Category Archives: Expert Witness

27 Jun

Taxes: Guilty Until Proven Innocent

Taxes: You’re guilty until you prove yourself innocent.

That’s the way it works with the Internal Revenue Service. You have to be able to prove the numbers on your income tax return. If you can’t, the IRS auditor will pick a number and it’s up to you to prove them wrong.

It sounds unfair, doesn’t it?

Of course it does, but that’s the way the law works in the U.S. In normal criminal cases, you’re presumed innocent until the government proves you guilty. In tax cases, it’s the other way around.

Taxpayers run into trouble when they don’t have documentation to support the numbers on their tax return. What if the IRS believes a business has unreported income? Maybe the company has bad documentation. The IRS may use bank records to prove their case, assuming that all of the deposits are revenue. They may make an assumption that additional revenue was not deposited and was concealed. They have all sorts of methods to calculate what they think these numbers are.

That’s where a forensic accountant comes in. She can help shoot holes in their theories and their methods. Things get complicated quickly, and you need an expert who is well-versed in the methods the IRS uses to calculate income.

I help attorneys evaluate the numbers in tax cases (either civil or criminal) and challenge the government’s numbers.

Read More →

21 Jun

Rebuttal Reports

My favorite part of being a forensic accountant is rebuttal reports. An attorney comes to me with an expert report filed by the other side, which details some sort of economic loss. My job is to analyze that report and poke holes in it.

The things I will potentially criticize might include:

  • The numbers are wrong – mistakes were made in the calculations, wrong numbers were used, transactions were skipped or incorrect, etc.
  • The methods used to calculate the numbers are not widely accepted or used in the accounting profession
  • Assumptions used were unreasonable or inappropriate
  • The quality of data used in the calculations was suspect or unreliable in some way
  • Procedural errors may render the results unreliable – the process for validating numbers was bad, wrong documents were relied upon, etc.
  • Important information was ignored or glossed over -maybe it was detrimental to the other side’s case, which is why they ignored it
  • Facts unknown to the other side materially affect the numbers – sometimes we know important things that they do not

Sometimes I will offer an alternative way to calculate the numbers, and sometimes I won’t. That is up to the attorney when he/she defines the scope of my work.

17 May

Accountants and Family Law Cases

Family law cases involving complex financial issues often require the assistance of a financial expert for the following issues:

  • Preparing a financial disclosure, including creating a marital balance sheet
  • Comparing balance sheets from period-to-period to evaluate changes in assets and liabilities
  • Analyzing financial disclosures or affidavits prepared by the spouses
  • Calculating the historical income of the spouses
  • Determining income (or the ability to pay) in order to calculate support
  • Determining the standard of living (or the need for support)
  • Valuing business entities or other assets (such as real estate, pensions, and the like)
  • Identifying assets and determining whether they are non-marital (separate) or subject to division (marital or community)
  • Tracing and finding funds or other assets
  • Analyzing claims of dissipation, wasteful spending, or fraudulent conveyance
  • Evaluating the income tax impact of various scenarios
  • Assessing the work of an opposing financial expert
  • Other litigation assistance, such as assistance with drafting discovery demands and interrogatories or preparing for the depositions of individuals with financial information

In addition to these financial issues, an accounting expert could also play the following roles in family law cases:

  • Assisting with settlement activities, evaluating the financial impact of a settlement offer, making certain calculations, and giving opinions on various settlement scenarios.
  • Mediating a divorce case with financial issues to help the parties reach a settlement.
  • Acting as a neutral expert in the divorce, providing an objective opinion on financial matters. The parties may agree together on the financial neutral, or the court may appoint the accountant.
  • Participating in post-court activity, aiding in the evaluation of financial disputes, including things like allegations of fraud during the divorce process or motions for modification of support.

 

30 Apr

Why Hire a Forensic Accountant in a Family Law Case?

