When Do I Hire a Forensic Accountant?

Many commercial disputes and fraud cases (whether civil or criminal) turn on financial documents.  For example, questions of liability may be unanswerable without a financial tracing of how funds were used and transferred.  In addition, damages calculations commonly involve modeling how an event (usually, the defendant’s allegedly wrongful conduct) affected a party’s economic or business health.  Forensic accountants help answer those questions.  Use of such experts, however, adds to both the complexity of a case and the parties’ litigation costs.  As a result, knowing when and how to work with them can be the key to a successful strategy and outcome in a legal dispute.

When do you know if you need to hire a forensic accountant?

Each case is different, so it depends. In general, if liability or approximate damages cannot be assessed without confidence of the economic impact of the allegations, it may be necessary to retain an expert at the outset of the litigation or at least relatively early.  If a damages expert is needed to offer an admissible opinion as to the damages amount, it may make sense to retain one later in the litigation.  However, waiting too long to secure in an expert in the hope that the expense of an expert can be avoided is seldom beneficial.  Doing so forces the process to be rushed and commonly results in poor work product from the expert whom has been given unreasonable deadlines.  This can and should be avoided.

Controlling costs

Parties commonly complain that their expert’s fees exceeded their expectations.  This does not benefit the party or the expert, who now has an unhappy client.  In our view, the best way to keep costs in line with expectations is to have a clear dialog with the expert about costs and the scope of work, with frequent check-ins to ensure that the scope of work is consistent with the party’s desires.

Working with attorneys experienced in retaining experts can be particularly beneficial in this sense.  They have an understanding of likely, necessary, and potentially unnecessary work that an expert may do—all of which adds to the cost.  But this is not enough either.  Staying involved in the process of preparing expert reports and efficiently preparing experts for depositions limits surprises.  Taking these steps can keep everyone on the same page about costs and avoid misunderstandings and frustrating bills.

It’s all about the deposition

Every step in a disputed case should be made with an eye toward how it affects evidence and arguments ultimately presented at trial.  Depositions are no different.  Indeed, expert depositions are particularly critical because they often bolster or destroy the expert’s credibility.  As a result, trials often settle once it becomes apparent who has, or does not have, the better and more credible expert witness.

The risks of a bad expert deposition are substantial.  It may enable the other party to file a strong motion to exclude or limit the expert (e.g., a Daubert motion).  Or, it may make the expert vulnerable at trial to various lines of cross-examination that leverage poor answers the expert gave during the deposition.  Both significantly impact the likelihood of success at trial.

Attorneys should be vigilant to avoid arming the other side with an expert’s poor deposition performance.  Often the best way to prevent that scenario is thorough preparation of the expert, including strategic thinking about both the areas the expert is strongest as well as which parts of the expert’s opinions are most vulnerable to criticism.  An attorney’s familiarity with accounting practices, the underlying documents, and common attacks used against forensic accountants can be critical in preparing such experts for deposition.

Our attorneys at Delahunty & Edelman LLP understand the importance of hiring a forensic accountant in complex cases. They have substantial experience in preparing experts for deposition and trial testimony (including the preparation of an expert report), drafting and responding to Daubert motions, and the examination of experts at trial.  If you are concerned that your case may need this kind of experience and familiarity, we are always willing to offer our perspective and see if we can help.

Patrick Delahunty

Patrick Delahunty is a former federal prosecutor with deep experience in resolving disputes. He advises individuals and companies in complex criminal, regulatory, and commercial litigation.