This fact sheet touches on Forensic Accounting and the litigation which often stems from such work; something I have been involved with, from time to time, for over 25 years.
So what is Forensic Accounting?
The term forensic means something that is suitable for use in a court of law.
Forensic Accounting is the name given to the investigative work undertaken by accountants; the scope and depth of which varies. As the name implies, more often than not the work is linked to Court/legal action in civil or criminal cases.
Some typical examples of forensic accounting work are:
- Investigation of fraud, theft or financial irregularities
- Advising on the financial aspects of disputes
- Quantifying losses
- Analysing damages from breach of contract
- Professional negligence claims
- Valuing a business or other assets
- Divorce settlements
- Probate disputes
- Loss of earnings and personal injury
- Shareholder and partnership disputes
- Insurance claims
- Dealing with regulatory confiscation orders and claims on funds
- Tribunal and tax investigations
Forensic accountants, also referred to on occasion as forensic auditors or investigative auditors, often have to give expert evidence at trial.
All of the larger accounting firms, as well as many medium-sized and boutique firms and various police and government agencies, have specialist forensic accounting departments. In view of the nature of the work, it is not uncommon for such departments to be sub-divided into specialist areas, such as insurance claims, personal injury etc.
The majority of forensic accounting tends to go hand in hand with what accounting firms do on a day to day basis.
Accountability is the driving force.
This is clearly evident with the growing global expansion of business activities, real-time media communications and reporting, the impact of monetary policy alongside the ever increasing introduction of legislation extending territorial boundaries and the closer working relationships and interaction of governments; none more so than the introduction of reporting obligations under FATCA1 and the CRS2 to counteract tax evasion.
Inevitably work of a forensic accounting nature often ends up with some form of litigation, whether that is through the courts, a tribunal, mediation or other dispute resolution arrangement.
The litigation side of the forensic accounting work UHY Crossleys LLC (“Crossleys”) has been involved in is something Crossleys has proven to be adept in and successful in the “Project Management” of litigation for clients in the UK and the Isle of Man.
Crossleys and its associated licensed trust and corporate service provider companies have, for instance, been involved or provided assistance in disputes concerning:
- The purchase and sale of companies and land;
- The valuation of assets, such as company shares;
- Company law and commercial contracts;
- Family settlements (trusts);
- Probate and estate issues;
- Statutory/regulatory matters;
- Financial crime, such as money laundering, theft and fraud; and
- Government agencies or non-ministerial departments, such as the UK Government’s crown prosecution service.
As part of the litigation process, Crossleys has been involved in:
- Assisting clients in preparing a preliminary “proof of evidence” (a summary telling “the story” of what has happened), which will be submitted to the client’s legal advisers to explain the background to any dispute and/or claim;
- Obtaining evidence by way of legal discovery (general and specific);
- Formulating and/or giving instructions on behalf of a client(s) to tax and legal counsel;
- Working with a client’s legal team to formulate a strategy for any litigation being considered or undertaken; and
- Instructing other professionals to provide specific reports to support facts or assertions which are or will be the basis of any litigation.
Whilst Crossleys has had exposure to litigation involving companies, individuals and trusts, it perhaps has a greater understanding and empathetic ear for those individuals who are involved or are likely to become embroiled in family disputes or arguments with the trustee(s) of settlements of which they are a beneficiary.
Some clients question the need to consult a firm of accountants in relation to a litigation matter on the basis that litigation is a question of seeking a remedy (justice) through the court.
Before considering any form of litigation, you have to remember that:
- Litigation is expensive;
- It is stressful;
- You should not start it unless you are going to see it through to the end;
- It is time consuming;
- It is not something that should be pursued in haste; and
- Even if you win the legal argument, you may not receive what you consider to be justice.
Most law firms and, indeed, accountants will be happy give any potential client half an hour to an hour of their time to discuss their particular circumstances and assess what they are trying to achieve.
However, when it comes to litigation, it is not always possible for a lawyer to say outright that litigation should be pursued. This is because the lawyer will not have had time to consider any documentation that has been presented at the initial meeting or will require the “client” to provide a summary of the facts (as the client sees them) and provide what information they may have to substantiate and support any assertions being made.
Unfortunately, most of the people who seek advice in relation to probate or estate matters, find it difficult to explain what has gone on; often not knowing how to piece together the facts and sometimes they may only have a “gut feeling” that something is not right, i.e. It doesn’t add up.
In these circumstances and most of the time, the client is relying on the lawyer to “explain the story”, do the cross referencing, seek out independent advice etc.
A lawyer that is ill informed cannot make the right decision and give a client the right advice. The more the lawyer has to “sift through the paperwork and make enquiries”, the more expensive it becomes in getting to the point when a decision to pursue litigation or not is made. Lawyers are not cheap.
At Crossleys we aim to help both the client and his / her legal advisers.
We are used to going through incomplete records and the proverbial “carrier bag of invoices, receipts, credit card and bank statements, correspondence, contracts etc.” and putting together what has happened historically and financially.
We have years of experience adopting what we know and have learned in relation to litigation cases our clients have pursued or sought to pursue.
At the end of the exploratory process, conducted by Crossleys, the client ends up with a statement of the facts (the client’s preliminary proof of evidence), as they see it, with accompanying evidence in the form of documents, third party advice and opinion cross-referenced to their statement of facts. These form the basis of the “bible” the client can present to his / her legal advisers to get an informed opinion as to whether or not legal action should be instigated and how best it can be pursued.
Clients benefit not only by saving money, which is best used in fighting any litigation before a court, but also from a speedier process of getting to the point when an informed decision can be made by the client and the advising lawyers.
If you would like to know more about the points raised in this article and what Crossleys may be able to do for you, then please contact me or one of my colleagues at:
UHY Crossleys LLC
Telephone: +44 1624 822816
A member of UHY International, a network of independent accounting and consulting firms.
Readers of this article should note that Crossleys is not a firm of advocates or solicitors or connected in any way with the courts in the Isle of Man or further afield. Crossleys and its affiliates do not provide legal advice. This article has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for legal advice. Crossleys recommends that appropriate legal advice should be taken from a qualified solicitor or advocate before taking or refraining from taking any action.
1FATCA – Financial Accounts Tax Compliance Act 2010 which is a United States federal law requiring all non-U.S. foreign financial institutions to search their records for customers with indicia of U.S.-person status.
2CRS – The Common Reporting Standard of the Organisation for Economic Co-operation and Development (OECD) developed in 2014. Like FATCA, the CRS seeks to combat tax evasion by requiring those providing various services to make an automatic exchange of information to revenue authorities of those states which are signatories to the Mutual Assistance Agreement on Tax Matters. There are now 109 countries which have signed up for CRS.
Article by Nigel Rotheroe
I am a qualified accountant working in public practice and a director of a number of licensed trust and corporate service provider companies. I am actively involved in wealth management and preservation structures for clients in the Isle of Man, where I live and further afield and this often entails working with clients and/or professional firms overseas. My work varies day to day and ranges from giving bespoke tax and structure advice, undertaking special projects, and addressing the multitude of issues that trust and corporate administration work brings. Life is never dull!