Forensic Accounting: A New Twist on Bean Counting

A look at modern forensic accounting and how it differs from standard accounting and auditing

Some forensic accountants may focus on investigating corporate fraud, while others work mainly in litigation, assessing damages in corporate disputes. Insurance claim analysis is a popular area of expertise, and this involves examining the accuracy and completeness of insurance claims and supporting documentation.

Other specialty areas include business valuations and computer forensics. In my opinion, both of these areas require a fair amount of specialized knowledge. Look for a firm that has professionals who focus entirely on one or the other of these, rather than firms or professionals who dabble in them.

In my opinion, it is best to work with an expert who has chosen one or two areas of specialty, rather than trying to be all things to all people. Specialists are much more valuable to cases, rather than professionals who muddle through any sort of work they can acquire.

Certifications can become an important part of selecting an expert. Be wary, though, of certifications that are nothing more than a title for sale. Selling certifications and continuing education is big business, and it is important to be sure that any certification touted by a potential expert is meaningful.

As an example, the Certified Fraud Examiner (CFE) designation is the "gold standard" in the area of fraud. It is earned through an application and testing process, so membership is limited to those who can demonstrate their knowledge. On the other hand, some certifications simply may be purchased. Attorneys should be skeptical of seldom-heard designations and inquire as to their authenticity and meaningfulness.

Industry experience is less important than investigative experience, in my opinion. It is easier to get up to speed on a particular industry and its unique characteristics than it is to hope that someone develops investigative skills overnight. If you are lucky, you may find a competent forensic accountant with a particular industry focus such as hospitality, construction, or the like. However, the investigative skills should be the primary concern when searching for an expert.

One further complication is the ability of the forensic accountant to testify well. A good investigator does not necessarily make a good witness in court, so it is imperative to find a forensic accountant who can convey findings in a non-technical format.

Look for an expert who has testified 10 or more times in the last five years. There is nothing wrong with asking an expert for a list of testimony experience prior to engaging her or him on your case.

Why does it matter?

An attorney generally gets only one chance to make her or his client's case. Do you want an inexperienced so-called expert to spoil the evidence, spend your client's money, and waste everyone's time? It would seem so much more logical to engage a qualified, experienced expert who can handle the case the right way from the start.

I've often been asked how an attorney can differentiate between potential experts. My best advice is to ask fellow attorneys. I've found that attorneys are a fairly close-knit community when it comes to referrals. The names of the good experts will surface repeatedly.

Fortunately, bad experts are generally discovered fairly quickly. It takes only one botched case for an expert to be blacklisted. A botched case isn't one in which the results were unfavorable to the client. It is a case in which the forensic accountant very simply messed up the investigation, issued a baseless report, or did not testify well.

Look for an expert who can "walk, talk, and chew gum at the same time." A good expert should be familiar with legal terminology and should be able to carry on an intelligent conversation about her or his work on prior cases. The inability to communicate about one's supposed area of expertise should throw up major red flags.