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The Forensic Accounting Universal Tool Kit

The Forensic Accounting Universal Tool Kit
If two forensic accountants representing opposing parties in litigation work from the same documents and the same numbers, why are there sometimes materially different economic conclusions? That’s because not everyone uses the Forensic Accounting Universal Tool Kit. 

In my experience, the roots of forensic accounting are found in:

  • internal auditing
  • the legal standards of “Beyond a Reasonable Doubt” and “Clear and Convincing Evidence” 
  • public accounting standards of independence, objectivity and integrity 

All of the above are the foundations for a Forensic Accounting Universal Tool Kit.

In plain English, internal auditors engage in detailed reviews of the internal accounting and management processes of an organization. They uncover, calculate and report on misuses of funds and other organizational assets, as well as the effectiveness of organizational processes. They are brought into a business situation to police and go over books, records, bank accounts and other documents with a fine-tooth comb. The purpose of their scrutiny is to double check and make certain that the reported financial positions reported are a true representation of the actual situation. What this means is that internal auditors can be seen as financial inspectors. They will go over finances in meticulous detail during the gathering, assessment and judgement process. This detailed methodology approaches the evidential standards of “Beyond a Reasonable Doubt” and “Clear and Convincing Evidence”.

The professional accounting standards of independence, objectivity and integrity prohibit testifying forensic accountants from engaging in advocacy.
The word “forensic” means suitable for use in a court of law. Forensic accountants are usually engaged to investigate a financial loss, fraud or a tax dispute. When we speak of forensic accounting, we are referring to the specialty practice area of accounting that describes engagements resulting from actual or anticipated disputes or litigation. It is also known as accounting litigation support. 

A forensic accountant works differently than a traditional business accountant or an auditor, and this is why the tool kit is so important. The difference stems from the fact that the forensic accountant brings an investigative component to the situation or matter at hand. This investigative and inquisitive behavior is what gives the attorney (representing a plaintiff or a defendant), the upper hand or an edge. The tool kit develops a skill set that provides a significant advantage by taking complex financial data, and putting it in a format that the attorney, the judge and jury, can understand. Presenting results in an easily understood manner is something a full-service forensic accountant must bring to the plate.

Although forensic accounting has been subdivided into practice areas such as valuation services, family law, commercial litigation and economic crime, the Forensic Accounting Universal Tool Kit crosses the lines between these “disciplines.” 

As an experienced expert consultant and expert witness, I have encountered many instances where civil claims are subjected to a preponderance of evidence standard. I have never been able to wrap my arms around this concept. The amount and quality of evidence constituting a preponderance of evidence cannot be reduced to an objective formula. It has been defined as just enough evidence to make it more likely than not that the fact the claimant seeks to prove is true. It encourages wide reporting variations by competing experts during litigation. Using the professional accounting standards of independence, objectivity and integrity, this should not occur. The world of forensic accounting is not fuzzy. It has its basis in historical verifiable information. These are some of the activities that we undertake in order to verify information, and consequently add credibility:

  • We identify documents that the attorney should request, or subpoena, early on in a case.
  • We prepare the questions that the attorney can use in depositions, trials or interrogatories.
  • We conduct background investigations. These are very useful in discrediting opposing counsel’s witnesses.
  • We know how to trace and prepare exhibits to visually prove patterns.
  • We conduct all the interviews of witnesses and simplify the information.

The standards of proof of “Beyond a Reasonable Doubt” and “Clear and Convincing Evidence” are used in criminal cases and in commercial litigation. They are the standard of evidence required to validate a criminal conviction or a finding of damages in adversarial legal systems. As a former sworn agent for the Florida Department of Law Enforcement for economic crime investigation, I am accustomed to working within the “Beyond a Reasonable Doubt” environment as well as the environment of “Clear and Convincing Evidence.” The definition of “Clear and Convincing Evidence” often falls within a “medium level of burden of proof which is a more rigorous standard to meet than the preponderance of the evidence standard, but a less rigorous standard to meet than proving evidence beyond a reasonable doubt. In order to meet the standard and prove something by clear and convincing evidence, a party must prove that it is substantially more likely than not that it is true.”

Combining these standards of evidence with the professional principles of independence, objectivity and integrity, disparities between two forensic accounting testifying experts ought to virtually disappear. Results are verifiable, and easily explained to a jury, a judge, an opposing attorney or opposing expert. They are based on the reality of what actually occurred. They speak for themselves.

A forensic accountant who utilizes a Universal Tool Kit, is able to simplify information, stick to the facts and communicate effectively. This is extremely important in the environment that we live in, as it is widely known now that jurors have a preference for less effort or experiential processing in situations involving complicated or ambiguous material. That means jurors tend not to incorporate the standards of evidence into their judgments if they don’t understand. Consequently, clearer, and more convincing evidence will gain the full engagement of all involved. 

By Stanley I. Foodman
Foodman CPAs & Advisors
1201 Brickell Ave., Suite 610
Miami, FL 33131

South Florida Legal Guide 2016 Edition

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