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Pressure: Remove the Force to Break the Fraud Triangle

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.

Opportunity: The First Illicit Ingredient of the Fraud Triangle

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

David Anderson of David Anderson and Associates, a Certified Fraud Examiner offering forensic accounting services in Philadelphia, says 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 post, 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 with 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 fraudsters to commit fraud.  This, in turn, “knocks out” one leg of the fraud triangle, thereby preventing or significantly reducing the potential for fraud.

Next in our series: How pressure can set the stage for costly fraud to occur.

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.

Protecting Seniors from 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, forensic accountin,g and marital dissolution services in Philadelphia and the Delaware Valley.

Recently, the FBI announced that adults over the age of 60 reported the highest total losses by fraud of any age group.  There are several factors related to this, including:

  • Older Americans tend to be more trusting
  • They may be dealing with such issues as loneliness, health issues, and/or the loss of loved ones
  • They tend to have savings, retirement accounts, or good credit.

Many of the scams perpetrated on seniors are updated versions of previously successful scams. The Association of Certified Fraud Examiners (ACFE) recently shared information about such scams.

These include:

  • Impersonation Scams – These involve scammers who pretend to be from a bank, the Social Security Administration, the IRS, Medicare, or a utility company. The scams typically begin through e-mails or texts, although some may involve automated phone calls.  The scammer seeks to create fear or urgency to pressure their victims to send money or share personal information.  Another version of the impersonation scam involves claiming to be from a family member who is in trouble and needs immediate funds.  Scammers use spoofed phone numbers, fake e-mails and realistic looking websites to facilitate such scams.
    • The solution: Don’t respond to the e-mail, text or phone call.  Immediately contact your bank, utility or tax accountant (for IRS) at a number you know to be real and discuss the claimed problem with them.  For Social Security or Medicare, look up their phone numbers on the Internet (remember that the websites end in .gov), and again speak with someone there.  For calls claiming to be from a family member in trouble, use another family member’s phone (or a neighbor’s phone) to call the family member directly at a number you know.  Additionally, discuss issues with family members in advance, and have a secret “safe” word that the family member could use to let you know it is really them.
  • Tech Support Scams – These involve scammers who falsely inform you that you have a virus or security problem. These again can be delivered via e-mail, text, or via a pop-up on your computer.  The scammer will either want to gain access to your computer to “help you with the problem” or will request a payment to fix the problem.
    • The solution: Don’t respond to the e-mail or text.  If a pop-up occurs, close down your browser.  Make sure that you have updated anti-virus software on your computer (purchased from a known reliable source).  Run a scan of the software to ensure that the alleged issue doesn’t exist.  If in doubt, arrange for a reliable vendor to check out your computer (your local computer store, a national office supply chain store, etc.).
  • Romance Scams – These involve scammers who prey on the loneliness of seniors. These scams take a longer time to develop because they involve the scammer building an on-line relationship with the senior and then asking for money.  They may claim they need the money for a personal or medical emergency or may push an investment opportunity.  If the scammer is posing as a person overseas or in a remote location, they may ask for funds to pay for plane fares and travel expenses (but then, after they have the funds, provide excuses as to why they must delay their travel).
    • The solution: Don’t overshare information on-line.  Set your social media accounts to “private” to protect against scammers obtaining information from these accounts.  Discuss the person with family members who can help you get an outside perspective.  Perform a reverse image search on any pictures sent to you (they may reveal a person with a different name and/or different location or that the picture sent is a stock photograph).  Don’t invest without speaking with your financial advisor or a trusted family member or friend.
  • Victim Targeting – These involve scammers (maybe even the same people who initially scammed you) who promise to help you recover funds lost to scammers. They may ask for upfront payments as well as personal financial information.
    • The solution: If you have been scammed, do the following:
      • Notify trusted family members and friends
      • Contact your bank and/or investment advisor to report the incident
      • File a local police report
      • File a report with the Federal Trade Commission
      • Let the bank, investment company, your financial advisor, your tax accountant (trusted advisors) and the local police provide you guidance regarding recovery of lost funds.

Scammers know that seniors are easier to scam than others and may hesitate to report fraud because they feel embarrassed or don’t think anything can be done.  Following the above steps can help you avoid becoming the victim of such scams.

