Guidance for Businesses in Buffalo that mean business
Recently, Freed Maxick Directors Tim McPoland and Joe Aquino recorded a segment for WBEN930 AM’s Buffalo Means Business program focusing on two topics: fraud investigation and business valuation,
You can hear their entire recording by clicking on the icon, but here are the highlights of their insights, observation and guidance:
Fraud and Forensic Accounting
- Today, the average embezzlement is in the $200,000 to $300,000 range, where 20 years ago, the average was in the $20,000 to $30,000 range
- A fraud can go undetected for many years, and is typically discovered by accident
- It is not that difficult to find and trace the beginning and path of fraud, but you don’t want to reveal your hand until all the trails are investigated and the scope of the fraud is uncovered
- Securing all bank and accounting records makes the discovery of a fraud easier to pinpoint and prosecute
- If you suspect fraud or embezzlement by an employee, call your CPA immediately and maintain confidentiality to begin an investigation
Business Valuation and Litigation?
- Issues between shareholders who disagree about the value of a business are one of the key reasons why a business valuation expert is needed in a litigation matter
- While not an exact science, a business valuation utilizes historical and projected financial and operational data, backed by market or industry specific financial and operational metrics
- A professional business valuation expert will search for anomalies, non-reoccurring transactions, unreasonable executive compensation and other oddities that can affect the worth of a business, and then normalize their findings to reach a conclusion about the value of a business
- There can be a crossover between fraud and business valuation in the case where the valuator discovers unusual or backdoor payments by a controlling shareholder that impact the worth value of the business.
- It is important for a business to have a current, updated Buy/Sell agreement, which defines the valuation approach in various situations.
At long last, the U.S. economy seems to be recovering from the effects of the recession. But at least one major financial risk remains — corporate fraud. The good news is: A fraud expert can help investors and companies minimize losses from fraudulent conduct by simply scrutinizing a business’s financial statements.
Corporate fraud often is concealed when a business intentionally misrepresents material information in its financial reports. These misrepresentations may result from overly aggressive estimates of figures, the misapplication of accounting principles and material omissions. For instance, financial statements may conceal expenses or liabilities or report fictitious revenues in order to make a business appear more profitable than it really is.
In order to cover fraud, a perpetrator often conceals or omits information that can damage or improperly change the bottom-line results appearing in financial statements. Such omissions might include:
- Liabilities such as loan covenants or contingency liabilities.
- Significant events that are likely to affect future statements, such as potential lawsuits, impending product obsolescence and new competition.
- Accounting changes that materially affect financial statements and are subject to disclosure rules, such as methods of accounting for depreciation, revenue recognition or accruals.
Perpetrators also might engage in fraudulent manipulation, particularly in the areas of revenues, reserves, expenses and one-time charges. A falsified financial statement can improperly value sales transactions (by, for example, inflating the per unit price), recognize sales prematurely or report phantom sales that never occurred. On the other hand, expenses can be manipulated by simply delaying their recognition — whether to match expenses with their corresponding revenue or to avoid reporting a loss. Another scheme is to improperly capitalize expenses so they appear on the business’s balance sheet rather than on its income statement.
In many cases, fraudulent financial statements may show reserves that have been calculated using bad-faith estimates. For instance, a fraudster can justify a smaller amount of reserves simply by underestimating the percentage of uncollectible receivables. One-time charges, such as a charge for research and development costs for a specific product, or a write-off of goodwill, can further distort financial statement figures and help hide fraudulent activity.
Unusual trends and relationships
When fraud is suspected, a CPA can examine complex financial statements and uncover manipulation that might not be apparent to the untrained eye. A fraud expert typically begins by reviewing suspicious statements for unusual trends and relationships. Any leads are then followed by more intensive forensic accounting work. This may include analysis of journal entries, specific transactions, work papers and supporting documentation — going far beyond a standard annual audit.
