From Chaos to Clarity in Financial Investigations

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The financial part of a case can become overwhelming very quickly. Particularly in cases involving white collar crime, securities fraud, Ponzi schemes, or other fraud recoveries, the trail of financial documentation is often very long. A forensic accountant needs to examine the financial documents and piece together the evidence in a way that attorneys, judges, and juries can understand.

When there are mountains of data, the investigator needs a way to quickly examine the data, assemble it in a format that is usable, find connections between transactions, and quantify results. Traditional forensic accounting techniques alone are no longer effective in these types of investigations. The volume of data can quickly overwhelm the investigator, and this affects the quality of the results.

Many of these cases involve moving money around rapidly between multiple bank and brokerage accounts to disguise the true sources and uses of funds. The long trail of financial documentation needs to be examined by a forensic accountant and the data must be pieced together to find where the money really went. Continue reading

A Bankruptcy Investigation Example

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The skills of a forensic accountant can be useful in bankruptcy cases. In this video, Tracy talks about a case in which she was retained by a creditor to examine the finances of the debtor. There were allegations that the debtor concealed material facts about its financial position when it originally applied for credit, and that certain disclosures in the bankruptcy filing were fraudulent.

Why Use a Forensic Accountant in a Divorce Case?

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divorce financial analysisOne of the hot new things in the area of divorce, especially for high net worth clients, is using a law firm that has forensic accountants on staff. Sometimes the divorce attorneys themselves have credentials in the area of forensic accounting, such as a CPA license, CFE (Certified Fraud Examiner) credential, or CFF (Certified in Financial Forensics) credential.

These law firms tout a number of advantages of retaining them:

    • Expertise in financial matters, including business valuations, tax law, and forensic accounting
    • Ability to investigate the value of financial assets
    • Skills necessary to perform a lifestyle analysis

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Selecting a Financial Expert Witness

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In 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? Continue reading

Protecting Expert Witness Work Product

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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.

Protecting the work product can provide a huge advantage in the early stages of litigation. It allows the attorney to explore possible assertions and defenses in the case with the help of an expert, yet it doesn’t expose the expert’s opinions and input to scrutiny from opposing counsel. Continue reading

Deposition Questions for Financial Expert Witnesses

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The second edition of Lifestyle Analysis in Divorce Cases: Investigating Spending and Finding Hidden Income and Assets has more than 25% new material. I’ve updated the book for tax law changes, I have added material that clarifies topics covered the first time around, and there is brand new material.

One of the new parts of the book relates to the direct examination of financial expert witnesses, especially during depositions. The deposition is the time for the attorney to dig into the background and qualifications of the forensic accountant. It is also the time to ask probing questions about the work done, the the choices made with respect to the financial analysis, and the opinions expressed in the report (or maybe opinions they have but didn’t enumerate in the report).

I have a Direct Examination Checklist in the book that I think attorneys will find invaluable. I can’t replicate the entire list of questions here, but I’m going to give you some snippets of the list of general lines of questioning that you can use with a financial expert witness:

Background and qualifications

  • Educational background—Include both formal education and continuing professional education.
  • Credentials obtained—When were they obtained? How?
  • Credentials not obtained—Why not? Is the expert not qualified for them or did the expert simply choose to not get them?

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Digging Into the Numbers in Litigation

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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 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 that is often hidden from view. How, then, can a party best get to the truth? Continue reading