This presentation will examine how to get the most out of using a forensic accounting expert, as well as tips for qualifying the proper expert. In addition, we will review the accounting standards most commonly questioned by lawyers in forensic accounting cases, as well as Daubert challenges. This program also covers effective engagement management methodologies, forensic approaches, expert report preparation, expert comparisons, testifying, the art of conveying clear expert conclusions and of course, "expert vulnerabilities."

1. Using a Forensic CPA —
A Perspective for Lawyers
Frank A. Suponcic, CPA, CFE, CFF
January 17, 2019

2. What is Forensic Accounting1?
Forensic accounting services generally involve
the application of specialized knowledge and
investigative skills possessed by CPAs to collect,
analyze and evaluate evidential matter and to
interpret and communicate findings in the
courtroom, boardroom or other legal or
administrative venue. In the context of litigation,
the term “forensic” means to be suitable for use
in a court of law.
1 AICPA practice aid – Serving as an Expert Witness or Consultant

3. What is Forensic Accounting?
Forensic accounting services include:
• Litigation support
• Alternative dispute resolution
• Fraud and special investigations
• Financial analysis of complex matters

4. What is Forensic Accounting?
Depending on the assignment, a forensic
accounting professional serves as a:
• Consultant
• Expert witness
• Fact witness

5. What is Forensic Accounting?
Consultant. A person retained to advise about facts, issues, strategies
and other matters.
The consultant does not testify about his or her expert opinion before a
trier of fact unless the consultant's role is subsequently changed to an
expert witness during the litigation. Generally, the consultant's work is
protected from discovery by the attorney work product doctrine, which
emanates by extension from the attorney-client privilege.
If engaged by a litigant or prospective litigant the consultant's work may
lose the protection of privilege that would be afforded such work if the
consultant were retained directly by the litigant's attorney.

6. What is Forensic Accounting?
Expert witness. A person formally
designated to render an opinion(s)
before a trier of fact.
The CPA's litigation-related work product
and file may be required to be produced
to opposing parties.

7. What is Forensic Accounting?
Fact witness. A person with knowledge
about what happened in a particular
case or what the facts are.
No opinion is rendered.

8. Broad Expertise
Broad Expertise at Skoda
Minotti
• Accounting & Auditing
• Benefit Plan Services
• Business Applications Consulting
• Business Valuation
• Cost Segregation
• Estate Planning
• Fraud Investigation & Prevention
• Healthcare Consulting
• HIPAA Compliance Consulting
• Information Technology
• Insurance Consulting
• Internal Audit
• Investment Services
• Litigation Support
• Merger, Acquisition & Divestiture
• PCI Compliance
• Private Wealth Management
• Professional Staffing
• Retirement Plan Services
• Sarbanes-Oxley Consulting
• Small Business Services
• SOC Reporting
• State and Local Taxes
• Strategic Marketing
• Strategic Planning & Business
Consulting
• Succession Planning
• Tax Planning & Preparation
• Web Design & Development

9. 16 Litigation Support Areas
• Accounting malpractice
defense
• Arbitration
• Bankruptcy, reorganization and
restructuring
• Business valuations
• Commercial disputes
• Domestic relations matters
• Economic crime and
criminal tax defense
• Fairness opinions
• Economic damage modeling
and computations
• Fraud and forensic
investigations
• Labor relations
• Mediation
• Ponzi Schemes/investor frauds
• Receivership services
• Security and internal control
review
• Special Master

10. Expertise and Credentials
• Accredited Business Valuators (ABVs)
• Certified Fraud Examiners (CFEs)
• Certified in Financial Forensics (CFFs)
• Certified Information Systems Auditor (CISA)
• Certified Information Systems Security Professional (CISSP)
• Certified Insolvency and Restructuring Advisor (CIRA)
• Certified Valuation Analysts (CVAs)
• HiTrust - Common Security Framework (HiTrust-CFS
• Licensed Attorney (JD)
• Qualified Security Assessor (QSA)
We also have access to LEA international resources and LEA Alliance firms