Moreover, a CPA may employ several types of analyses. For instance, a vertical analysis compares the proportion of every financial statement item — or groups of items — to a total within a single year that can be measured against industry norms. A horizontal analysis compares current data with data from prior years in order to detect patterns and trends. And a financial ratio analysis can calculate ratios from the current year’s data and then compare those with previous years’ ratios for the business, comparable companies and the relevant industry. Of course, the expert must have tremendous experience in the subject industry and be able to recognize any noncompliance with Generally Accepted Accounting Principles.
Noncompliance is a huge red flag for financial statement fraud. The Association of Certified Fraud Examiners (ACFE) has identified several behavioral red flags, including executives who exhibit a cavalier attitude toward internal controls, live beyond their means, have excessive organizational pressure to perform, and are unwilling to share duties or information with colleagues.
The ACFE has estimated that the median loss in financial statement fraud schemes is around $1 million. But there are other damages as well, such as the public relations damage that rogue executives who manipulate the numbers can cause. A qualified CPA can help limit your clients’ losses by finding critical omissions and manipulations.
By: Shawn M. Frier, CPA, CFE, CMPE Director
The focus of protected health information (PHI) privacy has increased a great deal due to the rise in data breaches. In the last two years at least one case of PHI data breach has been noticed in almost 94% of healthcare practices. The magnitude and frequency of the breaches has increased to such an alarming rate that if this trend continues, the average annual cost to healthcare industries could reach $7 billion dollars.
PHI breaches can happen easily if you’re not aware of the risks that exist, both inside and outside of the practice. Encrypting data helps protect patient data and can help you avoid costly breaches. These breaches, while costly, are usually due to simple human error. For example, an employee might walk away briefly to fetch paperwork, mistakenly leaving a laptop with patient data open. It only takes a glance or a second to download or retrieve that data. Smartphone’s are another high concentrated area for data breaches. Unfortunately, multi-tasking is a necessity and many physicians and staff use Smartphone’s to conduct business due to their easy accessibility. But smartphones are just as easily accessible to a data breach. A report published 2012 by a South Florida Institute; found that 50% of breaches in 2011 were from laptops or mobile devices. 80% of organizations surveyed stated that they allowed employees to use their own mobile device, and had not taken steps to ensure data security for personal devices.
Determine what needs to be encrypted
Assess which technology poses the highest risk of being stolen or accessed by an unauthorized user. The most popular devices usually include phones, laptops, tablets and any portable hard or flash drive. You should put both physical and technical safeguards in place to minimize the amount of confidential data stored on encrypted devices. Steps healthcare providers can take to physically safeguard devices are:
- Keeping an inventory of personal mobile devices used by healthcare professionals to access and transmit PHI,
- Storing mobile devices in locked offices or lockers,
- Installing radio frequency identification (“RFID”) tags on mobile devices to help locate a lost or stolen mobile device and,
- Using remote shutdown tools to prevent data breaches by remotely locking mobile devices.
You can use technical safeguards such as accessing data on servers using remote access connection rather than downloading the data to a device. Other safeguards include:
- Installing and regularly updating anti-malicious software (also called malware) on mobile devices,
- Installing firewalls where appropriate,
- Applying encryption to PHI,
- Installing IT backup capabilities, such as off-site data centers and/or private clouds, to provide redundancy,
- Putting into place biometric authentication tools to verify the person using the mobile device is authorized to access the PHI and,
- Ensuring mobile devices use secure, encrypted Hypertext Transfer Protocol Secure (“HTTP”) similar to those used in banking and financial transactions.
Administrative safeguards are another reasonable approach when putting a plan together to secure data on mobile devices. For example, conducting periodic risk assessments of mobile device use, including an assessment of whether personal mobile devices are being used to exchange PHI and whether proper authentication, encryption and physical protections are in place to secure the exchange of PHI. Also establish an electronic process to ensure the PHI is not destroyed or altered by an unauthorized third party. These are just a few steps that administrators can take to help prevent or reduce data breaches within their practice.
If you have questions or concerns contact us here or give us a call at 716-847-2651.
Author: Mike Boeheim
Protect Your ABL’s Assets by Helping Your Clients Recognize and Stop Internet Fraud
As people flock to the Web to make purchases, they risk being snared by Internet fraud. Asset based lenders need to be aware of the latest scams that could affect your customers and impair debt service.
