Richard Roberts and Stephen Lewis explain how forensic accountants can help solicitors to resolve estates disputes, and outline what factors should be considered when deciding whether to instruct this type of expert.
Financial disputes and investigations are the bread and butter work of forensic accountants. The role typically involves an ‘investigation’ into some form or other of financial irregularities. This may be in the context of matrimonial or commercial disputes, or of criminal matters such as fraud, theft or money laundering. This means that forensic accountants possess a unique skill set of accounting knowledge and investigative experience which is flexible enough to be applied to a variety of circumstances and situations. Disputes arising from the management of estates and wills are perceived to be on the increase by many of us. Such disputes usually arise following the death of a loved one, and in what are highly stressful and emotional circumstances for remaining family members.
These are therefore among the most sensitive of disputes. These disputes often occur when serious concerns have been expressed that the deceased relative appears to have less money or fewer assets in their estate than was expected by family members. This raises suspicions that those individuals who had been supervising the deceased’s finances may have been less than honest or straight forward, and may have misappropriated funds. Situations could also arise where the deceased relative may have financial affairs which are unusual or complex, and therefore need further investigation or explanation from an advisor with experience of financial investigations.
Financial investigations, of whatever sort, have a number of common characteristics. Primarily, they involve analysing financial information from a number of sources; identifying the unusual transactions, and investigating and seeking an explanation for these; and presenting potentially complex findings in a clear, understandable manner. This approach can clearly be brought to bear in the context of estates disputes, where there is concern about the value of funds in the estate.
Forensic accountants are sometimes asked to advise in an estates dispute, although it is by no means the norm. But the experienced eye of a forensic accountant may prove beneficial in resolving the dispute, particularly where there are significant sums of money at stake or strong suspicion or evidence of the misappropriation of funds from the estate, and / or where the positions of the parties have become particularly entrenched, and an independent view of the matter is needed.
The forensic accountant usually fulfils the role of an expert adviser or an expert witness, appointed by either party, or a single joint expert.
As an expert adviser, the forensic accountant is usually appointed by one of the parties in the dispute to provide advice based on information and documentation that is available to that party. There are many potential benefits for a party and their legal advisers to engaging a forensic accountant at an early stage in the dispute. The forensic accountant could be instructed to:
This kind of advice can prove invaluable in the earlier stages of the dispute, in assisting the party and their legal advisors to decide whether the dispute should continue and, if so, how the case should be conducted.
A party-appointed expert or single joint expert would be instructed as an expert witness to provide a report on the matters in dispute. This report would comply with the provisions of part 35 of the Civil Procedure Rules and the accompanying practice direction. If a forensic accountant is appointed in this way, this is likely to happen much later in the dispute process, when litigation is contemplated or is under way, than it would if they were appointed as an expert advisor. It should also be borne in mind that the primary duty of a forensic accountant appointed as an expert witness is to assist the court.
It is crucial for a solicitor acting for a party who is potentially engaging in an estates dispute to think carefully about what their client wants to achieve in the context of the dispute. This should help them to assess whether appointing a forensic accountant would be appropriate and proportionate.
If the solicitor decides that a forensic accountant should be appointed, then this should come with some ‘health warnings’ as to what the forensic accountant might uncover. A forensic accountant can investigate, quantify and explain the potential loss to the estate, but may reach a conclusion or outcome that is unexpected. The investigation may result in one of the following outcomes. There is not enough evidence to prove the loss to the estate, or show that the loss is attributable to the person who was supervising the deceased relative’s finances. The loss can be proved with reference to documentary evidence, and can be attributed to the person who was supervising the deceased relative’s finances. Any perceived loss to the estate is fully explained, and there is no actual loss or dishonesty on the part of the person who was supervising the deceased relative’s finances.
Engaging a forensic accountant will inevitably add to the cost of the dispute, and many solicitors may be put off by the difficulty of trying to weigh up the cost against the potential benefit – which is unknown at that stage. One benefit of using a forensic accountant will be in terms of proving and recovering a financial loss. There is also value in being provided with additional expert advice, and an independent view on the matters in dispute, which can assist a party in deciding how to deal with the dispute. The benefit can be as simple as providing peace of mind that there is nothing for a child to be concerned about when their sibling has been looking after an elderly parent’s financial affairs.