11. Many times,
an expert witness
can either
make or break
your case.

12. Experts’ Value
• Analysis of damage claims
• Asset tracing
• Attendance at depositions
• Business records document requests
• Consulting expert analysis
• Data collection
• Database management
• Discovery
• Evaluation of opposing experts’ report

13. Experts’ Value
• Expert testimony
• Investigations of misappropriation of
monies or other financial assets
• Planning of structured payment
programs
• Preliminary fact finding
• Preparation of
interrogatories/deposition questions
• Settlement negotiations
• Trial support
• Valuation of ownership interests in
privately-held companies

14. Professional Standards
• The following authoritative literature applies to forensic accounting services
as well as any other service provided by CPAs in public practice2:
• AICPA Professional Standards
• AICPA Code of Professional Conduct and Bylaws
• AICPA Statement on Standards for Consulting Services No. I , Consulting
Services: Definitions and Standards
• AICPA Statement on Standards for Valuation Services No. I, Valuation of a
Business, Business Ownership Interest, Security, or Intangible Asset
2 AICPA practice aid – Serving as an Expert Witness or Consultant

15. AICPA Professional Standards
Professional Standards is the comprehensive source of
professional standards and interpretations issued by the
AICPA, including:
• Auditing standards and interpretations
• Attestation standards and interpretations
• Accounting and review standards and interpretations
• Quality control standards
• Statements of Position — accounting, auditing and
attestation

16. AICPA Professional Standards
• AICPA Code of Professional Conduct
• AICPA bylaws
• Valuation services standards and interpretations
• Consulting services standards
• Peer review standards and interpretations
• Tax services standards and interpretations
• Policies for the CPE membership requirement and
CPE standards

17. AICPA Code of Professional
Conduct
The AICPA membership adopted the Code of
Professional Conduct (“the code”) to provide
guidance and rules to all members in the
performance of their professional
responsibilities. The code consists of principles
and rules as well as interpretations and other
guidance. The principles provide the framework
for the rules that govern the performance of
their professional responsibilities.

18. AICPA Code of Professional
Conduct
CPA’s providing consulting services must
adhere to:
• Rule .300 – Integrity and Objectivity
• Rule 2.300 – Four General Standards

19. AICPA Code of Professional
Conduct
0.300.040 Integrity
• To maintain and broaden public confidence,
members should perform all professional
responsibilities with the highest sense of integrity.
0.300.050 Objectivity and Independence
• A member should maintain objectivity and be free
of conflicts of interest in discharging professional
responsibilities.

20. AICPA Code of Professional
Conduct – General Standards Rule
The Four General Standards – Rule 2.300.001
1. Professional competence (Daubert)
2. Due professional care
3. Planning and supervision
4. Sufficient relevant data

21. AICPA Code of Professional
Conduct – General Standards Rule
• Professional Competence. Undertake only those professional
services that the member or the member’s firm can reasonably
expect to be completed with professional competence.
• Due Professional Care. Exercise due professional care in the
performance of professional services.
• Planning and Supervision. Adequately plan and supervise the
performance of professional services.
• Sufficient Relevant Data. Obtain sufficient relevant data to
afford a reasonable basis for conclusions or recommendations in
relation to any professional services performed.

22. Integrity/Objectivity
AICPA Practice Aid
Serving as Expert Witness or Consultant
• The roles of the financial expert and consultant are critical
factors in successfully assisting their client while maintaining
their independence, integrity and objectivity.
• The expert is not an advocate for the client’s position.
• The expert's role is to form an objective professional opinion
based on facts or hypotheses.
• The expert’s role is to assist the trier of fact in understanding
complex or unfamiliar concepts after having applied reliable
principles and methods to sufficient relevant data.