If you require 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.

The State of Fraud in 2026 – Part Six

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This is the final entry in a series of six posts.

This blog continues and completes my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2026 – A Report to the Nations”. This final article focuses on how perpetrators concealed their frauds:

  • The top seven concealment methods used by fraudsters were:
    • Creating fraudulent physical documents (39 percent of all frauds)
    • Altering physical documents (33 percent of all frauds)
    • Creating fraudulent electronic documents or files (28 percent of all frauds)
    • Altering electronic documents or files (28 percent of all frauds)
    • Destroying or withholding physical documents (19 percent of all frauds)
    • Creating fraudulent transactions in the accounting system (19 percent of all frauds)
    • Deleting or withholding electronic documents or files (17 percent of all frauds)

(These methods total more than 100 percent because some fraudsters used more than one method of concealing their fraudulent activities.)

  • 89 percent of all cases involved the creation of fraudulent evidence and/or fraudulent transactions in the accounting system
  • In 11 percent of frauds, the fraudster made no attempt to conceal the fraud.

The above concealment data points to the importance of such anti-fraud controls as:

  • Job rotation/mandatory vacation (to prevent ongoing concealment by the perpetrator)
  • Surprise audits (to potentially catch activity before it can be concealed)
  • Pro-active data monitoring/analysis (to potentially catch activity before it can be concealed and to identify trends or data that seems to be “out of sync” due to the concealment)
  • Formal fraud risk assessments by outside parties (to identify areas which could be subject to concealment)

I hope you enjoyed reading this six-blog series about the current state of fraud and found the information I provided to be both interesting and significant.

If you would like assistance ferreting fraud from your business or organization, or if you just have questions about potentially hidden fraud occurring in your organization, please reach out to our firm. Led by a Certified Fraud Examiner, we provide experienced 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.

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

The State of Fraud in 2026 – Part Five

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

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 blog is the fifth in a series of six posts.

This blog continues my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2026 – A Report to the Nations”.   This week I focus on how companies/organizations react after a fraud has been discovered and what their experiences are in attempting to recover fraud losses:

  • Sixty-eight percent (up from 67 percent in 2024) of victim companies/organizations terminated the perpetrator while another 8 percent permitted the perpetrator to resign.
  • However, 19 percent (up from 16 percent in 2024) companies/organizations allowed the perpetrator to remain with the organization either with probation/suspension (9 percent), written or verbal warning (6 percent) or no punishment at all (4 percent).
  • Fifty-two percent (down from 53 percent in 2024) of all owners/executives were terminated by the victim company/organization.
  • Fifty-four percent of victim companies/organizations referred the matter to law enforcement. This percentage has steadily declined from 69 percent of companies/organizations which did so in 2008.
  • Twenty-five percent of victim companies/organizations filed civil suit against the perpetrator. This is consistent with the 20-25 percent average during the past ten years.
  • Forty-eight percent (up from 45 percent in 2024) of perpetrators referred to law enforcement pled guilty or no contest while another 24 percent of perpetrators were convicted at trial.
  • In 14 percent (the same as in 2024) of cases referred to law enforcement, the authorities declined to prosecute (most likely due to either the size of the loss not being large enough or because the company/organization could not produce sufficient documentation and other evidence for the authorities to be confident that they could obtain a conviction).
  • Only 2 percent (down from 3 percent in 2024) of cases referred to law enforcement resulted in the perpetrator being acquitted.
  • Forty-three percent (up from 37 percent in 2024) of companies/organizations that filed civil suits received a judgment in their favor while another 39 percent of such suits were settled before a verdict was reached.
  • Perpetrators obtained a favorable judgment in 13 percent (down from 20 percent in 2024) of civil cases (most likely because the company/organization could not produce sufficient documentation and other evidence to convince the trier of fact of the perpetrator’s guilt).
  • The overall trend over the last six years is that more perpetrators are fighting either the criminal or civil fraud charges in court.
  • Victim companies/organizations which decided not to refer cases to law enforcement cited the following reasons for their decision:
    • A belief that internal discipline was sufficient (21 percent of non-referred cases)
    • Fear of bad publicity (35 percent of non-referred cases)
    • The company/organization reached a private settlement with the perpetrator (20 percent of non-referred cases)
  • One additional key reason that companies may not refer to law enforcement or take legal action is that only 44 percent of companies recovered some (29 percent) or all (15 percent) of the fraud loss from the perpetrator.

