Forensic Accounting

The integration of accounting, auditing and investigative skills yields the specialty known as Forensic Accounting.

“Forensic”, according to the Webster’s Dictionary means, “Belonging to, used in or suitable to courts of judicature or to public discussion and debate.”

“Forensic Accounting”, provides an accounting analysis that is suitable to the court which will form the basis for discussion, debate and ultimately dispute resolution.

Forensic Accounting encompasses both Litigation Support and Investigative Accounting.

As Forensic Accountants, we utilize accounting, auditing and investigative skills when conducting an investigation. Equally critical is our ability to respond immediately and to communicate financial information clearly and concisely in a courtroom setting.

Forensic Accountants are trained to look beyond the numbers and deal with the business reality of the situation.

The utilization of specialized investigative skills in carrying out an inquiry conducted in such a manner that the outcome will have application to a court of law. A Forensic Investigation may be grounded in accounting, medicine, engineering or some other discipline.

“Litigation Support”, provides assistance of an accounting nature in a matter involving existing or pending litigation. It deals primarily with issues related to the quantification of economic damages. A typical litigation support assignment would be calculating the economic loss resulting from a breach of contract.

“Investigative Accounting”, is often associated with investigations of criminal matters. A typical investigative accounting assignment would be an investigation of employee theft. Other examples include securities fraud, insurance fraud, employee embezzlement, kickbacks and proceeds of crime investigations.

A Forensic Accountant is often retained to analyze, interpret, summarize and present complex financial and business related issues in a manner which is both understandable and properly supported.

Forensic Accountants can be engaged in public practice or employed by insurance companies, banks, police forces, government agencies and other organizations.

A Forensic Accountant is often involved in the following:

• Investigating and analyzing financial evidence;
• Developing computerized applications to assist in the analysis and presentation of financial evidence;
• Communicating their findings in the form of reports, exhibits and collections of documents; and
• Assisting in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.

In order to properly perform these services a Forensic Accountant must be familiar with legal concepts and procedures. In addition, a Forensic Accountant must be able to identify substance over form when dealing with an issue.

A Forensic Accountant can be of assistance in various ways, including:

Investigative Accounting

• Review of the factual situation and provision of suggestions regarding possible courses of action.
• Assistance with the protection and recovery of assets.
• Co-ordination of other experts, including:
  • Private investigators;
  • Forensic document examiners;
  • Consulting engineers
• Assistance with the recovery of assets by way of civil action or criminal prosecution.

Litigation Support

• Assistance in obtaining documentation necessary to support or refute a claim.
• Review of the relevant documentation to form an initial assessment of the case and identify areas of loss.
• Assistance with Examination for Discovery including the formulation of questions to be asked regarding the financial evidence.
• Attendance at the Examination for Discovery to review the testimony, assist with understanding the financial issues and to formulate additional questions to be asked.
• Review of the opposing expert’s damages report and reporting on both the strengths and weaknesses of the positions taken.
• Assistance with settlement discussions and negotiations.
• Attendance at trial to hear the testimony of the opposing expert and to provide assistance with cross-examination.

Forensic Accountants become involved in a wide range of investigations, spanning many different industries. The practical and in-depth analysis that a Forensic Accountant will bring to a case helps uncover trends that bring to light the relevant issues.

Detailed below are various areas in which a Forensic Accountant will often become involved.

Criminal Investigations

Forensic investigations often relate to criminal investigations on behalf of police forces. For example, a Forensic Accountant may be retained by the City of Orlando Police Department, the Orange County Police Department, as well as by Federal or regional law enforcement agencies.

A Forensic Accountant’s report is prepared with the objective of presenting evidence in a professional and concise manner.

Shareholders’ and Partnership Disputes

These assignments often involve a detailed analysis of numerous years of accounting records to quantify the issues in dispute. For example, a common issue that often arises is the compensation and benefits received by each of the disputing shareholders or partners.

Personal Injury Claims / Motor Vehicle Accidents

A Forensic Accountant is often asked to quantify the economic losses resulting from a motor vehicle accident. A Forensic Accountant needs to be familiar with the legislation in place which pertains to motor vehicle accidents.

Cases of medical malpractice and wrongful dismissal often involve similar issues in calculating the resulting economic damages.

Business Interruption / Other Types of Insurance Claims

Insurance policies differ significantly as to their terms and conditions.   Accordingly, these assignments involve a detailed review of the policy to investigate coverage issues and the appropriate method of calculating the loss.

A Forensic Accountant is often asked to assist from either an insured or insurer’s perspective in the settlement of a case.

