Just What is Forensic Accounting? by Sharon Hamrick & Pam Mantone

1. Chattanooga, Tennessee
Sharon Hamrick, CPA•CFF, CFE
Pam Mantone, CPA•CFF•CITP•CGMA, CFE, FCPA, MAFF
ADVISORY SERVICES
FORENSIC ACCOUNTING | BUSINESS VALUATION | LITIGATION SUPPORT | TRANSACTION ADVISORY
Just What is Forensic Accounting
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What is Forensic Accounting?
Accounting suitable for legal review
When a professional accountant accepts an engagement anticipating his or her finding or analysis may be subject to adversarial or judicial scrutiny or administrative review
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•Simply stated, forensic accounting is:
–The art & science of investigating people & money.©
–…”if you understand the people, the money is easy.”
(financialforensics® Newsletter, Circa1993)
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6. Fraud
Legal Enforcement
Regulators
PI, WD
Performance Auditing
Valuation
Economic Damages
Audit/Review/Comp
Internal Audit
Forensic Accounting
Tax
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Areas Encompassed by Forensic Accounting
Fraud Prevention, Detection, and Investigation
Financial Statement Misrepresentation, Fraudulent Conveyance
Computer Forensic Analysis
Economic Damages Calculations
Personal Injury and Wrongful Death Damages Calculations
Bankruptcy, Insolvency and Reorganization
Family Law
Valuation
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8. Breadth and Depth of Forensic Accounting
•Accounting
•Adult-Learning Theory
•Banking
•Bankruptcy
•Board and Management responsibilities
•Computer Forensics
•Corporate Governance
•Criminal Prosecution
•Document Management and Handling
•Economics
•Federal, State and Local laws
•Finance
•Financial Analysis
•Financial Reporting
•Government Agency Interaction
•Investigative skills
•Money Laundering
•Proxemics
•Psychology
•Research
•Sociology and Anthropology
•Statistics
•Stylometry
•Symptomatic Behavior Analysis
•Teaching skills
•Visual Aid skills
•Writing skills
•Etc…….
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Forensic Accounting Services
Application of specialized knowledge, education, experience and training - SKEET
Collecting, analyzing and evaluating evidential matter
Investigative skills and training
Interpreting and communicating findings in the courtroom or other legal/administrative venue
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Core Skills
Think clinically
Pattern seeker
Effective communicator
Simplify the information
Critical/strategic thinker
Identify key issues
Investigative ability
Synthesize results of discovery and analysis
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Characteristics of a Good Forensic Accountant
Analytical Mind
Ability to understand “the big picture”
Ability to communicate well orally and in writing
Ability to think on your feet
Tenacious
Ability to organize large amounts of information
Has “SKEET”
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12. Has SKEET ???
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•Litigation services recognize the role of the member as an expert or consultant and consist of providing assistance for actual or potential legal or regulatory proceedings before a trier of fact in connection with the resolution of disputes between parties.
Litigation Support
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Determining the value of a business or business interest
Analyzing business transactions
Computing economic damages
Fraud detection and investigation
Bankruptcy consultant or examiner
Tax computations and analysis
Marital dissolution financial assessment and analysis
Business interruption and other insurance claims assessment and analysis
And others, etc…..
Types of Litigation Services
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Roles of Forensic Accountants in Litigation Support Services
Expert witness, consultant, trier of fact, special master, referee, arbitrator or mediator
An expert witness is one who is designated to render an opinion before a trier of fact
A consultant does not testify regarding his or her expert opinion but is hired to advise about the facts, issues and strategy of a particular matter
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When is a Forensic Accountant
Most Effective?
