Art of Accounting: Bias Removal

IMGCAP(1)]It is very hard to avoid injecting bias in investigatory forensic work, but essential if you want to be successful. I had a great experience to illustrate this.

First, very few people do things that are completely unbiased. Most everyone starts with some sort of preconceived idea and, whether consciously or subconsciously, they lean toward that. Maybe I should have said unconsciously. So many people do things without a clue, but that is a different story.

I was once engaged by a creditors’ committee to try to see if a company in Chapter 11 hid any transactions, or did anything to divert assets from the business. I put together a team of eight people, designating one of them as the team leader. I prepared a preliminary work schedule for each person with instructions for the team leader to call me at the end of each day with an update on each person’s progress and what else we might do.

My instructions were for processes to be examined, certain transactions to be tested, and trend analyses to be done of key performance indicators. The job was done as well as I could have hoped, and I was able to issue a report with extensive findings that greatly helped the creditor's committee and in some respects the company.

I explained to the staff that our job was to report what we found and, based on our findings, it would determine what the next step would be. I did not tell them who we represented, saying it was a forensic job that needed an independent look, which actually was the truth.

The success of the project required that I receive unbiased reports of what had occurred. My job was to analyze their work, and that job would be much more difficult, and perhaps impossible, if I received work that was biased toward a result.

Takeaway: Many times we create barriers to obtaining what we really need. Be careful to avoid tainting the results.

Edward Mendlowitz, CPA, is a partner in WithumSmith+Brown, PC, CPAs. He has authored 20 books and has written hundreds of articles for business and professional journals and newsletters plus a Tax Loophole article for every issue of TaxHotline for 27 years. Ed also writes a blog twice a week that addresses issues his clients have at www.partners-network.com. He is the winner of the Lawler Award for the best article published during 2001 in the Journal of Accountancy. He has also taught in the MBA graduate program at Fairleigh Dickinson University, and is admitted to practice before the U.S. Tax Court. Ed welcomes practice management questions and he can be reached at WithumSmith+Brown, One Spring Street, New Brunswick, NJ 08901, (732) 964-9329, emendlowitz@withum.com.

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