Forensic case studies

Appointment type: Party appointment
Service area: Valuation
Industry: Aggregates

Appointed to act as the expert on behalf of a minority shareholder in his claim for unfair prejudice against his fellow shareholder of a company which collected waste products to be recycled into aggregates for use in the construction industry.

The claim centred on allegations that the majority shareholder had transferred contracts or otherwise skimmed or diverted profits from the company to other associated companies in which the minority shareholder had no interest. There were further allegations that the majority shareholder had received remuneration which far exceeded that to which he was entitled and had resulted in him having received a disproportionate share of the company’s profits.

We were instructed to prepare a report predominantly concerned with the value of the company at various points in time which had been established as being relevant to the claim for unfair prejudice.

We were also instructed to comment on the extent to which contracts had been diverted and whether the majority shareholder had received a disproportionate share of profits and, if so, the effect on the value of the company. This required an extensive review of the company’s SAGE accounting records, those of the other associated companies. It also necessitated interrogation of thousands of documents and accounting transactions on an e-disclosure platform.

As a result of this process we assessed that at least £5 million of sales had been diverted from the company as well as it having been improperly invoiced by the associated companies which had resulted in additional costs of sales of a further £1 million. We also assessed that the majority shareholder had received excess remuneration of £600k.

Our instruction subsequently required us to review and comment on a claim against the minority shareholder by the majority shareholder for damages arising from the seizure of the Company’s computer server. It was alleged that the actions of the minority shareholder had caused the company to suffer a direct loss of up to £250k and had necessitated the transfer of the contracts to the associated companies.

As a result of the complete breakdown in the relationship between the shareholders, the case proceeded to trial and the expert provided evidence over two days at court.

Following the trial our instructing solicitor commented that “It has been a pleasure to work with Roger Isaacs and his team. They have been invaluable for their accountancy insight and dedication to their work. Their hard work and quick turnaround time has been key in this matter, and all done with a sense of humour which has been most appreciated. I shall certainly be recommending your Expert and Forensic Accountancy services.

Appointment type: Party appointment
Service area: Loss of profits
Industry: Confidential

Appointed to act as expert on behalf of the respondent to a claim from his business partner of their BVI registered joint venture company. The claim totalled more than $50 million and was to be dealt with by an international arbitration seated in Switzerland, due in part to a complicated business structure involving other BVI, Cypriot and UK-registered entities.

The claim was initially triggered by the claimant’s belief that the respondent had diverted the proceeds away from the joint venture and that he had received circa $2 million more remuneration from it than he was entitled. Sums were also claimed in respect of lost income for the final three years of the joint venture and the loss of its residual value at the end of its agreed term. The claimant further alleged numerous breaches of the joint venture agreement, with each breach generating a claim of $500k for so-called “liquidated damages”.

We undertook a detailed review of the claim and prepared two expert reports to the Sole Arbitrator stating our opinion that numerous adjustments should have been applied to the claim which reduced the loss of income claim from $19 million to $4 million. We further presented figures to support a counterclaim against the claimant which totalled, in various scenarios, between $11 million to $15 million. The counterclaim was predicated upon the value of payments due to the respondent which the joint venture agreement stated were to have been paid in priority to the operating costs of the joint venture.

Appointment type: Party appointment
Service area: Loss of profits
Industry: Hospitality

We were instructed by solicitors acting for a large private landowner pursuing various claims against Highways England in the Upper Lands Tribunal. The element of the claim on which we were instructed concerned the loss of earnings suffered by two of the claimant’s businesses as a result of significant roadworks adjacent to its estate which had lasted for more than two and a half years.

We were instructed to prepare an expert report assessing the quantum of possible damages for the purposes of negotiation of the claim. This involved the review and analysis of the previous nine years of historical financial statements of both businesses in order to ascertain the extent to which their gross profits had been affected during the roadworks. The calculation of the claim for loss of gross profits was further complicated by the fact that one of the businesses had opened in the same year as Highways England had commenced the roadworks.

