Financial Law and Order: Why we need Forensic Accounting witnesses

Michael D. Rockefeller, CPA, Principal

It’s hard to picture the dramatic closing court scene of Law & Order being centered around an accountant, but as their stories are ripped from the headlines, this is more likely to appear in an episode a la Bernie Madoff’sPonzi scheme or the like. The specialty area of forensic accounting has opened up the scope of accounting, and features more intriguing services and characteristics beyond accounting and auditing; requiring skills and tools utilizing quantitative methods, finance, law and research – like investigative accounting detective work.

Attorneys & Accountants – a Match Made in Court

Lawyers have been working with accountants since both professions came into being, if for no other reason than to do their taxes. But their relationship now has more depth, and attorneys seek out forensic accounting experts for many different reasons. It’s one thing to strongly suspect employee fraud, and to know a huge amount of money is missing from the firm coffers. Unless you caught the employee running out the door with 20’s flying out of their blazer, there would still be the burden of proof to make the conviction. Put a forensic accountant on the case, and he or she will be able to perform an audit of the books, create and analyze reports, and know where to further investigate based on initial findings, to eventually provide the hard evidence. Camera shifts to the forensic accountant reviewing a report, and saying to the attorney, “Wait, I think I’ve found something!”

I’ll Get By With a Little Litigation Support From My Friends

Initially, attorneys seek out forensic accountants for litigation support – production and analysis of financial reports that can be the proof needed in a case such as fraud. The forensic accountant’s skills can be used to produce proof in criminal cases of employee theft, insurance fraud, identity theft, securities fraud; or in civil cases by demonstrating illegal activity by, for example, uncovering hidden assets in a divorce case. As the object pre-trial for most cases is to come to settlement before the case reaches the actual trial date, the forensic accountant may produce enough evidence for the litigator to prompt a case settlement – as they say, the numbers don’t lie.

Expert Witness for the Prosecution

Here’s where it gets fun – no longer is the accountant stereotyped as the quiet, glasses-wearing numbers guy who has a report in his hands and a secret yet unfulfilled desire to sing karaoke on “Stuck-in-the-80’s Thursdays” at the local pub. The CPA, likely also designated as a Certified Fraud Examiner (CFE), can be the star, the turning point of the case. The forensic accounting expert witness must possess even more skills to assist the legal team: effective, persuasive and compelling communication; translation of difficult accounting principles into testimony that the judge and jury can understand; a working knowledge of the legal process; and that initial desire to take the numbers into a new dimension, thinking one step ahead of the criminal mind.

Just as a Medical Expert Witness may testify that a certain length of exposure to asbestos could contribute to an adverse medical condition such as asbestosis, the Forensic Accounting Expert Witness could successfully argue that initial specific amounts of company money stolen fraudulently from the past three years would cause a future loss of income due to lost investment funds and missed opportunity costs, by using damage calculations, valuation and lost income analyses. The physician is respected on the stand immediately for his or her proven medical background and experience; likewise the forensic accountant commands respect based on CPA and CFE certifications, and years of auditing and accountant experience.

The mean streets of New York harbor more than just grizzled violent offenders and everyday innocent citizens; a walk down Wall Street may lead to next week’s Law & Order episode – a case about an evil portfolio manager and the retirement accounts he steals, foiled in the end by the daring forensic accountant, delivering the final blow on the stand for the prosecuting attorney. Cue the trademark Law & Ordermusic at the end of the scene!

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