Mark Jenner & Co – 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.

Many solicitors working in all areas of the law routinely use forensic accountants to assist them with the financial and business apsects of a case. However, some solicitors may be faced with the need to instruct an expert accountant for the first time, or must explain to a particularly demanding client why there is a need to spend additional money on appointing another person to the team! Victims of fraud may wonder if spending more money investigating their loss is worth it? This article examines why forensic accountancy adds value to any fraud matter, business crime defence or confiscation proceedings.

Any criminal or civil dispute involving fraud, money laundering or matters of finance generally tend to be more complex than other disputes. The reason why loss has occured is often due to the confusing nature of money transactions hiding somebody’s attempts to steal. Sometimes business losses are targeted by the regulators as frauds simply because the money trail is confusing! In short, there are many instances where it is essential that a clear and succinct picture is drawn up of any particular transaction, or series of transactions, so that a complete understanding is facilitated for all parties, many of whom do not have a clear or detailed understanding of finance issues.

Presentation of complex financial issues

Forensic accountancy is often no more than presentation of financial issues in a form that is easily understood – by disputing parties. This includes the police or other regulators, the lawyers, the Judge and the Jury. Complexity of financial accounts is often cited as a red flag of fraud. Complex group structures with inter-company transactions and charges often cloud the simple facts of the business taking place. Sometimes the reason is to cover up fraud, but often it can simply be the policy of the company owners structuring their business innocently.

Many businesses will use a different bank account for each strand of their business operation, often having several accounts for each company. Then they might have several companies to act as vehicles for different aspects of their activities. Thus one business may run with one company and one bank account, whereas a similar business may have dozens of bank accounts and a straggling group of companies. The complexity of the group might mean that if a dispute arose, forensic accounting would be needed to break things down to a simple level and present almost as if the business was like the single company.

Providing expert opinion

“Forensic accountant” and “expert accounting witness” are almost synonymous – it depends on who is making the comparison. At Mark Jenner & Co there is very little that distinguishes the two areas from each other. Every case that is taken on involves financial investigation – an examination of the financial situation that allows it to be distilled into a form that can be presented and understood by non-accountants. This work could be investigating a fraud, looking for answers to see how much money was lost and what weaknesses allowed it to happen. Or, the work could be a critique of a financial case prepared by another forensic accountant or a regulator. In this case, the forensic accounting task would be to look for errors and inappropriate assumptions.

But some cases may lead to an expert opinion being needed also. All forensic accounting work may become part of a dispute – as a company seeks to recover assets from the member of staff in a civil fraud case, the Crown seeks to confiscate assets from a convicted criminal or prove fraud against the fraudster. Most of the time the forensic accountant will simply be presenting the financial picture using his expertise – but sometimes he will provide opinions within his work. As an expert witness, he is one of the few people in a Court room allowed to have an opinion (other than the Judge). Everybody else must deal in facts.

Providing an opinion in court is very different from criticising errors in the opposition’s case or providing a clarification of the facts. An opinion is a powerful tool in any case – but equally vulnerable to attack from the other side. For example, take one recent case where an accountant was accused of failing to report suspicions of fraud and fulfiling his proper Money Laundering Regulations obligations. The Crown brought a very robust case against the individual for not having proper procedures in place such as “Know Your Client” checks and for receiving money into a client account on behalf of the fraudster.

To put this case in context, the accountant prepared the accounts for the fraudster and held around £200,000 client funds for about one year. For his services he took a very modest annual fee and returned the funds as and when his client instructed. He gained absolutely no benefit from allegedly hiding his client’s fraud.

On the face of it this person was innocent – but in today’s professional arena every practicing lawyer and accountant knows how seriously the Crown takes money laundering. We have all got to be careful who we deal with and make sure we record sufficient efforts that we have made to keep things straight. The fact that the matter described took place in 2002 just before the Money Laundering Regulations came in in 2003 seemed to have been missed by the Crown. Back then I recall even the big accountancy firms did not know what was expected of them or even when the new legislation came into effect. I was involved in the implementation of the regulations at the time, giving lectures and training on several occasions. In 2002/03 the accountant could have been forgiven for not being up to speed with the new developments – before the deadline early in 2003! In this case sense prevailed, hopefully the forensic accounting opinion that the accountant had actually done more than was he was legally obliged to do at the time helped. In this case there was hardly any numbers in the report and certainly no complex transactions to explain. However, a relevant expert accountant’s opinion was very much needed.

