I just hung up the telephone with a “tire kicker”—someone who is shopping around for a financial forensic expert to confirm or deny the existence of damages. Like all tire kickers, this person intends to make their decision primarily based on price, which, in this case, is determined by the forensic expert’s fees.
It reminds me of the true story of a doctor client of mine who was building a medical center for his practice and was outraged by the fees charged by the general contractor. The doctor decided he would save money by overseeing the construction himself. Obviously, the doctor did not possess the skills that the general contractor had learned through experience. The building’s completion was delayed by two years and suffered a 100% increase in overrun costs as the subcontractors played the doctor for the fool that he was. The project ultimately went into bank foreclosure and the unfinished building was sold at an auction, demonstrating that experience and training are key elements when considering the retention of an expert. Price can be a consideration, but it should not be the primary factor in your decision.
Considering a Forensic CPA? Credibility is Worth More Than the Price
The practice of forensic accounting has recently become a hot service. Both CPA firms and non-CPA financial accounting companies are claiming “expertise” in this area and clamoring for business. I regularly meet CPA’s and non-CPA’s who claim to be financial forensic experts based on one of the following:
- They are a CPA and have worked in auditing companies.
- They are a CPA and were grandfathered the designation of a Certified Financial Forensics (CFF) because they had a CPA license for 10 years and paid a fee.
- They have a keen eye for finance and were self-taught.
A person involved in a legal action should always verify the credentials of their accounting team. Otherwise, they risk relying on an “expert” witness whose opinions and findings may be dismissed by the court and excluded from the case.
A while back, I received a call from a woman sobbing on the phone. She was in the middle of a divorce, her husband had stolen her premarital money, and she needed to hire a forensic CPA immediately. She said she had just left the courtroom having learned that her “expert witness” lacked credentials, had never testified before, and was not even a CPA. Apparently, her so-called expert’s only qualification was that she was a self-taught bookkeeper for 10 years. The court refused to accept the presented witness as an expert.
In this case, the woman suffered because the findings and opinion of her “expert” were excluded and never heard or read by the court. Her husband’s expert, however, was permitted to present his opinion. Unfortunately for her, an expert can only be retained in the window of time permitted by the court, after which only the court can grant a party the authority to retain an expert.
Forensics is the science of investigating people and money. There is specific methodology, testing, and analysis that an experienced financial forensic expert will use. The methods may differ, but the results should be constant given the similarity of assumptions.
Any true “expert” in forensic accounting will be a CPA who received at least 40 hours of classroom instruction before taking a test in financial forensics. For instance, each of my staff were required to gain experience and write an actual expert opinion report to be graded by the National Association of Certified Valuators and Analysts before receiving their Masters Analyst in Financial Forensics designation (MAFF). Expertise in forensic accounting is not wishful thinking; it’s the result of hard work and experience.
CPAs and other professionals who have not been schooled in forensics may possess professional skills, but they may not have forensic skills. It is important to remember that there is a difference between an auditor and a financial forensic expert: the job of an auditor is not to detect fraud, but to verify the accuracy and correctness of financial reporting.
A financial forensic expert may be retained to determine if there is a misstatement of financial information, calculate damages, or detect financial misappropriations. They study the people involved before analyzing the data, keep an open mind in their investigation, and let the facts dictate the findings. A forensic expert tries to look at a larger view of a given situation, whereas an auditor only looks at a narrow section of the financial picture.
Last year, I was retained to analyze an expert’s report on damages. The expert retained by the other side based his calculations on an accounting definition of damages – standards that would have been deemed acceptable by the court. For example, he excluded the salaries and benefits of the business shareholders from his calculation of profits. When my report called attention to the numerous errors and miscalculations, the opposing side conceded rather than risk embarrassment.
Your financial expert does matter. Your expert has to be able to investigate and communicate the findings to your attorney and a judge as well as write a convincing opinion. A financial expert must be able to educate the client and their attorney about the findings and remain objective in interpreting the results.
If I retain any type of expert, such as a medical specialist, I want to know their successes and failures; I want to know about their experience handling cases like mine. Do they specialize in my type of case? Are they able to communicate and appear professional? Finally, is the expert a good listener and are they paying attention to my issues? My last concern will be the cost. The saying “penny-wise and pound-foolish” is never more appropriate than when it is applied to choosing a forensic expert.
Larry Goldsmith is an experienced Financial Forensic expert and CPA who investigates and verifies financial income and assets in matrimonial matters. CJBS, LLC is a Chicago-based firm that assists its clients with a wide range of accounting and financial issues, protecting and expanding the value of mid-size companies.