Some family law attorneys are reluctant to retain forensic accountants in their cases. Money may be a factor, but sometimes the need for an outside expert is not clear. While law firms may have paralegals or attorneys on staff who are very knowledgeable about financial issues, the outside forensic accountant offers several advantages:

  1. Experience in financial investigations means the work can be completed quicker and more efficiently. The results are often presented better since experts present their results in court and are used to making things understandable for non-accountants.
  2. An outside expert can testify, while law firm personnel cannot. Even though the family lawyer might not intend for the case to go to trial, it is always a possibility, and therefore it pays to have a financial professional who could testify if necessary.
  3. An outside expert is generally perceived as more objective. Ethical forensic accountants attempt to be independent and objective in their opinions, which bolsters the credibility of the calculations.
  4. Forensic accountants have experience finding red flags and issues. Their analysis is often more thorough, and their ability to spot problems is often more developed. This can be invaluable for finding issues that were previously unknown.

Sometimes it seems like the numbers aren’t complicated and an expert witness isn’t required. But one of the most important things your forensic accountant may do is properly present the numbers. Non-experts don’t often know how to present the numbers in the best way. Someone who does fraud investigations and expert witness engagements all the time will likely have a better way of presenting the data.

24 Apr

Expert Reports and Testimony in Family Law Cases

The culmination of a financial expert’s work in a divorce or child support case is the expert report. This is followed by testimony, at deposition and possibly trial. The process of reporting and testifying should not be taken lightly, as these tasks make the financial analysis come to life.

The forensic accountant or financial analyst will complete a lifestyle analysis or other financial analysis, typically producing a report that can be understood by non-accountants. The financial expert always runs the risk that a user of the report will not understand it. This is especially precarious when the user of the report is the judge in the family law case.

The Report

Although a written report is not necessarily required of a financial expert in a family law case, a written report is recommended because it is the best way to present complicated financial issues. The report is a roadmap of the financial issues for the attorneys and the judge. Read More →

07 Mar

Income Included in Spousal Support Calculations

What sources of income are commonly included when calculating spousal support in a divorce case? While the specifics vary by jurisdiction, in general the courts will commonly consider: wages, investment income, business income, rental income, and royalties. Tracy talks in this video about why it is important to have a forensic accountant evaluate these items and how they should be factored into the spousal support calculations.

28 Feb

Bankruptcy Services Provided by a Forensic Accountant

In this short video, Tracy talks about some of the services a forensic accountant could provide in a bankruptcy case.

These services could include:

  • Tracing of funds through bank accounts
  • Looking for hidden income and assets
  • Evaluating expenditures to determine whether they were proper (as it relates to the bankruptcy)
  • Searching for improper transfers of money and other assets
  • Verifying numbers disclosed to the bankruptcy court
  • Looking for red flags of fraud
  • Identifying parallel entities (similar, related businesses started by parties involved in bankruptcy, used to improperly transfer assets or income)
26 Feb

Role of a Financial Expert in a Family Law Case

A financial expert’s assistance with the discovery process can be invaluable to the family law attorney. By virtue of the expert’s familiarity with personal and business financial documents, the financial expert can play an important role in the discovery process.  He or she can help with the following:

  • Determining which documents should be requested or subpoenaed
  • Identifying the individuals or companies most likely in possession of those document
  • Drafting discovery requests, using the common names of the financial documents in conjunction with descriptions that may be important in the event that the person or company uses a different name for the documents or reports
  • Evaluating documents produced in discovery to determine if they are responsive to the requests or subpoenas
  • Drafting follow-up requests to either reiterate or reword the original requests, or to create additional requests or demands
  • Explaining the documents and data to the attorneys
  • Assisting with preparation for depositions of individuals with financial information relevant to the family law case
  • Attending depositions of parties with financial information, in order provide the attorney with suggested lines of questioning

The forensic accountant may also assist the family lawyer with the development of strategy for the financial portion of the case.  The financial and business experience of the expert may aid the attorney in understanding and litigating the issues related to the finances of the family. It is important that the financial expert not be afraid to point out weaknesses and errors in the financial case, perhaps guiding the attorney to a better understanding of the financial issues and an alternative, more viable approach.