Posts Tagged ‘Jason Thompson’

Reporting the Red Flags of Fraud

By Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner and Director of Valuation and Litigation Services
jthompson@sponselcpagroup.com

Occupational fraud continues to be an all-too-common threat across a wide spectrum of industries. Perpetrators range from entry-level employees to C-suite executives. Small businesses with under 100 employees are particularly vulnerable to fraud, experiencing a median loss of $200,000. This is one of the many insights presented in the 2018 Report to the Nations from the Association of Certified Fraud Examiners (ACFE).

Among other things, this report identifies the employees and departments that pose the greatest threat to organizations when it comes to occupational fraud.

According to this study, fraud is most often committed by perpetrators who fall within the following demographics. Keep in mind that these demographics are not indicative of employees who will definitely commit occupational fraud; they are merely common demographics among occupational fraud perpetrators.

Gender — In the United States, men accounted for 58% of all occupational fraud cases. Even when taking authority level into consideration, men still tend to cause larger losses than women in managerial and owner/executive positions.

Age — According to the study, the largest median losses were caused by fraudsters aged 56 and older.

Education — Approximately 60% of perpetrators have a college degree or higher.

Position of perpetrator — Occupational fraud is committed most frequently by low-level personnel, but fraud committed by managers/executives results in much higher median losses.
o Employee — 44% of cases; median loss of $50,000
o Manager — 34% of cases; median loss of $150,000
o Owner/Executive — 19% of cases; median loss of $850,000
o Other — 3% of cases; median loss of $189,000

Perpetrator’s tenure with the business — Fraud losses significantly increase based on how long the fraudster worked for the company.
o Less than 1 year — 9% of cases; median loss of $40,000
o 1-5 years — 44% of cases; median loss of $100,000
o 6-10 years — 23% of cases; median loss of $173,000
o More than 10 years — 24% of cases; median loss of $241,000

Department within organization — Employees in the accounting department generated the highest number of occupational fraud cases, followed closely by operations and executive/upper management.

Prior criminal background or negative employment history — Most occupational fraudsters are first-time offenders. ACFE’s 2018 study found that only 4% of fraud perpetrators had previously been convicted of a fraud-related offense.

Fraud losses tend to be much lower in organizations with telephone hotlines or some other kind of anonymous reporting mechanism. Random audits and forensic data monitoring also rank among the most effective tools for detecting occupational fraud.

If you are concerned about occupational fraud in your organization, please call Jason Thompson at (317) 608-6693 or email jthompson@sponselcpagroup.com.

What Can Business Owners Learn from the Electoral Process?

By Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner and Director of Valuation and Litigation Services
jthompson@sponselcpagroup.com

Last Tuesday, voters cast their ballots in a round of primary elections for federal, state and local offices. In the business world, people vote every day, selecting products and services based on how effectively companies tailor their campaign to customers.

If you want to breathe new life into your business, put on your campaign hat and start running it like a political race! Here are some things to consider and ways to win your customers’ vote!

Build a campaign staff. Surround yourself with people who will represent your company in the best possible light. Just as politicians need fans waving signs of support, business owners need a team of folks who firmly believe in their company, spreading the good word about how it can benefit customers.

Keep your campaign promises. Business owners are like politicians in the sense that they set high expectations and build a buzz around themselves. They present a grand vision for the public to rally behind. Once you’ve won over your audience and gained their support, don’t lose sight of that vision. Always remember what you’ve promised and evaluate whether you’re living up to the portrait you’ve painted of your company.

Learn from your opponents. Think of your competitors as fellow candidates in the race and see what you can do to distinguish yourself from them. Do you need to change your brand image, your messaging, the way you interact with customers? What is the public’s perception of your company at the moment? Is it time to improve your reputation? These are just a few of the questions that should be rattling around in your head as you hike up the campaign trail.

When you go into work every morning, your first thought should always be: How many votes am I going to win today? In your world, every day is Election Day!

If you have questions about the value of a business or the valuation process, please call Jason Thompson at (317) 608-6693 or email jthompson@sponselcpagroup.com.

What Factors Should Valuation Analysts Consider When Valuing A Business?

Jason ThompsonBy Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner and Director of Valuation and Litigation Services

When performing a business valuation, a valuation analyst reviews numerous factors that may impact the resulting value. While the specific factors considered may vary from business valuation to business valuation, Internal Revenue Service (IRS) Revenue Ruling 59-60 identifies certain factors the IRS considers fundamental to analyze when valuing a closely held corporation’s stock.

IRS Revenue Ruling 59-60 was developed to provide guidance for valuing a closely held corporation’s stock, when market quotations are not available, for estate and gift tax purposes. Because this guidance comes from the IRS, it is considered by most valuation analysts as a relevant guidance when performing any valuation engagement.

