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

Chattanooga, Tennessee Sharon Hamrick, CPA•CFF, CFE

Pam Mantone, CPA•CFF•CITP•CGMA, CFE, FCPA, MAFF

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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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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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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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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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FORENSIC ACCOUNTING | BUSINESS VALUATION | LITIGATION SUPPORT | TRANSACTION ADVISORY 17

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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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FORENSIC ACCOUNTING | BUSINESS VALUATION | LITIGATION SUPPORT | TRANSACTION ADVISORY 28

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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


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Experienced

Knowledgeable

Qualified

• Does a deficient job by performing substandard work

Uses accepted methods, but …..


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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


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Experienced

Knowledgeable

• Does NOT follow the accepted standards and methodologies

Qualified, but…..


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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


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Inexperienced

Unqualified

Looking to expand his/her practice


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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


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Sharon P. Hamrick, CPA•CFF, CFE

Director of Litigation Support Services, Decosimo Advisory Services

[email protected]

• 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

[email protected]

• www.linkedin.com/in/pammantone

• www.fraudandforensic.com

423-756-7100

Contact Information

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http://www.linkedin.com/in/pammantone

http://www.fraudandforensic.com/