December 22, 2011

Retaining an experienced CPA with litigation and forensic experience during the litigation process will increase the chances of success in a fraud or embezzlement case.

Fraud cases demand using professionals who have knowledge of the evidentiary requirements and protocol to be followed. Not all CPAs are qualified for this type of assignment.

CPA firms that provide litigation and forensic services should have qualified CPAs with advanced certifications such as the CFE (Certified Fraud Examiner) that reinforce a candidate’s training and experience.

A qualified CPA will probably have worked on other cases. Others who have previously engaged their services should be contacted. A copy of the CPA’s updated curriculum vitae (CV) and hourly rates should be requested and the expert interviewed in person.

Additionally, consideration should be given to whether the candidate:

  • Would make a good witness if the case proceeds to litigation
  • Would be able to take a complicated case and/or concept and simplify it appropriately without diminishing the case/facts
  • Will be easily rattled by opposing counsel
  • Has qualifications that are strong enough to withstand scrutiny

Most fraud and embezzlement cases don’t end up requiring expert witness depositions or testimony. Therefore, in addition to reviewing the CVs submitted by CPA candidates, inquiries should be made about similar cases in which they have been engaged, and how they propose to approach this one. What specific services did they provide? Can they discuss the work product delivered and the outcomes?

Engaging the Expert

The expert should be hired through an engagement letter from the attorney formalizing the contractual services that will be offered. The letter should clearly outline the services and include a statement that fees are not contingent based on the outcomes.

Generally, the CPA will require a retainer. It’s best for the attorney – rather than the client – to directly engage the financial expert to protect the attorney work product privilege.

At this point in the engagement, a clear understanding of expectations is essential. An estimate of fees or budgeted hours should be discussed before commencing.

The final work product should also be discussed. Whether it’s a written expert report or summary of findings, it’s better to decide up front what will be expected and the time frame involved. There should be an agreement as to when the report is expected to be completed.

Preparing The Case

The CPA/fraud examiner should be able to interview individuals, disseminate information and present the facts in a systematic and orderly fashion.

Most skilled fraud examiners excel in interviewing alleged perpetrators. If possible, the CPA expert should interview those involved.

The accountant and attorney may have to work closely to obtain the necessary documentation. Subpoenas may have to be issued for records not currently available.

Once the records are collected and the interviews conducted, the expert should start the analysis segment of the engagement and be able to work independently. The CPA should be able to document what happened, identify who is responsible, quantify the loss exposure, determine the period affected and substantiate all results.

At the conclusion of the engagement, a written report should be issued in the required litigation-style format. The report should include a factual summary of the results of the expert’s work, and be free of opinions and unsubstantiated theories.

If the case proceeds to litigation, the CPA or fraud examiner can prove to be helpful. In a criminal prosecution, the expert may be called on to support the prosecutor’s case.

For civil matters, the expert report and related records may be used in seeking restitution.

Ways a CPA expert can help in the litigation process

Potential services

  • Matrimonial
  • Discover hidden or trace assets
  • Employee embezzlement
  • Identify perpetrators/quantify losses
  • Shareholder disputes
  • Validate merits of claims/quantify allegations
  • Damage losses
  • Assist in supporting or critiquing proposed loss

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This article was originally posted on December 22, 2011 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.