Popular Fraud Tactics
As you can imagine, cybercrime can take many forms, such as credit and debit card fraud, mobile phone transaction fraud, pay-per-click (PPC) scams, and, of course, identity theft.
Fraudsters can get very creative when “trolling” the Internet for opportunities. For instance, some might use malware to collect credit card information from unsecured merchant websites. PPC fraudsters also cause unsuspecting merchants to incur charges every time customers click on their ads. Then they redirect the customers to their website, thereby “stealing” the sale.
Help Your Clients Stop Internet Fraud
Determine whether your clients are taking appropriate steps to protect themselves against Internet fraud. Ask whether they’re analyzing transactions and identifying which are at a higher risk for cybercrime. Some examples of online order form red flags include customers who use drop shipment forwarding addresses, or post office boxes and payments split between multiple debit and credit cards. All of these can signal the use of stolen cards.
According to a survey by technology provider FIS’s ClearCommerce®, an e-payment processing and fraud prevention service;
other warning signs you need to be aware of include differences between billing and shipping addresses, the country of the billing and IP address, or the area code and the billing ZIP code. International shipping addresses — especially those in former Eastern Bloc countries or the Middle East may be suspect, Of course, just the existence of a red flag doesn’t mean that fraud has taken place. But it does mean that borrowers should take a closer look at the potentially high-risk order before processing it.
Asset Based Lenders Need to do Due Diligence too
As part of your due diligence, ask your clients whether they’ve taken steps to secure their IT against fraud. Transaction screening software can take a lot of the guesswork out of identifying these high-risk transactions. Another security measure you should pass along to your clients is to couple automated address verification services with card security code systems. This will not only verify the cardholder’s address, but also crosscheck the security code on the back of the card.
All borrowers should employ and maintain encryption codes, antivirus software, firewalls, and operating system and browser updates. By taking these measures, the client will be protected on the merchant side, as well as when ordering for its own materials, downloading, or sharing information with any supply chain partners.
Don’t go it alone
Of course, maintaining secure, efficient computer systems can be quite daunting and way outside the bailiwick of most entrepreneurs. So, if one of your borrowers simply can’t afford a dedicated IT professional, a CPA can help them tackle the cybercrime prevention tasks mentioned above on an as-needed basis.
Freed Maxick’ s Asset Based Lending Team works with dozens of asset based lenders across the country. We can assist you in evaluating the integrity of your customers’ collateral by performing pre-loan surveys and rotational collateral monitoring field examinations.
Freed Maxick also provide specialized forensic accounting services.
If you or your clients need assistance in fraud detection, prevention or remediation, contact us, or call me directly at 716-847-2651.
Occupational Fraud Within An Organization
The Association of Certified Fraud Examiners estimates that a typical organization loses 5% to 7% of their gross revenues each year due to occupational fraud and abuse. A presentation on Monday, September 23 at The University at Buffalo's Center for Entrepreneurial Leadership will examine the different types of employee theft and fraud, the reasons employees engage in it, tips to prevent theft and fraud in the work place, red flags to help the employer identify it, and lastly what to do if you expect fraud is occurring.
UB Center for Entrepreneurial Leadership
UB Downtown Gateway
77 Goodell Street Classroom 208
Buffalo, NY 14203
Monday, September 23rd, 2013 - 5:30 to 7:30 pm
Shawn M. Frier, CPA, CFE, CMPE is a Director in Freed Maxick’s Enterprise Advisory Services Practice. Prior to joining the Firm, Shawn worked for a “Big 6″ accounting firm in New York City.
Shawn is responsible for the overall planning, supervision and completion of client engagements, audits, reviews, compilations, bookkeeping, and tax returns. He has prepared financial statements in various industry formats including consolidations and has coordinated and reviewed work performed by internal auditors, assisted numerous entities in preparing annual budgets and in tax planning and has prepared audit findings for presentation to management. In addition, Shawn is involved with supervising staff, recruiting, training, and internship programs.
Over the years, Shawn has obtained a wide range of experience with manufacturing, financial institutions, distribution, physician groups, not-for-profit, general services industries and SEC and regulatory accounting matters.
