Tag Archives: acting as an expert witness

Expert Witness or Consultant

One of our newer Chapter members submitted a comment on-line two weeks ago requesting information about the pitfalls involved in the CFE choosing to act as a consultant to a client attorney rather than as an expert witness. This is an important topic for CFEs in individual practice as well as for those serving as examiners on the staffs of private or public entities. The ACFE tells us that CFEs typically act as experts in the legal process by assisting attorneys with the financial details of a suit and testifying about these practices at trial. They analyze documents and transactions, showing how the fraud was accomplished and, when possible, who the most likely perpetrators were. The CFE is a guide and adviser for the attorney in assembling the case, and a major participant in explaining the details of a fraud scenario to a judge and jury.

In general, expert witnesses are typically brought in when required by law, as in malpractice suits where a member of a given profession must explain the infraction against professional by-laws or principles; when key points are deemed sufficiently technical or complex, such as in cooking-the-books schemes involving intricate accounting manipulations, or to assist a jury in making its decision. Federal Rule of Evidence 702 says that an expert witness with appropriate knowledge and credentials may testify in any proceeding where scientific, technical, or specialized knowledge will shed light on the dispute. Even in cases that don’t go to trial, experts may still be involved in mediation, arbitration, settlement conferences, or summary judgment motions.

Experts contribute to the trial process in numerous ways. They provide background information to guide and frame a case; during the discovery process they investigate, run tests, advise on depositions, prepare other witnesses, make exhibits, and respond to the opposition’s discovery requests; they file written opinions, which are entered as evidence into the court record; and they testify in actual proceedings should the case make it to a courtroom.

Once they accept a case, many experts immediately start assembling a narrative version of the events. This detailed summary of the facts of the case serves as the raw material for rendering an official opinion. As we’ve pointed out many times, it’s important that the text be written with care and professionalism because the text may (and probably will) have to be produced during discovery. Additionally, a well-written narrative helps the client attorney in preparing and executing the case at trial.

According to our most experienced members, perhaps the thorniest challenge for CFEs, once they’re engaged to work on a case, is setting a value on the specific business losses due to a fraud. Depending on the facts, there may be several methods for evaluating net worth/net loss, each rendering a different number at the end. And regardless of the numbers, there’s always the human element. Calculating business loss is a challenging task in a complex case because the examiner has to consider the amount of business being done, try to reconstruct the market conditions, think about competitors, and then calculate the amount of direct personal benefit; all of these factors being intertwined. In such cases, the examiner must consider a variety of points, prepare an estimate of loss, and then, most often, try to work out a compromise.

Article V. of the Association of Certified Fraud Examiners Code of Professional Ethics states:

A fraud examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered. No opinion shall be expressed regarding the guilt or innocence of any person or party.

The rule that prohibits opinions regarding the guilt or innocence of any person or party is a rule of prudence. Clearly, it’s prudent for a Certified Fraud Examiner to refrain from usurping the role of jury. In a courtroom, no good attorney would ask a CFE for such a conclusion, and no alert judge would allow such testimony.  The fraud examiner’s job is to present the evidence in his or her report. Such evidence might constitute a convincing case pointing to the guilt or innocence of a person. But a clear line should be drawn between a report that essentially says, “Here is the evidence” and one that steps over the line and says “S/he is the guilty (innocent) person.” Nevertheless, there is a fine line between recommending action, forwarding the evidence to a law enforcement agency or filing a complaint or lawsuit, and giving an opinion on guilt or innocence. CFEs may make such recommendations because they think the evidence is strong enough to support a case. They might even have a conclusion about whether the suspect committed a crime. The rule does not prohibit the CFE, under the proper circumstances, from accusing the person under investigation. However, the ultimate decision of whether a person is “guilty” or “innocent” is for a jury to determine. The CFE is free to report the facts and the conclusions that can be drawn from those facts, but the decision as to whether a person is guilty of a crime is a decision for the judge or jury.

