There's no question that since 1992, when CPA Ralph Summerford opened Summerford Accountancy PC, in Birmingham, Ala., he's seen an evolution in the litigation support niche that most forensic accountants build their reputations on."When I started doing this work, I did it because I liked it and it was fun," Summerford said. "It wasn't cool back then. No one knew what the heck a forensic accountant did. Now, with all the publicity brought on by scandals, the awareness of the work has really been raised. I think judges appreciate and respect what an expert witness can bring to the table now more than ever."
In the face of legal changes in the courtroom and splashy accounting frauds, Summerford said that the basics of a good litigation support practice have remained the same.
His firm has grown to nine people over the past 14 years, including a retired agent from the Federal Bureau of Investigation and two forensic accountants who are logging increasing time in the courtroom.
And even with one of the region's major companies, HealthSouth Corp., grappling with fallout from a $2.7 billion accounting fraud, there was a silver lining for some members of the profession: Summerford's firm is now handling three separate litigation matters that came out of that fraud.
More than three-quarters of the 74 firms that responded to an Accounting Today survey of the 2006 Top 100 Firms said that business for their litigation support practice area was continuing to increase. In fact, two of the firms on the Top 100 list, Los Angeles-based Stonefield Josephson and Atlanta-based Habif, Arogeti & Wynne, have expanded their litigation support groups in the last year.
Stonefield Josephson president Jeffrey Garrison said that his firm had dabbled in the area in the past, but decided as part of a push to diversify beyond audit and tax offerings that it needed to have a concentrated practice group to run litigation support effectively as a team.
"We believed that a lot of the larger firms were so audit-focused, this might be an area where we could pull some very quality people who were interested in making litigation support their career," he said.
Garrison said the firm lucked out from the beginning, being able to find two of its three qualified directors (all with solid credentials and track records), who were looking to make a company switch. The third director was found through a search, and each of the new hires heads up a major area within SJ's Valuation, Litigation & Forensic Group, which was launched in late 2005.
Garrison said that the group's early success has come from working on specific projects with larger firms, which typically have led to more work. From just a couple of clients, the firm has charged fees in the seven-figure range. The firm's plan was to have a total of 10 employees working in the group by the end of 2006, but it's already reached that point six months into the venture, and has a search underway to hire more.
Stonefield Josephson is hoping the group will bring in revenues of about $3 million this year, and envisions growth of 10 to 15 percent next year, keeping its focus on high-level clientele. Garrison, like others, noted the importance of maintaining the practice - which, unlike audit or tax work, is not necessarily a cyclical business.
Habif, Arogeti & Wynne partner Barry Frankel, who is also the director of the firm's Litigation Support Services Group, said that he now has six dedicated people working below him in four major areas - forensic and fraud accounting, quantifying damages, business valuation, and bankruptcy and turnaround management. Of those, he said, forensic work has been the biggest segment.
Frankel, who has a law degree, said that formalizing the practice has paid big returns in just a few years. What started as a $250,000 practice has grown about 30 percent annually in recent years, and the hope is to bring in between $3 million and $4 million in the next several years. Those returns have also allowed him to bring in a range of experts: One recent hire was an accountant who helped quantify the damages of Iraq's invasion of Kuwait during the first Gulf War.
HAW markets its litigation support services intensively to attorneys in Georgia, particularly the Atlanta bar section. The firm has a presence at national law conventions, as well as with the insurance and bankruptcy industries - but Frankel said that 90 percent of business comes from lawyers.
The only thing Frankel would have done differently in launching HAW's group? "We would have started this much, much earlier," he said.
Witness for the ...
For smaller practitioners, especially those accustomed to spending time on the witness stand, good word-of-mouth usually goes to the winner of courtroom battles.
And Ken Mueller, founder of the Accounting Alliance for Small Business PA, in Orlando, Fla., was only partly kidding when he said that the first skirmish on the witness stand often goes to the witness with more designations.
Mentioning his personal quest to get as long a trail of alphabet soup as possible after his last name, Mueller said that attorneys play the credential card all the time. "One of the trends I've seen is definitely that the expert witnesses I'm battling tend to have more and more initials after their name."
