According to blockchain data company Chainalysis, cryptocurrency transactions associated with illegal activity topped $14 billion in 2021. That’s almost double 2020 numbers — and the momentum shows no signs of slowing. In addition to outright cryptocurrency theft, these crimes include investment fraud and ransomware scams that affect businesses.

Yet cryptocurrency offers several advantages to entrepreneurs and established companies, including instant, low-fee transactions and access to new sources of capital. If you use cryptocurrency — or want to — understanding the risks can help prevent financial losses.

The basics

Cryptocurrencies use blockchain technology, a shared electronic ledger that records and stores transactions in the nodes of a computer network. Most cryptocurrencies use public blockchains, making it possible for anyone to see a digital wallet’s balance and transactions, including criminals. But such transparency means that it’s also possible to trace the proceeds of a cryptocurrency scam.

Although law enforcement is still largely trying to catch up with this fast-evolving technology and the scam artists who exploit it, there are some promising developments. In late 2021, IRS Criminal Investigations reported the seizure of over $3.5 billion worth of cryptocurrency from nontax investigations.

Guarding your wallet

Several practices can help protect your cryptocurrency assets, starting with securing your “wallet.” Cryptocurrency wallets are used to house proof of digital asset ownership and secure them with public and private keys. As you would assume, public keys are known to others and private keys are generally known only to the wallet’s owner. Anyone with a public key can encrypt data, but only a private key holder can decrypt or unlock the data.

Although this system is highly effective at protecting cryptocurrency holdings, it’s not invulnerable. So consider using a “cold” wallet, or hardware that’s not consistently connected to the Internet. Just keep in mind that you’ll need to make your wallet “hot” (connect it) to conduct cryptocurrency transactions such as buying and selling.

To prevent theft, keep only small amounts of cryptocurrency in your hot wallet. Larger amounts are more likely to attract criminals. Also keep your security software up-to-date and store your password securely.

More antitheft strategies

Other best practices for preventing financial losses when using cryptocurrency include the following:

• Watch your apps. Some scammers create fake cryptocurrency mobile apps that they make available through Google Play or the Apple App Store. Scrutinize descriptions of apps for misspellings and inauthentic looking graphics. And download them only after you’ve read reviews by actual users.
• Be wary of celebrity endorsements. Exercise skepticism about cryptocurrency marketing emails and social media posts referencing a celebrity or claiming a celebrity endorsement. As with all unsolicited email, resist the temptation to click on any links or attachments it contains.
• Spot spoofed websites. Before buying new or established digital currency on a website, validate the site’s address, look for the encryption icon (a lock) and be on the alert for red flags. For example, the site shouldn’t direct you to a new platform for payment.
• Make time for due diligence. If you’re eyeing a cryptocurrency initial coin offering (ICO), don’t invest until you’ve taken the time to vet the creators of the currency. ICOs typically aren’t offered by companies and don’t have financial records, so you’ll need to research the individuals behind them. At the very least, an ICO should be accompanied by a business plan or white paper. But even legitimate ICOs are extremely risky investments.

Criminal magnet

Cryptocurrency is a magnet for criminals thanks to its anonymity, a lack of government oversight and other factors. Although digital currencies have become mainstream in the past couple of years, businesses need to take precautions to prevent fraud. Work with cybersecurity and forensic accounting experts to control emerging threats.

© 2022

Patriotic promotion

One of President Biden’s first actions in office was to sign an executive order requiring federal agencies to buy American goods (with at least 55% of their components U.S.-made) and services whenever possible. Many consumers and companies also prioritize buying U.S.-made goods. So it’s easy to understand why manufacturers, retailers and other businesses would want to promote their American-made offerings.

But unless your products are entirely or substantially made in the United States of U.S.-originated components, you can’t label or advertise them as such. In its Enforcement Policy Statement of U.S. Origin Claims, the FTC specifies that “a product that is all or virtually all made in the United States will ordinarily be one in which all significant parts and processing that go into the product are of U.S. origin.” Although “negligible” portions of a product can be manufactured abroad, a product’s final assembly or processing must take place in the United States.