Caution is the by-word for every expert witnesses at every step of the legal process. According to discovery rules governing expert testimony, everything the expert says or writes about the case after being hired is subject to discovery by opposing counsel. That means everything: narrative versions of the case, comments to the press or law enforcement, hypothetical reconstructions, even notes can be demanded and used by the opposing party. A shrewd attorney can use an expert’s preliminary notes containing drafts of an opinion and other purely deliberative information to call the witness’s testimony into question. The only exception is when the expert is hired by the attorney purely on a consulting basis. An expert witness has no privilege. The principle of privilege exists to protect certain core societal relationships (attorney-client, husband-wife), but the expert witness’s relationship with clients is not among those protected. If the expert’s opinions will be presented in court, everything related to the expert’s opinion is discoverable by the defense.

There is an exception. The CFE expert may consult on the client attorney’s work product, i.e., materials the attorney prepares as background for a case. While performing background work, the expert is said to be working as an associate of the attorney, so the exchange is protected; they are two professionals conferring. However, once the expert is hired as a witness, and begins entering opinions as part of the attorney’s case, there is no privilege for any contribution the expert makes. The distinction is something like this: when acting as “witnesses,” experts are bringing official information to the court, and so must disclose any contact with the case; when experts act as “consultants” or “associates” for attorneys or law enforcement, they are only assisting the attorney, and do not have to disclose their involvement in the case. However, if a testifying expert reviews the work of the consultant expert, then the work of the consultant expert will be discoverable. Remember this; if a CFE is hired to testify at trial, anything he or s/he used to form his or her opinion will be subject to review by the opposing party. This includes notes from other experts, documents received from the plaintiff or defendant, and any documents or notes from the attorney. CFEs should be sure to consult with the client attorney before reviewing anything. If the attorney has not given the document to you, then ask before you read. Otherwise, you may inadvertently destroy the confidentiality or privilege of the material.

In summary, the best way to protect the confidentiality of information is to keep good files. Any materials which serve as the basis for an expert’s opinion must be in the file. Notes, documents, or tests that serve as background, or that represent unfruitful lines of investigation, don’t have to be included, and probably shouldn’t be. The attorney trying the case doesn’t want an expert having to answer about investigative dead ends or exploratory side lines; a shrewd cross-examiner can turn a hastily scribbled hypothetical into reasonable doubt, just enough to avert a conviction. So, in the best-case scenario, an expert presents to the court an opinion and its basis, nothing more nothing less.

Make it Clear

drowning_paper“We are again honored to have another guest post from our friend and Richmond Chapter 2015 Vice-President, Rumbi Bwerinofa, CFE/CPA/CFF. Rumbi is a Director of the Queens/Brooklyn Chapter of the New York State Society of CPAs and a member of the NYSSCPA Litigation Services Committee. She is the editor of TheFStudent.com, where she discusses financial forensic issues.

Our Chapter members and other professional readers of this blog are encouraged to submit blog posts for publication here … in addition to publication credit, you establish yourself as an expert in the field of fraud examination and help other practitioners by sharing your valuable expertise!” – Charles Lawver-2015 RVACFES Chapter

Fourteen months after being indicted for criminal fraud in the 2012 collapse of the New York law firm Dewey & LeBoeuf, former firm chair Steven Davis, former executive director Stephen DiCarmine and former chief financial officer Joel Sanders all went on trial before Acting Manhattan Supreme Court Justice Robert Stolz.  The trio allegedly falsified audits and records to make the firm appear financially healthy from 2008 to 2011.  In the process, they lied to lenders and investors, stealing nearly $200 million from insurers and banks.   According to prosecutors, rather than tell the truth about the financial realities that faced the firm, the evidence demonstrated that the three defendants used fraud and deceit to intentionally falsify the true nature of Dewey & LeBoeuf’s financial position.  The trio met at Del Frisco’s steakhouse where they hatched a plan to cook their books and make it look like the firm was profitable when it was actually teetering on insolvency.  Despite the dire situation, the executives continued to richly compensate themselves with packages of more than $2 million a year until the firm’s 2012 bankruptcy.  But Davis’ defense lawyer insisted from the start that his client did nothing wrong. He blamed the woes of the firm, which once employed 3,000 lawyers, on the financial meltdown, and greedy partners who bailed after learning they wouldn’t get the extravagant bonuses they had in the past.

