Business Valuation & Litigation Support

Financial crimes and mismanagement continue to be in the media’s limelight, as new scams are being invented and discovered every day. Frost PLLC’s Forensic team can help you navigate this complex financial environment. We have a background rooted in fraud examination, forensic accounting, valuation, and litigation support services. Our experts assist clients in a variety of technical forensic accounting issues, ranging from fraud investigation and financial statement misrepresentation to economic damages and lost profits, business valuations, asset tracing and more.

Our staff includes CPAs (Certified Public Accountants), CFEs (Certified Fraud Examiners), MAFFs (Master Analysts in Financial Forensics), and CVAs (Certified Valuation Analysts). We also have professionals who are Certified in Financial Forensics (CFF) and Accredited in Business Valuation (ABV).

At Frost PLLC, we also have a wide variety of skilled associates in other parts of the organization, should we need to bring in additional expertise or resources. Since we began in 1974, our focus has been on relationships backed by performance. These relationships have grown and so has our presence across the U.S., as we now span 48 states.

Check out some of our past presentations:

Valuation is arguably the most hotly contested issue in litigation. This is because there are so many factors to consider when valuing assets. And, each type of asset has a different methodology to follow. Consequently, fraud and forensic accounting experts are needed to decipher which and when the applicable standards should be followed. More importantly, fraud examiners are needed in the arenas in which these valuations take place, such as shareholder/partner disputes, matrimonial disputes, bankruptcy, and insolvency cases.

The purpose of a valuation dictates the standard of value to be used. While the standard of value used for a valuation may seem straight forward to many, there is plenty of room for variation in the application of that standard. One valuation analyst’s opinion or conclusion of value will most always be different from any other valuation analyst’s. Because of that fact, it is crucial to have the right forensic accounting expert on your side to dissect every component of a valuation.

The definition of value starts to vary even more with intangible assets. A good example is goodwill. In several states, “personal goodwill” and “entity goodwill” are treated differently per applicable law. Since personal goodwill cannot be transferred to another person, the value of that goodwill is removed from any asset, such as a business, that is divisible. A forensic accountant is needed to quantify the overall value of the asset and then ascertain the amount that should be allocated to personal versus entity goodwill. As you can expect, this contentious intangible asset is frequently litigated, and is successfully done so with the right forensic and valuation expert.

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A forensic accountant is hired not only for technical aptitude, but also for reputation testifying as an expert in court. We proudly have experience in both.

In addition to courtroom experience, we stay abreast of best practices in delivering expert witness testimony through training. Our team is a member of the Association of Certified Fraud Examiners, National Association of Certified Valuators and Analysts, and the Forensic and Valuation Services group of the AICPA. We also hold certifications with each of these entities. These affiliations give us the opportunity to train in advanced tactics in testimony and related services.

Combined, we have over 40 years of experience working with attorneys, bolstering their cases with financial litigation support.

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According to a recent survey by the AICPA (American Institute of Certified Public Accountants), 58% of forensic practitioners expect financial statement fraud by company personnel to increase in the next two to five years. During the same period, 55% of all respondents also expect embezzlement committed by employees to increase. These statistics are alarming, but you can take action to minimize your exposure to these risks. One of the best ways to do that is by implementing preventative measures to eliminate fraud before it happens. Surprising to many, creating the right policies and communicating those policies in the right manner are the number one actions you can take to reduce fraud in your organization. But, that is only the foundation of a well-designed anti-fraud program.

We guide you through each step of creating a fraud-free environment that doesn’t create pointless red tape, but rather it considers efficiency in even the most complex business operations. The goal isn’t to slow your business down. The goal is to make sure your business realizes its full potential, and you can’t do that with missing cash or misused assets.

We work with enterprises in a variety of backgrounds and we have a solid knowledge-base from which we can pull to understand the fraud factors that your specific industry faces.

We start with an initial fraud assessment that serves as a diagnostic of your company’s exposure to the risk of fraud across all areas of your business. Based on those results we identify deficiencies, outline a roadmap to mitigate them, and implement a fraud solution that is unique to your organization. This can be as broad as creating a general company policy on fraud, or as tailored as implementing enterprise-specific controls.

Depending on the nature of the fraud risks in your business we set up periodic check-ups to make sure the integrity of your fraud-framework continues. For instance, for those businesses that are particularly vulnerable to cash skimming schemes we evaluate on a more frequent basis and in less predictable form so as to pinpoint fraud in the act.

