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How forensic accountants can help fight discovery abuse

Not long ago I supported an expert witness in a civil dispute.  My team was hired by the defense.  Throughout the course of our engagement I saw first-hand some of the tactics that plaintiff’s counsel employed to portray the defendant in a manner that was inconsistent with the evidence my team reviewed.  Furthermore, I observed on numerous occasions the plaintiff counsel’s “abusive” tactics during the discovery phase.

Depending on one’s exposure to dispute matters, the spectrum of discovery abuse can range from “never seen it” to “seen it a lot.”  Due to the realities of discovery abuse and its implications for practitioners, today’s post will discuss some of the strategies that practitioners can assist counsel in responding to what I call “risk of discovery abuse,” or the risk that opposing counsel may employ abusive discovery tactics.

Establishing objectives

As a general matter, practitioners should quickly establish with counsel an agreed-upon objective for discovery.  Of course, the objectives may differ depending on the nature of the engagement (e.g., consultant vs. expert witness).  In any case, practitioners should obtain sufficient relevant data, including documents and other evidence already in the client’s possession.  On the surface this may seem straightforward, but in practice it can be difficult to do this, particularly in cases where the documents produced are voluminous or relevant documents may not yet have been produced.

Once sufficient relevant data is obtained, practitioners can then work with counsel to collect relevant information regarding opposing counsel’s work habits, style, and practices.  This step may or may not be cost-effective.  Recognizing this, at a minimum, it can inform both the practitioner and counsel of the risk of discovery abuse by opposing counsel.

Meaningful steps

There are a number of valuable resources on this topic, such as a 2013 publication by the Defense Research Institute and a December 2014 article published by Hopwood, Pacini & Young in the Journal of Forensic & Investigative Accounting entitled “Fighting Discovery Abuse in Litigation“, to name a few.  A condensed version of this 2014 article can be found in Essentials of Forensic Accounting, published by Crain, Hopwood, Pacini & Young, 2015.  This publication identifies number of ways in which practitioners and counsel may obtain relevant data to assess the likelihood and extent of potential risk of discovery abuse by opposing counsel.  Indeed, there are multiple ways to understand opposing counsel’s litigation techniques and practices.  Examples include:

  • Observation of opposing counsel performing direct and cross-examinations, lodging objections, and engaging in opening and closing arguments at trial.
  • Inquiry of lawyers who have litigated against opposing counsel.
  • Inspection of trial court files for cases handled by opposing counsel.

Based on findings from this research, both practitioners and counsel can gather answers to questions, such as:

  • What types of objections, if any, did counsel raise to various interrogatories?
  • Did counsel file any motions for a protective order?
  • Did counsel do a document dump or engage in otherwise abusive discovery practices?
  • Did counsel ever refuse to comply with a court order?
  • How did counsel respond to requests for admission?
  • Did counsel often have motions to compel filed against him or her?
  • Does counsel respond to discovery?
  • Has counsel been sanctioned for misconduct?

Answers to these and other questions can assist practitioners and counsel in obtaining valuable information to assess the risk of discovery abuse.

Using precision when appropriate

In the discovery phase, depending on the nature of the information being sought, requests for evidence should be tailored sufficiently accurately and precisely so as to provide the highest likelihood of obtaining the information requested.  For this purpose practitioners can provide counsel meaningful input in the preparation of discovery requests (such as financial-related or technical evidence).

When using precision, the legitimacy of opposing counsel’s objection can be diminished.  Furthermore, this puts pressure on opposing counsel to offer precise or specific objections if the objections are to withstand judicial scrutiny.  As one would expect, precision in discovery requests tends to have a higher likelihood of surviving a motion for a protective order from the opposing side.

Courses of action

There are, of course, various means of addressing the risk of discovery abuse.  These can include keeping detailed records of requests, motions, and status, insisting that the counter-party provide a privilege log, seeking a protective order from the court, thereby placing limitations and conditions for violations, and seeking sanctions under the Federal Rules of Civil Procedure, Rule 37 for failure to cooperate in discovery.

