10 Tips for Engaging a Forensic Accountant in Your Matrimonial Law Matter
by Jennifer Oyadomari, CPA, CFE, CFF, ABV, and Alissa Kelly of Forensic Solutions
Forensic Accounting is having a moment… From mergers and acquisitions to celebrity divorces heard around the world, the concept of a forensic accountant is gaining traction as clients involved with cases ranging from a divorce to a partnership dispute look for a resolution and a way to become financially whole again. As a practicing matrimonial or family law attorney, perhaps you have worked alongside a forensic accountant on multiple cases or maybe you find yourself in need of these specialized skills for the first time… regardless of your situation, hiring a forensic accountant can be a lengthy and expensive process when it involves a tracing analysis, business valuation, or other financial analyses, but the process can be a true game changer for your case.
What is a forensic accountant? At its core, forensic accounting is investigative accounting with the intention that the findings will be used in litigation. A forensic accountant analyzes detailed financial transactions and records during investigations of fraud, divorce, embezzlement, money laundering, tax evasion, and, unfortunately, the list goes on and on. Analyses often involve tracing assets and examining complex financial transactions or issues (ever hear of “following the money”?!) and summarizing the data into a report that allows the layperson (i.e., those who are not financial experts) to read and understand the material presented.
You might be thinking, this sounds serious, and that your divorce case doesn’t involve “fraud” or “embezzlement” or any criminal activities. But does your case show financial deception by one spouse? Is there marital waste? Do you think a spouse is hiding assets? Does a spouse refuse to pay spousal support? Does your client require an assessment of “need” for spousal support? Are you concerned about the true income of one or both spouses? Are the parties unsure of the total value of their estate and lifestyle needs? These are just some of the reasons you may want to discuss utilizing a forensic accountant with your client.
Now that we have established what a forensic accountant does and you think you might have a need to engage an expert, what are the next steps? Use these 10 tips to start off on the right track in working most efficiently with your expert.
- Engage early – Your first step is selecting an expert and part of that process is due diligence. Personal references from attorneys you trust take the top spot when it comes to selecting an expert. This allows you to ask questions regarding their opinion of the expert’s knowledge, ability to work on a timeline, quality of work, and ease of the client/expert relationship. Once you determine your needs and identify your expert, you will want to reach out immediately, even if a trial date has yet to be set. This allows you time to discuss your client’s needs with the expert, and for the expert to run a conflict check with their staff. Reaching out early will ensure you acquire the expert you want versus allowing that expert to be chosen or conflicted out by opposing counsel.
- Budget – When it comes to budgeting for a forensic accountant, the first element to understand is that there is no one-size-fits-all style of pricing for an engagement. Factors like the length of the tracing period, availability and quality of documents, additional angles or information that might be uncovered during tracing, number of transactions to be analyzed, etc. can all affect the pricing during the life of the case. The engagement will begin with an initial retainer, which is not an estimate of the total cost of the engagement but is simply the starting point to get the ball rolling. Forensic accounting analyses can be a large undertaking as the accounting team’s sole function is to take the time to review large amounts of data, analyze that data in multiple ways, and often, report those findings in an Expert Witness Report.
- Objectives – To the best of your ability, be clear on specific objectives and needs prior to commencing the tracing analysis. Are we looking for marital waste? Are we looking for hidden assets? Are we calculating how much someone embezzled? Should we be on the lookout for payments to certain individuals or businesses that are of concern? The more specific the information, the more efficient your expert can be in identifying those initial concerns and categorizing supporting documentation/information along the way. Think of the objectives as a roadmap through your forensic accounting engagement. It is important to note that objectives can, and often do, change during the assignment which is why communication becomes one of the most important aspects of an engagement.
- Communication – At the point of retention, your expert witness becomes part of your team and for the most efficient teamwork, there needs to be reciprocal communication. From the time of engagement through trial dates and beyond, it is of utmost importance to communicate deadlines, both court-related deadlines and your internal client deadlines. A forensic accounting engagement is an investment in your client’s case, and you want to ensure your expert has ample time to provide the best possible final work product.
- Documents – It’s important to note that as a member of the team, using a shared file source/data room to provide new documents when received can also have an impact on the effectiveness and timeliness of your expert’s findings. We are often in the weeds when we discover the need for additional information, so being able to make timely document requests on your expert’s behalf makes the process most efficient. One of the most challenging factors we encounter during an engagement is having to stop all work for whatever reason (including document production) and then pick back up again weeks – sometimes months – later, so it’s important that requests for documents are handled timely.
- Discovery – Assume that your expert needs everything during the discovery process. As we are building a financial profile, details contained in interrogatories, Financial Disclosure Forms, deposition transcripts, legal filings, and other documents help us build that complete profile and can provide invaluable insight. For a forensic accountant, discovery is not just for financial records but gaining more pieces to the overall puzzle.
- Be open to findings – When we begin a forensic accounting analysis, we have a hypothesis in mind of what we are looking for, based off the objectives set at the start of the engagement. At the same time, we are also looking for information that counters that hypothesis. As forensic accountants, we are fact finders, and our goal is to find the numbers, follow the money, and provide an analysis of what is discovered. During this process, we often look at third-party documents and other verified facts so that the financial analysis is completed with objectivity.
- Depositions – We highly recommend that you include your expert as a part of the deposition process. When laying out your timeline and objectives, communicate who you plan to depose and the expected timeline. This allows the expert to keep a running track of potential deposition questions as we work through the analysis, which will assist you when it comes time to take the deposition. It’s also important to include your expert in the deposition process for the opposing expert, including deposition preparation, deposition questions, and having your expert attend the opposing expert’s deposition to assist you with questions and follow-ups on the spot.
- Trial – When we wrote about budget earlier, we covered the fees for the analysis and report; however, you should also budget for your expert witness to attend trial. Naturally, you want your expert to testify to their opinions, but you will also want your expert to attend trial on the day any other accounting expert witnesses testify. Similar to attending a deposition, the expert’s participation at trial allows them to be a part of the process – giving real-time feedback to counsel, including cross-examination questions, as well as providing general observations and comments.
- Post-Trial – Be sure to follow up with your expert witness to let them know the outcome of the trial and if there is a potential for an appeal. But mainly, we worked hard alongside you and want to celebrate your win!
With these tips, you will have an efficient and positive engagement with your forensic accountant, which is a win-win for all parties involved. Now, go forth and find an expert you can count on!