Forensic Accounting
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Forensic Accounting

by Bruce A. Hughes

March 2013

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Cross-examination of an expert is among a litigator's greatest challenges. And the stakes rise significantly when the expert is an adversary's forensic accountant testifying about the damages your client will be asked to pay.

But don't let the situation fray your nerves. Indeed, whether you are trying a case to a jury or a judge, the best approach lies in thorough preparation. The key is to know the numbers better than the witness does.

The first thing to do is have your own accounting expert review all reports prepared by the opposition. This means you must make certain you have obtained all of those reports in a timely fashion; once experts are disclosed, it is imperative to immediately demand disclosure of all reports and materials that were relied upon in forming the opposing expert's opinion.

With those items in hand, sit down with your own expert and review them together. Make note of significant differences between the opposing views of the case. Have your expert explain them. Make sure you understand the opposition's point of view. In addition, become so familiar with the terminology and methodology that you'll be completely at ease in the courtroom.

Next, decide who will attack the weaknesses in the other side's case. Will your expert do that work while on the stand? Or will you do it with cross-examination? Or will you and your expert split the task?

Before beginning your cross-examination, make a request of the court: Ask for permission to have your expert join you at the counsel table. That way, he or she may offer written critiques or questions, and prompt you - discreetly of course - to request further explanation from the opposing witness.

In terms of specific questioning, here are some basic points of entry. Start with qualifications. Is the witness a CPA? How many times did the expert take the CPA exam? If the answer is more than once, it will reflect poorly on the witness (unless your own expert is in the same position!). Does the witness have any competence designations relevant to the area of testimony? For example, is the expert a Certified Fraud Examiner? Is he or she accredited in business valuation, or in valuation analysis? (It's best to know the answer before you ask the question; a thorough pretrial deposition is an invaluable discovery tool to examine an opposing expert's background and work.)

Next, seek out bias. How many times has the person been retained as an expert? Is the accountant's primary practice one of "expert witnessing"? Does the expert work exclusively (or primarily) for opposing counsel? Does he or she own any investments with the opposing attorney or client?

Move on to foundation. Many forensic accountants do a superficial review of the pertinent documents, reviewing only financial statements and tax returns. If they haven't delved into accounting records, you may have a huge advantage. The true power of forensic analysis lies in examining the particulars of journal entries, the general ledger, the check register, the cancelled checks, and other items at that level of detail.

If your own accounting expert has reviewed these issues, make sure you know precisely what was discovered. In examining the cancelled checks, did your accountant review the endorsements so as to locate any unidentified bank accounts? Do the financial statements agree with the income tax returns? Do the descriptions in the check register match the payees on the checks? And is it possible the other side has unreported income? Your accountant ought to have reviewed this last issue closely since it is common - particularly in divorce cases where one side may be hiding assets from the other.

Only by looking deeply enough will your accountant discover these things - and it takes only one or two such "nuggets" to destroy the credibility of an opposing expert.

A final point that moves beyond the actual evidence: Make sure your own expert is able to explain accounting basics in a straightforward way that everyone in the courtroom can understand. If your side is the one that teaches the fact finder about the case, you are the party most likely to prevail.

Bruce A. Hughes, a partner at Hughes & Hughes in Tustin, practices family law and also is a certified public accountant.

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