The FTC also considers the percentage of a product’s total manufacturing costs attributable to U.S. costs and the “remoteness” of foreign content. This refers to how far back in the manufacturing process foreign components were used.

Qualified language and implied claims

Because there are no hard-and-fast rules about what constitutes a “virtually all” American-made product, it’s best to be cautious. The FTC advises businesses to use qualified language — such as “Made in USA with U.S. and foreign parts” — on labels and in marketing materials. This language isn’t as catchy as “Made in USA,” but it’s safer for your company.

You also need to avoid implied origin claims. For example, describing a pair of imported jeans as “American quality” or “classic American style” can be risky. Recently, the FTC accused a company of violations for marketing its imported hats with phrases such as “Choose American.” This kind of marketing is likely to mislead potential customers into believing foreign goods are made in the United States.

Don’t risk your business

Regulatory peril isn’t the only risk associated with false “Made in USA” claims. Civil liability, bad publicity and subsequent sales losses are very real threats. If you’re unsure about how to label or market your products, consult an attorney familiar with the regulations. Contact us for help attributing product costs and for other accounting and tax issues.

© 2021

Some might say the end of one calendar year and the beginning of another is a formality. The linear nature of time doesn’t change, merely the numbers we use to mark it.

Others, however, would say that a fresh 12 months — particularly after the arduous, anxiety-inducing nature of 2020 — creates the perfect opportunity for business owners to gather their strength and push ahead with greater vigor. One way to do so is to ring in the new year with a systematic approach to renewing everyone’s focus on profitability.

Create an idea-generating system

Without a system to discover ideas that originate from the day-in, day-out activities of your business, you’ll likely miss opportunities to truly maximize the bottom line. What you want to do is act in ways that inspire and allow you to gather profit-generating concepts. Then you can pick out the most actionable ones and turn them into bottom-line-boosting results. Here are some ways to create such a system:

Share responsibility for profitability with your management team. All too often, managers become trapped in their own information silos and areas of focus. Consider asking everyone in a leadership position to submit ideas for growing the bottom line.

Instruct supervisors to challenge their employees to come up with profit-building ideas. Leaving your employees out of the conversation is a mistake. Ask workers on the front lines how they think your business could make more money.

Target the proposed ideas that will most likely increase sales, cut costs or expand profit margins. As suggestions come in, use robust discussions and careful calculations to determine which ones are truly worth pursuing.

Tie each chosen idea to measurable financial goals. When you’ve picked one or more concepts to pursue in real life, identify which metrics will accurately inform you that you’re on the right track. Track these metrics regularly from start to finish.

Name those accountable for executing each idea. Every business needs its champions! Be sure each profit-building initiative has a defined leader and team members.

Follow a clear, patient and well-monitored implementation process. Ideas that ultimately do build the bottom line in a meaningful way generally take time to identify, implement and execute. Don’t look for quick-fix measures; seek out business transformations that will lead to long-term success.

Many benefits

A carefully constructed and strong-performing profitability idea system can not only grow the bottom line, but also upskill employees and improve morale as strategies come to fruition. Our firm can help you identify profit-building opportunities, choose the right metrics to evaluate and measure them, and track the pertinent data over time.

© 2021

Forensic accountants are engaged for a wide variety of assignments, among them investigating fraud, auditing internal controls and quantifying damages associated with legal disputes. All of these require attention to detail and a diverse set of skills including mathematical, technological, legal and investigative. But the accounting landscape and client needs are constantly changing. Here’s how the profession has adapted to digitization in the 21st century and how it’s applying the latest technological solutions.

Embracing the digital revolution

Technology has radically changed how forensic accountants do their jobs. Businesses used to be awash in paper. Today, most companies run on a digital backbone and discourage employees from printing to save money and reduce environmental damage. Consequently, forensic accountants must be able to gather, analyze and make sense of vast amounts of electronic data.

