The Role of the Financial Forensics Expert
By S. Christopher Lopp, CPA/ABV, MBA, MAFF, CFF, CFE What is Financial Forensics? The term Financial Forensics is a relatively new term used to describe expert witnesses who possess a much broader set of skills and capabilities than have traditionally been associated with Forensic Accounting. Financial Forensics has evolved into a science similar to other evidence-based sciences, such as toxicology or ballistics. This science is based upon quantitative analysis that includes large data sets from corporate records, from transactional databases of companies or assets that have sold, from actuarial tables, from stock and bond market data, and from a variety of other sources. It also includes qualitative data that may be gathered from case law or statutory research or from sources such as depositions, interviews of the owners, managers, and employees of a company, discussions with the family of a victim, internet background research, or traditional private investigative methods. The traditional CPA, whose background involves spend the majority of their career preparing tax returns or performing financial statement audits background is not well suited to perform these services without a great deal of additional training and experience. A wellqualified Financial Forensics expert needs the skills of a private investigator to investigate people, companies, industries, and the flow of money. Understanding the capabilities of a financial forensics expert can provide advantages in helping your clients solve their problems successfully, whether it involves litigation, internal corporate issues, or determining appropriate damages to pay or receive to avoid litigation.
When Do You Need a Financial Forensics Expert? A Financial Forensics expert can assist a lawyer by providing services on many issues which are common and readily come to mind: • • • • • • • •
Business Valuations Marital Dissolution Valuation of Damages in Civil Litigation Personal Injury Cases Wrongful Death Wrongful Termination Cases Fraud Investigations Financial Statement Analysis In addition, there are also a number of other areas where Financial Forensics experts can assist that may not be as obvious. Here are just of few examples: • Shareholder or Partnership Litigation – Outside the traditional values needed to compensate a departing partner, there are often accusations of fraud, misappropriation of funds, loss of corporate opportunities and a host of other issues that lawyers frequently encounter, but don’t involve the financial expert early enough. • Alter Ego Analysis – This analysis involves analyzing the (likely near bankrupt) company that may have breached the contract or committed the tort for undercapitalization (while being subsidized by an entity under common control), transfers between related entities, commingling of assets, operations, or personnel, following corporate formalities,