Chapter 13 Ethics Issues in Retaining and Using Forensic Accountants as Expert Witnesses and Consultants

• Jurisdiction: United States

Chapter 13 Ethics Issues in Retaining and Using Forensic Accountants as Expert Witnesses and Consultants

Michael P. Richman

Justin F. Paget

This chapter will discuss key ethical issues that may arise in connection with the retention of a professional to provide expert testimony or consulting services in the area of forensic accounting that would not typically arise in the course of an expert's ordinary or "non-forensic" work. It should be noted that the area of professional ethics in the accounting field is more developed than in certain other professional fields. The accounting field benefits from a robust code of professional conduct: the Code of Professional Conduct of the American Institute of Certified Public Accountants (the "Code of Professional Conduct").⁴³²

Certain ethical issues that may arise and require careful consideration by attorneys and professionals, such as whether an expert's opinion falls within the bounds of reasonableness,⁴³³ are more easily resolved in the accounting field by reference and adherence to the Code of Professional Conduct than in fields where there are no generally recognized standards governing testimony.⁴³⁴ Any accountant, or attorney for that matter, would be well advised to become familiar with and refer to the Code of Professional Conduct, in addition to any rules or standards promulgated by the accountant's state board of accountancy, state CPA society or other oversight board, as the first step in addressing any perceived ethical issues that arise in connection with a request by an attorney to provide expert forensic testimony or consulting services or otherwise during the provision of such services.

Many of the ethical issues that are discussed in this chapter concern interaction between the expert and the attorney. The legal profession likewise has a set of professional ethics rules, which are promulgated by each state's bar and that are generally based on the ABA's Model Rules of Professional Conduct (the "Model Rules"). The Model Rules also provide important guidance in resolving ethical conflicts. Failure to adhere to the ethical standards adopted by the respective fields in serving as an expert witness or consultant⁴³⁵ may subject an accountant and the attorney to disqualification, professional regulation or other discipline.

I. Identifying the Consultant/Witness

A. Vetting the Witness

The most important protection against most of the ethical and related problems that arise in the use of consulting and testifying experts is adequate advance due diligence.

The potential expert witness should be prepared to submit to extensive due diligence that will permit the attorney to ascertain whether the witness will be a good fit for the case. It is important that the attorney verify the expert witness's credentials, but the due diligence process often includes research beyond reviewing the expert's curriculum vitae. Many of the ethical dilemmas that are discussed in this chapter can be mitigated by thorough due diligence by the attorney prior to the retention of the expert and disclosure of confidential client information. The up-front work in identifying expert witness candidates can be time-intensive and costly, but less so than the cost and risk posed by some of the ethical issues that might arise down the road if the attorney skimps on the due diligence and the expert falters before or during trial. The expert witness candidate should expect to assist the attorney with this due diligence by fully cooperating in providing information and submitting to interviews.

Moreover, a lawyer's own ethical considerations mandate this process. A lawyer has an obligation to look behind a retained expert's opinion and independently determine whether the opinion the expert is providing falls within the bounds of reasonableness of that professional's field.⁴³⁶ The process of conducting due diligence on the candidate facilitates the lawyer's fulfillment of this obligation. Between the client and the lawyer, the lawyer is the best person suited to assess issues such as whether:

• the expert's qualifications and experience are sufficient;
• the theories or methodologies used are scientifically sound or accepted in the industry or profession;
• the theories or opinions of the expert witness exceed the reasonable limits of his or her expertise or experience;
• the inductive or deductive reasoning employed by the expert is reasonable and trustworthy;
• the expert's data and investigation are adequate; and
• other such issues relevant to the credibility and reliability of the expert's evidence, such as prior inconsistent testimony.⁴³⁷

1. Research Public Records, Including Prior Depositions,

Court Testimony, Scholarly Articles and Social Networking

An attorney will want to review carefully the written track record established by the expert witness candidate to check for inconsistencies with the position of the client. Contradictory positions taken by the expert to the client's position will undercut the expert's credibility and will need to be considered carefully by the attorney before proceeding with the engagement.⁴³⁸ An expert witness candidate should expect to assist the attorney with this review by providing various items of background information, including published articles, transcripts of prior court and deposition testimony, transcripts of speeches and written materials prepared for continuing education and other conferences. The diligent attorney will want to know whether the candidate has testified in previous matters and the outcomes of those cases. Has the candidate been disqualified as an expert in any prior matters or been excluded pursuant to a Daubert motion?⁴³⁹ Does the candidate have previous experience with the rigors of cross-examination and questioning from opposing counsel in deposition?

2. References and Use of Online Tools for Cross-Referencing

A candidate should be prepared to provide a list of references to assist the attorney in verifying credentials. Candidates should be forthcoming with this information in light of the wealth of information available to the attorney through online tools. An Internet search might be the first place the attorney begins. In addition, online services such as LexisNexis and Westlaw (among many others) provide tools to verify claimed credentials. Online directories also are available that provide biographical information about the candidate. Old resumes that may have been uploaded to the Internet or included with a report filed in connection with prior litigation are readily available and useful for cross-referencing. Social networking sites, such as LinkedIn, Facebook and Twitter, also provide a wealth of information regarding the candidate's background and views. Not only are many of these tools useful for cross-referencing a candidate, but are fair game (ethically speaking) for performing due diligence on opposing expert witnesses, which could lead to case-altering outcomes.⁴⁴⁰

3. Conduct Personal Interviews: The Importance

of Getting Behind Credentials to Assess Demeanor

The expert witness candidate should anticipate that the attorney will conduct an interview to assess the expert's demeanor and how he or she may "perform" in court and in a deposition in direct examination and, most importantly, in the heat of cross-examination by opposing counsel. The candidate should be prepared to address tough questions, including whether the expert's opinions in other cases or substantive scholarly work has come under fire from others in his or her field. The attorney may probe regarding any negative outcomes in prior forensic engagements, including failing to qualify as an expert or having the expert's testimony excluded or limited by the court. The candidate should also expect character questions, such as whether the expert has been a party in litigation, been sued by a prior client, become subject to criminal proceedings, or been accused of any malfeasance or breach of fiduciary duty.⁴⁴¹ While these questions may place the candidate in an uncomfortable position, he or she should anticipate that opposing counsel may ask the same questions. It is preferable that the hiring attorney identify any potential issues with answers to these questions prior to the engagement than have them unexpectedly revealed by opposing counsel during a deposition or at trial.

4. Other Diligence

Another important area to be explored is potential conflicts of interest based on the candidate's prior engagements. A candidate should expect to be asked about whether he or she has worked for one of the other parties or for opposing counsel in the case on another matter. These questions are important because accounting experts are not bound by the same conflict rules that govern attorneys. The Code of Professional Conduct would not necessarily require the candidate to disclose prior representations, nor would such prior representation necessarily preclude the candidate from accepting the assignment.⁴⁴² However, the attorney will want to know these facts and, as discussed below, disclosure of the opposing party's confidential information during such prior engagement might result in the candidate's disqualification.⁴⁴³

The diligence period also presents an opportunity to discuss the attorney's and client's expectations regarding what assignment the testifying or consultant witness will take on. The attorney may discuss the candidate's fees and whether the client would like the expert to refrain from advising the adversary or other parties (some of whom may be the client's competitors) during or for a period of time following the conclusion of the assignment.

B. The Engagement Letter and Assignment Instructions: Consulting Experts vs. Testifying Experts

The written retention agreement is instrumental in setting forth a clear picture of what the expert will and will not do during the pendency of the engagement. However, the retention agreement is also useful for setting...