Examples of these types of assignments include; business interruptions, property losses and employee dishonesty (fidelity) claims.

Business/Employee Fraud Investigations

Business investigations can involve funds tracing, asset identification and recovery, forensic intelligence gathering and due diligence reviews.

Employee fraud investigations often involve procedures to determine the existence, nature and extent of fraud and may concern the identification of a perpetrator.   These investigations often entail interviews of personnel who had access to the funds and a detailed review of the documentary evidence.

Matrimonial Disputes

Matrimonial disputes from a Forensic Accounting point-of-view often involve the tracing, locating and evaluation of assets. The assets to be evaluated and valued may be businesses, property or other assets.

Business Economic Losses

Examples of assignments involving business economic losses include; contract disputes, construction claims, expropriations, product liability claims, trademark and patent infringements and losses stemming from a breach of a non-competition agreement.

Professional Negligence

These investigations are often approached from two different but complimentary perspectives, these being:

• Technical – has a breach of Generally Accepted Accounting Principles or Generally Accepted Auditing Standards or other standards of practice occurred; and
• Loss Quantification.

If the professional in question is an accountant then a Forensic Accountant could be involved with both perspectives.   If the matter involves some other profession a Forensic Accountant will normally be retained to perform only a loss quantification.

Mediation and Arbitration

Because of their familiarity and comfort with legal issues and procedures some Forensic Accountants have sought out special training and become involved in alternative dispute resolution (ADR).

ADR services include both mediation and arbitration and are designed to help individuals and businesses resolve disputes with minimal disruption and in a timely fashion.

Each forensic accounting assignment is unique. Accordingly, the actual approach adopted and the procedures performed will be specific to it. However, in general, many Forensic Accounting assignments will include the steps detailed below.

Meet with the client

It is helpful to meet with the client to obtain an understanding of the important facts, players and issues at hand.

Perform a conflict check

A conflict check should be carried out as soon as the relevant parties are established.

Perform an initial investigation

It is often useful to carry out a preliminary investigation prior to the development of a detailed plan of action. This will allow subsequent planning to be based upon a more complete understanding of the issues.

Develop an Action Plan

This plan will take into account the knowledge gained by meeting with the client and carrying out the initial investigation and will set out the objectives to be achieved and the methodology to be utilized to accomplish them.

Obtain the relevant evidence

Depending on the nature of the case this may involve locating documents, economic information, assets, a person or company, another expert or proof of the occurrence of an event.

Perform the analysis

The actual analysis performed will be dependent upon the nature of the assignment and may involve:

• Calculating economic damages;
• Summarizing a large number of transactions;
• Performing a tracing of assets;
• Performing present value calculations utilizing appropriate discount rates;
• Performing a regression or sensitivity analysis;
• Utilizing a computerized application such as a spread sheet, data base or computer model; and
• Utilizing charts and graphics to explain the analysis.

Prepare the report

Often a report will be prepared which may include sections on the nature of the assignment, scope of the investigation, approach utilized, limitations of scope and findings and/or opinions. The report will include schedules and graphics necessary to properly support and explain the findings.

Forensic Accountants are often retained by the following groups:

• Lawyers;
• Police Forces;
• Insurance Companies;
• Government Regulatory Bodies and Agencies;
• Banks;
• Courts; and
• Business Community.

The following issues should be considered on retaining a Forensic Accountant:

• The experience and qualifications of the Forensic Accountant;
• A Forensic Accountant should be retained as early as possible in order to obtain maximum benefit. The assistance that a Forensic Accountant can provide early in the process can be significant in reducing the overall cost and maximizing the benefit. If retained early, a Forensic Accountant can assist with the Examination for Discovery, identify additional areas of damages, assist with settlement negotiations and provide a preliminary assessment of the quantum of damages;
• If a Forensic Accountant is engaged as an expert witness then he or she should be given access to all of the relevant documentation. If restrictions are imposed upon the scope of the investigation there may be an impact upon the acceptance of the findings; and
• In situations where counsel is involved, the Forensic Accountant should be retained by counsel so that the privilege which exists between the client and counsel will be extended to the work product of the Forensic Accountant.

• Curiosity;
• Persistence;
• Detail-oriented;
• Creativity;
• Discretion;
• Skepticism;
• Organization;
• Confidence; and
• Sound professional judgment.

A Forensic Accountant must be open to consider all alternatives, scrutinize the fine details and at the same time see the big picture. In addition, a Forensic Accountant must be able to listen effectively and communicate clearly and concisely in a timely manner.