We also have an experienced tax and audit team with deep industry knowledge that we can bring in should you need more resources on more technical or regulatory matters. At Frost, we have the experts you need to rid your organization of fraud today and the increasingly complex fraud schemes that you’ll face in the future.

Some of the Fraud related services we offer are:

  • Fraud Investigations
  • Fraud Risk Assessment
  • Fraud Risk Governance
  • Reporting
  • Remediation
  • Whistleblower program/services

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It’s crucial that you know whether or not the items listed on the balance sheet are correct, be it due to innocent inaccuracy or intentional under or overvaluation. One of the most common types of financial statement misrepresentation issues is that of valuation. Often times the person keeping the financial records may be unfamiliar with the appropriate way to value an asset. This can dramatically affect the perceived value of a business, and in some cases it can give business owners or potential buyers a false sense of worth. Too often an inaccurate value is used to make significant business decisions, leaving business owners or business acquirers in a bind dealing with the aftermath of an uninformed decision. Conversely, if the inaccurate valuation is due to fraud then the risk of misrepresentation is much greater. Since fraudsters are intentionally manipulating the value it may continue for a long period of time undetected.

Separate from valuation, there are several other forms of financial statement misrepresentation that can occur. Inadequate disclosures and material transactions are two of the more important ones. If a company engages in self-dealings or substantial intercompany transactions that aren’t reported it could severely impact the true financial condition of that company. Similarly, if a company has a material change in accounting policies but fails to disclose those changes, then any apparent trends may actually be due to a change in accounting rules. For instance, if revenue recognition for a particular product is changed from being recognized in the period received to being amortized over a period of time then it could distort any trends in revenue.

Our goal is to help you identify red flags and other anomalies in your company data that will help uncover potential financial statement misrepresentations.

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It’s estimated that more than half of damages related cases end up going to trial. When faced with the unknown, you want a forensic accounting expert on your side.

Damages claims are only expected to rise in the future. A recent survey of forensic and valuation professionals indicates the types of cases expected to drive demand for damages analyses in the coming years. Here’s a summary:

As you can see, cases requiring economic damages calculations by a qualified forensic expert are only going to continue. Those cases are typically supported by complex financial calculations, which are based on elaborate assumptions that need to be examined by forensic experts. The opposition may provide the necessary documentation to examine those underlying assumptions, but it will be next to impossible for an unqualified person to try and piece together thousands of financial documents to refute or merely recreate opposing expert exhibits.

Our team of forensic accounting experts use advanced data synthesis software to process data, and we stay current with innovative techniques within the field so we can guarantee a work product that is superior.

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During divorce proceedings, there doesn’t have to be a suspicion of fraud to involve forensic accounting experts. In fact, much of the work that financial experts do is validating expenses and income, or ensuring that the appropriate standard of value is being used for a valuation. These things help the court, or trier of fact, determine issues related to equitable distribution, marital versus non-marital property, and business values, to name a few.

With a rise in alternative dispute resolution, forensic CPAs play a vital role in helping attorneys and clients understand the financial consequences of their agreements. In divorce, there are a multitude of ways to divide assets, all of which have potentially different tax implications. By running tax-scenario models, forensic experts can help optimize asset division so that it is truly equitable for all parties.

If mediation or other forms of collaborative resolution don’t work, then you want a forensic accounting expert capable of delivering testimony in court. But not only do you want a capable expert, you also want a credible well-spoken CPA who can walk the court through financial exhibits with sound logic and principles that are easy to understand.

Some of the analyses we offer related to Family Law are:

  • Family business valuation
  • Child support calculation
  • Marital vs non-marital property
  • Asset tracing
  • Income determination
  • Standard of living
  • Equitable distribution
  • Separate vs community property
  • Alimony calculation


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Along with an increase in economic growth comes an increase in bankruptcy filings. And with more bankruptcies on the rise there will be more incidences of fraud. Not only do you want someone with expertise in accounting nomenclature, but you also want someone equipped with strong IT and technical knowledge. We combine these skills to gather and analyze electronic evidence, identify questionable transactions, and trace assets in an effort to recover funds. We serve as an expert and/or advisor for:

  • Receivers and/or trustees
  • Creditors
  • Debtors
  • Persons or organizations filing bankruptcy

We also assist with determining whether or not a fraudulent conveyance has occurred. Many times, in the event of a bankruptcy the person/company filing will transfer assets in an attempt to bypass distribution to creditors or debtors owed. However, just because a business owner makes an otherwise legally valid transfer doesn’t mean that it is out of reach for debtors/creditors owed. If such a transaction has a fraudulent intent it may be considered a fraudulent conveyance. As forensic accountants, we examine the entire financial picture to capture less obvious forms of fraudulent transfers. These transfers may be disguised as small amounts of cash distributed or assets siphoned out of the company over time. Our arsenal of financial forensic tools enables us to see beneath face value of the bank records and financial statements.

