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Professional Outlook
16 NEW ACCOUNTANT
Forensic
Accounting Is
More Than
Just Fraud
NewAccountantUSA.com 17
Dr. D. Larry Crumbley
CPA, CFF, CRFAC, MAFF
Department of Accounting
Emeritus Professor
Louisiana State University
Dr. Christine Cheng
Assistant Professor
Louisiana State University
Some professors, individu-
als, and groups attempt to
narrow the scope of foren-
sic accounting so that fraud
detection is the major focus. How-
ever, students must realize that a
broad approach is the correct per-
ception of the interesting field of
forensic accounting.
18 NEW ACCOUNTANT
In 1986, the AICPA issued Practice Aid
7 which broke forensic accounting into two
broad areas: investigative accounting and
litigation support services. Their graphical de-
scription of litigation support showed six cat-
egories with three to seven specific services in
each category. See Table 1.
For example, valuation brings in signifi-
cant revenue for both large and small account-
ing firms. Accounting was another of the six
categories, and fraud was only one of the seven
services in that category.
The Litigation Services Handbook has
seven sections comprising 39 chapters with only
one chapter on fraud – specifically tax fraud.
Need for Accounting/Finance Expert
Witnesses
A quote from a Second Circuit Court of
Appeals decision indicates why lawyers need
both accounting consultants and expert wit-
nesses. “Accounting concepts are a foreign
language to some lawyers in almost all cases,
and to almost all lawyers in some cases.” Hal
Rosenthal argues that “a lawsuit is like a para-
chute jump; you have to get it right the first
time.” The party who has command of the pa-
per trail most often controls in the courtroom,
and accountants understand both the paper
and electronic trails.
In Michael Jackson’s 2005 molestation
trial, expert witness John Duross O’Bryan gave
detailed analysis of Jackson’s multi-million dol-
lar empire by tracking his assets and liabilities
from 1999 to 2004. O’Bryan found that Jack-
son in 2002 had a negative net worth of $285
million – assets of $130 million and liabilities
of $415 million. Mr. O’Bryan was paid $700
an hour for his testimony in 2005.
Again in 2013, forensic accountant Wil-
liam Ackerman testified for the defense (con-
cert promoter AEG) in the wrongful death
lawsuit by Jackson’s mother, Katherine. Ack-
erman said the singer was paying $30 million
annually in just interest on his debts, which
totaled around half a billion dollars when he
died. The family was seeking lost income of
around $1.5 billion in a civil trial for his come-
back tour.
The trial lasted six months, and the jury
was out three days. Katherine was deposed
over three days (nine hours), but Katherine
and family lost (won zero). They tried for a
new trial because of a misleading jury form,
but the appellate court rejected the appeal.
Forensic accountants are often needed
in divorce situations. EY was hired by former
Beatle Sir Paul McCartney in his conflict with
his ex-wife Heather Mills. EY put a value of
400 million pounds on the value of McCart-
ney’s fortune. The judge would not accept
Heather’s expert valuation because he had
never valued a catalogue. Mills asked for $250
million, but the judge gave her only $48.6 mil-
lion for the four-year marriage (or $12.15 mil-
lion per year).
Other high profile divorce cases are
shown in Table 2. Look at these large amounts.
Both the attorneys and expert witnesses re-
ceived a share of these amounts.
The work of forensic accountants is often
expensive and time consuming. Forensic ac-
countants were hired by the Board of Direc-
tors of Fannie Mae after the company “cooked
their books.” The Huron Consulting Group
took 17 months to produce a 616-page report,
with more than 2,000 pages of supporting
documents. Although the fraud was estimated
to be $11 billion, the forensic work afterwards
was $60 to $70 million.
There was a four-year class action lawsuit
against Tyco for a fraud of $1 to $2 billion.
PwC had to pay a penalty of $225 million,
and Tyco had to pay a penalty of $2.975 bil-
lion.
Michael Jackson’s Estate Tax Dispute
The 2017 three-week federal estate tax
case involving singer Michael Jackson indi-
cates the importance of an expert witness.
Table 1 - AICPA’s Six Areas of Litigation Services
Damages
• Lost profits
• Lost value
• Lost cash flow
• Lost revenue
• Extra cost
• Mitigation
• Personal Injury
• Environmental
Valuation
• Business and professional
practices
• Pension
• Intangibles/intelligent
property
• Property
Antitrust Analysis
• Price-fixing
• Market share, market definition
• Pricing below cost
• Dumping and other price distribution
• Anti-competition actions
• Monopolization
General consulting
• Arbitration
• Mediation
• Actuarial analyses
• Statistical analyses
• Projections
• Industrial engineering
• Market analyses
• Computer consulting
• Industry practices
• Merger/acquisitions
• Document management
Accounting
• CPA malpractice
• Bankruptcy/reorganization
• Tracing
• Contract cost and claims
• Regulated industries
• Frauds (civil and criminal)
• Historical analyses
• Family law
Analyses
• Tax bases
• Cost allocations
• Tax treatment of
specific transactions
Source: Management Advisory Services Technical Consulting Practice Aid 7: Litigation Services, (AICPA, 1986); http://www.aicpa.org/innovation/fp/
overview_litigat_disput.htm
Professional Outlook
NewAccountantUSA.com 19
Weston Anson, the expert for the IRS, testified in the U.S. Tax Court
that Jackson’s name and image was worth $161 million on the date of
his death in 2009, but Jackson’s expert claimed his name and image was
worth only $2,105. Quite a difference.
