If forensic accounting is sexy, litigation support is hot - and CPAs who offer these specialty services are finding their firms' business boiling over into new areas.Being retained by legal counsel to give an expert opinion is at the core of litigation support, a subset of forensic accounting. The two fast-growing niches are very much related, but experts say that forensic accounting is more of an umbrella term that encompasses litigation support.
"I think people are apt to confuse the use of the term forensic accounting with what is litigation support," said Kenneth Neumann, CPA, CFE and director of litigation, valuation and technology services at RGL Forensic Accountants and Consultants in Chicago. "Litigation support is really a niche within the broader investigative forensic accounting. I think that's my only concern within the industry. We're still developing the language."
Discourse over terminology and language may be decided upon sooner rather than later, due to the increased interest from CPAs who want to venture into the forensic accounting, business valuation and litigation support areas.
As an example of its growth, some 78 percent of the members of Accounting Today's 2007 Top 100 Firms have reported an increase in litigation support revenues.
That momentum has not gone unrecognized, as a growing number of universities are offering majors in forensic accounting at the undergraduate level, according to Tom Burrage, CPA/ABV, CVA and chair of the American Institute of CPAs' Forensic Litigation Services Committee. Burrage explained that a forensic accounting credential governed by the institute's National Accreditation Commission may be pending.
"It's in process; there's nothing that has been finalized yet," Burrage said, adding that the credential would be targeted at CPAs, and envelop a broad definition of forensic accounting, allowing interested parties to submit to only one accreditation process. "It would bring under the same umbrella people that are doing family law, economic damages, fraud, bankruptcy work; all those types of specialties would be covered under this credential."
Though not all who do litigation support work have a CPA credential, most do.
Catherine Parente, partner-in-charge at Carlin, Charron & Rosen in Providence, R.I., is a CPA who became accredited in business valuation, a certified fraud examiner, a certified valuation analyst, and a certified forensic financial analyst. She decided to get into the area in the early 1990s, when the AICPA identified litigation support and business valuation services as rising specialty areas.
"It was when some of the compliance work was falling a little bit out of favor," she said. "It was getting a little tougher to get and maintain that work, and the AICPA said to get all these credentials. So we looked at it as a firm and I specifically went into it."
Since then, Parente said, she receives many of her clients - mostly attorneys - from referrals, and while the niche is providing her with plenty of work, no particular area within litigation support is inching to the forefront.
"I personally don't see one area emerging as opposed to another," she said. "General business litigation is not stopping, and ever-increasing. We're in a much more litigious society. People enter into sophisticated financial transactions and something goes wrong on one side or another. The next thing you know, the parties sue each other, and hence, lawyers and experts like us are the ones who get work out of that."
FINDING THE HOT SPOTS
At New York-based CPA and business advisory firm Berdon LLP, Sally Hoffman, CPA, CFE, partner and co-director of the Litigation and Business Valuation Group, specializing in forensic accounting and investigative services, sees purchase and sale disputes as an area that is increasingly expanding.
"That's something that's always been very active, but I think going into the future it's going to be really hot because of all of the deals going on now," Hoffman said. "There's so much money in the private equity market, there are so many deals and transactions going on. Disputes arise. In addition, the disputes over the financial statements and fraudulent financial reporting - that's just huge."
Hoffman also pointed to the area of intellectual property as another specialty within litigation support that has been generating more activity. Issues with online copyright and patenting have been a trend for a while, she said, but now the area is "accelerating."
Experts have varying opinions of the growth in intellectual property work, but most agree that the cases are expensive and time-consuming.
"I think that it's growing," said Jim Alerding, CPA/ABV, CVA and managing partner of valuation and forensic services at Clifton Gunderson in Indianapolis. "I think the problem is that it's really a specialized area, and you're going to have to have people that have some knowledge base in the area. You're going to have to develop some side practices like intellectual asset management and royalty audits that give your staff some background in the area."
Bob Gray, CPA/ABV, CFE and principal at Parente Randolph, a regional firm with a forensic and litigation office in Dallas, also addresses intellectual property disputes, as well as commercial damages, construction contract cases, health care issues and fraud.
"The bigger in-growth that we've seen and that I participate in is also corporate or special investigations primarily where the company, whether public or private, has a fraud situation bubble up," Gray said. "The firm's outside auditors will generally work with their own internal forensic people and will shadow the work we do. They really can't direct the scope of the work we're doing, but they certainly have to approve the coverage and various areas. It is up to the independent examiners and attorneys to determine to what extent, if any, fraud exists in the organization and who the suspects are and so forth."
Gray added that his group, which takes on national engagements, also provides litigation support for shareholder disputes. "It used to be that the minority shareholders had very limited leverage to go and try to get some sort of payback for being squeezed out of the company," he said. "But I think in the post-Enron, post-financial-statement-fraud schemes that we've seen, they are being able to play that out more."
