On the trail of the fraudsters
21 November 1995
15 April 2013
23 September 2013
16 January 2014
26 February 2014
2 December 2013
Whether as a witness of fact or as an expert witness, an accountant can be a valuable member of the litigation team. However, concern has been voiced recently that the use of expert witnesses has led to judicial delay and expense.
It has also been suggested that some experts have failed to maintain their independence from the party instructing them. It was in response to these assertions that Lord Woolf published his recommendations.
Forensic accountants have an important role in fraud investigation and recovering assets. They act at this point mainly as witnesses of fact. In subsequent civil fraud cases accounting experts are most often asked to give expert evidence as to the movement and whereabouts of the proceeds of fraud, and as to the extent of loss suffered by the victim. Much of the documentation in these cases is likely to comprise accounting records. The accounting expert witness can be invaluable in helping lawyers sift through a mass of apparently impenetrable accounting information and in suggesting what appears to be missing.
Auditing experience leads to an instinct for unusual transactions and circumstances which need investigation. This kind of work is not just confined to large cases.
A good expert should be prepared to consider at least an outline of a case and keep fees in proportion to the size of the matter, only seeking instruction if their evidence will be of genuine assistance to the court.
Expert accountants can be involved in other areas: in one case the defendants passed profitable transactions to an account in a fictitious name from which they were able to withdraw the proceeds while loss-making transactions were booked to client accounts. We were asked to examine the patterns of trading to conclude whether they were unusual.
During disqualification proceedings an expert accountant may be consulted as to whether a business can reasonably be expected to return to profitability. In cases like these the forensic accountant can assist the court with expert evidence on business practices. They can also explain the significance of the accounting trail left by a fraudster, and suggest what the accounting records might ordinarily be expected to show.
Lord Woolf drew attention to the importance of independence in expert witnesses and this is crucial if the witness has been involved in an earlier fraud investigation process.
The dual role of an expert can lead to tension.
On the one hand an expert is instructed by, and will advise, one party, having legal duties in contract to his client. He has no right to waive his clients' privilege by disclosing information before trial without consent and the system requires them to be part of the adversarial process. Yet the expert owes an overriding duty to the court. No expert should conceal evidence that might be to the disadvantage of their client.
If further evidence arises the expert should insist on modifying his opinions where necessary. Where appropriate an expert should decline to act.
As an auditor this tension is a familiar one. Auditors are used to providing high quality service and advice, while being able to be firm with management when necessary. A good question to put to an expert has always been: 'Would your report have arrived at the same conclusions had you been instructed by the other side?' It certainly concentrates an expert's mind.
Most of Lord Woolf's proposals are highly desirable. He has wisely not agreed wholly with proposals that all experts should be appointed by the court, a rare but permitted occurrence at present under RSC Order 40.
The aim of litigation must be the prompt resolution of disputes and proposals requiring experts to refuse instructions not to reach agreement are to be welcomed. But, there must be cases, particularly small ones, where one expert is enough.
The proposal of loss of privilege on communications with experts may have a profound effect, particularly when the expert's role develops progressively during the course of a long fraud investigation and subsequent recovery actions.
It will strengthen the hand of an expert who has been given restricted or inappropriate instructions and may help an expert deal with a difficult client. It may also mean that instructions and discussions are less often committed to writing.
Presumably, discussions involving the expert about settlement and payments in court would remain privileged in the interests of cases settling early. We look forward to seeing how it will work in practice.