As the saying goes, “an ounce of prevention is worth a pound of cure.”  With this in mind, to the extent that practitioners and counsel believe, in consultation with the client, that the potential benefits of conducting such research on opposing counsel may exceed the costs, practitioners can offer valuable assistance to counsel and their clients to effectively address discovery-related abuses.

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Effective interviewing techniques

Recently I attended a training by my local Association of Certified Fraud Examiners (ACFE) chapter addressing the topic of conducting interviews.  I thought the topic was interesting and certainly applicable in my line of business.  For this reason I’m writing today’s post on this topic.

To begin, television shows and movies too often seem to portray interviewing techniques that are wholly ineffective in most circumstances.  For example, in the movie L.A. Confidential the good cop-bad cop scene shows essentially every signal of aggression.  As expected, the bad cop plays really tough with the subject, who eventually submits to his wishes.  In reality, when faced with such drastic circumstances, an interviewee may say whatever the interviewer wishes, even giving a false or unreliable admission.  Experience dictates that this is not truly effective interviewing.

Rapport

Effective interviewing requires rapport building with the interviewee.  Indeed, there are various techniques to do this.  Examples include listening, asking follow-up questions, understanding the interviewee psychologically, saying “I want you to relax,” and asking the interviewee “tell me about your life/yourself.”

Of course, not having a checklist mentality is very important as well.  This is because a checklist mentality does not sufficiently accommodate for changes in plan or approach that often times are necessary on the fly.  I discuss the practice of check listing in another post.

Another key aspect of building rapport is deciding the best approach to take.  Appealing to reason or logic, rather than fear, is more likely to create an effective bond with the interviewee.  Moreover, the interviewer generally shouldn’t dominate the conversation, but rather seek to make the power neutral between the interviewer and the interviewee.

Interviewers should also think about what type of support network the interviewee may have.  For example, one might ask if there are other perpetrators or victims that may not already be identified.

What’s going on in the interviewee’s mind?

As a means of trying to anticipate potential issues or identify appropriate questioning techniques during an interview, interviewers should understand what is going on in the interviewee’s mind.  There are at least three things that an interviewee is thinking through, whether consciously or sub-consciously.  These include an interviewer assessment, a subject assessment, and asking him or herself “what about me” questions.

The interviewer assessment

  1. Do I like the interviewer?
  2. Do I trust the interviewer?
  3. Is the interviewer judging me?

The subject assessment

  1. Why is the interviewer talking to me?  The interviewer has responsibility to explain this up front.
  2. Do I have the information that the interviewer seeks?
  3. How much does the interviewer know?
  4. How much can the interviewer find out from other sources?

“What about me” questions

  1. What happens if I disclose the information?
  2. What happens if I do not disclose the information (fired, jail, fine, etc.?)
  3. Am I comfortable?

Voluntary disclosure

Of course we want the interviewee to voluntarily disclose information.  As such, an interviewer should take an approach that encourages the interviewee to do this.  Think of the art of persuasion, using the sales pitch to appeal by being genuine, compelling, and using logic and reason.

Awareness

Equally important to effective interviewing is situational awareness.  Sun Tzu, a 6th century BC Chinese military strategist, identified three attributes of awareness that are relevant to this topic and the ACFE training adapted these attributes to effective interviewing as follows:

Know yourself as an interviewer

As an interviewer, I need to identify my strengths and weaknesses, mold my techniques to my strengths, and create my style of interviewing.

Know your “enemy”

As an interviewer, I need to understand the interviewee’s motivations, strengths, and weaknesses.  Furthermore, I need to try to answer the 10 questions (listed above) on behalf of the interviewee beforehand.  Finally, I should acknowledge that every interviewee is different and that my approach should be fluid and flexible to accommodate changes in plan.

Know the terrain

As an interviewer, I need to understand the laws applicable to the facts and circumstances (e.g., employment law, criminal law).  In addition, I need to understand company policy and procedures as well as the corporate culture.  Ultimately, I need to understand the BIG picture in focus.

Application

When one gets into the details of effective interviewing, today’s post identified a number of factors to consider.  For some, thinking through each factor can be overwhelming.  With this in mind, consistent practice is what I believe makes an interviewer more effective.

I received permission from the authors of the training (Travis Boyd, CPA, Johnnie Bejarano, DBA, CPA, CFE, and Doug Laufer, PhD, CPA, CFE) to share the slide deck here.