Dewey & LeBoeuf was formed in 2007 through the merger of the prestigious firm of Dewey Ballantine — founded by one-time New York Gov. Thomas E. Dewey — and LeBoeuf, Lamb, Greene & MacRae.

White-collar criminal experts at the ACFE say this case may be among the first to accuse law firm executives of accounting-related misconduct targeted primarily at lenders, misconduct, which in this case, directly contributed to the firm’s own demise.  While much of the testimony in the trial was less than riveting, the proceedings were closely watched in the legal community because it’s one of the rare times the top executives of a major law firm have been charged criminally with grand larceny and with a scheme to defraud. Over the course of the trial, several former Dewey partners, many of them well known within the legal profession, were called by the prosecution as witnesses.  In all, seven lower-level employees at Dewey pleaded guilty to lesser charges in hopes of receiving little or no jail time.

In reading about this complex, criminal fraud trial, I’ve been struck by what a long and complex ordeal it was for all those involved, but especially for the jurors who were expected to render judgment. Dewey LeBoeuf filed for bankruptcy in 2012, accused of creating falsified financial records in order to obtain financing from lenders and investors. There were more than 151 charges levelled against the three former executives of the law firm; after a trial that lasted four months, the jury deliberated for almost another month before finally acquitting the three defendants on dozens of the original charges.  A mistrial was declared on 93 of the remaining counts. Several of the defense attorneys said Manhattan District Attorney Cyrus Vance would likely retry the three Dewey & LeBoeuf executives; they and some jurors strongly suggested that Vance pare down the indictment, present fewer witnesses and, most importantly, call in some accounting experts to decrease the level of juror confusion regarding the multitude of complex accounting issues.

The extensive trail publicity brought to mind the overwhelming importance to the prosecution of the type of effective communication, outlined in a recent InnerAuditor post.  During the months-long trial, many witnesses were called to testify and the jury did received a lot of data. Several members of the firm’s finance department testified for the prosecution and detailed ways in which they manipulated financial records in order to make Dewey & LeBoeuf appear more profitable than it actually was. Jurors were asked to sit patiently through a long trial during which reams of complex financial information were presented to them non-stop. Opening statements were long affairs where lawyers for both sides spent hours trying to explain complex concepts like disbursement write-offs. At the end of it all, jurors reported that they wished they had received less data and more useful information on the accounting and financial issues themselves; information that  they could have used to more confidently come to a conclusion on the facts. For all its crowd of witnesses, the prosecution did not choose to include even one accounting expert. No one was on the stand to specifically frame all the allegations and accusations in a way that the jury could clearly understand. One juror stated that, as he had minored in accounting, he had tried to explain some basic accounting concepts to his fellow jurors, so they could, at least,  try to get a better handle of what exactly had happened at Dewey LeBoeuf and why it might be criminal.

The inconclusive outcome of this trial underscores the importance of having forensic accountants and fraud examiners prepare our reports and courtroom presentations in a way really useful to their intended users, whether those user be corporate managers or juries. I’m sure the witnesses were competent and sounded knowledgeable on the stand but, how effective were they if their testimony served only to fry the brains of the jury?  We don’t want any jury to be so bogged down by numbers and complicated, unfamiliar accounting terms that it misses what the real story is all about.

So, next time, if there is a next time, the prosecutor assigned this case should seriously consider engaging the services of a financial accounting/forensic accounting expert. Why?  Because I think the mistrial sufficiently illustrates the importance to the prosecution, and to the defense, of at least one witness who can explain complicated concepts and financial reporting requirements in a sufficiently straightforward manner to be understood by the layman citizens who make up our juries. Clearly it’s not just the quantity of the proof, it’s the quality.