1. INTRODUCTION TO FORENSIC
ACCOUNTING & LITIGATION SUPPORT
Ronald H. Burkett, CPA, CVA
1 rburkett@burkettcpas.com
Burkett Burkett & Burkett CPAs, PA
3101 Sunset Blvd. West Columbia, SC 29169
P.O. BOX 2044 West Columbia, SC 29171
803.794.3712

2. WHAT IS FORENSIC ACCOUNTING?
 According to the Association of Certified Fraud
Examiners (ACFE), forensic accounting is the use
of professional skills in matters involving potential
or actual civil or criminal litigation, including, but not
limited to, generally acceptable accounting and
audit principles.
 Forensic Accounting involves both investigative
accounting and litigation support
2

3. FORENSIC ACCOUNTING ENGAGEMENTS
 There are several categories of possible forensic
accounting engagements:
 Economic Damages/Profit Loss
 Reorganizations
 Securities Fraud
 Business Valuation
 Post Acquisition Disputes (Earnouts)
 Family Law
 Marital Asset Addendum
 Financial Declarations
 Fraud
 Criminal and Civil Cases 3

4. WHAT SKILLS ARE REQUIRED?
 Analytical
 Detail-Oriented
 Ethical
 Responsive
 Insightful
 Inquisitive
 Persistent
 Skepticism
 Evaluative
Source: AICPA Characteristics and Skills of the Forensic Accountant, 2009. 4

5. WHY IS THE NEED FOR FORENSIC
ACCOUNTING SO PREVALENT?
 In a word – FRAUD
5

6. FRAUD
 In a perfect world, employees would not steal from
their employers, so there would be no need for
fraud examinations. However, this is not a perfect
world and employees do steal from their employers
for a variety of reasons most of which revolve
around NEED or GREED.
6

7. 2010 REPORT TO THE NATIONS
 Occupational fraud may be
defined as:
“The use of one’s
occupation for personal
enrichment through the
deliberate misuse or
misapplication of the
employing organization’s
resources or assets.”
7
Source: ACFE Report to the Nations on Occupation Fraud & Abuse, 2010.

8. 2010 REPORT TO THE NATIONS
 Typical organization loses 5% of its annual
revenues to occupational fraud.
 Three primary categories of occupational fraud:
 Asset misappropriations – most frequent and least
costly
 Corruption schemes – bribery, extortion, or conflict of
interest
 Financial statement fraud schemes
Source: ACFE Report to the Nations on Occupation Fraud & Abuse, 2010.
8

9. 2010 REPORT TO THE NATIONS
9
Source: ACFE Report to the Nations on Occupation Fraud & Abuse, 2010.

10. 2010 REPORT TO THE NATIONS
10
Source: ACFE Report to the Nations on Occupation Fraud & Abuse, 2010.

11. WHAT IS FRAUD EXAMINATION?
 Fraud means “any act, expression, omission, or
concealment calculated to deceive another to his or
her disadvantage; specifically; a misrepresentation
or concealment with reference to some fact material
to a transaction that is made with knowledge of it
falsity or in reckless disregard of its truth or falsity
and with the intent to deceive another and that is
reasonably relied on by the other who is injured
thereby.”
 We will explore the elements of fraud (commonly
referred to as the “fraud triangle”) and what
companies can do to prevent and detect. 11
(Merriam-Webster Dictionary of Law)

12. THE FRAUD TRIANGLE
12
Source: Occupational Fraud Abuse by Joseph T. Wells, CPA, CFE (Obsidian Publishing Company, 1997)

13. KEEPING THE FOX OUT OF THE HEN HOUSE!
Thwarting Employee Theft:
Hiring, Managing and Insuring 13

14. FRAUD SCHEMES AND RED FLAGS
 Asset Misappropriation / Cash Fraud
 Skimming = theft of assets never recorded in the
accounting records, “off-book”
 Larceny = theft of assets recorded in the accounting
records
14

15. FRAUD SCHEMES AND RED FLAGS
 Inventory, Equipment and Other Assets Fraud
 Inventory misuse (“borrowing”)
 Inventory theft
 Unconcealed larceny
 Falsified receiving reports
 Fraudulent shipments
 Fraudulent write-offs
15