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What others have said in the past and why it matters

In the past I’ve worked on a number of financial disputes dealing with improper accounting for liabilities, among other things.   In one such instance, the plaintiff alleged that the defendant understated certain liabilities and, as a result, the defendant’s historical financial statements were materially misstated.

To support his opinion, the plaintiff’s expert relied on certain documents produced in the litigation that my team believed were taken out of context.  What was somewhat comical about the situation was that the alleged understatement was so large that it left a number of us scratching our heads.  We wondered why would anyone have gone into that particular business at the time if they “knew” (using the plaintiff expert’s words) they had to record certain liabilities as large as what the plaintiff’s expert claimed.  Indeed, no company in the industry at the time was recording liabilities anywhere near the extent that the plaintiff’s expert alleged should have been recorded by the defendant.

As experienced forensic accounting practitioners and expert witnesses understand, hindsight provides a clear picture of what took place and whether or not it was reasonable.  On the other hand, hindsight can be difficult to justify its reliance.  In particular, if the facts and circumstances known to an entity at the time were the best available information, then they may be considered reliable and reasonable.

Contemporaneous understanding

This brings me to my topic for today, that of understanding what others were saying and doing at the time.  More specifically, to follow my story through I will discuss the importance of identifying (generally speaking, without disclosing confidential information) what the plaintiff in this case was saying at the time and why it matters in a dispute.

For privately-held businesses, obtaining contemporaneous information may prove to be a challenge.  This is because private companies tend to disclose less (or sometimes no) information to the public.  In contrast, publicly-traded companies are held to a higher standard of public disclosure through various means.  These public disclosures can prove to be a treasure chest of information.

Back to my story of the plaintiff, which happened to be a publicly-traded company and a user of the defendant’s financial statements.  The plaintiff’s expert claimed there were all sorts of red flags at the time that the defendant prepared its financial statements.  Further, the plaintiff’s expert alleged that the defendant “should have” noticed these red flags and incorporated them into its accounting decisions.

What I find intriguing is that during the time period in dispute the plaintiff publicly disclosed that it believed the market factors affecting these accounting liabilities were not of big concern.  This was important because the plaintiff’s public statements lent credence to the liability accounting decisions made by the defendant.  Were we able to find these public statements by the plaintiff in the plaintiff’s complaint?  Of course not.

When an entity is in the public light, it provides information to the public in multiple ways.  So, knowing where to look for these types of public statements made our job easier.

SEC resources

A fabulous resource for identifying public statements is the SEC’s website.  For those less familiar, the SEC’s website archives various public filings.  In my experience, the following resources are helpful in identifying historical public statements:

  • Form 10-K – This is probably the most commonly known SEC form.  SEC registrants are required to file this annual report with the SEC, including annual financial statements, related schedules and various textual information.  SEC registrants also include discussion and analysis of financial trends within a section called Management Discussion and Analysis (MD&A).
  • Form 10-Q – SEC registrants are required to file this quarterly report with the SEC, consisting primarily of the company’s quarterly financial statements.  These forms also include a section on MD&A.
  • Form 8-K – These SEC forms can contain a wealth of information.  SEC registrants are required to file these forms with the SEC when certain significant, reportable events occur.  Examples include: quarterly press releases, major acquisitions, material contracts, and legal proceedings.
  • Comment Letters – Generally, the SEC publishes comment letters that it sends to SEC registrants, which can be identified by filtering for “UPLOAD.”  Similarly, the SEC publishes letters it receives from registrants on the SEC’s website, which can be identified by filtering for “CORRESP.”  Because the SEC is a regulator with a heavy hand, what a company writes to the SEC matters greatly.  Therefore, practitioners should pay specific attention to letters between the SEC and registrants.

Other resources

I have found the following other resources to also be worthy of digging through in search of relevant information:

  • Company website – Companies issue press releases and post them on their website.  Practitioners should be aware that not all company press releases are filed with the SEC via Form 8-K.
  • Industry news and reports – Depending on in which industry a company operates, there may be industry publications from reputable sources.  Again, these sources can provide reliable information that was known or communicated at the time.
  • General media communications – Media outlets may overlook or de-emphasize some aspects of company press releases.  In order to attempt to have a degree of control of the narrative, companies often have relationships with major media outlets.  Running web searches of public statements made by company personnel can generate interesting results.

