Posts Tagged ‘valuation and litigation services’

Reporting the Red Flags of Fraud

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

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

Valuation Analyst Credentials

Amber HooverBy Amber Hoover, CPA/ABV
Senior Analyst, Valuation and Litigation Services 

When you need a valuation of a business, the first step is also the most important: hiring an expert.

Using an in-house accountant or relying on the do-it-yourself method can often make an uncertain situation into an even worse one. It’s important to find someone who has experience and knowledge in valuation so you can arrive at a result that is not only fair, but legally justified.

The Internal Revenue Service (IRS) and the U.S. legal system both have guidelines for what constitutes a “qualified” valuation expert. These guidelines describe the experience, training and continuing education necessary to earn this designation.

There are a number of credentials available that denote valuation expertise, which have undergone some changes in recent years. These include:

Organization Certification Membership
American Institute of Certified Public Accountants (AICPA) Accredited in Business Valuation (ABV) Certified Public Accountants (CPA)s
American Society of Appraisers (ASA) Accredited Senior Appraiser (ASA)

Accredited Member (AM)

CPAs and Non-CPAs
National Association of Certified Valuators and Analysts (NACVA) Certified Valuation Analyst (CVA)

Accredited in Business Appraisal Review (ABAR)

CPAs and Other Credential Holders
Institute of Business Appraisers (IBA) Certified Business Appraiser (CBA)

Master Certified Business Appraiser (MCBA)


*Credential holders must comply with the same recertification requirements as NACVA’s credential holders.

In 2008 the NACVA acquired the assets of the Institute of Business Appraisers, but that organization was subsequently dissolved. The CBA and MCBA credentials are no longer available to obtain, but current holders of these credentials must still comply with NACVA’s recertification requirements.

Valuation analysists who have been credentialed through these organizations have been through training that provides the knowledge and skills needed for valuing a business and the required standards to follow. Continuing education requirements allow members to keep current on trends and issues in the valuation world.

When you’re considering an engagement with a valuation analyst, don’t be afraid to inquire about their credentials and experience with various types of businesses. An analyst who has expertise in one particular type of valuation may not necessarily be the person best suited for your needs.

If you are unsure what type of valuation expertise you require, please call Amber Hoover at (317) 613-7844 or email

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

Treasury Pulling Back from Limiting Valuation Discounts

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

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

Where Is the Employment Market Headed?

Amber HooverBy Amber Hoover, CPA/ABV
Senior Analyst, Valuation and Litigation Services

Want to know where the employment market is heading? Know a new or upcoming college graduate and want to give them some useful career advice for now and down the road?

IBISWorld, a global business intelligence leader specializing in industry market research and procurement and purchasing research reports, has assembled a list of industries showing strong employment growth in 2017. And they also have put together a rundown of the top five distressed industries.

Below are the industries that IBIS has identified with the greatest capacity to hire the largest share of new college graduates:

Industry 2017 Employment Growth Rate 2017

Wage growth rate

College Majors 2017 average industry wage
Internet Publishing & Broadcasting 10.3% 10.9% Computer Engineering, Computer Science, Communications $82,069
Geophysical Services 7.7% 9.4% Geology, Environmental Engineering $58,569
Elderly & Disabled Services 7.3% 5.9% Nursing, Hospitality $19,338
Financial Planning & Advice 6.0% 6.9% Accounting, Financial Mathematics, Economics $82,180
Language Instruction 6.0% 6.7% Humanities, Communications, Education $18,804

IBISWorld has listed the following industries as distressed, measured by the quickest expected industry value added (IVA),which measures the industry’s contribution to the U.S. economy, curated using IBISWorld’s proprietary database, declines between 2012 and 2017.

DVD, Game and Video Rental

  • Projected annualized IVA decline: (15.8%)
  • Attributing factor: increase reliance on digital outlets such as Netflix, Hulu, Amazon and Comcast.

Gold & Silver Ore Mining

  • Projected annualized IVA decline: (16.5%)
  • Attributing factor: financial markets have rebounded over the past five years; therefore, investors have decreased their need to buy assets such as gold and silver.

Cotton Farming

  • Projected annualized IVA decline: (12.5%)
  • Attributing factors: unfavorable exchange rates and overseas competition.

Camera Stores

  • Projected annualized IVA decline: (7.9%)
  • Attributing factor: competition from online retailers, department stores and consumer electronic stores.

Database & Directory Publishing

  • Projected annualized IVA decline: (10%)
  • Attributing factor: competition from online search engines such as Google.

If you have any questions, please call Amber Hoover at (317) 613-7844 or email

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