How do you choose a forensic accountant? Many people think that one forensic accountant is the same as any other - some think that the more you pay the better service you will get. As with all other professional services this is of course very far from the truth, as there are many different forensic accountants on the market, all with vastly different experience and expertise. It does pay dividends to find one that has the particular skills that your case needs.

You might require an expert accountant to understand and present a particularly complex piece of business or accounting activity. You might want a financial investigator to delve into complex and interlinked potentially fraudulent transactions. You might want a minority shareholding in your family company valued or you might want an independent critique of a financial statement prepared for a white collar criminal case.

Choosing the wrong forensic accountant would be like asking a plumber to carry out an electrical installation. Just because they are both tradesmen does not mean they carry out similar jobs. This obvious point can be carried further – a plumber will re-plaster an area of wall where he has been carrying out some pipework. He will carry out a neat job undertaking this other “trade” in order to finish off his own speciality work. However, you would not ask him to re-plaster your whole house – he could not do it as well or as efficiently as a full time plasterer!

Many forensic accountants are appointed by lawyers. Here the accountant may be chosen for the larger firm that he represents. However, even here care must be taken – all practitioners within an accounting firm or specialist forensic accounting practice do not possess the same skills. When choosing a forensic accountant, the individual expert must be considered apart from the overall expertise of his firm because, if it comes down to a court appearance, it is the expert that will appear in the witness box.

So what should you be looking out for when choosing your forensic accountant?

Experience

As discussed above, the particular experience and skills must match the needs of your case. The areas where you might need forensic assistance are numerous, and you should check that your chosen expert regularly undertakes similar cases successfully. These might include business valuation, estimating loss of profits, checking tax assessments, investigating fraud, considering professional accountant’s negligence, defending white collar crime cases and confiscations. In addition there are many, very specialised circumstances where you might want particular industry experience, such as experience valuing a construction business. Another example would be determining negligence of a lawyer’s practice in terms of fulfilling its accounting responsibilities for the Law Society.

Credibility

A forensic accountant’s work will often result in giving evidence as an expert witness at a trial. An expert accounting witness must be credible – so that weight can be given to his opinion in court. He will be asked questions by opposing counsel that are designed to reveal any flaws in his abilities that would give rise to doubt over the credibility of his expert evidence. Of course relevant experience in the particular subject area is important, but also being a practitioner in a certain area of accountancy and not just a full time expert witness is also important. Giving evidence in white collar crime cases on behalf of the defence is much more credible to the court if the expert witness is also a fraud investigator as well.

As well as relevant experience, training and qualifications provide substantial force to an expert’s credibility. The expert accountant will be a Fellow of his relevant accounting institute, likely educated to post graduate levels at university and be a member of relevant professional bodies and forums. Examples of his writing skills and expertise in the subject areas he specialises in will be evidenced in articles in the press and journals, and even in books published on the subject area.

Court Appearance

An important aspect of suitability, if a forensic accountant is to effectively give evidence in the witness box, is whether or not he has been in this position before. Experience in this area is important. But this is an area where caution is needed. Some forensic accountants are seldom called to give evidence – for example if they work on very large criminal frauds where the findings of the prosecution and defence are often argued out of court until some level of agreement is reached. However, most good forensic accountants will be able to demonstrate some competence giving oral evidence in court.

Cost

Not all forensic accountants cost the same! If you choose a forensic accountant from one of the larger accountancy practices you will be employing somebody that might cost you in the region of £500 or more per hour. A lot of the work will be delegated to more junior staff and so this rate might fall quite considerably overall. It is still expensive, but your work will be backed by the brand and quality assurances that large firms can give.

If you choose a forensic accountant from a small firm of accountants you might obtain services at £100 per hour or even less. Contained within these two price ranges are hundreds of different forensic accountants, some good ones charging very little and some very poor ones charging a lot. You may have a budget that will constrain your choice, but as far as possible the costs should be the last consideration. It is most important that you choose an expert accountant to carry out your forensic accounting work that is suitable for your case. He or she must:

1. Be experienced and comfortable dealing with the various aspects of your case – this means that they will not take on your case until they have thoroughly familiarised themselves with all aspects of it, and have ascertained that they are acting well within their expertise.