We were subsequently instructed to review the respondent’s expert report which had set out the bases for a rejection of the claim in its entirety. This necessitated the review of large volumes of data generated by traffic sensors installed during the period of the roadworks which we argued was flawed for a number of reasons, not least because the data had been estimated for periods when the sensors had not been in operation.

After meeting with the respondent’s expert and the preparation of a joint list of issues on which the experts disagreed the claim was subsequently settled by the parties at £450k, a sum equivalent to 85% of our original assessment.

Appointment type: Single joint expert
Service area: Valuation
Industry: Professional services

Appointed to act as a single joint expert in matrimonial proceedings to value the husband’s interest in a group of companies at various points in time stretching as far back as the 1980’s when the parties had first started cohabiting. To further complicate matters, the company had been sold a number of years prior to the divorce.

The group in question was a management consultancy with as many as 11 subsidiary companies operating offices in North and South America, Europe and South Africa and which had achieved an annual turnover of £25 million at its peak during the 1990’s. A significant exercise was undertaken to piece together all available financial information for the group and to understand the many changes in its ownership (including the husband’s shareholdings) across nearly 30 years of the marriage up to the date of the sale of the company and the disposal of his interest.

Our instruction then required us to trace the movement of those sale proceeds through the various investment vehicles utilised by the husband, which involved analysing the financial statements of a number of non-UK registered companies and his personal trusts in order to ascertain their current values.

Appointment type: Party appointment
Service area: Valuations, insolvency
Industry: Leisure, media & entertainment

Instructed to value a company that operated a number of trampoline parks at various dates in the months before its insolvency as part of an unfair prejudice claim. This claim followed the actions of the board in dismissing a fellow director/shareholder.

The SJE had valued the company at £1 million but subsequently accepted that he had made an error in his calculation which he corrected. The Claimants used the error to persuade the court that it was appropriate to allow them to instruct their own expert on the grounds that they had lost confidence in the SJE. The Claimants’ own expert valued the company at £2.5 million. We were appointed to value the company on behalf of the Defendants.

The key issue was that by the valuation date the company had incurred significant trading losses and these continued to be incurred.

The directors had received a report from a firm of accountants reviewing the business and concluded that the overdraft facility would be breached the following month. The company had been historically overoptimistic in its forecasting such that the forecasts could not be relied upon as a prediction of future cash flow.

The cash flow constraints were recognised by all three experts who noted that the company was unable to pay its debts as they fell due. It was also recognised that the trampoline park market was very buoyant at one of the valuation dates, meaning that a buyer could probably have been found despite the company’s insolvency.

Faced with the prospect of weighing up the evidence of three accountancy experts, the court decided to use concurrent witness conferencing, colloquially known as “hot-tubing” by which all three experts were cross-examined together.

Ultimately the judge found in favour of the claimants and upheld the claim for unfair prejudice. He also adopted the SJE’s valuation of the company, which was slightly higher than our valuation but less than half the valuation contended by the Claimant’s expert.

Appointment type: Party appointment
Service area: Fraud, Criminal & regulatory
Industry: Services & consultancy

Instructed by the defence on behalf of a business-owner who had been given incorrect advice regarding the VAT situation of his limousine hire business. Our client had assumed that, because of the size of his vehicle, his sales did not attract VAT. He failed to declare VAT on his revenue but reclaimed VAT on his expenditure. HMRC had also identified that he had included the VAT on purchases of building supplies which were unrelated to his limousine business. HMRC therefore claimed the VAT refunds our client had received and calculated the VAT liability of the limousine business to be approximately £500k.

We agreed the level of refunds with the prosecution’s expert and then reconstructed the client’s records based on VAT returns previously submitted, bank statements and accountants’ working papers.

As part of this process it was identified that each year the accountant had included a lump sum payment for which no supporting documentation could be found. Agreement was therefore reached with HMRC regarding the level of VAT that should have been paid, being that claimed by the prosecution.

Appointment type: Party appointment
Service area: Fraud, criminal & regulatory
Industry: Leisure, media & entertainment

Instructed by the defence on behalf of an owner of a takeaway business who had been negligent in the methodology adopted in preparing his VAT returns.

