Blog

Category: Financial Advisory

We have distilled decades of experience at the intersection of law, business and finance into a suite of articles to help our clients make sense of business valuation, forensic accounting, and litigation support. Please visit our site regularly for our latest content.

Noncompete agreements can help businesses retain valuable employees, safeguard inside information and prevent unfair competition. But though they’re designed to protect companies, they can also put them at risk if they’re not properly structured and maintained. This article explains how valuators help ensure noncompete agreements are valued appropriately and are fair to all parties.


Full Read
Detecting Financial Statement Fraud

Posted in Financial Advisory, on Sep 2016, By: Mark S. Gottlieb

Recently, Bloomberg reported that Fiat Chrysler Automobiles is under investigation for potential securities fraud after being accused of inflating U.S. car sales. The company is said to have coordinated a scheme in which individual dealers were paid to create false sales reports, thereby exaggerating financial performance and deceiving investors. Unfortunately, instances of fraudulent financial reporting such as this one have become somewhat commonplace among corporations under pressure to meet earning expectations or to conceal declining financial performance. Fraudulent financial reporting is any intentional misstatement of, or omission from, the financial statements of a company with the purpose of misleading the statement users. The complexity of financial statement fraud has garnered significant attention over the past decade.  It has become clear that there are a variety of subtle methods used to manipulate expenses and revenues that are not easy to detect without knowledge of the necessary analytical tools. In 2002, following a series of major corporate financial fraud scandals, Congress passed the Sarbanes-Oxley Act which enacted strict reforms to financial reporting standards in the hopes of protecting investors from potential fraudulent accounting activities. In spite of these new standards, the number of fraud cases, as well as the dollar value of false financial reporting’s, has continued to rise for the past 14 years. Most cases of financial statement fraud take the form of either improper revenue recognition, misstatement of assets, liabilities or expenses. It is nearly impossible to trace the source of every revenue stream, verify the existence of all reported […]


Full Read
Dealing with Fraud: A Simple Four Step System

Posted in Financial Advisory, on Apr 2016, By: Mark S. Gottlieb

Modern day examples of fraud don’t always take the form of mustachioed Ponzi-types with elaborate systems of deception. Today, elusive acts of fraud in the workplace are running rampant, especially throughout small businesses.   The ability to commit and get away with fraud has become even more accessible with the increased use of social technologies in the workplace. Tech savvy fraudsters can use anything from Facebook messaging to Snapchat to communicate plans for manipulating company funds in a way that is difficult to detect. If you or your client is suspicious of fraudulent activity in the workplace, it is essential to take the steps necessary to resolve the issue as quickly as possible. The following four steps should be taken to stop any potential fraudulent behaviors: Detection of Potential Fraudulent Activity in the Workplace The two main types of business fraud are (1) inappropriate personal use of business assets and (2) falsifying financial statements. These types of fraud can come in many forms, including but not limited to the following: Embezzlement, Forgery of official documents, Tampering with bank records, Inventory theft, Benefitting from placing a redundant order, Using company credit cards for personal expenses, Selling business assets under the market value, Manipulating the overtime periods, and Creating fictitious expenses and obtaining disbursements. If any of these behaviors are suspected, it is important to investigate. Forensic Investigation Although most employers wouldn’t like to think of their employees as the type to commit fraud, fraudulent behavior is surprisingly prevalent, especially among smaller […]


Full Read
Types of Fraud in Business

Posted in Financial Advisory, on Apr 2015, By: Mark S. Gottlieb

Under former Attorney General Eric Holder’s leadership, the US Justice Department drastically increased its fight against fraud, bringing in more than $24 billion in penalties. This substantial sum came mainly from the department’s pursuit of big banks for financial misconduct. Yet it also increased its crackdown on smaller instances of fraud. Fraud is prevalent in many facets of life, particularly within businesses. This swindling can come in many forms and eats away at a business’s funds. According to the Association of Certified Fraud Examiners (ACFE), on average, businesses lose 5% of revenue each year to fraud. Additionally, 22% of the cases examined by the ACFE involved losses of at least $1 million. Therefore business owners, attorneys, and investigators should know what types of fraud occur, how to look for them, and how to prevent them. Asset Misappropriation Fraud  To put it plainly, asset misappropriation takes place when someone steals funds from his employer. Asset misappropriation constitutes the most common type of fraud affecting businesses. What follows is a list of the most commonly encountered forms of asset misappropriation, ways to discover them, and methods of prevention. Authorized Maker An authorized maker is a person with the power to create and sign checks for a company. In this scheme, the authorized maker creates a check payable to himself, or one that pays his expenses, later altering the payee name in the accounting records to make the disbursement look like it was made to an authentic vendor. This scheme can be recognized […]