23. Qualifying the Expert
• Review curriculum vitae
• Specific experience
• Employment background
• Continuing education
• Credentials (authenticate)
• Testifying experience
• Education
• Presentations and writings
• Position in the firm
• Face-to-face meeting
• Social media issues (Google, Facebook)
• Client buy-in

24. Expert Credibility
• Conflict of interest check – firm-wide
• Independence with client and counsel
• Contingent fees are prohibited
• All fees should be paid in full prior to testifying
• Financial interest in entity
• Pertinent training and education
• Adherence to professional standards of credentials

25. Daubert Challenge
The witness must have knowledge, skill, experience,
training or education in the subject area that makes the
witness an expert.3
• "Daubert" challenges.
• Is the witness an expert in the sense of having
credentials or experience?
• Does the testimony have a basis in fact?
• Is it relevant?
3 Federal Rules of Evidence – Rule 702

26. Daubert Challenge
• AICPA Rule 2.300.001 – professional competence.
• Expert can complete the engagement with professional
competence (skill).
• Expert has knowledge about technical issues in the case.
• Expert has the skill and knowledge to provide a
reasonable basis to provide relevant and reliable
testimony.
• Testimony by Experts – admissible if “expert’s testimony
both rests on a reliable foundation and is relevant to the
task at hand.”4
4 Daubert v. Merrell Dow Pharmaceuticals, lnc.

27. Engagement Acceptance
• Engagement letter with either client or attorney or both
• No engagement letter = no work
• Identifies the scope of the engagement. This can be in
very general or specific terms
• Retainer
• Range of fees, by steps or standard hourly rates
• Payment of all fees prior to delivery of the expert report
and/or testifying

28. Sufficient Relevant Data Discovery
• Preliminary research and
analysis
• Complaint and other filings
• Interrogatories
• Document production
• Research
• Analysis
• Interviews
• Depositions

29. Methodology
• How did the expert approach and
perform the assignment?
• Standard practice
• Who did the work?
• Identify and disclose assumptions
• Assumptions must be reasonable
• Disclosure to attorney of expert
report strengths and weaknesses
• Holes and omissions (if any)

30. An expert is only as effective
as the accuracy of their facts
and the reasonableness
of their assumptions.

31. Performance
• Scope of engagement
• Documents required
• Completeness of records
• Review of legal filings
• Analytics
• Reasonable approach

32. Complete expert reports
are not cheap.
If your client is shopping in the discount aisle,
beware of the ramifications of the bargain light.

33. The Expert Report
The Report must be presented logically.
• Identify scope of engagement
• Documents reviewed
• Procedures and methodology
• Analysis
• Conclusion/Opinions
• Exhibits
• CV
The expert writes the report!

34. Oral or Written Report
Federal rule of Civil procedure 26(a)(2)(B):
• Opinions to be expressed and the bases and reasons for them
• Data or other information considered in forming the opinions
• Exhibits to be used as a summary of or support for opinions

35. Oral or Written Report
Federal rule of Civil procedure 26(a)(2)(B):
• Witness qualifications, including a list of all publications
written within the last 10 years
• A list of other cases in which the witness has testified at
deposition or trial during the last four years
• Witness compensation
• Signature of the expert testifying (as an individual, not the
firm)

36. “The Show” – Testifying
• Slow pitch softball (Direct) vs. Nolan Ryan (Cross)
• Connecting with the jury or judge
• Expert is a teacher
• Well thought-out delivery of key testimony
• Use of applicable visuals
• Highlight substantial differences in approach and
conclusions
• Are the expert reports “Apples to Apples”?
• Keep it simple.

