Page 80 - Expert Witness

Appendix J: Case Study — Shareholder Dispute fn 31

Preface

An acquaintance meets with Betty Jones of Smith & Jones CPAs to discuss the operations of a business
(company A) in which he is part owner. The business is supposed to be managed by another owner, and
a third owner (a CPA) handles all record keeping. These two other owners are also co-owners of the
same type of business they are opening in another town (company Z). Because of his concerns that re-
sources from his business are being used to facilitate the opening of the other business, the acquaintance
engages Betty to

1. determine if funds are being misappropriated by the two other owners.

2. assist him, as needed, to recover those funds, if funds are being misappropriated.

The Investigation

As with any litigation support engagement, Jones first prepares an engagement letter to serve as a con-
tract between the new client and her firm.

Her next step is to gather circumstantial evidence. She prepares a list of the documents needed for her
initial investigation, determining that she would start with the three most recent years then expand the
investigation, if necessary. fn 32 She requests the following from company A:

1. A backup of the QuickBooks company file

2. Three years of bank statements for all bank accounts

3. Copies of all income and payroll tax returns filed, with any supporting documentation

4. All accounts payable files for the three years included in the initial investigation

As an owner of the business, the client has the right to request the documents without having to take le-
gal action. The downside of having to request the information from the other two owners is that it alerts
them to the investigation, but Betty and the client determine that this is the best avenue to take.

Upon receiving the records, Betty performs an analytical review of the information and finds evidence
of substantial related party transactions and transactions that appear to be for company Z. After receiv-
ing written permission from the client, she requests additional information from the vendors (that is,
source of orders, delivery information, payment information, and so on). She also visits both sites, chats
with employees, and observes activities. She immediately notices two employees of company A who are
working at the site of company Z. She then request interviews of the employees of company A but is re-

fn 31 All cases, characters, names, and places used in examples herein are used fictitiously. Any resemblance to actual person(s), living
or dead; event; or locales is entirely coincidental.

fn 32 See AICPA FVS Section Practice Aid, Forensic Accounting — Fraud Investigations, for more information.

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