Tracy walks through the process of calculating a business interruption insurance claim, also called a business income loss. When a company is unable to operate for a period of time due to a covered loss (a fire, for example), its insurance policy may provide coverage that pays for lost profits while the business is closed. Tracy explains how to calculate net income plus continuing expenses in cases such as this.
Cases with high volumes of bank data, such as money laundering, high net worth divorce, securities fraud, Ponzi schemes, tax fraud, and white collar crime, present special challenges for forensic accountants. High volumes of financial data can be overwhelming. How do you manage the data? How do you ensure the integrity of the data? How do you get usable intelligence from the data? An attorney’s results in such a case will be directly related to how well the expert can put that data to work and make it mean something to the case.
Getting the Data
The process of discovery can be long and agonizing for everyone. There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data. It often takes several rounds of requests to get the information we seek.
Counsel has to be careful to ask for the right data in the right format. Not properly identifying the information we are seeking can lead to denials that the information exists. One of the goals in discovery is to be specific enough that we get targeted data, but general enough that we still get other important data we didn’t know existed.
A CPA who focuses on traditional tax work or auditing services might be a great fit to branch out into litigation support work. Attorneys are always looking for expert witnesses with certain areas of expertise, and accountants doing general work might fit the bill.
What is your focus? Do you specialize in a certain industry or work frequently with certain accounting and tax rules? Litigation work is often interesting, but you have to be able to explain your work to non-accountants and testify in depositions or at trial.
The video below offers Tracy Coenen’s commentary on this topic.
In the below video, Tracy Coenen talks about three common methods that are used to calculate lost profits in commercial litigation: the before and after approach, the yardstick approach, and hypothetical profits. In general, these methods are aimed at determining the profits a company would have realized if the incident giving rise to the litigation had not occurred.
There are a number of expert witness referral services out there, several of them with high profiles and long lists of available experts. It seems like a good value proposition: An attorney needs an expert in a particular specialty, and the expert witness service does the legwork to find qualified candidates.
However, having worked as a forensic accountant and an expert witness for twenty years, I will tell you that attorneys should NOT use these services. There are a few simple reasons why:
You can find your own expert: In the “old days,” it was a great idea to turn to expert witness referral services, who kept lists of available experts. There were not a lot of expert witness directories, and there wasn’t an internet you could consult. But today it is easy to find very qualified experts with the help of the internet. An attorney can have a paralegal or associate start the search process to find potential candidates, and then the attorney in charge of the case can interview experts and make a selection.
The expert witness referral service does not add value: What value does the expert witness referral service provide other than essentially keeping a list? Sure, they make some phone calls and send some emails to find out who is qualified and interested, but that service is of limited value. While expert witness referral services claim to vet the professionals they present to the attorneys, they often do little more than collect CVs and conduct brief phone interviews. This is not worth the money the services will charge if you hire one of their experts.
Tracy Coenen talks about the steps she takes when she starts a new expert witness case. What documents should you ask for? What should you evaluate first?
When completing a lifestyle analysis in a divorce or child support case, I am often asked whether my work is simply data entry. Why does a forensic accountant need to do the lifestyle analysis? Can’t anyone with a bit of accounting training do it?
As Tracy discusses in the video below, a lifestyle analysis is much more than a data entry exercise. There is a high level of quality control needed to ensure that all transactions are included in the analysis, and that none are duplicated. In larger cases, this gets complicated because of the high volume of data to manage. The divorce client needs an expert who can handle this volume of data AND maintain the integrity of the data.
More than ever, competent and dynamic expert witnesses are critical to winning legal cases. Even if a case doesn’t go to trial, a credible expert can be the key to settling the case for your client. I believe that an expert witness has the opportunity to make or break a case. We all know that there are few chances to fix a bad opinion when you go to court. There is one chance to express the correct opinion and support it fully. A faulty opinion, or one with little reliable support, can doom a case.
Some attorneys have their preferred experts, while others get referrals from colleagues. Each attorney works with an expert witness in the way that she or he is comfortable. However, it never hurts to hear about it from the other side. This is my perspective on best utilizing your expert witness to her or his full value.
Finding the Right Expert
The most critical part of working with an expert witness is finding the right one. Naturally, the selection of an expert involves the evaluation of education and credentials. The examination of an expert’s credentials is a particularly critical process.
There are credentials that are earned through a bona fide process, such as the CPA (Certified Public Accountant), CFF (Certified in Financial Forensics), CFE (Certified Fraud Examiner), and CVA (Certified Valuation Analyst). Then there are credentials that are meaningless because they are simply purchased, none of which are even worth mentioning. It is important to research which credentials truly enhance the credibility of the expert.
Forensic accountants and Certified Divorce Financial Analysts often use Quicken personal financial software to complete the lifestyle analysis in divorce cases. Unfortunately, Quicken is not the best option for accurately and thoroughly analyzing a couple’s finances before and during divorce.
Why is it used so often? For years, Quicken was one of the better options available for compiling and analyzing personal finances. Also, since a fair number of consumers use Quicken to manage their finances, divorcing spouses sometimes provide a Quicken file to the attorney, which may be used as a starting point for the lifestyle analysis. The drawback to this is that clients don’t always keep accurate records, and the Quicken file is often incomplete or just plain wrong.
Quicken software should not be confused with QuickBooks software, which is a software package used for small business accounting. QuickBooks can be used effectively in divorce financial analysis, while Quicken is much more limited and does not produce as good a result in terms of accuracy or usability. Note, however, that even QuickBooks may not be the best option for litigation purposes.