal, non-business items including payment for the cost of a family member’s wedding, expensive prescription medications and purchases of recreational water vehicles for certain family members.

Similarly other categories of expenses could also contain personal, non-business items. When I have been involved in divorce cases, I often find that the spouse who owns the business will expense his/her personal divorce attorney through the business under the category of Legal and Professional Services.

One additional category of expense that might harbor personal, non-business items is Miscellaneous Expense. The category name itself does not provide any clue to the forensic accountant regarding the nature of the Miscellaneous Expense. In another recent litigation matter, I noted that the company routinely recorded over $100,000 per year as Miscellaneous Expense. When detailed financial records were provided to me, I was able to show that most of these expenses were for vacations, personal meals, tuition, and other non-business purposes.

One final area of concern is that the accountant preparing the company’s tax returns will likely have made various adjustments to amounts recorded on the business’s books in order to arrive at the amounts shown in the tax return. Without having access to this information, it may be difficult to determine the basis for these adjustments and how it impacts the net profits and value of the business.

Accordingly, without having access to detailed financial records supporting the line items in the tax return, the tax returns alone are often insufficient for comprehensive litigation and/or valuation analysis.

Bank statements contain deposit, withdrawal, account transfer, and debit card charge information as well as bank debits and credits but may be missing critical details. For example, most bank statements do not provide copies of paid checks.

Accordingly, if this information is not separately available, it is difficult if not impossible to determine the validity of checks paid. Also, many bank statements do not identify the bank account to which or from which transfers occurred. As a result, we cannot tell if funds were received or sent to business or personal bank accounts nor can we tell the purpose of such transactions.

Another area of concern is cash withdrawals – either via ATMs or at teller windows. We can see that cash was withdrawn, but the bank statement does not provide any detail regarding the business purpose of the cash withdrawal.  Bank deposits can also be missing critical details. We may be able to see the net total amount deposited, but without seeing deposit slips, we don’t know the actual amount of funds received.

Case in point: I was engaged by counsel to investigate improper transactions in the personal bank accounts of a client by the person holding power of attorney for those accounts. Because we were able to obtain detailed bank records over and above the bank statements themselves, we were able to identify over $300,000 in fraudulent transactions by the person holding the power of attorney. This included bank deposits wherein the power of attorney person would cash out several thousand dollars from each deposit and also would withdraw funds via counter checks.

Because the power of attorney person “reconciled” the bank accounts, the actual account holder was unaware of these transactions. Without access to the detailed supporting records, it is unlikely we would have been able to identify these fraudulent transactions.

While having tax returns and bank statements for litigation and business valuation matters may initially appear to be sufficient for comprehensive forensic analyses, the above discussion shows why it is critical to have additional detailed financial records to support the analyses.

If you would like to speak about these and any other issues with 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.