16. FRAUD SCHEMES AND RED FLAGS
 Credit Card Fraud
 Federal statute 15 U.S.C. 1644 provides penalties for
the use of counterfeit, fictitious, altered, forged, lost,
stolen, or fraudulently obtained credit cards. A violator
may be fined up to $10,000 and/or imprisoned for up to
10 years. SC State law Section 16-14-60 provides
penalties up to $5,000 and/or up to five years in prison
for each of the following offenses:
 Unauthorized use of a lost or stolen card
 Company credit cards
 Counterfeit cards
16

17. FRAUD SCHEMES AND RED FLAGS
 Vendor Fraud
 Generally, “Off-book” fraud:
 Bribery / Kickbacks
 Overbilling
 Bid-Rigging
 Illegal Gratuities
17

18. YOU DISCOVERED FRAUD…
NOW
WHAT?
18

19. LEGAL ELEMENTS OF FRAUD
 Steps in the Investigation
 Investigation
 Confidentiality – prevent embarrassment or vulnerability to
lawsuit if the case does not lead to action
 Consult legal counsel, if appropriate (CFE must be hired
through attorney to protect attorney/client privilege)
 Documentation
 Chain of custody
 Confrontation / Interview
 Be careful of “false imprisonment”
19

20. RIGHTS AND DUTIES OF EMPLOYEES
 Employee duty to cooperate
 Predication
 Each step of investigation based on sufficient basis and
reason; otherwise, employer may be liable for civil
actions – defamation or invasion of privacy
 Invasion of privacy
 Written policy – lower expectation of privacy
20

21. PROSECUTING EMPLOYEES
 Prosecution (criminal charges) is exclusively the
right of the government, regardless of the results of
the company’s internal investigation.
 Civil charges may be brought by an individual or the
government.
Source: Conducting Internal Investigations – US, ACFE, 5/5/04
21

22. PROSECUTING EMPLOYEES
 Civil claim of “common law” fraud
 A representation (usually of fact0 about a material point
which is false and intentionally and knowingly so (or, in
some circumstances, recklessly so) which is believed
and acted upon by the victim to the victim’s damage.
 Criminal offense may be complete even if the victim
does not suffer damage.
Source: Conducting Internal Investigations – US, ACFE, 5/5/04
22

23. ROLE OF THE EXPERT WITNESS
 To help triers of fact understand the impact of
different types of financial transactions or attach a
measurable value to plaintiff’s jury.
 To ensure this, the expert must remember that the
jury HAS TO believe his testimony
 To ensure that counsel understands the subject
matter to which you are testifying
23

24. UNDERSTANDING THE ENGAGEMENT
 What are the issues?
 In order to begin to understand where you will fit into the
attorney’s strategy, it is first necessary to understand the
issues in the lawsuit.
 Who are the parties?
 What you really want to know and what the attorney
wants to know is do you have any prior relationships
with the parties that create conflict of interest, either real
or perceived, that would preclude your offering
testimony in this matter.
 Who is the client?
 While you will be dealing primarily with the attorney, it is
24
important to know who the actual client is.

25. UNDERSTANDING CASE TIMELINE
 Case Filed - Pleadings, Counterclaims, Replies
 Discovery Period
 For detriment period of time
 Can take depositions, issue subpoenas
 Discovery Cut-off
 You cannot compel any additional discovery
 Pretrial
 Meeting with Judge to decide issues and determine
procedure
 Trial
25

26. ENGAGEMENT MANAGEMENT
 Understanding the Engagement
 Are you qualified as an expert in this matter?
 Set reasonable expectations
 Do not practice law
 Engagement Letters
 Know the case dates
26

27. KNOW YOUR ROLE AND RULES
 Know your role - Will you testify?
 Know the rules - Every location is different
 Your report should be in an acceptable format
 Otherwise it may be thrown out despite your hard work
27

28. TESTIFYING EXPERT
 Your job is to have an opinion
 To express your opinion in clear, concise language
 Your standard is “reasonable degree of certainty” or
“reasonable degree of accounting certainty”
 Is not an advocate for the client – you must have
credibility
 To be an advocate for your position
 To tell the truth
28

29. TESTIMONY
 Depositions
 Trial
 Direct Examination
 Cross Examination
 Re-direct Examination
 Re-cross Examination
29

30. DEFENDANT; REPUTATION SAVED HIM
 1814, Newberry  Why
County Criminal Court  Defendant had a
 James Gordon tried for reputation for being
assault and battery such a big liar that the
 Confessed his guilt on
jury did not believe him
the stand
 Jury acquitted him
30