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The most recent Report to the Nations on Occupational Fraud and Abuse by the Association of Certified Fraud Examiners (ACFE) reported a median loss due to fraud of $145,000 per victim, with more than 20% of victims losing at least $1,000,000. The result of these findings is a concerted effort on the part of Frost, PLLC to educate and train their employees and clients on fraud prevention, detection, and proactive reporting.Frost, PLLC’s new service is about protecting organizations, their people, and minimizing financial losses. There is growing concern over the potential damage to companies and organizations due to losses from unethical behavior.

Red Flag Reporting is your hotline for:

  • Fraudulent activity/theft
  • Misconduct
  • Safety violations
  • Unethical behavior

 

EMPLOYEE PROTECTION

Employees can report on safety violations, sexual harassment, drug and alcohol use, intimidation, favoritism, and other activities that can harm employees

FINANCIAL CONCERN

Suspicious activity, theft, bribery, and more can be reported so that management can stop the loss before it goes any further

FAMILY AND FRIENDS

In a care facility, such as a hospital or nursing home, family and friends of residents or patients can submit reports related to the care and protection of their loved ones

EMPLOYEES AND OTHER

Employees, vendors, contractors, and others in a care facility can submit reports related to the care and protection of the residents or patients.

WHAT DO THE EXPERTS SAY?

In terms of statistics related to employee fraud, perhaps no organization is more respected than the Association of Certified Fraud Examiners.

Here are a few observations about hotlines that they noted:

  • Frauds are much more likely to be detected by tips than by any other method.
  • Fraud reporting mechanisms, such as hotlines, should be set up to receive tips from both internal and external sources and should allow anonymity and confidentiality.
  • Tools such as anonymous hotlines or web-based portals, which allow individuals to report misconduct without fear of retaliation or of being identified, can help.
  • Not surprisingly, organizations with some form of hotline in place saw a much higher likelihood that a fraud would be detected by a tip (51%) than organizations without such a hotline (33%).
  • The presence of formal management reviews, employee support programs and hotlines were correlated with the greatest decreases in financial losses.
  • Frauds were typically caught 50% more quickly when a hotline was in place.
  • Losses due to each fraud incident are reduced by an average of 41% when a hotline is in place.
    10% of frauds in organizations without hotlines were caught by accident, whereas 4% of cases were detected by accident in organizations that had implemented a hotline.
  • External audit was the detection method for 5% of cases from organizations without hotlines, but only 1% in organizations with hotlines.

Organizations with hotlines had a larger percentage of frauds reported by tip than in organizations without hotlines.
Red Flag Reporting was created to educate and empower employees with the tools to detect and report unethical behavior. Because tips and complaints are proven to be the number one method of fraud protection (2014 ACFE Report to the Nations on Occupational Fraud and Abuse), the anonymity that hotlines like Red Flag Reporting provides has been shown to make employees feel both protected and alleviated from burden. By adding a new service to our portfolio, Frost, PLLC is now in a unique position to build value and protect our clients.

VALUE PROPOSITION

Our service protects the assets, employees and reputations of our clients, while dramatically reducing the costly consequences of unethical activity in the workplace. We provide the most cost effective internal control an organization can have (an ethics hotline), empower the most successful mechanism for catching unethical behavior (open channels of communication) and support the most powerful tool for deterring bad actions (a strong tone at the top). Our service is so affordable that statistics bare that simply receiving one report can pay for our service for decades.

Red Flag Reporting’s mission is to protect organizations and their people from damages caused by financial fraud and employee misconduct. Developed by experienced fraud investigators and human resources consultants, Red Flag Reporting is a highly effective program to detect and stop costly problems such as embezzlement, false billing, misuse of appropriations and accounting irregularities. The program also addresses employee protection, raising red flags before a work condition leads to a litigious situation.

BOTTOM LINE

You can create an ethical and positive workplace environment with strong internal controls, and a strong oversight process utilizing external experts. Having a hotline in place allows for employers to address a situation early rather than letting it continue and end in the courts. A hotline also eliminates the employee excuse that they had nowhere to turn.

CONTACT US

For more information regarding this system or its implementation, contact T. J. Boyle at: tboyle@frostpllc.com or 501-975-0267.

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