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The Role of Forensic Accountants in Questioning the Opposition

I’ve never been to law school, but I have watched enough television in my life to know that the dream of every attorney is to have that Perry Mason ‘AH HA’ moment. That point in time when questions and answers have been structured to the degree that the person being questioned (whether in deposition or trial) has put themselves into a spot that they can’t explain their way out of.

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Having been on the receiving end of a deposing or cross-examining attorney many a time, it is always challenging and rewarding to use that experience and expertise to assist legal teams in preparing to question other experts or opposing parties. It is equally satisfying for us when attorneys come to the realization that having a forensic accountant on their team creates an invaluable weapon to add to a firm’s (and client’s) arsenal.

Attorneys and litigators are not always fluent (nor are they expected to be) in the areas of tax return preparation or generally accepted accounting principles. It’s difficult enough for CPAs to keep abreast of new accounting standards and changes in corporate, individual and non-profit tax law, which is exactly the reason forensic accountants who have such experience and expertise provide crucial support. Years of tax returns obtained through the discovery process may have one line item—or a financial statement may have one footnote disclosure—that rocks the opposing side’s foundation and makes all the difference in the eyes of a judge, a jury, or better yet, settles the matter before it comes to that.

I often assist labor union and benefit plan trust attorneys with ability-to-pay reviews. This happens when an employer claims that, due to financial hardship, they do not have the ability to pay what is owed to either the labor union (example: members’ dues) or an employees’ benefit plan trust (example: members’ health coverage premiums). The owing employer will provide financial statements and tax returns to show that they are losing money and have no available assets to satisfy their obligations. But while the decision whether or not to legally pursue the matter may appear clear, it’s not always so. Has the employer paid excessive salaries and bonuses to themselves?  Are there related-party leases that divert funds out of the business? Does it appear that the employer is making preferential payments to other vendors or debtors instead of your client? To assist, I will perform an initial review of the information provided by the attorneys and then discuss the facts—leading counsel to determine whether it is in their client’s best interest to spend the additional money to pursue the case and investigate further, or not.

For organizations and attorneys alike, my advice is to not overlook the value that forensic accountants can bring to your case. Develop a relationship with one whom you can at least utilize as a sounding board on those matters that may not seem so straightforward. A quality forensic accountant should at least be able to give you some ideas—and if engaged will bring sufficient value to the case.  

Author: Richard C. Gordon, CPA/ABV/CFF, CFE, CGMA, Director of Forensic and Valuation Services

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