Relevance

As one can gather from my story, it certainly doesn’t help the plaintiff’s case when it was disclosing to the public a certain narrative at the time, but then it switched gears and makes contradictory allegations later in support of its lawsuit.  Therefore, when looking to the correct sources, experienced forensic accountants can find valuable information.  This information can help to obtain a more full, or correct, understanding of the facts and circumstances at the time to assist their clients in all types of dispute matters.

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Fraud auditing, a new trend

We all know that fraud is alive and well in today’s society.  On a daily basis, it seems, we hear unpleasant fraud statistics and read eye-catching news headlines about new fraud schemes or deceptions.  Indeed, businesses today are no less vulnerable to fraud than before.

Because of its ever-presence in today’s business world, a new trend of fraud auditing is becoming more and more popular.  So, what is it?  In essence, fraud auditing is a two-phase exercise.  First, one designs a fraud risk assessment to identify areas where a company may be susceptible to fraud.  Second, in response to findings of this assessment a monitoring and reporting program is put in place as a tool for management oversight.

Preventive vs reactive measures

When I was a former Big 4 auditor I incessantly heard complaints from my clients about audit fees being too high.  Indeed, financial statement audits can be expensive because they are designed to cover all aspects of the financial statements.  In contrast, fraud auditing doesn’t have to be expensive.

Moreover, as a preventive measure, one of the benefits of fraud auditing is that the cost of such an assessment can in large part be determined by the company’s management.  Conversely, as it relates to reactive measures, the cost will depend greatly on the motivation by the company for having the fraud audit conducted in the first place.  Examples of motivations imposed on a business may include: response to fraud already identified within the company, restatement of financial statements, or a decision to bolster internal controls because of restrictions imposed by a regulator, to name a few.

We can probably agree that human nature tends to be more reactive than proactive at different phases of life, such as wellness and personal finance.  In a similar vein, too often companies wait to respond to fraud risks until they manifest themselves through fraud or abuse.  Said another way, companies often do not perceive sufficient value in conducting a meaningful fraud risk assessment and, therefore, they wait until the stakes are much higher.  Oh, how relevant today is Benjamin Franklin‘s famous adage that “an ounce of prevention is worth a pound of cure!”

Consideration examples

Next, I wish to give some definition to the look and feel of a fraud risk assessment.  Depending on the nature and extent of a fraud audit, following are some examples for consideration to begin to understand risks and exposure:

  1. Domination of management by a single person or small group.  This gets at the heart of the tone within an organization.  Regardless of the extent of internal controls (even at the transactional level), if there is management domination by one or a few individuals, this can have a pervasive effect on the organization as a whole.
  2. A practice by management of committing to analysts, creditors, or other third parties to achieve aggressive or unrealistic forecasts.  One can see that being overly aggressive can be an area of risk and exposure.  Conversely, for businesses not beholden to outsiders (such as creditors or investors) this, of course, is irrelevant.
  3. Ineffective communication, implementation, support, or enforcement of the entity’s ethical standards by management or the communication of inappropriate ethical standards.  This really goes without saying. If management doesn’t enforce its own rules, then why have them in the first place?
  4. Recurring negative cash flows from operations while reporting earnings and earnings growth.  Financial pressures placed on management to generate favorable results should be considered when assessing the adequacy and effectiveness of business performance reviews.
  5. Rapid growth or unusual profitability, especially compared to that of other companies in the same industry.
  6. Significant, unusual, or highly complex transactions, especially those close to the period end.
  7. Significant related-party transactions not in the ordinary course of business.  A review of an entity’s financial statements or records can reveal the nature and extent of transactions with related parties.
  8. Recurring attempts by management to justify marginal or inappropriate accounting based on materiality.  Although this one may be difficult to assess, an effective fraud audit should incorporate inquiries of multiple company personnel at varying levels within an organization.
  9. Restrictions on the limitation of access to people, information, or communication by the board of directors or those charged with governance.  