My final blog in this series will focus on how perpetrators concealed their frauds

If you have any questions about potential fraud in your business, 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.

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.

The State of Fraud in 2026 – Part Four

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the fourth in a series of six posts.

This blog continues blog continues my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2026 – A Report to the Nations”. This week I focus on corruption:

Transparency International, the global coalition against corruption (transparency.org) defines corruption as:

“The abuse of entrusted power for private gain. It can be classified as grand, petty, and political, depending on the amounts of money lost and the sector where it occurs.”

  • The 2026 Report shows that 45 percent of all frauds involve some form of corruption (down from 48 percent in the 2024 Report) with the median loss from corruption being $150,000 (down from $200,000 in 2024), and the fraud lasting an average of 12 months (down from 13 months in 2024).
  • Eighty-two percent of the corruption frauds included at least one additional fraud type – either asset misappropriation or financial statement fraud or both.
  • The 2026 Report identifies four main types of corruption:
    • Conflicts of interest, including purchasing schemes and sales schemes
    • Bribery, including invoice kickbacks and bid rigging.
    • Illegal gratuities
    • Economic extortion
  • Corruption is the most pervasive form of fraud worldwide.
  • The Purchasing Department is the department most at risk for corruption. Eighty-three percent of cases involved Purchasing Department fraud.
  • The industries with the highest proportion of corruption cases are:
    • Agriculture, Forestry, Fishing and Hunting (65 percent)
    • Technology (64 percent)
    • Manufacturing (61 percent)
    • The Energy Sector (58 percent)
  • Corruption is the most likely fraud committed by employees of any size of companies/organizations (those with fewer than 100 employees and those with 100+ employees). Forty-two percent of organizations with 100+ employees reported corruption fraud in the 2024 Report.
  • Conflict of interest cases principally involve:
    • Purchases from favored parties regardless of whether the party provides the best quality and/or lowest prices.
    • Sales to favored parties at bargain prices. Often these sales are lower than those offered to other parties (or at a price usually reserved for larger customers).
    • Favored parties are often friends, relatives, or parties in which the purchaser has a financial interest.
  • Bribery cases principally involve:
    • Kickbacks to the purchaser for purchasing either more goods or services that would be normally purchased or at higher prices than would normally be paid.
    • Bid rigging whereby the purchaser provides inside information to a favored vendor in return for payments/kickbacks.
    • Bid rigging can also be achieved by working with the favored vendor to write the request for proposal (RFP) in such a way that only the favored vendor can meet the RFP’s requirements.

My next blog article will discuss how companies/organizations react after a fraud has been discovered and what their experiences are in attempting to recover fraud losses

If you have any questions about potential fraud in your business, 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.

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.

The State of Fraud in 2026 – Part Three

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the third in a series of four posts.

This blog continues my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2026 – A Report to the Nations”. This week I will discuss the various controls that companies/organizations put in place to prevent fraud and how effective these controls are:

