For the most part, says David Hahn, CPA, clients aren't too happy when they have to retain him. As a forensic accountant and certified fraud examiner with Squar, Milner Reehl & Williamson LLP, an accounting and business consulting firm in Newport Beach, California, Hahn usually only enters the picture when litigation is involved.
"[In most dispute-resolution processes]," Hahn says, "the ultimate result is quantified in dollars, and typically the best person to do that quantification is an accountant." Forensic (meaning related to court proceedings or dispute resolutions) accounting is a financial service most entrepreneurs hope they'll never need, but it's increasingly in demand nonetheless. The reason is simple: information.
"The primary asset of more and more businesses is intellectual property," says Hahn. "As the company grows, these assets go from almost valueless to having a high value, and people often do illicit things in garnering certain types of intellectual property or knowledge assets. Often, that will spawn litigation."
Forensic accounting also comes into play when value or damages need to be determined, such as in shareholder disputes and bankruptcy cases. Hahn says even a healthy business can find itself in bankruptcy court if a large customer or vendor fails, or if questions arise about payments, money owed and other transactions.
In most cases, your attorney or general accountant will tell you when you need to retain a forensic accountant. Be sure the person you hire has appropriate investigative experience and credentials. If you're going to trial, you'll need someone who's got some experience as an expert witness.
"As troubled companies are dealing more and more with intellectual property as opposed to manufacturing concerns or real estate, quantifying disputes is more difficult and abstract," says Hahn. "You need people who know what they're doing and have done it before."
However, you might need a forensic accountant even if you're not attempting to resolve a dispute. According to Hahn, the most common circumstance is when an entrepreneur suspects fraud but isn't quite sure of the source or method. Forensic investigators have the skills to conduct an investigation even when litigation or law enforcement may not be involved.
Jacquelyn Lynn left the corporate world more than 13 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since..
- Squar, Milner, Reehl & Williamson LLP, 4100 Newport Pl., 3rd Fl., Newport Beach, CA 92660, (949) 222-2999