In addition to processing company data to, for example, calculate financial ratios, build spreadsheets and determine legal damages, many experts routinely attempt to recover data that perpetrators have deliberately deleted. During an investigation, a forensic accountant might:

• Search for and piece together deleted files,
• Analyze suspicious user activity on company servers,
• Identify relevant electronic files within a company’s network, and
• View suspected perpetrators’ social media accounts.

Newer developments, such as cloud-based storage solutions and a shift from working in offices to working remotely, mean that forensic accountants now must look outside the traditional confines of a company’s IT perimeter.

Glimpse of the future

As for the future, artificial intelligence (AI) increasingly looks like it will play a significant role. Most forensic accountants must harness vast amounts of electronic data to do their jobs. Expenses associated with a forensic investigation can quickly add up.

AI and machine learning enable forensic accountants to continue to deliver cost-effective services. These tools allow experts to analyze large data sets faster and can even “make decisions” such as determine what constitutes a suspicious invoice and flag those records. Or AI might review a set of contracts, seeking certain words or features that suggest higher risk. In general, the more records an AI system reviews over time, the more it “learns” and the higher its accuracy rate.

Other tools

Other technologies predicted to play a greater role in forensic accounting in the future include predictive analytics, blockchain, robotics and bots. But whatever tools forensic accountants use, the underlying issues — fraud and legal disputes — remain basically the same. If you or your business is grappling with these issues, contact us.

© 2020

Business value is a function of risk and return. This is why, when appraising companies, valuation experts are always on the lookout for fraud risks. Although valuations typically aren’t designed to unearth dishonest behavior, experts may expand the scope of their engagement if they spot something suspicious — particularly if they believe financial statements are inaccurate.

Possible risks 

A valuator’s fraud risk assessment starts with the subject company’s internal controls. When interviewing management, experts ask about the business’s policies and procedures to protect assets, improve operating efficiency and ensure reliable financial statements. For example, they look for risk-reducing controls such as:

• Physical and digital controls (for example, locks, passwords, cameras and security systems), 
• Fraud training programs, 
• Job descriptions that call for segregation of duties and job rotation, 
• Mandatory vacation policies, 
• Background checks, and 
• Whistleblower hotlines.

Factors that increase risk include management overrides of internal controls and a lack of regular audits by outside auditors. Certain industries also tend to be more susceptible to fraud than others. Banking and financial services, government and public administration, and manufacturing are more likely to be defrauded according to the Association of Certified Fraud Examiners. What’s more, certain types of valuation engagements — such as shareholder disputes and divorces — can provide a motive to hide assets and downplay income.

When it takes a team 

Because business valuation experts rely on financial statements to estimate value, those statements need to be accurate. What if the valuator suspects fraud, based on a preliminary assessment of financial statements? For example, there may be a discrepancy between revenue growth and changes in key assets (such as receivables or inventory) or sudden changes in gross margin.

Some professionals are cross-trained in both valuation and forensic accounting. Others work at large firms that provide both types of services and they may ask clients to expand the scope of their engagements to include forensic accounting services. Sole practitioners without forensic accounting training may refer a company to a separate forensic accounting specialist. This expert can help make the requisite adjustments to accurately value the business — and build a fraud case, if necessary. The valuation expert and forensic specialist will work together to estimate economic damages resulting from fraudulent activity.

Essential component of value

Fraud can strike any business, large or small — which is why valuation experts are alert for signs of criminal activity. If you suspect fraud is affecting your financial statements or harming your company’s value, contact us.

© 2020

The coronavirus (COVID-19) pandemic may pose a double whammy for seniors. The elderly are considered the most vulnerable population for medical complications associated with the virus. They’re also prime targets for COVID-19 scams. If you’re a senior — or have elderly relatives and friends — read and share the following information.

Everyone a potential victim

There’s nothing new about fraud perpetrators attacking seniors, who may be less savvy about phishing emails and online scams and more trusting of strangers. As a study conducted by the FINRA Investor Education Foundation and several other groups found, a major risk factor for losing money to scams is social or physical isolation, which is more common among the elderly.

