August 2005 PI MAGAZINE

August 2005

Forensic Accounting:

What Every Private Investigator Ought To Know

By Stanley I. Foodman

Because of the accelerating expansion of litigation in every imaginable area of our society, private investigators are employing in ever increasing numbers certified public accountants (CPAs) as experts who specialize in forensic accounting.

Universities all over the world are offering courses in forensic accounting. In the United States, law enforcement and regulatory agencies are recruiting CPA accountants.

Professional organizations such as the American Institute of Certified Public Accountants, the Association of Certified Fraud Examiners, and the Association of Certified Valuation Analysts are providing certification in specialized areas of forensic accounting. In other words, forensic accounting is today’s sexy buzzword.

This rush to employ accounting experts raises questions. How does one locate a forensic accountant? What skills and training should a forensic accountant possess? How do you verify the bona fides of a forensic accountant? When in the process of litigating do you employ a forensic accountant?

Variety of skills

A forensic accountant is someone with a combination of skills. Beyond being a CPA, a forensic accountant has auditing and investigating capabilities that are ideal for detailing the complexity of litigation involving tax and finance.

For example, a forensic accountant is extremely helpful with the investigative accounting needed for litigation support in cases that involve mountains of ledger sheets, bank statements and receipts. A forensic accountant can take a seemingly needle-in-a-haystack pile of financial information and distill it into the important elements that need to be presented clearly and concisely as courtroom testimony.

Get in early

Forthe maximum benefit, a forensic accountant should be retained early in any case where he or she is needed. Bringing the forensic accountant in early can result in lowering expenses in a case by identifying potential problems before they snowball to unmanageable.

Waiting to bring in a forensic accountant after discovery can result in a complex case becoming even more complex. Also, a forensic accountant needs to begin reviewing all documents as soon as . possible to be the most effective in determining damages and/or helping with any settlement negotiations.

Look beyond the résumé

Locating an appropriate forensic accountant is not necessarily easy. Not all accountants have the same resumes. Don’t believe all of the advertising you read. Minimally, locating a CPA with an investigative background and training is the best starting point; especially when ferreting out information is necessary.

Because a resume is no better than the character of the person who it purports to support, asking for and checking references is absolutely necessary. Finally, after locating a forensic accountant and verifying his credentials, deciding the suitable moment during litigation to retain him may ultimately determine success or failure.

When seeking a forensic accountant to help with a case, look for personal characteristics beyond the resume. For example, the forensic accountant should have a “can do” approach no matter how complex a case – a confidence driven by curiosity and persistence.

In addition, a good forensic accountant will have a sense of creativity and organization, so that financial material is distilled into understandable terms that won’t put a judge or jury to sleep.

Finally, a forensic accountant will have to be professional judgment and sense of discretion necessary in any litigation.

A different perspective

In my experience, a significant number of commercial and civillitigators feel that forensic accounting brings little to the process of production requests and depositions, which results in bringing a forensic accountant into the process rather late.

They probably do not realize that forensic accountants view information and sources of information from a different perspective. Because rules of professional conduct governing forensic accountants do not always permit advocacy, and their training is in a vocabulary completely different from that of private investigators and lawyers, they dispassionately see and make informational connections often unseen by private investigators. In other words, capable forensic accountants are able to “think outside of the box.”

The earlier they join the team during the process of litigating, the more value they add to the investigator’s team and the client’s case.

Forensic accountant Stanley I. Foodman (sfoodman@bellsouth.net) has worked as a consultant to Miami’s U.S. Attorney in the area of civil RICO money laundering recoveries.