The business had originally been owned by our client’s ex-wife. The parties were in dispute as to whether the business should have been sold as part of the divorce settlement or, as he claimed, was in fact a partnership. This was of critical importance because the defendant had completed an “authorising your agent” form making himself an agent. He had received repayments totalling over £70k and HMRC claimed he had been overpaid by approximately £15k.

Due to the complexity of VAT legislation surrounding takeaway food outlets, the client had adopted a broad-brush approach to the calculation. He had not kept detailed records of the goods he had sold or bought to enable a detailed consideration of each class of income and expenditure. Following a review of his accounting records and discussions regarding the methodology he had adopted, it was possible to put forward suggested calculations of the VAT that should have been paid and agreement was reached.

Appointment type: Party appointment
Service area: Fraud
Industry: Manufacturing & consultancy

Instructed on behalf a manufacturer whose delivery company, it was claimed, failed to meet the required KPIs set down in the contract.

In essence it claimed that the delivery company regularly delivered goods late and on those grounds it terminated the contract, alleging that its terms had been breached. The delivery company did not accept the termination and sued for breach of contract.

The delivery company issued proof of delivery notes for each delivery which should have been signed by the end customer and returned to the manufacturer. The parties each prepared a spreadsheet for the 18-month period of the contract listing the details for each delivery and comparing the data on the delivery notes with the order date and expected delivery date.

The parties had each calculated which deliveries were late but had used different criteria to define a late delivery. We were instructed to audit these spreadsheets and compare them with the underlying data so as to reach our own opinion as to the percentage of deliveries that were late, under the terms of the original contract. There were over 25,000 deliveries in this period.

Our analysis indicated that there were a number of discrepancies between the sets of data prepared by the claimant and defendant. To make matters more complicated there were also discrepancies between the data and the underlying delivery notes.

Ultimately we were able to demonstrate that the delivery company had failed to meet the KPI targets and had regularly been late with its deliveries.

The matter settled following submission of the report with these findings.

Appointment type: Single joint expert
Service area: Loss of profits
Industry: Real estate

This matter took three years from the original quotation to instruction which was indicative of the contentious nature of this litigation.

A dispute arose between two brothers and their families who claimed to be partners in a property investment partnership. This followed the illness of one of the brothers and the other brother feeling prejudiced by the partnership.

The dispute concerned the capital introduced, drawings and profit share in respect of each of the 40 properties said to be owned by the purported partnership. We were appointed by the court as the SJE to reconstruct the business affairs and to consider the parties respective entitlements to income and capital. The claim was for approximately £500k.

The accounting records indicated that no partnership had ever existed insofar as the partners individually owned the properties, paid the deposits and mortgages and collected the rent for each property. No partnership accounts or tax returns were ever prepared.

Despite the quantity of disclosure provided, the records were significantly incomplete and it was not possible to reconcile the bank statements, individual tax returns or underlying documents.

The bank statements also included significant amounts of personal income and expenditure including significant cash deposits and withdrawals, the source and nature of which could not be ascertained. In addition, the purported partners periodically transferred properties between each other adding to the confusion. As a result, we concluded that the only reliable basis on which to base an analysis of capital introduced, drawings and profit were the tax returns that had already been submitted to HMRC.

Appointment type: Party appointment
Service area: Personal injury
Industry: Services & consultancy

Instructed following admission of liability by an NHS Trust of its failure to diagnose a brain tumour. The claimant’s case was that as a result of this failure, her resulting treatment, recovery and health meant that her husband, a doctor and general practitioner, had become her primary carer and could only work on significantly reduced hours and ultimately had to retire from practice.

The instruction was to calculate the income and pension forgone as a result of needing to retire early, necessitating an assessment of his income as a partner and an analysis of what he could have expected to have earned as a locum GP and if he had returned to partnership in a scenario in which his wife had sufficiently recovered. I assessed that the loss of earnings was a six-figure sum.

This calculation of loss was agreed with the Trust’s expert and the matter was settled.