  • The 2026 Report identified 18 specific anti-fraud controls and noted that all 18 were associated with lower fraud losses and quicker detection of the frauds.
  • The most common anti-fraud controls employed by companies/organizations were:
    • Putting in place a code of conduct (present in 88 percent of the companies/organizations)
    • Having an external audit of the company’s/organization’s financial statements (present in 83 percent of the companies/organizations)
    • Having an active internal audit department (present in 80 percent of the companies/organizations)
    • Having management certification of the company’s/organization’s financial statements (present in 76 percent of the companies/organizations)
    • Having a confidential tip reporting hotline (present in 73 percent of the companies/organizations)
    • Having an external audit of the internal controls over the company’s/organization’s financial reporting (present in 72 percent of the companies/organizations)
    • Regular management review of financial reporting (present in 71 percent of the companies/organizations)
    • Having an independent audit committee (present in 69 percent of the companies/organizations)
    • Providing fraud training for employees (present in 67 percent of companies/organizations)
  • The effectiveness of these most common controls (for the seven most effective controls) was:
    • Having regular management review of financial reporting reduced the median loss by 55 percent and the duration of the fraud by 44 percent.
    • Performing pro-active data monitoring and analysis reduced the median loss by 53 percent and the duration of the fraud by 44 percent.
    • Having a code of conduct in place reduced the median loss by 50 percent and the duration of the fraud by 33 percent.
    • Having surprise audits reduced the median loss by 50 percent and the duration of the fraud by 50 percent.
    • Having a job rotation and mandatory vacation policy in place reduced the median loss by 49 percent and the duration of the fraud by 33 percent.
    • Having a formal fraud risk assessment reduced the median loss by 47 percent and the duration of the fraud by 33 percent.
    • Providing fraud training for managers and executives reduced the median loss by 44 percent and the duration of the fraud by 31 percent.
  • It is interesting to note that of the seven most effective anti-fraud controls, only two (regular management review of financials and having a code of conduct in place) were among the most frequently used controls. This points to a continuing disconnect from what company executives believe are the most effective controls and those that actually are.
  • Over the past 10 years, two anti-fraud controls have seen significant increases in use:
    • Providing fraud training for employees – an increase of 15 percent
    • Providing fraud training for managers/executives – an increase of 15 percent
  • Other anti-fraud controls used less frequently by companies/organizations included:
    • Having an anti-fraud policy in place
    • Have a dedicated fraud department or team.
    • Creating employee support programs (especially for those suffering from addictions/dependencies or experiencing depression)
    • Providing rewards for whistleblowers

My next blog article will discuss corruption and its impact on companies/organizations.

If you have any questions about potential fraud in your business, 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.

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.

The State of Fraud in 2026 – Part Two

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the second in a series of four posts.

This blog continues my discussion of the Association of Certified Fraud Examiners (ACFE) “Occupational Fraud 2026 – A Report to the Nations”. This week, I discuss how frauds are detected and the characteristics of the people who commit fraud:

  • Most people believe that having a financial audit will detect fraud. However, the 2026 Report found that only 2 percent of all frauds were detected by external auditors, down slightly from 3 percent in the 2024 Report. The percentage of frauds detected by accident was 4 percent – double the audit rate.
  • The most frequent method by which frauds were detected came from tips. The 2026 Report found that 43 percent of all frauds were detected from tips. Employees were the source of 55 percent of all tips, followed by customers (21 percent), anonymous tips (14 percent), and vendors (11 percent). The employee percentage was 3 percent higher than the 2024 report. This likely means that more employees are willing to report fraud than in the past.
  • Internal auditors detected 15 percent of all frauds.
  • Management review detected 13 percent of all frauds.
  • The 2026 Report found that although owners and executives committed only 19 percent of all frauds, the median loss from such frauds was $475,000 (down from $500,000 in 2024). Managers committed 41 percent of all frauds with a median loss of $125,000 (down from $184,000 in 2024), and lower-level employees also committed 41 percent of all frauds with a median loss of $50,000 (down from $60,000 in 2024).
  • Tenure with the organization correlated with the amount of fraud loss. The median fraud loss from employees with 1 to 5 years tenure remained at $100,000. This grew to $138,000 (down from $200,000 in 2024) for employees with 6 to 10 years tenure, and to $200,000 (down from $250,000 in 2024) for employees with more than 10 years tenure.
  • Men were responsible for 71 percent of all frauds with a median loss of $125,000 (down from $158,000 in 2024). Women were responsible for 28 percent of all frauds with a median loss of $90,000 (down from $100,000 in 2024). The lower loss level for women is most likely due to the lower number of women in senior positions. However, over the past 10 years, the median loss from frauds committed by women has nearly doubled – likely due to the increase in the number of women in senior positions.
  • The perpetrator’s age followed a bell curve with more than 2/3 of all frauds committed by persons between the ages of 31 and 50. The median loss correlated directly with the perpetrator’s age in that the older the person, the higher the median loss. This is most likely due to the fact that the older the person, the higher up they are likely to be in the business or organization.
  • 86 percent of all perpetrators had no criminal background, meaning that they had never been charged or convicted.
  • 84 percent of perpetrators displayed at least one behavioral red flag. These included:
    • Living beyond their means
    • Having known financial difficulties
    • Having an unusually close relationship with a customer or vendor
    • Having control issues, including an unwillingness to share duties
    • Known for bullying or intimidation
    • Displaying frequent irritability, suspiciousness, or defensiveness
    • Experiencing divorce or other known family problems
    • Having a “Wheeler-Dealer” attitude
    • Having known addiction problems (drugs, gambling, alcohol, etc.)
    • Frequent complaining about inadequate pay
    • Refusal to take vacations.

