THE CHALLENGES OF FORENSIC ACCOUNTANT AN EXPERT WITNESS

Accountant as an Expert Witness by Prabhat Kumar, Chapter-1.

FORENSIC ACCOUNTANT’S ROLE IN INSURANCE CLAIM

FORENSIC ACCOUNTANT’S ROLE IN INSURANCE CLAIM

When devastating events like flood or fire takes place and property is totally destroyed or damaged, forensic accountant can play a crucial role to establish the true value of claimable amount due to their analytical skill and understanding of quantification of damage process.

We have been witness to the extensive flooding that occurred in Thailand which has resulted in billions of dollars in property damages and business interruption losses and extra expenses incurred. Business owners must be filing claims with their insurance companies to obtain reimbursement of insured damages. Our early involvement in one of such claims pertaining to a super market where destruction of goods were 100% not only allowed the owners to settle their claim for material damage in a relatively shorter period but also managed to settle their claim for loss of profit within 4 months of the loss.

Generally when a claim is filed with the insurance company, it is assigned to adjuster whose responsibility is to correspond with the policyholder, analyzing average and to work out the claimable amount. Since most policy holders are not too familiar with the claim process and terms and conditions outlined in the policy document, the amounts submitted often inadvertently misstated.

This is not discovered till the time a thorough review of the claim by the insurer is performed.
Adjusters some time seek the assistance of experts of respective fields such as structural engineer, machine and equipment expert and forensic accountants. In such a case it is wise to engage a forensic accountant at an early stage of filing of claim to avoid potential pitfall of misstating the claim.

Insurance company will either delay the claim to confirm the accuracy or may accept the liability which maybe too low when compared with actual damages sustained.
Forensic accountant can be a time saver to both insurance company and the policyholder because of their previous experience with the claims process and familiarity with some of the common terms of the policy. For example, insurance policies required to prove the loss through financial books and records. Insured books must show that on the date of event the records confirm the figure which is the basis of loss which has been claimed. A forensic accountant can identify the specific records that may be required to support a loss and analyse the financial documents to summarise his findings. In cases where documents are destroyed or spoiled, forensic accountants have expertise to reconstruct them back with the help of some primary source documents such as bank statement, suppliers’ invoice, debtor’s statement of accounts, etc. A wooden furniture factory (mainly sofa and living area furniture) which was gutted by massive fire was finding it difficult to convince the adjusters about the quantity of raw material and finished goods which was in the factory at the time of fire due to destruction of all accounting records as well. We were engaged and started our work with some basic parameters of types of products and production cycle. With the help of foreign workers records available with the immigration department, bank statement and customers who provided the copy of their orders placed in last 12 months, purchase orders which were financed by the bank, we managed to work out the quantity of goods at the time of fire. The quantity derived could not be questioned due to convincing calculation based on correlated external evidence and not on assumptions.

Further most policyholders do not understand the manner in which insurers require the information to be presented. For example, insured property damage has to be segregated with other property damages as they only want an amount which is to be considered for reimbursement. Similarly in cases of loss of inventory, they need specific evidence to confirm that the loss of inventory which has been claimed was in fact there at the time of accident. Forensic accountants with their experience know how to establish certain fact so there is no doubt to accept it. Moreover, measurement of business, interruption losses are equally confusing for adjusters and policyholders.

Experienced forensic accountants can prove to be an efficient tool for the adjuster in getting the claim resolved because they possess significant knowledge of the industry and manufacturing process and the accumulation of cost to properly measure the loss. Past experience has shown that involvement of forensic accountant has provided an assurance that damage has been measured accurately and as per the terms of the policy.

An early settlement of claim not only boosts the confidence of policyholders but also raises the goodwill of the insurer.
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Prabhat Kumar