By Jordan Kraner, Navigant
Have any of your clients ever expressed concern regarding a potential financial problem? The possibilities are endless, but perhaps some of the following examples seem familiar. One client is consistently selling product and exceeding budget, but something seems off because they are not earning a profit. Another client thinks there are suspicious transactions in the financial records, but does not know how to confirm that suspicion. A family dispute client in a contentious matter thinks his or her spouse is hiding assets and diverting funds. An insurance client questions the validity of a claim that was filed. A client needs to conduct due diligence on a potential business deal to verify assets.
Do you know how to handle your client’s concern and advocate what’s best for him or her? Do you know what types of financial inquiries to make? Do you know what documents to request? Do you know where to look in the financial records to investigate? Just getting started can be a challenge.
Enter the forensic accountant.
Forensic accountants utilize a variety of specialized skills, including auditing, accounting and investigative skills. A forensic accountant is different from a traditional accountant, such as a tax preparer or bookkeeper. In fact, there are specific certifications for forensic accountants. The American Institute of Certified Public Accountants (AICPA) offers a certificate referred to as Certified in Financial Forensics (CFF). The Association of Certified Fraud Examiners also offers a designation called the Certified Fraud Examiner (CFE). In addition to testing, the certifications require the forensic accountant to obtain annual continuing professional education credits.
It is important for counsel to engage a forensic accountant early in the investigation process in order to preserve the attorney-client privilege of work product. Although there are instances where corporations directly engage forensic accountants, it is highly recommended that outside counsel be involved in the process. For example, if an executive officer is the subject of an investigation, the company would not want that individual leading the investigation.
Detailed below are some reasons to engage a forensic accountant.
Forensic accountants are specifically trained and have experience in applying specialized knowledge and investigative skills in collecting, analyzing and evaluating evidential matter. They are trained and experienced in conducting interviews with counsel or preparing counsel for interviews. They are also experienced in determining the types of documents to request and preserve and are integral in assisting counsel in making those determinations. For example, in a matter where a business partner or spouse has allegedly diverted funds, forensic accountants would advise counsel to obtain bank statements and ledger activity to perform a flow of funds analysis. After evaluating the evidence, the forensic accountant would be able to assess the alleged fraudulent activity and/or advise counsel of the appropriate next steps.
Independent and Credible
Forensic accountants are independent of the parties involved in the investigation. Being independent can yield a higher degree of results because employees tend to be more comfortable discussing sensitive investigative matters with someone removed from the company where they work. A forensic accountant provides credibility to interested parties, including the board of directors/audit committee and also in the court room. Independent investigations are considered a best practice. Furthermore, if a forensic accountant is engaged as an expert witness, independence is required.
Ability to Tell a Story
Forensic accountants are trained and experienced in interpreting, summarizing and communicating financial issues and findings in a clear and concise manner. It is important to ensure findings are properly supported and customized to the appropriate audience, which may include counsel, a trier of fact, board of directors, or regulators, amongst others. Forensic accountants help tell the story, which may be verbal, contained in a report, presented in a series of exhibits or a combination of different formats.
Litigation Experience and Resources
Forensic accountants are experienced in litigation matters, from discovery through trial, and may be engaged as consultants or testifying experts. In discovery, forensic accountants assist counsel in preparing information requests, by, for example, helping draft interrogatories. Additionally, forensic accountants can assist with reviewing document productions such as emails. Forensic accountants can develop appropriate financial search terms and other electronic review techniques that narrow the focus of the review to a particular subset of the population, allowing for a more efficient review.
Forensic accountants can assist counsel with case strategy and trial preparation. Furthermore, they review opposing expert reports, prepare counsel for depositions and trial examinations and help create trial exhibits. If engaged as an expert witness, forensic accountants testify in depositions and/or trial.
In conclusion, engaging forensic accountants can help lead to a more efficient and effective case strategy. They are useful in conducting both investigations and in litigation matters (e.g., expert witness testimony or consultant). Examples of engagements that utilize forensic accountants include fraud investigations, calculation of economic losses, ownership disputes, data incidents, criminal investigations, professional malpractice, business interruption/insurance claims, personal injury claims and marital disputes, amongst others.
Jordan Kraner leads Navigant’s Disputes and Investigations practice in Indianapolis. He is a CPA/CFF and CFE and is often engaged in litigation and investigative matters. Navigant is a proud sponsor of the Indianapolis Bar Association.