31. 31
MY COUSIN VINNY

32. 32
MY COUSIN VINNY

33. CASE STUDIES: UPRIGHT ELEVATOR
33

34. CASE STUDIES
 Upright Elevator Company: Facts:
 Victim: Elevator repair company
 Perpetrator: Company bookkeeper
 Scheme: Misappropriation of $5.3 million, through
manipulation of payroll
 Duration: 1996 through 2003
34

35. CASE STUDIES
 Upright Elevator Company (cont’d)
Where some stolen funds were spent:
NYS Lotto $ 1,561,561
Checks to Cash $ 1,210,865
Credit Cards $ 738,988
Ticket Broker $ 323,935
Psychic $ 48,000
Dentist $ 28,965
Beauty Salon $ 12,677
Saks Fifth Ave. $ 7,305
Children’s Cancer Research $ 20
35

36. CASE STUDIES
 Upright Elevator Company (cont’d)
 Company Oversight
 No applicant screening/reference checks
 No segregation of duties
 No mandatory vacation policy
 Lack of appropriate oversight / authorization / approval system
36

37. CASE STUDIES
 Upright Elevator Company (cont’d)
 Cycle of Fraud:
 Pressure – Bookkeeper continued fraud to satisfy gambling
addiction
 Opportunity – Due to lack of oversight and poor internal
controls, bookkeeper was able to prolong fraud
 Rationalization – Bookkeeper felt she was contributing
significantly to the firm and deserved more
37

38. CASE STUDIES
 Reward Electronics: Facts:
 Victim: Electronics company
 Perpetrator: CFO
 Scheme: Misuse of American Express Rewards
Program Points
 Duration: 1999 through 2003
38

39. CASE STUDIES
 Reward Electronics: Facts:
 Amex Points Accumulated: 3.2 million
(approx. $40k per year)
 Where points were used:
 Bloomingdale’s
 Saks Fifth Avenue
 Brooks Brothers
 Smith & Wollensky’s
 Toys R’ Us
39

40. CASE STUDIES
 “Good Business Practice”
 “We saw it as good business practice…a new
corporation viewed as positive to have a credit rating
and establish a track record.”
 “The points are mine…from AMEX’s point of view they
are mine…a customer reward loyalty program, not set
up as a corporate kickback to send points to an
organization but to the cardholder.”
November 3, 2003 – CFO, Reward Electronics
40

41. CASE STUDIES
 “Poor Judgment”
 “AMEX gave it to me just the same as any other
corporate cardholder…these are my points.”
 “In retrospect, I used poor judgment. When you are
exercising poor judgment you don’t realize it until it’s
pointed out to you.”
November 3, 2003 – CFO, Reward Electronics
41

42. CASE STUDIES
 Reward Electronics (cont’d)
 Company Oversights:
 Lack of appropriate oversight / authorization
 Poor / ineffective internal controls
42

43. CASE STUDIES
 Reward Electronics (cont’d)
 Cycle of Fraud:
 Pressure – CFO’s wife pressured him into a more luxurious
lifestyle
 Opportunity – Due to lack of oversight and poor internal
controls, CFP was able to continue fraud
 Rationalization – CFP rationalized that the Amex points were
for his personal use
43

44. SUMMARY
 An organization will only be as effective as the
sound internal controls it has in place
 Know your employees through proper screening
 Ensure that there is appropriate segregation of
duties
 Ensure that there are proper levels of authorization
and approval
44

45. RONALD H. BURKETT, CPA, CVA
Ronny Burkett is a Certified Public Accountant, Certified Valuations Analyst
and President of Burkett Burkett & Burkett Certified Public Accountants,
P.A. The firm has 3 locations, 49 employees and 2 affiliate companies.
Burkett has over 30 years of experience in tax, finance, business
valuations, and litigation support services. Burkett is a graduate of the
University of South Carolina, Class of 1974, with a Bachelor of Science
Degree in Accounting. He is the immediate past Chairman of Midlands
Technical College Board of Commissioners and current Commissioner. He
has presented seminars across the United States on topics such as income
taxes, financial statements, business valuations and litigation support. He
also coauthored two books on Business Valuations and Litigation Support 45
that were used in the early 90’s as CPE for CPAs around the country.

46. THANK YOU
Ronald H. Burkett, CPA, CVA
46 rburkett@burkettcpas.com
Burkett Burkett & Burkett CPAs, PA
3101 Sunset Blvd. West Columbia, SC 29169
P.O. BOX 2044 West Columbia, SC 29171
803.794.3712