Forensic investigations are at the forefront of litigation support work at Miami-based Berkowitz Dick Pollack & Brant, according to Richard Pollack, CPA/ABV, ASA and director in charge of forensic and business valuation services, but his firm is being retained more by audit committees and regulatory bodies involved in real estate, particularly to settle issues related to sub-prime mortgages.
"With some of the fluctuation with interest rates and with collateral dropping in value on certain properties, there's been a number of regulatory bodies that are concerned that the value for the properties is not supporting the mortgages," said Pollack, who recently co-authored Calculating Lost Profits, an AICPA practice aid. "It would be our role to come in and make sure that the money went to the mortgages, that there weren't any excessive fees, and make sure there's no improprieties - that the money is being used for the mortgage."
Divorce and civil litigation have been areas of growth for Scottsdale, Ariz.-based Veriti Consulting LLC.
"The combination of traditional CPA experience coupled with business valuation and forensic accounting lends itself perfectly to performing litigation support services," said Elizabeth Monty, CPA/ABV, CFE, CVA and a firm principal, via e-mail. "We have experienced a significant increase related to the fraud and forensic accounting services, especially in the areas of employee theft or asset misappropriation."
A MILLION DOCUMENTS
Since the Federal Rules of Civil Procedure were amended in December 2006 to formalize the process by which electronic documents can be subpoenaed, forensic accountants and those in the litigation support field have had to make adjustments to their work processes. This has resulted not only in new, emerging forms of evidence from e-mails, hard-drive imaging, voicemails and handheld devices, but in a slew of practitioners dedicating themselves to sorting and managing electronic documents for use in litigation.
"The interesting part is that it's affected the work significantly," said Burrage, who also is a partner at Meyners + Co. LLC in Albuquerque, N.M. "In reality, the cases we used to do were totally paper-based - that's how you would get all your information."
RGL's Neumann added that two years ago roughly 10 percent of his firm's cases had significant e-discovery. In the last four months, he said that he has received close to 1 million documents on compact disc.
"In the past, it was maybe more difficult to get electronic data; now the courts are recognizing that it is there, have set some guidelines on how it will be produced and how the rules of the game have been changed," he said. "So now it's something we deal with every time we go to court. We're getting more [information, but] I don't know if it's necessarily easier."
Carlin, Charron & Rosen's Parente compares each client case to a snowflake: No two are alike. Still, there is a general process that takes place before entering into a new engagement. A client will call and proceed to inform Parente about the issue, which can sometimes take upwards of an hour and a half.
"I can't get too deep into it until I do a conflict check to make sure myself and our firm don't have any conflicts with respect to any of the parties to the case," Parente said, adding that the process includes multiple database checks and e-mails to senior executives in the firm. "If we do, then obviously we can't accept the case."
Parente said that she has experienced an array of attorneys with different ethical perspectives: some who want purely an objective opinion, some who tell her what they need and ask if she can get them there, and others who say to her that she has to provide them with their desired results.
"I will look at the information and say, 'Well, I can't quite get there,'" she added. "Then you have this confrontational thing with the attorney, and some of those attorneys I won't accept another case from."
Jim Koerber, CPA/ABV, CVA, CFE and a principal at The Koerber Co. in Hattiesburg, Miss., said that he, too, will walk away from cases in which the attorney tries to get him to slant his testimony.
"You've got to be true to your opinion and you've got to be an advocate for your opinion, not an advocate for the attorney," said Koerber, whose firm, which specializes in business valuations and litigation, saw upwards of 60 cases a year prior to Hurricane Katrina, which ultimately shut the court system down for a while. "We've made a point of working with very good attorneys and it rarely happens."
A spurt in the field may also be due in part to auditor independence regulations that prevent CPAs and firms from providing litigation support and expert testimony services for clients who have already retained them for attest work.
"If your work is going to be used in some sort of forum, you can't do both," said Stephen Shulman, CPA/ABV, CVA and partner-in-charge of the Litigation, Forensic and Valuation Services Group at Anchin Block & Anchin LLP in New York. "That may affect some people. The Securities and Exchange Commission always had that rule, but for privately held [firms] you used to be able to. I don't think it's one of those things that really get the intended result."
LITIGATING THE FUTURE
"I think the trick going forward is going to be with the younger people," said Alerding of Clifton Gunderson, who stressed the need for succession planning within the litigation support and forensic services niche. "Most of the testifiers out there in the marketplace today have a little gray around the ears. What that means, not only in the sense that they are more experienced and maybe towards the end of their careers, but they also have experiences that were not in litigation in the beginning."
He said that though there are supposedly many opportunities for younger people looking to enter into the profession, the jobs are going to those further along in their careers.
"If you're going to develop a practice and expect for something to be left when you retire, you've got to do some succession planning, and that means you've got to bring younger people along behind who become testifiers."
Koerber said that litigation support and valuation services are quickly becoming full-time endeavors, with some CPAs testing the waters before getting involved permanently, while others are spinning off those services into a separate entity.
"This area will become larger percentages of accounting firm business going forward," Shulman added. "There's a demand for it, and those who gear up will be in a better position to meet the demand."
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