It is perfectly possible to engage a forensic accountant in a cost effective way that is proportionate to the matters in dispute; and this proportionality of cost is something that is even more important following the implementation of the Jackson reforms to civil litigation costs and funding, this came into force in April 2013. The cost of a forensic accountant can be effectively managed in the following ways: appointing an expert adviser to provide a preliminary review of the dispute, identifying further areas for investigation and other documents that may be required; using the results of this preliminary review to frame the instructions for any further investigation or work that may be needed; providing very specific instructions which will limit the amount of work performed by the forensic accountant to the matters that are most important in the dispute; breaking down the work to be carried out by the forensic accountant in separate phases, and agreeing a fee for each of these in advance; and / or appointing a single joint expert, if an expert accountant witness is required.
Here we will consider some scenarios which have given rise to a dispute among surviving relatives, and show how the advice of a forensic accountant might be beneficial in helping to resolve the disputes.
Misappropriation by a child
One child from six siblings was geographically closest to her house-bound father. The father allowed this child his PIN to access his bank account, to assist with the management of his financial affairs.
The child and her partner then became redundant, and she began to access the father’s bank account for their benefit, without informing her siblings. By the time the father died, the money appropriated by the child amounted to more than £50,000. Following the funeral, the other five siblings inspected their father’s paperwork and discovered the appropriation of money from their father’s bank account. In this case, the role of the forensic accountant would be to demonstrate that the daughter had been taking money from her father’s bank account, and quantify the amount that had been appropriated. With that in mind, the approach that would be taken by the forensic accountant would be as follows.
Smaller estate than expected
A child lived near their sole surviving parent, and the other sibling lived abroad. In spite of a lack of evidence of any mis-appropriation, the child who lived abroad believed that their parent should have had far more money than actually remained in their estate. This was predicated on mistaken assumptions by the child abroad as to the level of the parent’s pension and savings, and the costs of daily care. In this instance, the work of the forensic accountant would be to examine the completeness and value of the assets included within in the estate. The assumptions made by the child can be corrected with reference to third-party evidence which would show the factual basis of the parent’s financial assets. A forensic accounting approach to this matter would include the following.
A report would be produced, confirming the evidence available for the financial assets and care costs, as well as summarising any other relevant findings.
Finding funds from property sales
Over a number of years, an elderly parent has had to trade down from a large family house to sheltered accommodation, and then ultimately to a sheltered flat near their children, before going into nursing care. One child has taken the view that each time a property was sold, the proceeds of the sale were then ring-fenced and invested, and so investment income should arise – failing to understand that the proceeds of each property sale were used to fund the following property purchase, and ultimately to fund the costs of care. The key element of this dispute is an understanding of the property transactions, and how the funds generated from these have been used. The work of the forensic accountant would therefore concentrate on this area as follows.
Misappropriation by a solicitor
Following the death of a probate solicitor, a number of beneficiaries for the estates he was administering complained that unauthorised payments appeared to be being made from the estates,or that the assets in the estate were significantly lower than had been expected. The role of the forensic accountant in this situation could be extensive, but would primarily focus on examining the estates where there was suspicion of unauthorised payments, and then determining whether there was any deficiency in the remaining assets. In respect of each estate, the approach of the forensic accountant would encompass the following:
For payments which were not in accordance with the will, further investigation would need to be carried out. This would involve reviewing the solicitor’s internal records to determine why the payment was made, and the ultimate beneficiary.
Is It Right For Your Case?
Engaging a forensic accountant in estate disputes might seem like a bold and uncharacteristic move, especially in what can be highly emotional and sensitive circumstances. Parties and their legal advisers must therefore give careful consideration as to whether seeking expert accountancy advice is appropriate and proportionate to the matters in dispute. However, the advice of a forensic accountant can be an important element in resolving estate disputes, or in any litigation that might arise from these disputes.
Richard Roberts is a director of Gedye & Sons Solicitors, a member of the Private Client Section executive committee, and chair of the Law Society’s wills and equity committee. Stephen Lewis is a partner in the forensic and investigation services team at Mazars
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