I adapted the above points from the PCAOB’s AU 316, Consideration of Fraud in a Financial Statement Audit.  Although the above list is not exhaustive, it can be a good start to identify areas of heightened risk exposure for a company.  Equally important is that AU 316 was specifically designed to apply to external auditors in connection with the performance of financial statement audits.  Despite this, I believe the principles and guidance within this AU can apply to a variety of circumstances and not just financial statement audits.

Checklisting

It seems that in more recent years auditors have gravitated more toward a “checklist” mentality to discharging of their professional duties.  I believe this is heavily influenced by feedback from regulators.  Of course, checklisting has its place within a professional service engagement to mitigate legal and regulatory exposure.  However, as one can gather from my post above, it is important to exercise professional judgment by inserting a healthy degree of flexibility between checklisting activities and allowing free thinking and creativity.  After all, thinking through the “what ifs” of a situation is always an effective way to identify areas of risk and exposure.  To add to this thought, because risk factors can vary greatly depending on the industry and company-specific factors, it is imperative to tailor the nature and extent of a fraud audit to the needs of an organization.

Less rigorous is still better than nothing

In ideal circumstances companies want to get to the right answer from the beginning.  While this sounds good, the reality is that, as I touched upon earlier, many businesses do not place fraud auditing as an area of focus until they are forced to.

One way to assist companies in overcoming the resistance to a full blown fraud audit is to perform a less rigorous fraud risk assessment.  As a valuable resource the Association of Certified Fraud Examiners (ACFE) offers a Fraud Prevention Check-up.  While I recommend any such assessment be performed with the assistance of experienced professionals familiar with the issues, this check-up exercise could, in theory, be performed by the business itself.  In any case management should take the assessment seriously, standing ready to take action should there be cause for concern.  Additionally, I strongly recommend that, if possible, general counsel be aware of and participate in this process for legal protection to the company.

Altogether, companies that take seriously their obligations to protect company assets and stakeholder value should equally take seriously their oversight and monitoring of financial fraud risks.  Fraud audits provide an excellent means of fulfilling these obligations.

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The FASB’s comment letter process and why we need to understand it

Today I’m writing about the Financial Accounting Standards Board’s (FASB) comment letter process.  Prior to issuing authoritative accounting and disclosure standards, the FASB interacts with its constituents in a variety of ways to gather information that it may not have already considered.  Having a strong understanding of this process can provide practitioners with meaningful context to assist companies in their application of the FASB’s standards.

To begin, the FASB is a private organization overseen by the SEC.  The FASB sets standards, which become a part of U.S. GAAP accounting standards serving the broad public interest.  To note is that since September 15, 2009 the U.S. GAAP accounting standards have been codified in what is known as the Accounting Standards Codification (ASC).  In connection with setting these standards, the FASB has adopted an open decision-making process that provides for interaction between the FASB and its constituents.  This interaction takes many forms, including comment letters.  The FASB explains:

Comment letters are received from constituents in response to Discussion Papers, Exposure Drafts, and other discussion documents that are released to the public for comment.  Comment letters, which become an important part of a project’s public record, are an important source of information regarding constituents’ views on and experiences related to issues raised in a discussion document.

Comment Letter Process

The following summarizes the FASB’s standard-setting process, which is governed by the FASB’s Rules of Procedures:

The part I want to focus on in the above graphic is step number five.  When the FASB seeks to issue new authoritative accounting guidance, it commences by issuing exposure documents to solicit input.  These exposure documents may include Exposure Drafts (ED), Discussion Papers, Preliminary Views, and Invitations to Comment.  Often times the FASB issues an ED, but in some cases it may issue a Discussion Paper to obtain input in the early stages of a project.

The FASB typically issues EDs with a designated timeframe for respondents to reply, often in the form of comment letters, but also via public roundtable discussion and other due process activities.  Depending on the nature and extent of the feedback it receives, the FASB may redeliberate the proposed provisions to accounting and disclosure standards.  This, according to the FASB, is done at one or more public meetings.

Once all key concerns and issues have been considered and addressed, the FASB nears completion of its standard-setting process by issuing a final standard, in the form of an Accounting Standards Update (ASU).  The ASU describes the amendments to the ASC.