2. Have a curriculum vitae that will impress the reader – this means that work experience, qualifications and professional interest all indicate a high level of competence in the relevant areas.

3. Whether from a large or a small firm, or a specialised niche practitioner – the forensic accountant should appear highly professional in their approach. Costs will reflect the business infrastructure they utilise but in all cases will be higher than the general costs of accountants – owing to the very specialised nature of the work.

4. Finally – and for some most importantly – is the expert someone you can work closely with? If you are employing the forensic accountant for your own dispute or problem you will be working closely and airing your personal issues. It helps if your chosen forensic accountant is approachable and tactful. Even if you are employing an expert on behalf of your client or your company – you must still work closely with them and it helps if you can get on well - working as a team.

Mark Jenner & Co is a firm of Chartered Accountants that specialises solely in forensic accountancy. Although services do not include normal accounting lines such as auditing, preparation of year end accounts and the provision of tax advice, a forensic accountant must be competent in all these areas in order to be able to examine financial records, often produced by accountants, and provide an unbiased and “expert” viewpoint on their content.

Forensic accounting techniques are used by investigative accountants to look at financial records, dig into their background and present a clear and concise account of what they mean and how they impact a particular matter that they have been asked to consider. Forensic accounting techniques are not the same as normal accounting methods, such as auditing techniques or methods for considering tax issues – but they may include the use of these skills along with investigation techniques, legal understanding and a natural tenacious desire to uncover a hidden issue.

A forensic accountant is an expert accountant and experienced business advisor that is asked by one party in a dispute to provide clarification and opinion concerning the issues being debated. There are a wide range of circumstances that can involve the need for forensic accountants. These can range from valuing assets for one or both parties in a matrimonial dispute in order that a division of wealth can be made, to establishing how much profit has been lost as a result of a factory stoppage that is being blamed on another party. Quantification of the value of damages or losses in order to assist with a claim is a big part of a forensic accountant’s work.

However, one of the biggest branches of forensic accounting is focused on crime. In particular financial crime or, in other words – fraud. This is the area of work that Mark Jenner & Co focuses on. Indeed the general public often associate fraud with forensic accounting. Fraud by its very nature involves some form of accounting anomaly or financial deceit. It is the manipulation of accounting records by business criminals (white collar criminals) to hide the theft. As such, one of the most important persons needed to investigate and deal with fraud is the expert accountant.

It is the financial and business expert that is able to understand the accounting evidence in order to recognise, or unravel, the fraud. He or she will look for the reasons it was possible for the fraudster to commit the crime and try to discover the route the losses have taken leaving the victim company. It is this forensic accountant who traces these losses and demonstrates the ultimate destination of the money by analysing bank statements and other financial records when “following the money”. It is arguably the most important part of the fraud investigation because without it, interviewing suspects or gathering evidence does not have a focus.

When confronted with a new case, the forensic accountant does not have a specific set procedure. Every fraud is different, it is the unusual and new loophole that every fraudster is seeking in order to surprise an organisation that thought it had covered all the bases. The money trail is the starting point and establishing how the losses occurred and how much has been stolen is the first task. The forensic accountant must try to place himself in the fraudster’s mind and attempt to answer the question “how would I steal the money?”

The forensic accountant may enlist the help of other competent accountants to analyse bank statements and collate data. He or she may often use a victim organisation’s own resources. Sometimes accounting software is utilised to make the repetitive tasks easier, such as IDEA for Windows or Altia statement analysis software. Spreadsheets are by far the most common tool for collating vast quantities of records and analysing unusual events within normally repetitive data.

It is the interpretation of results and provision of opinion where the forensic accounting skills are most valuable in any fraud. An opinion may have to be supported when under cross examination and the other party is not going to simply accept one persons say so. It can be very lonely in the witness box for a forensic accountant! However, a good forensic investigator will only present balanced and independent opinions that are based on a thorough understanding of all the facts.