A graduate of the State University of New York at Buffalo, Shawn is a member of the Buffalo Chapter of the New York State Society of Certified Public Accountants, the American Institute of Certified Public Accountants and the Association of Certified Fraud Examiners. He is President of the New York State Medical Group Management Association, and serves as a speaker for their local and national events. In addition, he serves on the Board of Directors, is the past Treasurer for Autistic Services, Inc, and is the current Assistant Treasurer for Jewish Federation Housing. In 2011, Shawn was named a winner of Buffalo Business First’s Healthcare 50 Award, which recognizes professionals serving the medical profession and their contributions in improving the quality of healthcare in Western New York. In 2006 Shawn was recognized for his business and community leadership by Business First as a “Forty Under 40” award recipient.
Areas of Expertise
Serving manufacturing, general service, and physician groups
SEC and regulatory accounting matters
Strategic and business planning
Conflict identification and resolution
For more fraud related blog posts, check this out!
Fraud Awareness Workshop: NYC Sept. 24-26
The Fraud Awareness Workshop is a three-day program presenting best practices in the prevention and detection of borrower fraud while also recommending fraud prevention procedures for a variety of ABL disciplines. Reinforcing each learning point through numerous case studies, the goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.
Michael A. Boeheim, CIA, CFE is a director in Freed Maxick's Asset Based Lending Practice. Mike joined the Firm in 1995 and has over 30 years of experience in the ABL industry. He is responsible for staff supervision, quality control and developing and maintaining lender relationships.
Mike also has experience in portfolio acquisition due diligence and forensic examination assignments of troubled loans involving fraud. He served as an instructor and developed the fraud programs for the Commercial Finance Association Fraud Awareness Workshop and the European Fraud and Audit Conference, and has been a speaker for a number of organizations on various fraud related topics. Mike's articles have been published in the Secured Lender and the ABF Journal. He has provided Grand Jury testimony and was recognized for outstanding service as an instructor to the Asset Based Financial Services Industry.
A graduate of the State University of New York at Buffalo, Mike is a Certified Internal Auditor and Certified Fraud Examiner.
Jerry Oldham is co-founder, Chairman and CEO of 1stWEST Financial Corporation. Mr. Oldham has an extensive background investigations and corporate due diligence background and a broad senior management resume in commercial banking and corporate and real estate finance. He frequently serves as a consultant or expert witness in litigation and settlement negotiations involving complex corporate finance, real estate, banking and lending practice issues, having assisted in the settlement of hundreds of lawsuits over the years. Additionally, Mr. Oldham often acts as a consulting team leader to manage the overall due-diligence process on investment decisions for 1stWEST clients.
Mr. Oldham received his B.S. Degree in Finance and Real Estate from The Pennsylvania State University and his M.S. Degree in Banking and Finance from Colorado State University. While at Penn State he was President of the College of Business Student Council, and was awarded the Dean's Cup upon graduation. He is recognized for his banking research and publications in the areas of commercial loan pricing and profitability analysis and due-diligence.
Mr. Oldham is a graduate of the American Bankers Association's Undergraduate and Graduate level studies programs and holds the ABA's Certified Commercial Lender designation. Jerry also serves on the Board of Governors of the Education Foundation of the Commercial Finance Association and as a member of its Executive Committee and Education Committee. Mr. Oldham and/or 1stWEST are also members of the Association for Corporate Growth (ACG), the Small Business Investor Alliance (SBIA) and the College and University Professional Association for Human Resources (CUPA-HR).
Doug Bull is the Team Leader, Field Examination Services with JPMorgan Chase. In addition to serving as an instructor for the Commercial Finance Association, he was the primary author of CFA's Field Examiner School. He was named Best Newcomer Lecturer 2006 for the Asset Based Finance Association, UK. Prior to joining Dopkins in 2000, Mr. Bull gained 16 years of experience from public accounting and the private sector with a 10-year concentration in asset-based field examinations, most recently as Vice President, Collateral Examination Manager at HSBC Bank. At HSBC, he supervised an internal staff and coordinated the outsourcing of field examinations to various firms.
