Expert Witness Selection: Substance Over Form


Wisconsin Law JournalIn commercial litigation, many cases require some kind of expert. Whether it is a financial expert, an engineering expert, a fraud expert, a valuation expert, or some other type of expert witness, the process of selecting one cannot be taking lightly. The effectiveness of your expert witness could win or lose a case for you, so it is important to carefully consider what makes a good expert witness.

Qualifications and Credentials
One of the first steps in evaluating your expert is looking at the education and credentials of the person. The potential expert needs substance in this area to have a reasonable chance of standing up to any challenges by opposing counsel.

In addition to college degrees, you should look at the licenses and professional certificates held by the expert witness. What are the most important certificates in this person’s field? Does this person have them? Are the certificates held by the expert actually worthwhile?

Look first for the most respected credentials in a person’s field. For example, in the area of forensic accounting, it is important to look for someone with a Certified Public Accountant license. A professional without a CPA license may be perfectly qualified to testify in your case. However, the CPA license carries a lot of weight when qualifying an expert, so it certainly provides a significant advantage.

These days, it’s not uncommon for organizations to exist simply to generate revenue. They may offer a “certificate,” but a close examination could reveal that it’s nothing more than a “credential” that someone can purchase. It is important to look at how a certificate or credential is conferred, and confirm that the expert indeed has demonstrated some level of skill and has earned it.

In the fields of fraud and forensic accounting, Certified in Financial Forensics (CFF), Certified Fraud Examiner (CFE), and Certified Valuation Analyst (CVA) are the gold standard for certifications, and have strict requirements for obtaining the credentials. These are obviously very valuable to your case.

On the other hand, there are certificates one can purchase if she or he already holds the designation of CFF, CFE, or CVA. (And I’m sure the same is true in other professions).

The expert who has already earned one of the “qualifying” designations gets no benefit from purchasing another certificate, and neither does your case.

Sometimes less is more when it comes to credentials. Don’t assume that someone with eight sets of letters after her or his name is indeed qualified to be your expert witness. Instead, look at the most highly respected credentials in the field, and confirm that your expert has one or more of those. The quality of the credential is much more important than the quantity of credentials.

Real World Experience
Next, it is important to look at a potential expert’s work experience and case history. The person should have significant experience in the field in which she or he will testify. Be careful when selecting a “firm” for your engagement. Who will be working on the case? If you select a firm, rather than an individual, you run the risk of having the work done by someone with little or no experience in the field. There is a risk that goes along with inexperienced staff, and you need to be aware of this when selecting an expert.

Someone with good technical qualifications isn’t necessarily the most effective expert in a courtroom. That is why you should look at the testimony history of the individual, and ensure that she or he has significant deposition and trial experience.

Some witnesses offer expertise in particular industries, while others may have no industry specialty, but possess subject-matter expertise. For example, a fraud investigator may focus his work in the hotel industry. Depending on your case, this depth of knowledge of hotel operations may be critical. In other cases however, the industry may not matter much, but profound knowledge of fraud schemes will be essential.

Experience in litigation should be a requirement when selecting your expert. It is important to have someone who is familiar with the litigation process and can anticipate the work that will need to be done. An experienced expert witness can advise you on potential pitfalls in your case, as well as areas of weakness that could be attacked in depositions and at trial.

Where to Find Your Expert
There is nothing like a referral from a trusted colleague. Another lawyer who has worked with an expert can tell you about her or his analytical skills, communication style, integrity, adherence to deadlines, and effectiveness on the witness stand.

Selecting your expert based on an advertisement brings with it more risk. Everyone puts their best foot forward in advertisements, so there is no way to gauge how good the expert really is. An expert who writes articles for trade publications or websites offers the attorney a chance to preview her or his expertise. Based on the expert’s writings, you can probably make a fair assessment of how knowledgeable she or he is, and this is a good first step in selecting an expert.

Regardless of how you find your expert, take the time to talk with her or him in person or on the phone. Ask questions about prior litigation experience, potential approaches to your project, and possible strategies for winning your case. Request a current curriculum vitae, a list of publications written by the expert, and a history of testimony.

Carefully evaluate these things, and follow your gut instinct about the expert’s reliability and capabilities.

Tracy L. Coenen, CPA, CFF, is the president of Sequence Inc., a forensic accounting firm with offices in Milwaukee and Chicago. She can be reached [email protected].

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Looking Behind the Numbers in Litigation


Written by Tracy L. Coenen, CPA, CFF

Nearly every lawsuit has a financial component to it. In many cases, the issues surrounding the numbers have high stakes. Cases involving securities fraud, money laundering, tax fraud, investment fraud, and Ponzi schemes rely on an accurate tabulation and evaluation of the numbers. To take the numbers as provided by the other side at face value, however, would be a huge mistake.

In fact, there is almost always a story behind the numbers. A case may very well be won or lost based on the ability to find out the story, which is often hidden from view. How, then, can a party best get to the truth? Continue reading

Protecting the Work Product of an Expert Witness


Written by Tracy L. Coenen, CPA, CFF

Wisconsin Law Journal

One often overlooked key to successfully working with an expert witness is the protection of privilege and work product. Until the expert is actually disclosed to the other side, it’s in the best interest of the client to make sure that the expert’s work is protected.

While no airtight accountant-client privilege exists, it is still possible to protect communications when an accountant (or other expert) is working with an attorney on a litigation matter. Continue reading

Defending Tax Fraud Cases – Expert Financial Analysis Required


Written by Tracy L. Coenen, CPA, CFF

White collar government investigations almost always have one thing in common: They rely heavily on an analysis of financial information. This often includes going through banking documents with a fine tooth comb, and can also involve scrutinizing accounting records.