The American Institute of CPAs and state societies all offer good background courses, and the range of applicable credentials include the Accredited in Business Valuation, the Accredited Senior Appraiser, the Business Valuator Accredited for Litigation, the Certified Forensic Accountant and the Certified Fraud Examiner.
Mueller originally started taking divorce cases to help a friend of his wife's, and soon found himself with about 20 percent of his work coming from attorneys who had seen him in the courtroom. He now regularly comes across the same handful of accounting witness competitors in the courtrooms of central Florida.
Daubert v. Frye
David Glusman, a principal with 60-person Margolis & Co. PC in Bala Cynwyd, Pa., has been working in the field since 1971, and now handles a mix of mostly valuation work and business disputes with another partner at the firm.
"Things have changed dramatically, especially the past few years," Glusman said. "Almost everything used to have a more seat-of-the-pants feel to it, and testimony would be accepted on a much wider range of issues. Daubert's been the standard for a while now, whereas Frye was a little less stringent."
The 1993 Daubert case, which went to the U.S. Supreme Court, changed the rules for the admissibility of expert witness opinion as evidence in federal courts. However, some states still follow the previous test outlined in the Frye case, decided in the 1920s, which required evidence to be generally accepted in the scientific community.
"I think the end result is helping the profession and the courts," Glusman said. "There's more and better discovery leading up to a trial, and there's less of this sort of trial by ambush - both sides start closer to the same page."
Glusman joined the firm five years ago, and has kept involved in the accounting and tax practice, even while his efforts on litigation support have tripled or quadrupled the work that Margolis was doing in the area before.
Phil DeCaprio, of Branford, Conn.-based DeCaprio, Fazzuoli & D'Agostino PC, has been a CPA for more than 40 years and worked on and off in forensic accounting for the past 25. He got into the work when peer review for the Connecticut Society of CPAs led to testifying in accounting firm malpractice cases. An accountant with trial experience was a rarity in those days, and DeCaprio quickly became known as a witness who held up in court.
Mentioning the changes brought on by Daubert, DeCaprio said, "This is not a freelance sort of profession anymore; there are known and accepted procedures that have to be used. I don't see that more formalized trend stopping anytime soon. The public and legal profession is beginning to understand more and more the importance of good accounting practices."
Taking the stand in a niche
It's easy to find a niche within the niche, most accountants said. Alabama's Summerford, for example, avoids divorce cases, noting that neither side ever really ends up happy, and has examined a number of work damages and lost profits (breach of contracts) cases in recent years. Competition comes from all across the board. Certain valuation issues mean certain experts, and bigger national and regional firms - as well as occasional non-CPA groups - are always offering their services.
Still, Steven Bankler, a sole practitioner in San Antonio, called litigation support "an explosion area of accounting" after having been in the field for about eight years. He actively avoids divorce work as well, concentrating mostly on business break ups.
"It's horrible," Bankler said. "Divorces always involve two irrational litigants. At least if it's a business divorce, there's still some rational parties involved who will see the costs start getting racked up in arguing and realize it's not impossible to find some common ground."
He said that as CPAs have begun to regularly talk with clients about asset protection as part of living in a litigious society, it's a matter of course that the field has continued to grow and evolve. Part of that has resulted in some accountants faltering under the court's standards - either not understanding the rules of the courtroom or being unaccustomed to someone questioning their line of thinking.
"This is not a job that's for the faint of heart," Bankler said.
Margolis' Glusman talked about the need for a "love for intellectual dueling," while HAW's Frankel described the field as a "fun option for someone with a law degree."
Even with all the litigation support avenues available, Alabama's Summerford - whose average case will bring in gross revenues of between $25,000 and $75,000 - doesn't think the area is for everyone.
"I don't think it fits with a traditional practice, or is something that's easy for any firm to get into," he said. "Traditional accountants don't understand what we do. There's a mindset required for traditional tax and audit work that's not equipped to handle this kind of thinking. We're more like sleuths, and a lot of accountants don't get that, or that mentality."
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