Appointment type: Party appointment
Service area: Fraud
Industry: Hotels & hospitality

The client owned a luxury overseas hotel and spa. He became suspicious of the activities of the manager of the spa with whom he was in partnership.

Initially concerns were raised because the profits of the spa were lower than expected. After a new financial controller was appointed by the hotel, she identified that there was a period of a number of months for which no cash had been banked. Immediately after the appointment of the financial controller and the introduction of new controls, cash takings started once again to be banked.

Further investigation identified that PayPal receipts had not been transferred to the spa’s bank account but had been diverted by the manager to her personal account. A second set of books (which did not feed into the normal accounting system) was then identified because there was no resulting discrepancy between the accounts and the PayPal funds.

Our report analysed the level of cash bankings and considered the treatment of gift vouchers. It was evident that “ghost” gift vouchers were being issued in an attempt to hide further thefts of cash from the tills. By analysing the underlying records, we identified a number of unusual entries in the accounting software. Our investigation required us to consider which staff members were authorised to change the date of transactions and delete data, allowing us to identify the manager as the person most likely to have misappropriate funds.

The matter was then referred to the police so that a criminal prosecution could be taken.

Appointment type: Party appointment
Service area: Fraud
Industry: Leisure, media & entertainment

This high-profile case, which was widely reported in the national press, involved the theft of millions of pounds from several well-known celebrities by their accountant.

We were instructed by the professional indemnity insurers of the accountancy firm which had been perpetrated by one of its employed managers. The partners were oblivious to the theft by their manager who reportedly socialised with the celebrities and spent the money he stole on a luxurious lifestyle.

We were instructed to review the bank accounts of a number of the victims of the theft and to whose bank accounts the perpetrator had access. Our extensive asset-tracing exercise identified which transactions were genuine and how much had been misappropriated.

Often funds that were stolen had been annotated with the narrative “HMRC” but were not, in reality tax payments. In other cases, funds were stolen from one client to reimburse amounts previously stolen from another client. This made it harder to work out exactly how much had been stolen from whom. Our analysis confirmed the suspicion of large-scale misappropriation from several wealthy clients whose trust had been abused.

The accountant was subsequently found guilty of defrauding his clients out of £3.4 million at a criminal trial and received a prison sentence.

Appointment type: Party appointment
Service area: Fraud
Industry: Services & consultancy

A cashier at a high street bank was charged with stealing £63k from her employer and subsequently dismissed. The Prosecution’s evidence comprised a number of spreadsheets which indicated that numerous transactions had been undertaken using the defendant’s log in details for no apparent purpose. Our investigation examined the nature of transactions and the corresponding internal accounting entries in relation to the relevant customers’ bank accounts. The Prosecution claimed there the entries should not have been made and inferred that they were evidence of the defendant’s guilt, arguing that they had been an attempt to hide the alleged theft.

There had been no reported losses by any customers of the bank and our investigation revealed that the defendant had not received any significant funds into her bank account for which she could not account.

The matter went to crown court where the expert gave evidence. It was found by the judge that the Prosecution and the bank had failed to show that any funds had been misappropriated, only that the defendant had undertaken a number of transactions in the bank’s accounting records that could not be explained. She was therefore acquitted.

Appointment type: Party appointment
Service area: Loss of profit
Industry: Manufacturing & construction

The case concerned the lease of a colliery and the calculation of rent which varied depending on the volume of coal produced at the site. A dispute arose as to how the provisions in the lease that dealt with the rent calculation should have been interpreted. It was alleged that the defendant had improperly manipulated the way it which it invoiced one of its customers in order to minimise the rent. The defendant denied that it had acted improperly and argued that there was a commercial justification for its invoicing procedures, which it argued had enabled it to fund its investment in new plant and machinery. We were instructed on behalf of the landlord.

Our instructions were to review and analyse the defendant’s invoices to its customers to determine what services were being invoiced and to consider how these affected the calculation of the rent payable under various scenarios including i) the claimant’s methodology ; ii) the defendant’s methodology; iii) a half way position that including some but not all the additional services invoiced by the tenant. Depending on which methodology was adopted, the landlord’s claim amounted to up to £10 million of additional rent due from the tenant.

