ARTICLE FROM THE NASSAU LAWYER – THE JOURNAL OF THE NASSAU COUNTY BAR ASSOCIATION AND THE SUFFOLK LAWYER – A PUBLICATION OF THE SUFFOLK COUNTY BAR ASSOCIATION

By: David L. Gresen, CPA/ABV, CVA, CFE

Would you sign a document without reading it thoroughly, looking at the fine print or questioning items you are unsure of just because it was prepared by an attorney? Probably not.

You should be applying the same scrutiny you give your legal documents to the financial information provided to you by financial professionals, such as CPA’s, MBA’s, PhD’s, etc.

Just because a financial statement has been “compiled”, “reviewed” or “audited” or a tax return is prepared by a CPA, does not mean that the numbers should be taken at face value.  All you have to do is open the daily newspaper to see the financial fraud of the day — whether it involves a multinational business, local school district, or an unscrupulous financial advisor.

How do you know when to accept the numbers provided to you, or to call in a forensic account?  You’re an attorney, not an accountant, and numbers may not be your forte.

Here are a few thoughts to assist you in determining whether or not to call in a forensic accountant:

1. Do not accept the financial documents provided to you at face value.  Request supporting information to verify the reported information.  For example, if you receive a business tax return that shows that there are significant loans on the balance sheet which decrease the company’s book value, ask for the loan statements for verification.
2. Review the information provided to you thoroughly.  It does not take a financial expert to see that deposits in the bank do not reconcile to the reported revenue on a tax return.
3. Take a step back from the details. Forget attempting to prove gross profit percentages, understanding accounting journal entries or slogging through piles of financial ledgers.  Ask yourself if the numbers make sense.  What is the reported income?  Is it sufficient to support their lifestyle?   If not, are there any other sources of money available (i.e., trust funds, loans, credit lines)?
4. Trust your instinct.  Even though you are not a trained forensic accountant, you are skilled in dealing with all types of individuals and personalities.  If the numbers don’t seem to make sense, and you have that uneasy feeling in your gut when dealing with the CPA, MBA or PhD who prepared the numbers, then you should bring in your own forensic accountant.
5. Don’t shy away from using a forensic accountant because the cost of a full blown “forensic audit” will be too much.  Start small. You don’t have to go in with an army of forensic accountants right away.   You can first call a forensic accountant and “bounce” the fact pattern off of them.  They will know what questions to ask and can guide you no matter what the budget is.  It could be as simple as assisting you in requesting the appropriate documents that can lead you to making your case.

When you are ready to make a call for assistance, be aware that although there are many good accountants out there, you need someone who specializes in forensic accounting and litigation support.  You need someone on your side to properly guide you through a forensic examination and provide you the information you need to make and present your case, whether it be for informal settlement negotiations or for a trial.

David L. Gresen, CPA/ABV, CVA, CFE is a partner in the firm of Klein Liebman & Gresen, LLC (“KLG”).  Mr. Gresen assists attorneys, judges, accountants, and business owners in forensic accounting, business valuation and litigation support matters.  If you would like to find out more about how KLG can assist you, please call us at 516-364-3232 or 212-505-5770 or visit our website at www.goKLG.com.