37. Expert Comparison
• Documents provided and examined
• Accuracy and completeness
• Assumptions
• Methodologies used
• Calculations
• Conclusion/Opinions
• Points of agreement and disagreement

38. Weaknesses in Opposition’s Report
• Faulty, inappropriate unrealistic assumptions
• Making leaps in judgment
• Incomplete analysis – not exploring alternative scenarios
• Not being provided or reviewing all relevant documents
• Multiple parties, conflicting objectives
• Inability to independently reconstruct financial records
• Illogical or unaccepted methodology
• Fail to reconstruct the audit trail
• “On the surface” or “it’s so obvious” conclusions
• Bad math

39. Conclusion/Opinions
• Clear and understandable
• Logical
• Questions answered
• Supported by exhibits or accompanying
schedules

40. Expert Vulnerabilities
• Most cases have a weakness
• Lack experience or qualifications
• Faulty assumptions
• Methodologies are not generally accepted
• All factors were not considered
• Chain of custody of records
• Holes in logic

41. Expert Vulnerabilities
• Inconsistencies between work and conclusions
• Lack of sufficient data
• Limited access to records, pleadings, depositions, etc.
• Cut corners in analysis in order to minimize fees
• Multiple individuals involved
• Errors in report
• Not applicable “Rules of thumb”
• Time constraints
• Conclusion is just not realistic

42. Your client
receives
what they pay for.

43. Contact
Frank A. Suponcic
CPA, CFE, CFF
Partner
(440) 449-6800
fsuponcic@skodaminotti.com
www.skodaminotti.com

44. 44
Bonus Fraud Coverage
• Targets of Embezzlers
• Identifying Executive, Employee and Company Red
Flags
• Fraud Prevention

45. Favorite Targets of Internal
Embezzlers
• Cash
• Accounts receivable
collections
• Inventory/Fixed assets
• Payroll
• Expense reports and credit or
debit cards
• Proprietary information
• Fictitious vendors (accounts
payable)

46. Identifying Red Flags
The Executive
• Conflicts of interest
• Internal corporate financial pressures
• Lack of corporate oversight due to “Trust”
• Questionable ethics – willing to push the envelope
• Hands-off owner
• Financial bonuses tied to “a number” whether sales or
profitability
• Past experience

47. Identifying Red Flags
The Executive
• Related party transactions
• Pre-sign checks
• Authorize and expense personal
transactions for themselves or
family members
• Fail to listen to employees’
concerns, complaints and rumors

48. Identifying Red Flags
The Employee
• Sloppy work/poor attitude
• Lack of attention to detail
• Limited supervision
• Untimely financial reporting to owner, IRS or
payroll agencies
• Personal financial difficulties (child, spouse, parent or a company they own)
• Large personal debt (healthcare debts)

49. Identifying Red Flags
The Employee
• Divorce
• All controlling and “know it all”
employee
• Never takes a vacation
• High and unexplained
lifestyles
• Most trusted employee

50. Identifying Red Flags
The Company
• Lack of adequate internal controls
• Cash flow difficulties
• Missing financial records such as bank statements,
paid invoices and payroll cards.
• Invoices can be paid without a substantiating
document (includes credit and debit cards)
• When the controller or accountant selects the outside
accounting firm without any management input

51. Identifying Red Flags
The Company
• Lack of segregation of
duties in the accounting
department
• Cash on hand
• Payments to “Cash”
• Payments in round numbers
• Petty cash account
• Inventory is “plugged”

52. Identifying Red Flags
The Company
• Customer complaints on accounts receivable balances
• The financial statements do not agree with reality
• Illogical or questionably timed journal entries
• Monthly bank reconciliations are not performed
• Unusual income statement expense percentages
• Debit cards tied to a corporate checking account
• Electronic transfers from corporate checking account
(other than impounding of payroll related expenses)

53. Fraud Prevention
• Fraud risk assessment of internal controls
• Setting the proper leadership tone at the top
• Background and credit checks
• Employee education
• Fraud and conflict of policies
• Surprise fraud audits
• Use of external internal auditors

54. Fraud Prevention
• Intermittently test the internal
controls
• Mandatory vacations and job rotation
• Whistle blower incentive programs
• Fraud hotline
• External audit
• Consider bonding your employees