February 04, 2019

Forensic Accountants: CPAs As Investigators And Expert Witnesses

David K. Golbahar, CPA/CFF, CGMA

David K. Golbahar, CPA/CFF, CGMA
Director/Brandlin and Associates

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People associate forensics with crime scene investigation shows, but this is not the case with accountants. In the financial world, forensic accountants investigate matters, but not in a laboratory or bloody crime scene. Rather, forensic accountants are specialists across different fields of accounting and law. They use a blend of education and investigative experience to discover facts, investigate complex financial issues, and prepare reliable analysis that can ultimately be used in trials or mediations. Forensic accountants are hired by attorneys, company executives, insurers, and families. The work performed includes investigative accounting, calculation of economic damages, and preparing business valuations. Many serve as experts to courts and as an independent party during depositions, mediation, and trials.

There is a wide variety of situations where a forensic accountant would be useful. Each party in litigation can use accountants, or they may jointly elect one for both parties as an independent expert.

Partnership/Shareholder Disputes: Most commonly, distributions are analyzed, but in certain situations, tracing and quantifying compensation and benefits to the parties. Forensic accountants may step in to provide a clear view of a company’s finances in a dispute.

Commercial Damages: Forensic accountants are involved with complex commercial litigation matters in different matters including: fraud, breach of contract, product liability, wrongful competition, intellectual property infringement, royalty disputes, and construction claims.

Commercial Insurance Claims: When a disaster or other incident arises where an accounting is necessary for insurance purposes, forensic accountants assist adjusters and the insured in preparing figures for a claim. Some claims that require analysis include business interruption, property losses, employee fraud/dishonesty claims.

Fraud Investigations: Forensic accountants assist investigations for crimes around white-collar crime. This work includes tracing funds, asset identification, and document review. Accountants work with both attorneys and law enforcement to investigate suspected fraud, misrepresentation, and money laundering. Internal controls can also be investigated and implemented by forensic accountants.

Complex Personal Injury Issues: Experts in these types of cases assist with complex damage claims resulting from a loss of earnings or household services. Other cases include wrongful death, wrongful termination and malpractice.

Family Law: During divorces, forensic accountants are called on to assist with preparing income and expense declarations, asset division, and business valuations.

When hiring, timing is everything for forensic investigators. Generally, earlier is better. Document gathering and organization can be time consuming. Forensic accountants can help save time and resources by identifying areas for discovery and documents for review. In court cases, each state and the federal government have procedural rules for appointing experts. Engaging a forensic accountant early is more beneficial for discovery, procedural matters, and overall analysis.

In matrimonial cases, attorneys or a spouse may hire a forensic accountant to assist with preparing required court documents, such as an income and expense declaration. Their involvement and examination can lead to a more equitable settlement and uncover potential hidden assets or misconduct.

In situations where resources are tight, there are ways to save before hiring an expert or a litigation support specialist. For forensic accountants, organization is extremely important. Hours and days may be spent organizing records and documents before they are analyzed. Indexes, folders, and other sorting methods save time and efforts for all parties involved. Organization upfront is critical. Authenticity of documents is also important aspect of investigations. Modified documents and mismatching records/figures lead to additional time and resources spent to tie and match them.

Each case and matter require different types of forensic experts. Be sure to inquire about the areas of expertise of the forensic accountant you engage. Certifications may help identify areas of additional expertise, such as Certified in Financial Forensics (CFF) or Certified Fraud Examiner (CFE). Always select an expert with strong foundational accounting, analysis, and communication skills. The analysis and determinations of a forensic accountant are important, but as experts in court, they must be also able to communicate and present their findings to a jury, judge, or other parties.

Costs vary per each type of engagement, case, or investigation. Forensic Accountants are required to stay independent and exercise a duty of care in their work. As such, payments generally cannot be attributed to the results of their work, like attorneys working on a contingency basis. Fees typically include a retainer to begin work, and then hourly billing, like most attorneys. Hourly rates vary based on experience, area of law, and region of the case. Because forensic accounting is a complex field, hire professionals that are dynamic and possess the right qualifications. Hiring a quality forensic accountant will make the difference.

Each situation or case is different, but the most follow common steps. The general steps forensic accountants perform for engagements include:

  1. Gain an understanding of the facts, issues, and parties at hand.
  2. Perform a conflict check.
  3. Review initial documents and take a cursory look at the available information.
  4. Outline and develop an investigation or engagement plan, setting objectives and reviewing methodologies to be utilized in the plan.
  5. Obtain necessary documents/evidence for the case. Examples include bank statements, economic data, court filings, depositions, and other documents useful to determining facts and the flow of events.
  6. Carry out investigation or additional research. This includes tracing assets and interviewing parties.
  7. Prepare an analysis. Calculations may be performed, including sensitivity analyses, regressions, economic damages, or other agreed-upon assessment.
  8. Drafting a final report.

The use of forensic accountants early and throughout complicated issues adds value for attorneys and executives looking for insight and analysis in complicated matters. Trust your CPA!

Comments? You can contact me directly via my AdvisoryCloud profile.

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