The program will meet at:
30 Rockefeller Plaza
New York, NY 10112
Sep 24: 8:30 a.m. – 5:00 p.m.
Sep 25: 8:30 a.m. – 5:00 p.m.
Sep 26: 8:30 a.m. – 1:00 p.m.
Continental breakfast will be served each day beginning at 8:30 a.m. The program will begin at 9:00 a.m. Lunch will also be provided each day.
Program Level: Intermediate
Recommended for: Any staff seeking to minimize their institutions' fraud risk.
Commercial Finance Association is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.learningmarket.org
Career Services: $298
Career Services with Textbook: $325
Member with Textbook: $770
Non-Member with Textbook: $995
As a special offer, you may purchase the industry textbook, Asset-Based Finance - Proven Disciplines For Prudent Lending at the discounted price of $25 (regularly $49.95) for CFA members, and $50 (regularly $79.95) for non-members, if you do so with your registration.
To attend, please check out the EVENT INFO HERE.
Freed Maxick ABL Services is one of the nation’s largest providers of ABL field exam outsourcing services to asset-based lending and other financial institutions that have granted loans, increased credit lines, reduced credit lines, or reduced loan loss exposure.
Read some of our ABL thought leadership on our “Summing it Up” blog.
Fraud in the Workplace
With Guest Speakers:
Senior Manager Freed Maxick, CPAs. P. C.
Shawn M. Frier
Director Freed Maxick, CPAs, P. C.
• How does Fraud affect you?
• Examples of Fraud
• Types of Fraud
• Common Fraud committed by employees
• Red Flag indicators for Fraud
• How to prevent fraud
Thursday May 16, 2013
8:00 a.m. Coffee/Breakfast, 8:30 a.m. Presentation
The Buffalo Club
388 Delaware Ave, Buffalo, NY
$25 for RMA members/$30 for RMA non-members/$10 Students
There will also be a Q&A period following presentation.
For questions and reservations, please contact:
Ann Berardi at: firstname.lastname@example.org
Best Practices in the Prevention and Detection of Borrower Fraud!
Mike Boeheim, CIA, CFE and Director at Freed Maxick ABL Services will take part in the upcoming Fraud Awareness Workshop presented by the CFA on April 17th-19th.
The event is a three-day program presenting best practices in the prevention and detection of borrower fraud while also recommending fraud prevention procedures for a variety of ABL disciplines. Reinforcing each learning point through numerous case studies, the goal of the program is for participants to understand their roles in mitigating the risk of fraud within their organizations.
This is a must attend for any staff member seeking to minimize their institutions' fraud risk.
Wednesday, April 17: 8:30 a.m. - 5:00 p.m.
Thursday, April 18: 8:30 a.m. - 5:00 p.m.
Friday, April 19: 8:30 a.m. - 1:00 p.m.
Continental breakfast will be served each day beginning at 8:30 a.m. The program will begin at 9:00 a.m. Lunch will also be provided each day.
Program Level: Intermediate
April 17 - 19, 2013
Event Start Time: 8:30 a.m.
Troutman Sanders, LLP
The Chrysler Building
405 Lexington Avenue
New York, NY 10174
To gain more insight into fraud and Asset Based Lending issues, check out related blog posts on our "Summing it Up" blog. You can also get a free copy of the keynote presentation delivered at the Commercial Finance Association Fraud Awareness Program Workshop.
We’re pleased to offer a complimentary copy of this valuable resource.
11 common fraud schemes
Critical management pressure points that lead to fraud
6 red flags that every asset based lender needs to be on the lookout
Recognizing irregularities in source documents, accounts payables and financial statements
9 common inventory fraud schemes and deterrents
For information about our ABL Services team and related services,
check us out on the web.
Earlier we published a blog post about about that discussed not losing your business to occupational fraud. Check it out here.
Freed Maxick has worked with hundreds of high tech companies and startups. Please call us to talk with one of our CPAs or business advisors on fraud detection and prevention for your high tech company. Call us at 716.847.2651, or contact us here.