Thomas Horne, a manager in LaPorte’s Litigation and Forensic Accounting Services Group, recently authored an article that was published in the May 10, 2019, edition of New Orleans CityBusiness. The article, entitled “Manafort trial highlights role of forensic accountants,” explains the vital role of forensic accounting in financial investigations. The article in its entirety appears below.
Manafort trial highlights role of forensic accountants
The trial of former Trump campaign chair Paul Manafort raised public awareness about the role of forensic accountants as investigators and witnesses. As a forensic accountant myself, I’ve been fielding more and more questions about my profession recently. Forensic accountants play a little understood, but vital role in financial investigations, including fraud investigations and civil disputes.
While the services forensic accountants provide vary from case to case, one common role is that we “follow the money” to uncover hidden bank accounts, shell companies and other evidence. At LaPorte, as part of the Litigation and Forensic Accounting Services Group, our forensic accounting team assists with economic damages calculations, fraud investigations, business valuations and other complex business issues. We also assist our clients in establishing effective internal control environments, and we provide risk assessments and evaluations of adverse events.
We pull together bits and pieces of evidence such as receipts, account transfers, bank statements, and many other types of financial and non-financial documents to paint a financial picture of the allegations relevant to the case. We present this evidence in court about why our findings are important so that the court is properly informed to decide the issue. A great example of this is the work of forensic accountants in the Manafort trial.
The forensic accountants on Robert Mueller’s team helped investigate and testified regarding charges of tax and bank fraud. In the Manafort probe, an FBI forensic accountant used invoices, vendors, contracts, agreements and title records to find evidence of crimes to explain why the government indicted Manafort for fraud.
Forensic accountants don’t just put together the whole picture from the evidence found. We also help present the information in a way that the audience can understand through documentation and testifying as expert witnesses.
In the Manafort trial, the FBI forensic accountant used multiple charts to illustrate what happened for the jury. Her exhibits included charts for foreign bank accounts, and payments made to multiple vendors (Government’s First Amended Exhibit List, 2018). The hardest part of forensic accounting is most often not the investigation but conveying the results to lay people in easily understandable ways.
A classic graph that forensic accountants use for explanation is the “hockey stick,” which is as much about human behavior as it is accounting. When a person or organization first commits a financial crime, the perpetrator often starts by taking a small amount, and the amount taken grows slowly at first like the blade of a hockey stick. After a while, as the perpetrator becomes emboldened with past success, greedier and less concerned with risk, the amounts taken rise rapidly just like the hockey stick’s blade curving into the stick’s shaft. I’ve seen this pattern when investigating financial theft and used it to convey that the underlying activity may be fraudulent.
Another hallmark of forensic accountants is that we often have to think outside the box to overcome active deception, lost or destroyed records and uncooperative gatekeepers of evidence. For example, in one case, the alleged perpetrator was suspected of embezzling funds to sustain an expensive shopping habit. We did not have access to the suspect’s financial records. However, we knew that the suspect was recently divorced, and public divorce records often contain financial information. We obtained the divorce records, which addressed the suspect’s spending habits and supported our other findings.
To analyze allegations and present findings, forensic accountants rely on a broad range of skills including accounting, tax, economics and investigative know-how. From the conviction of gangster Al Capone for tax fraud to recent cases in the news, forensic accountants have helped tell the story of how a crime happened, assisting both in exposing and prosecuting financial crimes.