Jackson estate tax expert Jay Fishman stated that the molestation
allegation against young boys in 1993 and 2003 had put Jackson’s image
in “nuclear winter.” However, Anson argued that “the greatest client in
the world is a dead celebrity.”
Weston Anson broke the most important rule in a deposition or
testifying at trial. He lied. During the trial in February, Anson was asked
if he had ever worked for the IRS. Anson answered, “I’ve never worked
for the IRS.” Jackson’s attorney then asked Anson if he had ever worked
for the IRS on the Whitney Houston estate tax case?” Anson responded,
“we’ve not yet begun any work on the case.” Anson was then asked if he
had written an IP valuation of Whitney Houston?
“Absolutely not,” exclaimed Anson.
The problem is that Weston Anson and his company Consor In-
tellectual Asset Management had submitted a report on June 8, 2015
entitled “Analysis of the FMV of the Intangible Property Rights Held by
the Estate of Whitney E. Houston.”
Furthermore, Consor had a 2009 contract worth $169,168 for
services as an expert to value Whitney Houston’s estate, and had been
awarded at least $2.64 million since 2014.
Of course, attorneys for the estate said that Mr. Anson lied under
cross-examination, and his testimony and expert report should be struck
from the upcoming trial under Tax Court Rule 143(g). The attorneys
also noted that Anson omitted two items from his curriculum vitae at-
tached to his expert report—one dispute where he provided expert tes-
timony at a deposition and one publication. Anson disclosed more than
100 disputes where he was an expert witness and more than 100 articles.
Surprisingly, the U.S. Tax Court judge Mark Holmes refused to
state that Anson committed perjury. But he said I “will instead simply
find that Mr. Anson lied under oath because the parties do not dispute
that he did.” The judge did not wish to “strip the Commissioner of any
expert testimony…because of Mr. Anson’s parsimonious relationship
with the truth about his dealings with the IRS…seems to us to be too
severe.” The judge suggested that “a more proportionate remedy would
be to discount the credibility and weight we give to his opinions.” Of
course, the judge controls in a trial.
But fact or expert witnesses should not lie in a disposition or at
trial. Students also should be careful with their resume when looking for
a job, because an employer maybe not be as charitable as Judge Holmes
was with Weston Anson. Look for the dispute to come to trial in summer
2018.
Movie Depictions of Expert Witnesses
Expert witnesses are not always shown in the best light in movies,
and one website lists these five worst movie examples of expert witnesses:
• The Verdict
• A Time to Kill
• A Few Good Men
• Primal Fear
• My Cousin Vinny
However, My Cousin Vinny, does get high marks for showing both a
good and bad expert witness, and some lawyers have praised the movie.
Richard Posner, former Seventh Court of Appeals judge, indicates that
My Cousin Vinny is particularly rich in practice tips: how a criminal
defense lawyer must stand his ground against a hostile judge, even at the
cost of exasperating the judge, because the lawyer’s primary audience is
the jury, not the judge; how cross-examination on peripheral matters can
sow serious doubts about a witness’s credibility; how props can be used
effectively in cross-examination (the tape measure that demolishes one
of the prosecution’s eyewitnesses); how to voir dire, examine, and cross-
examine expert witnesses; the importance of the Brady doctrine…how to
dress for a trial; contrasting methods of conducting a jury trial; and more.
The 1992 movie itself is about two New York college students (Bill
and Stan) who are accused of robbery and murder in a rural Alabama
convenience store on their way back to college. One of their cousins, Vin-
ny Gambini (played by Joe Pesci), is their inexperienced defense lawyer.
Vinny is fresh out of law school and has never won a case.
The critical event of the defense was disputing the FBI analyst’s
testimony that the pattern and chemical analysis of the tire marks left at
the crime scene were identical to the tires on the students’ Buick. Vinny
forces his girlfriend Lisa Vito to testify as an expert witness (a hostile
witness) with seemingly no experience. Lisa eventually wins the day be-
cause of her practical automotive experience. We suggest you watch the
humorous movie to see two expert witnesses in action.
Conclusion
Forensic accounting litigation services are the professional assis-
tance accountants provide related to the litigation process. These services
may involve accounting, financial, auditing, tax, quantitative analysis,
and investigative and research skills, as well as an understanding of the
legal process to provide assistance for actual, pending, or potential legal
or regulatory proceedings before a trier of fact in connection with the
resolution of a dispute between parties.
As David Baldacci said in Last Man Standing, “most people didn’t re-
alize that trials were often won before anyone stepped foot inside a court-
room.” Certain in civil disputes, the expert witness often wins the case.
Table 2
1st Alex & Jocelyn Wildenstein (1999) $3.8 billion
2nd Rupert Murdoch & Anna Maria Torv (’99) $1.7 billion
3rd Bernie & Slavic Ecclestone (’09) $1.2 billion
4th Steve & Elaine Winn (’10) $1 billion
5th Harold Hamm & Sue Ann Arnall $974.8 million
6th Adnan & Soraya Khashoggi (’80) $874 million
7th Dmitry & Elena Rybolovlev $604 million
8th Craig & Wendy McCaw $460 million
9th Mel & Robyn Moore Gibson (’06) $425 million
10th Robert L. & Sheila Johnson $400 million
Source: Revolvy, https://broomo2.revolvy.com/topic/List%20of%20largest%20di