The following is a discussion of the “Factors to Consider” identified in IRS Revenue Ruling 59-60:

  • The nature of the business and the history of the enterprise from its inception – This factor deals with issues like stability or instability, growth or lack of growth, the diversity or lack of diversity of operations, and other facts needed to form an opinion of the degree of risk involved inside the business.
  • The economic outlook in general and the condition and outlook of the specific industry in particular – This factor considers the current and prospective economic conditions as of the date of the valuation, both in the national economy and in the industry or industries the business operates within. These factors are issues outside the business that impact risk.
  • The book value of the stock and the financial condition of the business – This factor addresses issues like liquidity, reported values of assets, liabilities, working capital and debt, capital structure and net worth. These factors are helpful in identifying financial risk for the business.
  • The earning capacity of the company – This factor deals with financial performance and the use of trends in financial performance as predictors for future financial performance. This is another mechanism for identifying the financial risks of the business.
  • The dividend-paying capacity – This factor, which differs from the previous factor, addresses the amount of funds flowing through the business to owners and the amount of funds that could reasonably flow through to owners without jeopardizing the financial stability of the business.
  • Whether or not the enterprise has goodwill or other intangible value – This factor deals with whether the business has value beyond that of its tangible assets. In many cases, the existence of “excess” net earnings over and above a fair return on the business’ tangible assets is an indication of goodwill or intangible value. In certain situations, the identification of goodwill or intangible value is needed as part of the business valuation.
  • Sales of stock and the size of the block of stock to be valued – This factor and the next both address the consideration of known transaction data. In this case, the transaction data is other sales of the subject closely held corporation’s stock. While this information may exist, careful consideration of the terms and the block/position previously transacted is necessary before applying this data in a current business valuation.
  • The market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter – This factor directs a valuation analyst to consider published transaction data for other companies when valuing a closely held corporation. We refer to this as a Market Approach. The market approach is based on the theory of substitution, meaning that the known value of a business’ stock can serve as a benchmark indicator of value for the subject closely held corporation’s stock.

At Sponsel CPA Group, our team of valuation experts is well versed in not only the factors to consider from IRS Revenue Ruling 59-60, but also many of the other factors that influence the value of a business.

If you have questions about the value of a business or the valuation process, please call Jason Thompson at (317) 608-6694 or email jthompson@sponselcpagroup.com.

Treasury Pulling Back from Limiting Valuation Discounts

Jason ThompsonBy Jason Thompson, CPA/ABV, ASA, CFE, CFF
Partner, Director of Valuation and Litigation Services
jthompson@sponselcpagroup.com

Earlier this month the U.S. Treasury announced its plans to withdraw its newly proposed regulations under Section 2704 related to limiting valuation discounts. The move came after intense pushback from valuation experts, the estate planning community and family business owners.

The move is good news for owners of closely held businesses who plan to eventually pass the company on to the next generation.

Commenters on the proposed regulation claimed Section 2704 would have hurt family-owned and operated businesses by making it difficult and costly to transfer companies to the next generation. Critics also claimed the valuation requirements of the proposed regulations were unclear and could not be meaningfully applied.

Treasury Secretary Steven T. Mnuchin made the announcement as part of the Trump administration’s ongoing effort to reduce the burden of tax regulations. Its comprehensive review has already identified over 200 regulations that Treasury believes should be repealed, which will begin in the fourth quarter of 2017, according to a statement from the Treasury.

“This is only the beginning of our efforts to reduce the burden of tax regulations,” Mnuchin said. “Our tax code has been broken for too long, and this retrospective review, along with our efforts on tax reform, will ensure that we have a tax system that fosters economic growth.”

If you have questions about transitioning your closely held business to the next generation, please contact Jason Thompson at (317) 608-6694 or email jthompson@sponselcpagroup.com.

Employee Spotlight: Jason Thompson

Jason ThompsonAs one of the founding Partners of Sponsel CPA Group, Jason Thompson has led the firm’s Valuation and Litigation Services department since inception, helping clients find innovative solutions to challenging financial and legal issues. He provides executive-level counsel to business owners and investors across a broad range of industries, specializing in the valuation of privately held businesses, ownership interests and intangible assets.

A graduate of Indiana University with a bachelor’s degree in accounting, Jason places a strong emphasis on continuing education and expanding his areas of expertise. In addition to being a CPA for over two decades, he holds certifications as an Accredited Senior Appraiser (ASA), Certified Fraud Examiner (CFE), Financial Forensics (CFF) and Accredited in Business Valuation (ABV). Jason routinely provides consultation related to business valuation in mergers and acquisitions, in estate and gift tax compliance and planning and for an array of litigation related reasons. In addition to his skills as a valuation professional, he also performs the firm’s fraud and forensic accounting investigations and serves as an expert witness from time to time in accounting and financial related matters.

In 2008 he was named a Super CPA award by Indiana Business magazine. Active in the community, Jason volunteers his time as a board member for Noble of Indiana, a not-for-profit organization serving people with disabilities and their families.

Popular Tags