Litigation Consulting And Forensic Accounting: A Necessary Adjunct To Litigation

Editor: Walter, please describe for our readers the breadth of accounting practice offered by Eisner LLP.

Pagano: Our scope of services is very broad and deep. We provide approximately twenty-one distinct services to our clients ranging from full-service accounting such as audit, accounting and tax (both corporate and individual tax advisory services) to internal audit, risk management, and royalty compliance audit services. We also have a business services group which provides accounting, tax and audit services to smaller, closely held businesses. We have a department that is devoted exclusively to personal wealth advisory services that includes investment advisory and financial resource services. Our tax practice groups include employee benefits, retirement solutions, tax advisory and tax controversy. Our litigation consulting and forensic accounting department provides litigation support, business valuation, forensic accounting, and expert witness testimony. Associated with litigation support, although they are separate departments, are bankruptcy and insolvency; and corporate finance which includes valuation and merger and acquisition services.

We also have specific industry focus practice areas. They are financial services, technology and health sciences; real estate, sports media and entertainment, and law firms. We also have a specific industry niche in the not-for-profit area. Lastly, we provide consulting services in practice areas such as resource staffing, human resources and information solutions.

Editor: How does the firm provide global accounting services in competing with larger firms?

Pagano: With respect to our international presence we provide a wide range of international tax, audit, accounting and advisory services to individuals and corporations. Eisner is an independent member of Baker Tilly International, the eighth largest accounting network in the world and the largest accounting network in the U.S. after the Big Four. As a part of that network we are able to service clients throughout the world not only because of our own international practice but also because of our affiliation with Baker Tilly International.

Editor: Please describe your practice area - Litigation Consulting Services and Forensic Accounting.

Pagano: The word "forensic" actually means belonging to the courts. When we provide forensic accounting services, generally speaking, we are referring to litigation consulting and forensic accounting services in a legal environment. As forensic accountants we apply financial facts to various legal problems that lawyers want to resolve to benefit their clients. Litigation consulting services connote that as professional accountants we provide assistance to attorneys engaged in litigation.

Editor: Do investigations fall under Litigation Consulting and Forensic Accounting services?

Pagano: Yes they do. We perform forensic accounting investigations and in the broader context of litigation consulting we review financial documents as part of an investigation.

Editor: When does your work step out from under the protection of the umbrella of attorney-client and work product privilege?

Pagano: When we are retained by counsel, we are agents of the law firm and come within the umbrella of the attorney-client and work product privileges so that communications that we have with counsel, with counsel's clients and among ourselves are privileged and our work product is privileged. The privilege ceases when the forensic accountant or the litigation consulting expert is named as an expert witness. Generally, the work product and conversations of an expert witness are discoverable.

Editor: What is the scope of your services?

Pagano: Our services in litigation consulting and forensic accounting cover a broad spectrum of activities from interviewing clients or witnesses to creating databases. We prepare reports, examine, review, and analyze financial documents and transactions; we also assist counsel in very complex negotiations in developing financial data, reconstructing corporate and individual financial records, reviewing and rebutting an opposing expert's report. In addition, we evaluate internal controls and we are retained in matters involving tax controversy such as representing clients with counsel who are being examined or under investigation by the IRS or a state agency. Lastly, we also help draft complaints, interrogatories, and information document requests when counsel asks us to provide our expertise to those particular areas which require accounting or financial information.

We serve trial lawyers, corporate counsel and audit committees. Often we are appointed by federal and state courts or asked to perform services by federal and state agencies, independent examiners, receivers, and monitors who are court appointed. Our services are in a legal context and our clientele is the legal community.

Editor: Where would you find forensic accountants in pursuit of their various practices?

Pagano: We are in the court room and arbitration hearings as consultants or expert witnesses, we appear before government agencies, and in our consulting capacity we work behind the scenes assisting counsel unless we are named as an expert witness.

Editor: Please give some classic examples of some of the frauds you have uncovered and the financial investigations you have conducted.