My next blog article will discuss the various anti-fraud controls that businesses/organizations employ, and the effectiveness of each of the controls.

If you have any questions about potential fraud in your business, 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.

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.

The State of Fraud in 2026 – Part One

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the first in a series of four posts.

Every two years, the Association of Certified Fraud Examiners (ACFE) commissions a survey of fraud in the United States and abroad. The ACFE recently released its 2026 study entitled “Occupational Fraud 2026 – A Report to the Nations”. Over the next several weeks, I will discuss some of the key findings from the 2026 report. Up first: Some general observations regarding fraud:

  • The ACFE study estimates that the typical business/organization (including non-profit organizations) is losing about 5 percent of revenue each year to fraud.
  • The median loss from fraud is $104,000. This is down 28 percent from the $145,000 median loss identified in the 2024 Report;
  • Twenty-five percent of all frauds result in a loss of over $600,000;
  • The median duration of reported frauds is 12 months, the same as in 2022 and 2024;
  • Fraud losses spiked during the COVID-19 pandemic. Since then, they have resumed the downward trend which had begun prior to 2020;
  • Smaller businesses (those with fewer than 100 employees) experienced a median loss of $126,000, surpassing all other organization sizes, including very large businesses (those with more than 10,000 employees);
  • Asset misappropriation schemes (frauds involving the theft of cash, inventory, supplies, equipment, or other company assets) remained the most common scheme and rose to 91 percent of all fraud schemes (versus 89 percent in the 2024 Report). Median asset misappropriation losses fell to $100,000 (versus $120,000 in the 2024 Report and $100,000 in the 2022 Report);
  • Financial statement fraud remains the least common scheme at 6 percent (versus 5 percent in the 2024 Report and 9 percent in the 2022 Report), but results in the highest median losses – $1,000,000 (up 31 percent from the $766,000 median loss per fraud in the 2024 Report).
  • Internal control weaknesses, including inadequate separation of duties, were responsible for over 50 percent of all fraud reported in the 2026 Report (the same as for the 2024 Report);
  • 4 percent of fraud discussed in the 2026 Report involved cryptocurrency (the same as the 2024 Report) with 39 percent of those frauds involving bribes and/or kickbacks paid in cryptocurrency and 22 percent of those frauds involving misappropriated assets being converted to cryptocurrency.
  • The 2026 Report identified 18 different anti-fraud controls that companies had implemented (I’ll discuss these in greater detail in a later blog article). It found that every control implemented resulted in a reduction in both the duration and amount of fraud.

My next blog article will discuss how fraud is detected and the characteristics of the people who commit fraud.

If you have any questions about potential fraud in your business, 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.

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.

Tricks of the Trade: Digging into the Numbers to Find 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 forensic accounting services including fraud investigation, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the final in a series of four posts that are examining the so-called “Tricks of the Trade” forensic accountants use when conducting fraud investigations.

In 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
  • Short

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.

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.

Tricks of the Trade – Part Three – ‘Do the Math to Unearth Corporate Fraud’

Posted by & filed under Blog Articles, Company News, Expert Witness, Forensic Accounting, Fraud, Fraud Deterrence, Litigation Support, 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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

 This blog is the third in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.

In conducting investigations, a forensic accountant often will analyze times and dates to determine if fraud or minority shareholder oppression may be present.

Date and time analysis can be used for a variety of purposes, explained 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.

For example, Anderson said many fraudsters with access to business accounting systems enter transactions after hours or on weekends, so no one can observe them. Hence, when analyzing the date and time of transaction entries, a forensic accountant will conduct additional analysis of transactions entered after hours or on weekends to determine the propriety of those transactions, said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia.

He added that the forensic accountant also can investigate online off-hours access to systems to determine whether unauthorized outsiders have accessed the company’s systems.