Full Read
Cross-Examining a Financial Expert – Part I

Posted in Financial Advisory, on Nov 2014, By: Mark S. Gottlieb

We’ve seen it in the movies. A cross-examination where an attorney seeks to identify weaknesses in an opposing side’s conclusions by questioning a witness. Often an entire case can hinge on a cross-examination. As opposed to direct examination, where the exchange between lawyer and witness is warm and fuzzy, cross-examination is often hostile. In financial litigation, expert witnesses are often certified forensic accountants. If the opposing side is using a forensic accounting expert as a witness, it is important to retain one as well. In their role as a litigation support analyst, the forensic accountant should be given all of the opposing side’s reports. Comparing these reports with their own, they can find any discrepancies and differences and then use these to begin building a cross-examination strategy. There are three steps to follow for a sound strategy. Reject or question expert’s opinion. Ultimately, the goal of a cross-examination is to call into question the credibility of the expert’s opinion or findings. This is where one’s own forensic accounting expert will use their knowledge of the complex terminology and methods to point out weaknesses in the opposing expert’s work and conclusions. One method of discrediting an opinion is with a Daubert Challenge. This is a challenge which examines five different aspects of an expert’s methods to verify their authority. They are: Whether the theory or technique used can be and has been tested; Whether the method has been subject to peer review and publication; Its potential or known error rate; The existence […]


Full Read
Transfer Pricing and Related Valuation Issues

Posted in Financial Advisory, on Oct 2014, By: Mark S. Gottlieb

When one person sells something to another person, it is usually assumed that the seller tried to get a fair price. Typically, that price is set by the laws of supply and demand in a market economy. However, when the people involved in the transaction are related in some way, the game changes. For this reason, often transactions between related parties aren’t really reflective of the actual worth. This is why, in home appraisals for example, only arm’s length transactions are considered. This same principle applies in the business world. Unfortunately, when a price is not reflective of value, it creates a multitude of problems in terms of taxing the transaction. Transfer pricing is used to solve those problems and attorneys who represent business clients must advise those clients of transfer pricing and how it applies in transactions between different branches of multi-entity companies. When a multi-entity company has different branches, one branch may provide products, goods or services to another. Because of the relationship between the parties in the transaction, the pricing will not necessarily be fair market value. This creates a number of problems, including a low profit margin for subsidiaries. The biggest issue, however, arises in the taxation of profits. The country/area where the subsidiary is located, for instance, would not get its fair share of the profit on the sale of the goods because of the below-market sale. Double taxation could also occur if two different countries taxed multiple branches of a company for the same […]


Full Read
Goodwill Impairment Testing

Posted in Financial Advisory, on Oct 2014, By: Mark S. Gottlieb

Many companies carry “goodwill” on their balance sheet as an asset. As a result, like all assets, goodwill must be valued correctly on the company’s balance sheet in order for it to provide accurate information to investors and the public. When the “carrying value” of goodwill is less than fair market value, the goodwill is “impaired” and its value must be reduced. Goodwill impairment testing is thus required annually by financial accounting standards in order to make sure the value of goodwill is accurately reported. To ensure accurate financial information, the Financial Accounting Standards Board (FASB) requires regular annual re-evaluation of the value of goodwill to determine if the value of goodwill was overstated initially or if the value of goodwill has changed due to various market conditions. The re-evaluation process is referred to as goodwill impairment testing.  This requirement has been codified by the FASB in Accounting Standards Codification (ASC) 350, as have the protocol for the method of testing and for responding to results. When this re-evaluation reveals that goodwill is not worth what it is listed as, it must be written down, which means that the carrying value must be adjusted to the new accurate valuation. Attorneys whose clients are involved in business and/or have goodwill as an asset, must be informed of the requirements for a goodwill impairment test so that they can be in compliance with regulations. The law is evolving in this field so attorneys should take steps to ensure clients are following the […]