Involved early in the case
Considers all relevant information available
Is not surprised by information on the witness stand
Adequately prepared prior to trial
Doesn’t testify outside area of expertise
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Even the subsets have subsets - Fraud
Asset Misappropriation
Cash
Inventory and all other assets
Corruption
Conflicts of Interest
Bribery
Illegal Gratuities
Economic Extortion
Financial Statement Fraud
Overstatements
Understatements
Occupational Fraud
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Cash Misappropriation
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Fraudulent Financial Statements
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Corruption
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•Concise, yet thorough
•Free from bias (investigative)
•Logical progression of thoughts and conclusions
•Sources well-documented
•Contains all legal requirements for an expert witness’s report
Report Writing
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Use the Evidence
•Demonstrate understanding and knowledge of the evidence in your report
•That evidence supports your opinions
Bring Your Friends
•Cite references and resources for your methodologies; those methodologies are reliable and accepted
Report Writing
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Control the Battleground
•Frame the argument
•Establish the parameters of the accepted methodologies and logic of your opinions
•Use your exhibits to help frame the argument
Stay with the Judge
•Make your report, your exhibits and your visuals the source for the judge to refer to in making their decisions regarding the experts’ opinions
Report Writing
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Role of the Expert:
Expert witness services create the appearance that a member is advocating or promoting a client's position. Accordingly, if a member conditionally or unconditionally agrees to provide expert witness testimony for a client, independence would be considered to be impaired
While testifying as a fact witness, a member may be questioned by the trier of fact or counsel as to his or her opinions pertaining to matters within the member's area of expertise. Answering such questions would not impair the member's independence
Expert Testimony
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•Dangerous to whom?
–You do not want your financial expert to be dangerous to your side
Financial Expert Witness Issues
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Experienced
Knowledgeable
Qualified
•Sells himself out by becoming intellectually dishonest
Uses accepted methods , but…..
Dangerous Expert Witness Category #1
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Intellectually dishonest by:
Ignoring evidence which is unfavorable to the opinion which he plans to express
Doesn’t share such evidence with his counsel
Misrepresents the evidence used in his report and conclusions to the court
Often very pompous and verbose
Dangerous Expert Witness Category #1
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Experienced
Knowledgeable
Qualified
•Does a deficient job by performing substandard work
Uses accepted methods, but …..
Dangerous Expert Witness Category #2
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Instances of substandard work
Lack of review of subordinates
Does not have or take adequate time to properly assess evidence and prepare report and/or testimony
Often a result of the low fees being charged by the expert or an overly restrictive budget imposed by counsel
Dangerous Expert Witness Category #2
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Dangerous Expert Witness Category #3
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Experienced
Knowledgeable
•Does NOT follow the accepted standards and methodologies
Qualified, but…..
Dangerous Expert Witness Category #3
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Ignores or “tweaks” accepted methodologies as a result of:
•“Working backward” to reach a particular amount or goal in damages and makes calculations reach that goal
•Usually very persuasive in their testimonies
•Often speak in very bold generalities such as “all smaller companies have poor accounting records”
•Likes to tell all he knows, not just what the court needs to know
Dangerous Expert Witness Category #3
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Dangerous Expert Witness Category #3
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Inexperienced
Unqualified
Looking to expand his/her practice
Dangerous Expert Witness Category #4
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Everyone has to start somewhere:
Usually fees are lower and therefore can be attractive alternatives to clients
Often in smaller, seemingly less complex cases
Adequate training is paramount
Training can be evidenced by professional certifications and credentials
Dangerous Expert Witness Category #4
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Dangerous Expert Witness Category #4
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Sharon P. Hamrick, CPA•CFF, CFE
Director of Litigation Support Services, Decosimo Advisory Services
sharonhamrick@decosimo.com
•www.linkedin.com/in/sharonhamrick
423-756-7100
Contact Information
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Pam Mantone, CPA•CFF•CITP•CGMA, CFE, FCPA, MAFF
Senior Manager, Decosimo Advisory Services
pammantone@decosimo.com
•www.linkedin.com/in/pammantone
•www.fraudandforensic.com
423-756-7100
Contact Information
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