In minority shareholder oppression cases, as well as in marital dissolution cases, a forensic accountant will analyze the date and time of reimbursable travel, meal, and entertainment expenses, Anderson said.

“In one recent case, I found that over a period of three years the majority shareholder had submitted reimbursable meal expenses for more than 100 meals on Friday nights, Saturdays, Sundays, nights before a holiday, and on the holidays themselves,” said David Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley.

When deposed, Anderson said the shareholder, whose company was a retail business, claimed each of these meals – some of which were for hundreds of dollars – were for entertaining customers. However, no customers were specifically identified with any of the meals.

Furthermore, when the shareholder did provide the names of specific customers that he claimed to have entertained, all but one of the customers had purchased less than $500 from the business over the three-year period, said Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley.

In a marital dissolution case, Anderson – a Certified Fraud Examiner in Philadelphia – said he noted frequent travel, meal, and entertainment reimbursements that occurred over weekends and holiday periods. This travel included international travel even though the business was a local business. In analyzing the supporting documents, forensic accounting expert Anderson said he found that all the travel was for vacations for the business owner and his girlfriend.

Dates of birth can also be utilized by forensic accountants to verify the validity of employee social security numbers, Anderson said. Certain tables are available that provide approximate information regarding when an individual applied for his/her social security number, 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.

Running these tables against the birthdates of employees can identify potential mismatches, such as a 30-year-old worker whose social security number falls in the range of numbers that were issued prior to 1950, said Certified Fraud Examiner and forensic accounting expert Anderson. These mismatches, he said, can then be further investigated to determine whether the employee has furnished a valid social security number.

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.

Tricks of the Trade – Part Two – ‘Use Names and Numbers to Find Fraudsters’

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, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

 This blog is the second in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.

A forensic accountant can use names, addresses and phone numbers when investigating potential minority shareholder suppression cases and when conducting a fraud investigation.

In minority shareholder suppression cases, a forensic accountant will look for employees, subcontractors, and vendors having the same last name as that of the majority shareholders, explained 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.

“We also obtain information regarding the married names of female relatives of the majority shareholders, and search for those names” said Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia. “In several of my cases, I have identified significant payments being made to the majority shareholder’s daughter, her husband or her children, who performed little or no work for the company, as part of an effort to divert profits from the minority shareholder.”

When he is conducting fraud investigations, forensic accounting expert Anderson says he performs the same analyses.

“In one instance, the general manager of a division was found to be making referral payments to a seemingly unrelated third party,” said David Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley. “However, during my investigation, this person actually was his wife who was using her maiden name to appear to be unrelated to the general manager.

Anderson, a Certified Fraud Examiner in Philadelphia, said he made this discovery by Googling the general manager. One of the items he said he came up was the wedding announcement which contained the wife’s maiden name.

One final name analysis, which Anderson said can be performed by a forensic accountant undertaking fraud deterrence in a fraud investigation, is a search for vendor companies that use abbreviations in their titles (for example, ARH Enterprises or H & B Associates). Because of ego, many fraudsters and others use their own initials or those of their spouse and themselves in the names of companies they set up, said David Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley. He said any companies he finds during such an investigation warrant additional analysis.

Addresses can also help identify potential fraud, forensic accounting expert Anderson noted. When an employee sets up a phony vendor, Anderson said the employee often uses his or her home address as the address for the vendor. By running matches between the employee files and the vendor files, he said he has found numerous phony vendors.

“I also run the employee’s addresses against the company’s address or that of the corresponding subsidiary, division, or group headquarters or facility address, said 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. “In these instances, I am looking for employees who are using one of the company’s addresses as their stated home address.

Certified Fraud Examiner Anderson said follow-up investigations of those employees have revealed they usually are doing so for one of several reasons, including:

  • hiding from the government because they are undocumented aliens or parole violators;
  • hiding from ex-spouses or debtors; or
  • trying to avoid paying state or local taxes . . . such as a Philadelphia resident working in Montgomery County who is trying to avoid having the Philadelphia wage tax withheld.

A final address analysis that can be completed when a forensic accountant is conducting a fraud investigation, or a program of fraud deterrence is running employee addresses and looking for employees who have the same address as another employee. While some such persons may be relatives of the employee and could be living in the same household, forensic accounting expert David Anderson said he also has found ghost employees by performing this analysis.