Full Read
A Guide to Fairness Opinions

Posted in Financial Advisory, on Oct 2014, By: Mark S. Gottlieb

A fairness opinion provides important information in a variety of financial transactions, such as: mergers, buyouts, business privatization, or employee stock options transactions. They offer protection for shareholders and can be imperative in hostile takeovers and distress sales. Fairness opinions address the fairness of the purchase price in an anticipated transaction. They are not generally required by the SEC or by statute or law, but have been considered best practice since the case of Smith v. Van Gorkom (488 A. 2d 858 – 1985), where a corporation’s board of directors was subject to liability for breaching the fiduciary duty owed to shareholders. Fairness opinions may also be included in proxy material provided to shareholders in charge of control transactions. The purpose of a fairness opinion is to provide an assessment of whether an offered price is fair. However, the best definition may be in what it does, not provide. A fairness opinion: Does not give advice on whether the company should enter into a transaction; Does not provide detailed business valuation information; Does not take into account the strategic purposes of a transaction or the political and social implications of a transaction; Does not report of solvency or a company’s capital structure; Does not indicate a company’s credit rating; Does not tell a company whether to enter into a transaction; and Does not inform a company as to whether the transaction is the best possible option. Further, because reports are made after negotiations are underway or completed, the report is […]


Full Read
The Fraud Triangle

Posted in Financial Advisory, on Oct 2014, By: Mark S. Gottlieb

Remember the case of Enron in 2001? Their reported revenues of over $100 billion ended up being a fiction. But fraud isn’t limited to the corporate world. In September 2014, Matthew Wada and Jennifer York were indicted on fraud charges for renting out occupied apartments, cheating victims out of more than $60,000. Whatever the intensity or scope of a fraudulent activity, the elements behind a person’s decision to commit fraud remain universal. Forensic accountants utilize the Fraud Triangle as the standard tool in their investigation of fraudulent activities. Researchers Edwin Sutherland and Donald Cressey provided the seeds of the Fraud Triangle. Cressey extended Sutherland’s ideas behind “Differential Association” (which analyzed why people commit crimes), pinning down three elements which must be present for embezzlement to occur: A non-sharable problem, An opportunity for trust violation, and A set of rationalizations that define the behavior as appropriate. However, it wasn’t until a 1979 study that the variables leading to fraud were directly investigated. These researchers refined and broadened Cressey’s three points further: Situational pressures, Opportunities to commit fraud, and Personal integrity (character). These researchers also found that these aspects were interactive, showing that if more of one element is present, less of the other two are needed. This list would be later refined by one of the original co-authors, W. Steve Albrecht. He included perception into the elements, as well as finding that a return to one of Cressey’s original points was a better fit. He came up with the final sides […]


Full Read
A Panel Discussion on Proposed Maintenance Guidelines

Posted in Financial Advisory, on Mar 2014, By: Mark S. Gottlieb

While the panel and the audience primarily agreed the intent of the proposed legislation has merit – there was some concern whether the proposed legislation addresses the need of a mechanism to calculate maintenance awards.Emily Ruben, Esq. (Attorney-in Charge of the Brooklyn Neighborhood Office of The Legal Aid Society) pointed out that many couples going through a divorce do not have substantial assets to divide and that their greatest asset of the marriage is frequently the income of the more-monied spouse.  That being said, moderate and low-income spouses usually cannot afford the often costly litigation required to establish a right to maintenance.Considering the unpredictable and inconsistent climate of maintenance awards, the less-monied spouse will usually settle, albeit under some pressure, to avoid costly litigation.The New York legislative houses are each considering possible legislation to establish guidelines for post-marital income sharing not dissimilar to the Child Support Standards Act. By establishing guidelines for both the amount of maintenance to be awarded and the duration of the award, post-marital guidelines would provide the consistency and predictability for spousal support that the Child Support Standards Act has provided for child support. So we are prompted to ask: Is this Bill a long-awaited solution? Is it indeed the new approach consistent with Chief Judge Judith Kaye’s call for a “cultural revolution” to reduce drastically the time and costs—both financial and emotional—of matrimonial cases? Senator Hassell-Thompson, who introduced the Bill in the Senate, has said, “Neither spouse should feel financially compelled into accepting potentially detrimental or […]


Full Read
Page 1 of 212