Resources

When litigation cases or accounting consulting engagements involve the interpretation or application of accounting and disclosure standards, it is critical to understand the thought process surrounding the decisions that become part of a standard.  Having a strong understanding of the FASB’s standard-setting process and knowing where to locate relevant information is key to building a strong position.

Practitioners have at their fingertips access to a host of FASB resources that can assist them in preparing arguments, opinions, or positions on a variety of accounting and disclosure topics.  Some helpful resources include:

  • Exposure documents previously issued by the FASB for comment, but are now closed for comment, unless otherwise stated.  This link includes FASB documents issued after 2002.
  • Responses received by the FASB in connection with its online comment letter process.  One can read specific comment letters the FASB receives from constituents, including public accounting firms, SEC filers, and other organizations taking a keen interest in the FASB’s exposure documents.
  • Unsolicited online comment letters from constituents.  This link includes related documents dating from 2002.
  • Exposure documents currently open for comment.  I suggest these types of documents are less valuable to preparing arguments, opinions, or positions.  However, understanding current deliberations may be applicable in certain engagements.
  • ASU documents.  Perusing certain aspects of these ASC amendments is a good way to obtain color and context to them.  I have found the following ASU sections to be particularly helpful in obtaining the understanding I may be seeking:
    • Why Is the FASB Issuing This Accounting Standards Update?
    • Who Is Affected by the Amendments in This Update?
    • How Do the Main Provisions Differ from Current U.S. Generally Accepted Accounting Principles (GAAP) and Why Are They an Improvement?
    • Background Information and Basis for Conclusions

Application

I once worked on an engagement with a Fortune 1000 company that had become the center of a wave of negative media attention.  In a move that was anticipated, the external auditor raised challenging questions about the company’s application of a particular ASU in light of the negative media attention the company had received.  As an engagement team, in order to effectively address the external auditor’s concerns, we decided it was important to understand the details behind the ASU, including reviewing the comment letters the FASB received prior to issuing the ASU.  This exercise shed meaningful light on the implementation issues that multiple constituents predicted would, and indeed had occurred with the company.  Because of our ability to quickly look to relevant sources for reliable information, my firm was able to assist our client in navigating this challenge effectively and provide credible, supportable arguments to the company’s external auditor.

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The power of walk throughs in investigations

As a former auditor, I performed walk throughs of certain key account processes or cycles to gain a complete understanding of a transaction from start to finish.  Sometimes it became quite cumbersome because certain processes were complex or lengthy.  However, after walking through a process I was able to gain a solid understanding of the areas of risk exposure and, most importantly, I could answer the question, “what could go wrong in this area.”  This informed me further in planning my audits and responding to risks.

As a basis for framing my post today, the PCAOB AU No. 5 at ¶ 37, describes a walkthrough as follows:

In performing a walkthrough, the auditor follows a transaction from origination through the company’s processes, including information systems, until it is reflected in the company’s financial records, using the same documents and information technology that company personnel use. Walkthrough procedures usually include a combination of inquiry, observation, inspection of relevant documentation, and re-performance of controls.

Although this guidance is intended to apply to audits of internal controls over financial reporting, implemented by an entity in preparing its financial statements, the principles gathered from walk throughs can be applied to a variety of circumstances.

As basic as they may seem, walk throughs I believe are the bedrock to understanding the flow of transactions in accounts, particularly complex ones.  Following are some powerful things that can be gathered from a walk through:

  • Build rapport with the interviewee through conversation that can be transitioned from “formal” (early on in the walk through) to “informal” or more “relaxed” (once enough questions have been discussed and the anxiety of meeting someone for the first time can be overcome)
  • Identify “types” of documentation not previously known
  • Assess the competency of an account owner/interviewee
  • Assess the body language of the interviewee and gather relevant information therefrom
  • Identify improper segregation of duties (custody, record keeping, and authorization/verification)
  • Identify exposures to fraud and/or error

To do effective walk throughs, it’s critical that the person conducting the meeting have sufficient experience to understand what types of questions to ask and, maybe more importantly, if answers are satisfactory or if probing is necessary.  Depending on the risks/allegations, a walk through may encompass a portion of or an entire process, including: initiation, authorization, recording, processing, and reporting.