Just as with addresses, telephone numbers can be used to identify potential fraud in the same way, said Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley. During his investigations, he said he has identified phony vendors and ghost employees by matching employee phone numbers against those of vendors and other employees.

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.

Tricks of the Trade: Part One – ‘Using Science to Uncover 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 forensic accounting services including fraud investigation, fraud deterrence, business valuation, and marital dissolution in Philadelphia and the Delaware Valley.

This blog is the first in a series of four posts that will examine the so-called “Tricks of the Trade” that forensic accountants use when conducting fraud investigations.

The business of forensic accounting is — most of the time — a very precise, highly detailed process. It might be surprising, then, to learn one of the tricks of the trade forensic accountants use in fraud investigation stems from the very inexact science of probabilities, specifically, Benford’s Law.

“Frank Benford was a physicist in the 1930s who essentially proved an earlier hypothesis by astronomer Simon Newcomb in the 1880s that numbers starting with 1 occurred more frequently than other numbers,” explained 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.

“Newcomb had noticed that when he looked up logarithm tables in a book he shared with colleagues,” Anderson continued, “the earlier pages (which contained numbers that started with 1) were much more worn than the other pages. Benford tested and expanded that work, and the phenomenon was named after him.”

Benford’s Law, also known as the First Digit Law, states that the lower the first digit, the higher the probability that it will occur more often than higher numbers, Anderson said. Studies have confirmed the concept by showing the number 1 occurs as a first digit more than 30% of the time, the number 2 occurs as a first digit about 18% of the time, and so on, according to Anderson, a Philadelphia forensic accountant who also is a Certified Fraud Examiner in Philadelphia. The number 9 occurs as a first digit the least – less than 5% of the time, Anderson added.

Benford’s Law is one of the tricks of the trade forensic accountants use in analyzing financial transactions during fraud investigations, Anderson said. If the results of the financial analysis show a mismatch with Benford’s Law, it is a red flag to forensic accountants that fraud may be present.

In one case, Anderson said, senior management engaged him to determine if any of their divisions were circumventing spending authorization limits.

“The company had a policy that required higher levels of approval for expenditures in excess of $100,000,” according to Anderson, a forensic accounting expert in Philadelphia with experience in conducting fraud investigations and establishing comprehensive fraud deterrence programs in the Delaware Valley. “I analyzed all transactions between $10,000 and $100,000 for each division and found three divisions had a higher incidence of transactions between $90,000 and $99,999 than would be expected. Two divisions exceeded 10%, while the third division exceeded 8%.”

Anderson’s findings for the three divisions were out of sync with Benford’s Law and a further analysis of the transactions between $90,000 and $99,000 revealed the three divisions were “splitting” vendor invoices that exceeded $100,000 to avoid having to obtain higher level approval, explained Anderson, a Certified Fraud Examiner in Philadelphia.

In another case, Anderson said, management had a policy that employees did not have to submit copies of receipts for meal expenditures under $25. When a senior sales representative submitted six months of travel reimbursement requests at once, the corporate controller noted that more than 50% of his meal charges in more than 17 different cities were for the same amount – $24.73 – regardless of whether they were for breakfast, lunch, or dinner.

As a result, senior management engaged Anderson to analyze travel reimbursement requests for all employees. Anderson, a Philadelphia forensic accountant whose firm provides a full range of forensic accounting services in Philadelphia and the Delaware Valley, found that more than 70% of all employee reimbursement requests for meals were for between $24.00 and $24.99. But under Benford’s Law, more than 70% of all employee meals with a stated cost of under $25.00 should have been less than $20.00, he said.

“The resulting conclusion was that employees were likely abusing the company’s policy,” explained Anderson, a forensic accounting expert in Philadelphia. “Management changed its policy to reimburse employees at the equivalent federal per diem rates. The only exceptions to this were for business meals at which customers or prospects were entertained. In these cases, the employee was required to provide a receipt.”

Two years later, management analyzed its travel meal reimbursements, and found that it was spending less than it had prior to the policy change, Anderson said. In this case, the fraudulent behavior was stopped, and the company realized material expense savings, he said.

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.