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The forensic accountant as expert witness

The stories make the top of the news: Utility company overcharges customers via advanced billing policy and benefits by delaying reimbursements. Politician hides illegal contributions and bribery money. Church allocates assets to regional parishes and declares bankruptcy to avoid major legal settlement. Illegal investment scheme bilks hundreds of investors out of millions of dollars. On a smaller scale outside the press rooms and ingrained in our every day life are the legal issues of partnership and corporations, marriage dissolution with disputes over the use and whereabouts of assets, economic loss due to injury, employment fraud and resolution involving insurance claims.

Forensic accountants understand how these issues touch each of us in various ways, from the curious and outrageous to the very core of our financial well being. What all these situations have in common is the world of accounting, the forensic accountant's role in determining a variety of financial issues, and how forensic accounting testimony may be used in a court of law.

Forensic accounting, according to Heather Xitco, is the integration of accounting, auditing and investigative skills. One on end of its scope, these experts helps evaluate and resolve situations to avoid legal actions. On the other end, forensic accountants have become valuable resources in the settlement of disputes, some of which end in court proceeding.

"Forensic accountants usually enter a situation once it becomes embroiled in controversy," said Xitco, a CPA with LECG (Nasdaq: XPRT). "A partnership dissolves and the partners are in dispute about the location and distribution of assets. An employee is injured on the job and a specific determination of economic loss needs to be made. A criminal case goes to court and an expert witness in forensic accounting is retained by counsel to gather and evaluate financial information and called to present evidence."

The specialized area of litigation support is one of the primary functions of the forensic accountant who, as an expert witness, helps to quantify economic damages.

Forensic accountants may by retained by lawyers, governmental agencies, insurance companies, banks and other entities, including individuals to analyze, interpret, summarize and present complex financial and business related issues in a manner that is understandable. "And the earlier the better," she said.

A forensic accountant is often involved in investigating and analyzing financial evidence, developing computerized applications to assist in the analysis and presentation of financial evidence and communicating the findings in the form of reports, exhibits and collections of document.

"Our assistance in legal proceedings," Xitco said, "often involves testifying in court as an expert witness and preparing visual aids to support trial evidence. We need to identify substance over form and presents the facts as clearly as possible."

Attorneys have found that engaging forensic accountants facilitates obtaining documentation necessary to support or refute a claim, as well as review relevant document to form an initial assessment of the case and identify areas of loss.

She said she may also attend the examination of discovery to help review testimony, assist with understanding the financial issues and formulate additional questions to be asked.

"As expert witnesses, we are often asked to review the opposing expert's damages report, and we offer our opinion on the strengths and weaknesses of the positions taken. We may assist with settlement discussions and negotiations, and we attend trial to hear the testimony of the opposing expert and provide assistance with cross examination."

"Beyond the algorithms, statistics, investigation and presentation is that you have to love the details," said Xitco, "following the money, assisting in the recovery of assets via civil action or criminal prosecution, determining short-term and long-terms financial loss, and analyzing spending habits. And these activities just touch the surface of what we do."


Heald is principal of Beck Ellman Heald Public Relations & Advertising.

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