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Forensic Accounting

For example, this area of litigation support provided fying and recommending expert witnesses, helping attor-
to the legal profession might include such assignments as neys to prepare for testimony, and reviewing various doc-
assisting in obtaining documentary evidence to support or uments.
rebut a claim, reviewing relevant supporting documents to Forensic accountants are in high demand to provide
form an initial assessment of the situation and identify expert witness services. An expert witness is a person who
possible areas of loss, assisting with suggesting and design- can offer opinions about the situation based on insight
ing questions to be asked during the gathering of both the
financial and nonfinancial evidence, attending the initial developed through education, experience, and training. In
disclosure phase (called the discovery phase) of the trial the process of a court proceeding, the judge rules on
proceedings to review various testimonies and assisting whether an expert witness is qualified to provide evidence
with the understanding of the financial issues, reviewing on the matter before the court. The need for an expert
opposing damage reports and reporting on both the witness who is a forensic accountant generally arises when
strengths and weaknesses of the positions taken, and there is a dispute involving some area of accounting
assisting with the settlement discussions and negotiations. expertise. When investigators (forensic accountants) are
engaged as expert witnesses, litigation is intended, and the
INVESTIGATION AND DISPUTE investigators will often have to provide deposition and
RESOLUTION courtroom testimony. They can testify about the facts of
The second category of forensic accounting is investiga- the case and can also give opinions. Regardless of how
tion and dispute resolution. It is part of the process to educated, experienced, and trained forensic accountants
determine whether criminal matters, such as employee may be, their credibility is weakened if they are unpre-
theft, securities fraud (including falsification of financial pared or not familiar with the facts of the case.
statements), identity theft, and insurance fraud, have
occurred. Some of the work of the forensic accountant
CIVIL VERSUS CRIMINAL TRIALS
may include recommending actions that can be taken to
minimize future damages and risk of loss. When an adequate level of evidence is obtained by the
forensic accountant, a decision is made whether to pursue
Investigation may occur in civil matters, such as the
forensic accountant searching for hidden assets in a the case in court. As noted previously, forensic account-
divorce case. Another typical example would be the foren- ants often play an important role in civil and criminal
action. Civil refers to private rights and remedies sought
sic accountant being engaged to investigate employee
theft. Not only are forensic accountants often engaged to by civil actions, where the individual has been harmed, for
review the facts of a given situation and provide sugges- which he or she can claim compensation. Civil fraud tri-
tions regarding possible courses of action, but they are also als are typically started by the party suffering the loss and
involved with assisting in the many other ways to protect may result in a judgment for reimbursement for actual
and recover assets. losses and attorneys’ fees. Civil trials do not result in
imprisonment.
EXPERT CONSULTANT VERSUS Criminal fraud involves violation of a law (known as
EXPERT WITNESS a statute) enacted by the state or federal legislation. Crim-
Because of the expertise forensic accountants possess, they inal fraud is prosecuted by the state and may result in
are often engaged as expert consultants and/or expert wit- punishment, such as fines, restitution, and/or prison time.
nesses. As expert consultants, the forensic accountants One of the major differences between civil and crim-
(investigators) are engaged by attorneys to develop evi- inal fraud is the extent, or burden, of proof required for
dence used by the attorneys in a variety of ways. Even if conviction. In a civil case, the burden of proof is to the
litigation is intended, the expert consultants may not be extent of a “preponderance of the evidence” (which is usu-
expected to testify; therefore, the various documents the ally interpreted to mean more than 50 percent), and the
consultants prepare may be protected by the
attorney/client privilege or attorney work-product privi- verdict may not be unanimous. In a criminal fraud case,
the burden of proof is “beyond a reasonable doubt,” and
lege. This means that the documents may not have to be
provided to the opposing side in any litigation. If the the verdict must usually be unanimous. Thus, it is more
expert consultants do not testify, their role may end when difficult to obtain a conviction for criminal fraud than
the fraud has been established, an estimated range of loss one for civil fraud. The forensic accountant is well versed
established, and a suspect identified. Additionally, expert in the quality and type of documented evidence required
consultants may be engaged to assist attorneys by identi- for each court.

328 ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION