Forensic accounting

Forensic Accounting

Expert assistance to help resolve disputes.

At Crowe, our mission is to assist our instructing solicitors in their objective of helping resolve disputes on behalf of their clients, or alternatively providing advice ahead of such disputes potentially developing.

We recognise that contentious proceedings may not be familiar territory for many lay clients, and so we adopt an empathic approach to understand the client’s objectives. We also recognise that it is important for expert witness services to be provided in a cost-effective and proportionate manner, and hence we ensure that all our work is tailored to achieve the client’s requirements.

Notwithstanding this, we have a well-deserved reputation for proactively identifying solutions and approaches to add value for our clients.

Our expert witness team is led by Chris Hine, who has 25 years experience as a forensic accounting partner, which includes giving evidence approximately 30 times.

Our role

Our role can vary according to the requirements of each individual case. We can act as adviser, assist within the alternative dispute resolution (ADR) process and, where required, act as an expert witness.

The adviser role allows us to provide objective opinion to our client on the strengths and weaknesses of their case, identifying tactical opportunities and, where appropriate, anticipating counterarguments and responding to these. We provide strategic advice to enhance the client‘s position.

We can assist in ADR proceedings in a number of ways. When approaching a process such as mediation, we can provide an assessment of the merits of the arguments relating to quantum in a cost-effective manner so that you are properly prepared ahead of negotiations. We can assist in the ADR process itself either in person, or by telephone.

Where expert evidence is required, we will produce reports compliant with all relevant legal and professional requirements, recognising our overarching duty is to the Court, and underpinned by the quality of our analysis and explanations to provide compelling testimony.

In addition to the above areas, which relate to litigation and arbitration, we also offer assistance in relation to expert determination proceedings. We have considerable experience both as advisers to the parties, and of acting as the expert determining the dispute. Chris Hine’s recent experience includes an expert determination involving over sixty companies and eight jurisdictions.

The main areas in which we provide assistance include:

Investigations

We are often instructed to undertake ad hoc investigations into a wide range of matter, including:

  • initial reviews where there may be a vague concern of some kind
  • a closer collaboration to look into a more pressing matter
  • a more substantial review, where there is evidence something amiss has taken place from an accounting perspective.

Often time is of the essence and many situations can be ‘live’ where any delay can prove problematic in getting to the bottom of the issue in hand, and providing timely evidence against the person or event under suspicion.

Case study

Our Global Business Solutions team referred work from a client in California who suspected an employee of expenses fraud – we corresponded directly with their senior management to agree our scope of work. We were granted access to the firm’s systems to conduct our work which involved granular analysis of hundreds of hotel, restaurant and parking receipts.

Business interruption/loss of profit

A common scenario where we assist is when a business has suffered due to the actions of another party, resulting in some form of business interruption and consequential loss of profit. The scenarios in which we can assist can vary widely in terms of industry but much of our experience has been in the agricultural, sporting and manufacturing industries. We have acted both for claimants compiling their claims and for defendants who require assistance with a review of the claim brought against them.

Case study

One agricultural case we were instructed on involved the infection of a crop of brassica (caused by another party’s actions), resulting in the company not being able to supply the required quantities of product to its customer, a major supermarket. Our role was to ascertain the loss of profit arising from the interruption of that business.

Shareholder disputes and valuations

We are often instructed to advise on valuations where either shareholders have fallen out, or the Court has ordered a valuation of shares. We are able to apply our team’s long and in depth experience in this area to provide clients and Courts with robust valuations that can be relied upon by all parties. The industries in which we have valued companies have been diverse in nature, from football clubs to finance houses, from funeral parlours to freight companies.

Case study

One such case involved us acting as expert determiner in valuing a worldwide supplier of tyres, with trading companies across Europe, the Middle East and South Africa. This involved an extensive review of documentation and data, taking representations from both parties, and liaising with overseas colleagues to understand the local marketplaces.

Medical negligence/personal injury

We regularly offer advice and prepare expert reports for use in medical negligence, personal injury and fatal accident proceedings. Our reports quantify loss of earnings or loss of dependency. We tend to receive an equal split between claimant and defendant instructions.

We specialise in cases involving owner manager businesses, the self-employed and high earners. This is because we provide a fully tailored service; each report is unique and is prepared from scratch. We ensure that we fully understand the business, the industry, the competitors and therefore the risks and the potential of the said business, and ultimately the risks and the potential of the claimant’s (or deceased’s) earnings.

Case study

We received a referral from a firm in our network that did not have the necessary expert witness experience or procedural knowledge to prepare a credible expert witness report in relation to their client’s loss of earnings claim. It had already been admitted that the defendant was negligent in their treatment of the individual. We prepared a robust expert witness report quantifying the claimant’s net loss of earnings, calculating the additional earnings that the claimant would likely have received if they hadn’t suffered the negligent care.

Commercial litigation

We assist in many types of commercial disputes, including:

  • Loss of profits
  • Shareholder/partnership disputes
  • Business interruption
  • Loss of a chance
  • Breach of contract
  • Breach of warranty and misrepresentation
  • Professional negligence

We have vast experience in relation to commercial litigation cases, from disputes over the loss of profits arising from a printing machine failing to achieve quoted production levels, to a $1bn international dispute involving an overseas bank and a listed property group.

Case study

We were instructed on one of the “top 20” cases of the year involving a $1bn claim for defamation and misrepresentation. Our role was to undertake financial analysis to determine whether the allegations that had been publicised could be substantiated.

This was a very large matter spanning a number of jurisdictions, requiring the coordination of a large team and the ability to handle huge quantities of information. Our analysis demonstrated that there were significant inconsistencies in the explanations put forward by the other side. Their credibility was undermined and the case settled seven weeks into the initial 12 week trial on very favourable terms.

Insolvency litigation 

We have acted on behalf of the liquidator in a number of disputes where there were allegations of wrongful trading and preferences against the former directors. Our work has involved investigation of the finances and financial records of the company, investigating the circumstances and allegations, and providing reports to identify and substantiate what has occurred.

Case study

Chris Hine was instructed by the solicitors acting for the liquidator of an airline to investigate allegations of a preference, whereby valuable freight contracts had been transferred to a phoenix company but the onerous leases on the older, less efficient aircraft had been left behind. Our role was both to assess the value of the contracts and also to identify the profits that had been generated by operating the contracts in the new company. In cases such as this, funding is one of the major challenges but here a wronged creditor (the lessor) was able to allow the liquidator to pursue the matter to the stage where a settlement was achieved.

Sale and purchase disputes 

Our work involves assessment of quantum in cases arising from:

  • Breach of warranty
  • Completion accounts disputes
  • Earn-out disputes
  • Deferred consideration disputes
  • Misrepresentation

Chris Hine has particular expertise in sale and purchase disputes, including having given evidence in the leading case of Sycamore Bidco.

Case study

A private equity house invested in an MBO of a business involved in the provision of employee benefits. The directors chose to adopt an accounting treatment for one item which artificially enhanced turnover in the pre-acquisition audited accounts, although it had no impact on net profit. This, however, created an apparent level of exponential growth within the company, which was used in the financial models to project future performance and in turn drove the value of the business.

When it became apparent, post-acquisition, that this accounting treatment had been adopted, the investing company took action against the vendors for both misrepresentation and breach of warranty. Our role was to identify the accounting treatment that would normally be adopted in relation to this item, the valuation that would have been placed upon the business had the proper accounting treatment been adopted, and the impact of this on the actions of the acquiring company. The matter went to a 32-day trial, with a successful outcome for our client.

Matrimonial disputes 

Our work in this area can be to act as a single joint expert, preparing a report on valuation, liquidity and tax consequences on behalf of both parties. We also undertake advisory work where we act as a shadow expert on behalf of one party. Such assistance can be ahead of disclosure to provide tactical advice on timing and the approach to the case. We have also advised on the contents of questionnaires. When the single joint expert report has been prepared we have assisted with the preparation of questions and, where necessary, interpretation of the report.

Chris Hine acted as an adviser in the leading case of Jones v Jones and as an expert in the case of Sharland v Sharland.

Case study

Chris Hine was appointed to value the shareholding of the husband in a metal plating business owned by the husband and his brother.

As with any business valuation the key to our work was obtaining an understanding of the business and the key features that enabled its profits to be sustained going forward. A telephone interview was undertaken with the husband and also his brother who was the financial director. Ahead of these conversations, we spoke to the wife in order to obtain her knowledge and understanding of the business, and to identify if there were any issues she was aware of that we should address in our conversations with the owner managers.

Based on this information gathering exercise, and subsequent analysis and verification of the data, we were able to prepare a valuation of the business which, together with its ability to extract funds from a non-trading asset, enabled financial resolution to be achieved.

Sports disputes 

We have undertaken a significant number of sports disputes, particularly in relation to football clubs. Areas in which we have provided reports include:

  • Loss of a chance claims in relation to not having the services of a particular player
  • Breach of contract claims (frequently arising following changes in ownership of football clubs)
  • Verification of revenue streams in relation to the joint venture agreement between a football club and the local authority in relation to a new stadium
  • Disputes arising with football agents
  • Valuation of football clubs
  • Investigation into the conduct of the previous board of directors following the takeover of a football club
  • Investigation into the finances of a footballing dynasty
  • Quantifying losses arising on the termination of an agency in relation to replica kit

Case study

Chris Hine was instructed to act as the expert for the Claimants in the matter of Middlesbrough Football Club v Liverpool Football Club. The case related to the transfer of Christian Ziege from Middlesbrough to Liverpool, allegedly as a result of a breach of confidentiality. Much of this matter is in the public domain as it was covered in the national press.

Our role was to quantify the losses Middlesbrough had suffered as a result of no longer having Ziege as a member of their team. This was assessed on a ‘loss of a chance’ basis, correlating the likely success of the team had Ziege still been at Middlesbrough, and the consequential impact on the Merit Award. Calculations were performed to quantify the losses arising from lower season ticket sales, match day attendances and their impact on sales of replica merchandise, catering and associated sales.

Chris prepared an expert report and joint statement and the case settled at mediation shortly before a final hearing.

Professional negligence

We have advised in many professional negligence cases. In some cases we are simply asked to provide quantum advice, as with other commercial litigation disputes. On other occasions, we work in conjunction with other disciplines within our firm, to provide focused advice, which can encompass the duty of care of the relevant professionals as well as quantum matters.

Case study

The professional indemnity solicitors for a heating and ventilation contractor instructed us in relation to a claim by a theatre. It was alleged that the airflows in the auditorium were badly designed resulting in all the heat leaving the theatre when the curtain opened. This was alleged to have resulted in lower attendances and sales of ice cream etc.

Our analysis showed that the activity levels of the theatre were not consistent with the allegations, and there was no correlation with variables such as the temperature, as would be expected. The claim settled for a fraction of the headline figure.

Contact us

Chris Hine
Chris Hine
Partner, Forensic Services, Manchester