Mark Jenner & Co Limited – Forensic Accounting Services

As an accounting expert witness, the presentation of expert accounting evidence is the key skill of the forensic accountant.  Investigating corporate crime may lead to the uncovering of fraud or corruption, but once it has been found it needs to be dealt with.  This will involve a dispute within the criminal or civil courts, or at very least a negotiated settlement between the victim and the perpetrator.

The loss or financial anomaly needs to be argued accurately.  If a criminal is to be prosecuted or a fraudster ordered to repay funds, the argument must be persuasive.  Evidence must be satisfactory in order to meet civil or criminal standards depending on the case.  If the accused fraudster believes the victim is “fishing” for information he will no doubt try even harder to defend his position with obfuscation and diversions.  The presentation of the evidence of the fraud may be in the form of a report or as part of oral negotiations or testimony.  It must be accurate, succinct and easily digested by non financial specialists.  In this respect, the challenge is to distill the issues into simple components that can be understood and difficult to refute.

Investigating the problem

The first stage is always the fraud investigation, the hunt for the evidence that shows how much has been taken and how the loss occurred.  For a defendant, this investigation by his or her defence team is just as important.  Sometimes the prosecution will present an incomplete case, with conclusions of guilt not fully founded.  Assumptions may have been made, especially in Proceeds of Crime Act 2002 cases where a criminal lifestyle is often assumed without the need for evidence.  The issues must be analysed, further documents and evidence often considered and explanations obtained from various parties.

Distilling the evidence

The evidence of the fraud, or evidence of not being guilty of the allegations, may exist within many 1000s of pages of bank statements and other documents.  These have to be distilled into an easily digestible summary that explains and proves the case.

Clarity of conclusions

In fraud there is rarely a “smoking gun” that irrefutably fixes guilt, or evidence that obviously extricates a defendant from the allegations levelled at him.  By its very nature fraud involves losses hidden amongst lots of other detail and in complex cases can be difficult to understand. Ensuring that non-finance experts understand the issues arising from detailed analysis of accounting records requires conclusions to be clear – presented in logical steps from the facts. A conclusion is like the tip of a pyramid, which must be supported by a much larger base of facts.

Robust oral testimony

A good forensic report will speak for itself. However, sometimes there are two or more experts reviewing the same facts but presenting different conclusions. Although an expert should be independent, given the adversarial field in which the work is required there is always the possibility that a partisan “slant” is placed on the conclusions by less experienced expert witnesses. If both parties stand by their expert’s findings, the testimony may need to be tested by the Court. This involves the experts giving evidence from the witness box, and often being cross examined by all parties in a matter.

There are times when even the most experiences and non-partisan expert will be called upon to explain aspects of his report. In these cases, the opposing barrister may well attempt to discredit the evidence by asking difficult and searching questions. Any expert accounting witness who has presented an accurate and well written report, maintaining an independent viewpoint at all times, will have no difficulties in such a situation. Although a somewhat unnerving position to be in, the expert must answer the questions put to him honestly without deviating from the point at hand.

Choose your forensic accountant with care

It is clear that a good choice of forensic accountant will assist with any case where complex accounting issues are being argued. Experience in the witness box is a must – but more importantly is an independent and common sense approach to the work. Common sense can prevail with many Judges and Juries even when case law or legislation appears to be against the required outcome.

Experience in the particular subject area is helpful as an understanding of the business issues supporting the particular matter can ensure that this common sense is appropriately applied – and explained in due course if necessary.

Use of an expert witness in civil litigation

A long raging argument over proportionality of expert witness costs has resulted in a fundamental review of the rules and procedures governing the costs of civil litigation. Lord Justice Jackson was appointed by the Master of Rolls in 2008 to carry out this review culminating in his 555 page report on 14 January 2010. This contained just two proposals of interest to expert witnesses

One change proposed is to alter Civil Procedure Rule 35 so that any party wanting to bring an expert witness to the matter should provide to the court an estimate of the cost of doing so.

The second change is a proposal to introduce the Australian practice of concurrent expert evidence known Down Under as “hot tubbing”

With hot tubbing, two expert accounting witnesses for example would be sworn in at the same time and would attend a discussion chaired by the Judge. The agenda would be fixed by a joint statement from the two experts from an earlier meeting of experts held under CPR 35.12 which would record the matters upon which the experts still disagreed. The discussion could be attended by counsel from either party who can ask questions as would the Judge who would steer the meeting.

Another system of expert evidence management is being currently proposed by the Law Commission whereby the evidence is tested pre-trial in order not to waste the time of a full court.

The hot tubbing should allow the evidence to be explored in advance of any full blown hearing but its success will be down to the skills of the Judge – running the risk that the latter may well secretly favour one party or another. However, it is unlikely that the hot tubbing will save any money! By the time the experts are ready to come to the discussion “in the tub” they will have expended all their time and effort in preparing their reports. Although there may be many ways in which expert evidence can be better used to reduce the cost of litigation, the Jackson report does not address them.

Ways to reduce the costs of litigation (relevant to expert accounting witnesses)

These methods are applicable to an expert witness or a forensic accountant operating under civil procedure rules as well as criminal procedure rules and relate to private funded experts and those paid by the Legal Services Commission:

• All reports written under civil or criminal procedure rules are done so as if they were to be placed before the court – irrespective of whether this happens or not. Costs would be saved by the introduction of advisory statements that could assist understanding.
• Staged instructions would allow for just the required amount of input to be obtained from the experts up and until a matter perhaps settles, without the need for a full report and a court hearing.
• If experts were involved earlier there is much opportunity for saving, as opposed to expensive and rushed last minute instructions. Expert work can avoid unnecessary avenues of investigation.
• Wasted court dates are expensive and could be avoided by proper court funding and management.
• By choosing the “cheapest” forensic accountant (a favorite ploy of the Legal Services Commission) very rarely is best value obtained.
• Expert instructions are often vague leaving the expert to decide what should be done. Sometimes this can produce valuable input into a case but more often leads to inefficient and uninformed work.
• Late payments of experts has been considered as one of the major forces inflating experts’ fees – it is not helpful and leads to an aggressive stance on occasion by the expert witness. It is not acceptable for public funders in particular (LSC) to withhold funds to ensure their budget spending patterns are maintained.