21 May

Companies at Greater Risk of Fraud

What kinds of companies are more prone to fraud?

In my business, we talk a lot about the red flags of fraud. There are two different types of red flags: the kind that suggest that a fraud is currently in progress, and the kind that puts a company at greater risk of fraud.

In this video, I talk about a few of the characteristics of companies that seem to put companies in greater danger of becoming a victim of fraud by employees. Some of these red flags include:

  • Executives act autonomously
  • Authority is not delegated
  • Distrustful management
  • Management driven by the pursuit of power

16 Apr

Changing Auditors: What Does It Mean?

The firm that audits a company’s financial statements is very important. Audited statements are used by shareholders, lenders, and other interested parties to make decisions about the company and its future.

When companies change auditors, it can signal a few different things. There may be legitimate business reasons for making a change, but there could instead be problems within the company. Learn more in this video.

27 Mar

Digging into the Background of Company Owners and Executives

Have you ever wanted or needed to do a background check on an owner or executive of a company? If you’re considering investing in a public or private company, you may want to find out information on the people who started the company, those who currently own it, and those who currently run it. Tracy talks about the types of information you may be able to find.

Personal information you may want to review:

  • Personal history, such as family members, marital status, etc.
  • Professional history
  • Ownership and affiliation with other companies (both past and present)
  • Compensation agreements

Other interesting things that can tell you something about the people you’re looking into: Read More

20 Mar

Creative Accounting or Financial Statement Fraud?

Companies engaged in financial statement fraud sometimes use creative phrases to legitimize or cover up what they’re doing. Examples include:

  • Aggressive accounting – We’re following the rules, but pushing the limits to make the financial statements look as good as possible.
  • Earnings management – We’re doing our best to “manage” earnings and make sure that the numbers are in line with the expectations of investors.
  • Income smoothing – We’re leveling out the earnings to keep the numbers consistent from period to period.

This “creative” accounting is sometimes justified by people who say that the company is still following the rules, and just using the rules to their benefit.

Aggressive practices like this often cross the line into fraud, as companies are purposely manipulating the numbers to paint the picture they want to see, rather than show the reality of the numbers.

07 Mar

Income Included in Spousal Support Calculations

What sources of income are commonly included when calculating spousal support in a divorce case? While the specifics vary by jurisdiction, in general the courts will commonly consider: wages, investment income, business income, rental income, and royalties. Tracy talks in this video about why it is important to have a forensic accountant evaluate these items and how they should be factored into the spousal support calculations.

28 Feb

Bankruptcy Services Provided by a Forensic Accountant

In this short video, Tracy talks about some of the services a forensic accountant could provide in a bankruptcy case.

These services could include:

  • Tracing of funds through bank accounts
  • Looking for hidden income and assets
  • Evaluating expenditures to determine whether they were proper (as it relates to the bankruptcy)
  • Searching for improper transfers of money and other assets
  • Verifying numbers disclosed to the bankruptcy court
  • Looking for red flags of fraud
  • Identifying parallel entities (similar, related businesses started by parties involved in bankruptcy, used to improperly transfer assets or income)
22 Feb

Ponzi Schemes Explained

In this one minute video, Tracy explains how Ponzi schemes work. They are also called pyramid schemes because the constant recruitment of new “investors” creates the shape of a pyramid, with many new investors required at the bottom of the pyramid to pay “returns” to the earlier investors.

The hallmarks of a Ponzi scheme include:

  • Promises of extraordinary returns (interest) on investment – When it sounds too good to be true, it probably is. Why on earth could you earn so much more on your money with this scheme than with a traditional investment?
  • There is no actual investment strategy – You won’t know this, because they’ll make it sound like there is. The promoter will tell you about this revolutionary product or business model or investment that is going to generate all this money. But in reality, there is nothing creating returns. The promoter is only generating “returns” from new investors, and is using your money to pay off other investors and line his own pockets.
  • Money from new investors is used to pay returns to earlier investors – Since there is no real business or viable investment strategy, new investors must be recruited to bring money into the scheme. The “returns” paid to earlier investors are often used as “proof” of the viability of the investment strategy when trying to recruit new victims.
  • The scheme eventually collapses – It may take a long time, but eventually the pyramid scheme fails when the promoter can’t recruit enough new investors to keep the money flowing.
14 Feb

Accounting 101: Parts of an Income Statement

A few of the videos I will post here are what I like to call “Accounting 101.” They have some basic accounting information for those who need a bit of a primer on how the accounting process works.

This video focuses on the parts of an income statement. I talk about the main sections of the income statement, also often referred to as the profit and loss statement (P&L). Things you’ll see on the P&L include cost of goods sold, gross profit, operating expenses, operating income ,non-operating income and expenses, and net income. At the end of the video you’ll see a sample income statement, so hit pause and go to full screen mode to get a good look at it.