Pagano: Fraud and financial investigations that we have been involved in include management and financial fraud. An example would be a very high or mid-level executive who has authority to withdraw company funds, who misappropriates assets, thereby diverting the assets to some other entity for personal benefit. In the area of employee fraud, an employee may divert assets or take advantage of opportunities to defraud by padding expense reports or making claims that he or she spent company money when it was not on company business. Another example is financial statement fraud which might include an overstatement or incorrect timing of revenue, specifically where generally accepted accounting principles are misapplied. Another example is vendor fraud. We have investigated kickback schemes where a vendor rendering service to a company may make a disguised payment to company personnel in order to win a larger contract or an insider may collude with a supplier. Overriding controls is probably a very significant area where fraud is committed. There are also common frauds committed by personnel in government as well as in not-for-profit organizations such as fraudulent charging of expenses to grants, overriding purchasing, sales and cash reconciliation controls. We have also investigated situations where pledges and contributions that are on the books of a particular charitable organization are fictitious and should not have been booked as revenue.

Editor: What practice areas within the firm are called upon by these services?

Pagano: We have been called upon to assist counsel in internal and SEC investigations. We are very much involved in white collar crime investigations, whether a bookkeeper is thought to be embezzling money from an employer, someone in the corporate hierarchy is accused of committing securities fraud or an individual is indicted for money laundering or tax fraud. We also are well positioned in damage calculations and business valuations. We assist law firms in matrimonial matters, investigating hidden assets and lifestyle changes in the case of one spouse or the other. We assist counsel in shareholder disputes using our forensic accounting skills to uncover financial wrong-doing or to investigate the financial condition of a company or entity as a result of allegations made in a complaint. Consistent with our core values, we provide independent, objective analysis and critical thinking to counsel.

Editor: What extra benefits does Eisner bring to its clients in the litigation consulting and forensic accounting areas?

Pagano: Clients in the legal community turn to us for our competence in providing forensic accounting and litigation consulting services and for our understanding of the legal community's language - including our familiarity with the Rules of Civil Procedure and the Rules of Evidence. We strive earnestly to explain complex financial and accounting issues in very plain language, breaking down the components in a complex matter to their simplest form or explaining by way of analogy. Often we will also use demonstratives to explain a very difficult subject. We also assess both the strengths and weaknesses of not only our clients' cases but also that of the opposing side. If the opposing side in a litigation has various strengths we point them out to counsel. Coming from the financial perspective, the accounting perspective, the tax perspective, the audit perspective, and, of course, the litigation consulting perspective, we suggest to counsel how to lay out the case and to discuss the issues from all points of view. We provide advice and assist counsel with the facts, objective analysis, and independent critical thinking.

Editor: What trends do you see developing in your field of expertise?

Pagano: There will be more reliance on technology in terms of electronic discovery. With the 2006 amendments to the FRCP, electronic discovery must be addressed early on by both sides. There will be greater demand with respect to computer forensics and computer technology for information technology experts. Technology will play a greater role by virtue of the changes that have occurred not only because of the FRCP but also by virtue of technology's evolution. Also, there is a trend for greater specialty designations within the forensic accounting community. The AICPA presently is working on a proposal to certify forensic accountants. We already have the association of certified fraud examiners, CFE. Also within the AICPA there is the designation of the accredited business valuator, ABV. The National Association of Certified Valuation Analysts is offering courses and certificates in damage evaluation and forensic accounting. These designations will supplement the designation, CPA, whether through the AICPA or through other organizations. There is also going to be greater demand for expert witnesses in all fields, certainly in the financial area. Our skill set as forensic accountants is broadening by virtue of the demands placed upon the lawyers in terms of the type of cases that they are litigating. What has happened recently in the sub prime mortgage and hedge fund markets will result in forensic accountants being engaged to provide expertise in these areas too. International Financial Reporting Standards will have greater emphasis in the global marketplace because of interrelationships, interdependencies and complexities in the global economy.

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