I’ve found the following types of questions to be helpful in a walk through (of course, adapting the questions to the relevant facts/allegations and circumstances is critical to an effective discussion):

  • Please describe your role in this process.
  • Who else is involved in this process (preparers, reviewers, approvers, etc.)?
  • What happens when a transaction is not approved?
  • What systems (internal or external) do you use or rely upon to perform your duties?  This type of questioning can assist in identifying the areas of manual intervention, which often times are the areas of highest exposure to fraud and/or error.
  • Where do you understand the areas of judgment or estimate to be?
  • Have you or anyone you know been asked to override any controls?
  • If there were a questionable transaction or request, who would you go to for guidance or advice?

Depending on the situation, I recommend two interviewers in attendance.  For example, in an investigative scenario, it may be appropriate to have two persons in attendance, one to ask the questions and interact with the interviewee and another to take notes, but also to stand as a “witness” should allegations come back against the interviewer.

Sometimes a walk through may not be possible because access to the person(s) may be restricted.  In these scenarios, the best available information should be considered and, using an experienced professional’s understanding of the flow of similar business transactions, one should formulate an “expectation” for how transactions are processed and then refine that “expectation” as new information becomes available.

As a reiterative point, having an experienced professional involved in the process greatly increases the odds of a successful outcome (“successful” of course being a relative term) and is critical in sorting through what is relevant, what is not, and what may be an intentional diversion.

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Anticipating Biases

Once I listened to a lecturer, who happens to be an expert in the field of jury persuasion, discuss various types of “bias” and how they may influence a juror.  I thought there were some great parallels to make in the context of the work that expert witnesses do.  Today’s post will discuss some key considerations regarding juror bias and how to anticipate and plan for issues before they arise.

Bias

Anticipating the following types of bias that jurors will likely have is critical to ensuring a bullet-proof expert testimony:

  • Availability bias – what one spends the most time on or emphasizes contributes to what information is perceived as most important.
  • Confirmation bias – one’s life experiences and prior knowledge shape one’s view/bias.
  • Belief perseverance bias – early impressions and early narratives are crucial to shaping one’s understanding of an issue.

To emphasize or not

I do want to expand more on the first type of bias.  You may already be able to connect the dots between availability bias and using good judgment in emphasizing facts, analyses, or opinions.  Key points that influence one’s opinion should be emphasized in a judicious manner, not taking up too much time in testimony or space on a report, but conveyed in such a manner that the trier of fact will pick up on the degree of importance that the expert witness intends to convey.  In the moment it can be really difficult to craft one’s delivery.  Therefore, expert witnesses should consider (in collaboration with counsel and, if appropriate, the client) how to deliver.

Applicability

If I am given only a few minutes to explain to a listener how an individual or entity fraudulently misrepresented its top-line revenues over a period of time to achieve certain results, how should I spend my time doing this, knowing that my desired outcome is to convince the listener that my opinion is the best answer?  Here are some considerations:

  • Should I assume the listener has a comprehensive understanding of the environment surrounding the matter (e.g., generally accepted accounting principles, financial statements, users of financial statements, responsibility of management vs. external auditors, etc.)?  How do I emphasize or de-emphasize?
  • Should I assume the listener understands what guidance or standard is applicable to the matter (e.g., revenue recognition)?  How do I emphasize or de-emphasize?
  • Should I spend more time talking about how things “should be” done (how revenue should be recognized), how things “were” done (how revenue was recognized), or keep it balanced?
  • Should I explain the details of what I did to arrive at my opinion or just keep it general?  What “material” facts should I emphasize?
  • Keep complex issues simple
  • Think about the logical steps to arrive at my conclusion.
  • How do I keep the listener’s interest and attention?
  • What do I want the listener to remember?
  • Teach, don’t just conclude.

Although this example is intended to be straightforward to get my point across, the principles can be applied to many scenarios.  Availability bias must be understood and planned for such that the message the expert witness conveys to the trier of fact is delivered concisely (without giving too much information to confuse or lose interest) and that it flows such that, to the extent complex issues must be explained, the steps taken are logical and progressive.

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