Of course, during the current crisis, everyone’s a potential fraud victim. As with all consumers, seniors should watch out for:

• Emails promoting vaccines and cures that contain malware-laced attachments,
• Fake charities soliciting donations,
• Scams that promise high returns for investing in COVID-19-related stocks, and
• Requests for personal information or a fee to receive an economic impact payment from the federal government.

Senior benefit scams

Some scams are tailor-made for older Americans. For example, the nonprofit Senior Medicare Patrol warns that perpetrators are contacting Medicare recipients and offered sham COVID-19 tests and treatments in exchange for Medicare numbers or money. It’s important to remember that actual government agencies will never call and ask for personal or payment information. As Medicare.gov instructs, “if someone calls asking for your Medicare Number, hang up!”

With local Social Security Administration (SSA) offices temporarily closed, scammers are also trying their luck with benefit payment recipients. The SSA states emphatically that, “any communication that says SSA will suspend or decrease your benefits due to COVID-19 is a scam, whether you receive it by letter, text, email, or phone call.” You can report suspicious contacts at oig.ssa.gov.

Other threats

Fraud perpetrators have also updated several old frauds for the COVID-19 age — including the classic “grandchild” scam. You could receive a phone call claiming that a grandchild is sick or in trouble and needs your help. Fraudsters usually ask for payment via a gift card and instruct you to act fast. Gather facts from the caller, then hang up and verify the information with other relatives. Chances are, your grandchild is just fine.

Also be wary of anyone using the virus to pitch home services. If someone offers to clean and sanitize your home, check the business’s reputation online or with the Better Business Bureau and make sure you don’t pay the service provider until the job is complete. As an extra precaution, you might invite a friend or relative to be with you when cleaners are in your home.

Reporting crime

This is an anxious time for everyone, but elderly Americans need to be on guard even more than other segments of the population right now. If someone attempts to scam you or a family member, contact law enforcement and, if applicable, the proper government agency. Reporting these crimes is essential to stemming senior-targeted fraud.

© 2020

As governments around the globe mobilize to defend their populations from the novel coronavirus (COVID-19), criminals are also mobilizing — to fleece people. These opportunists have already found ways to use the fear and chaos associated with the pandemic to enrich themselves. But you can protect yourself and your business.

Ripe opportunity

Phishing emails that promise valuable information about the virus have been circulating for weeks. Fake COVID-19 websites loaded with malware have also popped up everywhere. And as many Americans start working from home, often on vulnerable home networks and devices that lack the latest security updates, hacking incidents are becoming more common.

The federal government’s plan to send checks to Americans to help boost the economy will almost certainly bring scammers out in force. The Federal Trade Commission has already warned that crooks may try to convince people they must pay a fee to receive their checks from the government — which isn’t true.

Best practices

So how do you protect yourself or your business in these troubled times? Here are a few essentials:

Let phone calls go to voicemail. The best way to fight off phone scammers is to not answer the phone if you don’t recognize the number. But if you do answer, be wary of anyone making promises about, for example, interest-free loans or mortgage payment forbearance. If you need financial help, contact government agencies, charities and financial-service providers directly. 

Keep your inbox clean. Along the same lines, exercise caution when opening emails, particularly if you don’t recognize the sender’s name. (Keep in mind, however, that hackers can hijack a friend’s account and send malicious emails to you in that person’s name.) Right now, scammers are likely to use enticing subject lines such as “Cure for COVID-19” or “Make big $$$ working from home.” If you open one of these emails by mistake, don’t click on any links or attachments. 

Beware of charity fraud. Charity schemes are a time-tested method for stealing money from generous individuals and companies that just want to help. While you’re encouraged to donate money to organizations fighting COVID-19 and assisting its victims, give only to reputable charities you know. If you aren’t familiar with a nonprofit, ask for its tax ID number and verify it with the IRS. You’re also encouraged to research the organization on watchdog sites such as Charitynavigator.org and Charitywatch.org. 

Just say “no”

Most Americans are pulling together to fight COVID-19. However, some criminals view the pandemic as an opportunity to profit, so you need to maintain healthy skepticism. If you’re suspicious, hang up, delete or just say “no.”

© 2020