While the task of accumulating this data and examining it seems basic, there is much work involved, and expertise in financial and accounting crimes is necessary to fully understand the issues and the potential criminal or civil charges that the government brings against the company or individual. To properly defend such a case, it is necessary to have a financial investigator involved to help filter the data and the issues the government will raise. Continue reading

Expert Testimony for Non-Accountants


Testifying is the pinnacle of an expert witness’s work in a case. It may well be the most important part of the expert’s work, as the assistance of a competent financial expert is the key to cases involving economic damages and other financial calculations.

An expert must do much more than just analyze facts and calculate figures. Traditional accounting and finance skills are not enough when it comes to litigation matters. A financial expert witness must qualify as an expert in court, and must be able to convey her or his findings to non-accountants in both the written and oral formats. Continue reading

The Devil is in the Details: Lost Profit Calculations


Lost profits are a typical element of damage claims in legal actions. They seem fairly straightforward, yet opposing experts can come up with vastly different numbers. Often, the calculations are in fact not straightforward, and the process of estimating lost profits can become very detailed and cumbersome.

In general, lost net profits are calculated by first estimating the lost gross revenue or sales due to the act. The lost gross revenue is then reduced by the avoided costs, which include all of the normal costs related to providing a good or service. This results in the net profit that would have been realized if the sales would not have been lost.

Some experts like to use lost gross profit as a measure of damages. This usually isn’t the correct way to value damages. Gross profit only includes figures for revenue and cost of goods sold. Such a calculation fails to consider other costs of a business that may be closely related to providing a good or service.

Another key aspect of a damage calculation is correctly estimating the period of loss. The loss normally begins on the date the act occurred, which can be fairly easy to determine. The ending date of the loss period may be more difficult to estimate. It will likely be based upon the date business resumed to normal levels or the end of the term of the contract.

Calculating Lost Revenue

The first component of a lost profits calculation is the revenue lost due to the matter in litigation. The method used for calculating lost revenue will vary depending upon the industry, the data available for the calculation, and the type of loss. There are several common methods for calculating lost sales.

One method compares a company’s performance prior to the event, to the performance after the event. The theory behind this calculation is that “but for” the defendant’s actions, the company would have achieved sales and profits similar to those before the event. This calculation relies heavily on the company’s historical accounting records as a basis for the lost profits calculation.

A second method for calculating losses uses benchmark data to calculate the revenues and profits a company should have had. Benchmarks may include data from another company, financial results from a different location operated by the plaintiff, industry averages and norms, or the company’s budgets and projections. If the expert uses this method, she or he must first demonstrate that the benchmark is applicable to the plaintiff and therefore the proper measure for the damages.

Other approaches for calculating lost revenues and profits may certainly be appropriate, and should be evaluated on a case-by-case basis. A method that may be reasonable in one case might be totally inappropriate for another matter. It is wise for the expert to step back from the calculations and consider whether or not the numbers appear reasonable under the circumstance.

Calculating Expenses

To arrive at lost profits, the expert must calculate the costs associated with generating revenue. For example, a company that manufactures a widget incurs material costs, labor costs, utilities, supplies, and other costs to make each widget. To the extent that the company lost sales, the company also did not incur the expenses related to those sales. These avoided costs need to be calculated and factored into the net loss.

It’s important for the financial expert to understand the company’s cost structure, but the degree of detail required in estimating costs will vary from business to business. It is necessary to understand how the company’s costs relate to the sales and what factors affect the costs. The accounting concepts involved in understanding and dissecting the cost structure are many, and require diligence on the part of the expert.

As with the calculation of lost revenues, it is important for the expert to examine the calculated expenses for reasonableness. She or he must be satisfied that the numbers make sense in light of the information available in the case.

Other Issues
One critical part of the damage calculation process is the determination of causation. If a company suffers a loss of sales compared to “normal” levels, the expert should consider possible reasons for the drop in sales.

While the sales loss may be related to the legal matter at hand, it is also possible that market conditions may have impacted sales. It is important to examine how things such as economic conditions, government regulations, company reputation, and desires of the marketplace may have impacted a sales loss. Any reduction in sales related to these types of factors should be excluded from the calculation of lost profits in a litigation matter.

Lost profits for new businesses are difficult to estimate because of the lack of operating history. In these cases, other sources of data must be sought to help calculate damages. Sometimes business plans or budgets are used, even though these may be regarded as somewhat speculative. The expert is often left to make many assumptions about the new business, but ought to seek as much support for those estimates as possible.

If statistics or outside data are used to calculate damages, they should be derived from widely-respected and reliable sources. Experts often look for outside information to support assumptions made in the calculation of lost profit. This information should only come from sources that are known to provide reliable and accurate data.

The expert witness must consider whether the plaintiff was able to make up sales or in some other way mitigate the damages in the matter at hand. If a company can find alternative ways to produce a product or locate a new supplier of raw materials, these types of things might reduce the damages. The expert must also consider whether mitigation was possible, even if the plaintiff did little or nothing to mitigate the damages.

The calculation of lost profits can be a very detailed, time-consuming process. It is necessary to be as accurate as possible when estimating lost sales and avoided costs. Yet it is important to remember that this is not a precise process, and does rely on estimates. The expert must calculate damages that are reasonable and that use reliable information and widely-accepted methodology.

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Making the Most of an Expert Witness


gavel-moneyMore 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. Continue reading

What Types of Cases are Done By Forensic Accountants?


Forensic accounting is sometimes called investigative accounting. There is a fairly wide variety of cases that can be done by a forensic accountant, with all of them having something to do with fraud or litigation. Tracy Coenen talks about some of the most common types of cases in which a forensic accountant will be called in.

Finding and Utilizing the Best Expert Witness


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. Continue reading