The instructions also included preparation of an analysis of the costs to purchase, install and operate the new plant and machinery and to consider these costs in the context of the services for which charges were being levied by way of the disputed additional invoices.

In addition, a review of the tenant’s financial statements suggested that, by artificially suppressing the rent, it had been able to generate very significant profits. During the relevant period, the tenant’s cash balance had increased to £20 million and the tenant had paid its parent company over £35 million in a declining market despite the purchase of the new plant for £10 million.

This matter went to arbitration where the accountancy experts gave evidence. The arbitrator found in favour of the landlord on all counts.

Appointment type: Party appointment
Service area: Fraud
Industry: Leisure, media & entertainment

The clients (father and daughter) were chairman and treasurer of a local football club and oversaw its weekly lottery scheme. An investigation by the new “auditor” determined that £6k was missing from the lottery takings. Our clients were charged based on this “auditor’s” investigation.

Our review of the evidence put forward by the “auditor” indicated that there were few procedures and controls in place and that the money alleged to have been stolen could have been taken at any point by a number of individuals and may indeed never have existed in the first place. It also became evident that the “auditor” was not a qualified auditor and that he was not a member of a recognised accounting body. He was also a member of the football club’s committee and the accountant to the defendants’ business.

At court, and despite counsel’s advice, the father pleaded guilty to avoid the risk of losing at trial and on the basis the charges against his daughter would be dropped.

Appointment type: Party appointment
Service area: Fraud
Industry: Education & childcare

The client was a support worker who managed a local out of school club. He was charged with theft and fraud following an internal investigation which identified discrepancies in the accounts amounting to £42k. He pleaded guilty to theft but disputed the amount.

However, a review of the evidence indicated that there were few procedures and controls in place. Our client accepted that he had no way of knowing what the income of the club should have been. He had never been told that the money received should have been banked in full on a timely basis.

Our evidence was that the money alleged to have been stolen could have been taken at any point if, in fact, the children had attended and had to pay to attend rather than having free places. It may also have been that the missing funds had been used to cover expenditure incurred personally on behalf of the charity which had then not been accounted for appropriately.

We concluded that due to the absence of paying in books or records reconciling the bank statements to the charity’s accounts, it was not possible to quantify how much if anything had been stolen.

Appointment type: Party appointment
Service area: Fraud, loss of profits
Industry: Food & drink

Our client was a meat trader supplying meat to UK food manufacturers from suppliers in the UK and the EU. It had branches in Poland and Spain. Following a disagreement, one of the shareholder/ directors set up a rival business.

Our instructions were to calculate the loss of profits from any diversion of trade including specific contracts and generally. The shareholders also required a valuation of the company to inform decisions regarding the purchase of the departing shareholder’s shares. The valuation was complicated by the fact that trade had also been affected due to allegations of horse meat entering the food chain in the UK.

We reviewed the financial information including specific contracts which were said to have been taken by the departing shareholder, considering the impact that these would have on future results.

Although turnover exceeded £30 million, gross profits were only 5% although cash reserves amounted to over £1 million. Therefore, unusually for a profitable trading company, the shares were valued based on net assets.

This matter settled following mediation attended by the expert.

Appointment type: Party appointment
Service area: Fraud, loss of profits
Industry: Transport

Our client was a US company with a subsidiary in the UK. It supplied specialised parts to the rail industry and was managed remotely by the respondent with very little involvement by the US parent to whom all profits were remitted. The respondent was a director of the subsidiary and, following a dispute with his employer, he set up a rival business with a similar name and with himself as director/shareholder.

He then changed the bank account details on invoices issued by his employer so as to divert monies from it as well as stealing stock and diverting trade to his new business.

Our instructions were to quantify the losses to the employer of these actions. Following a review of the financial statements, bank statements, purchase orders and other accounting information plus documentation specifically prepared by the Parties we valued the losses to be in excess of £1 million.

This matter settled after the trial had commenced.

Appointment type: Party appointment
Service area: Personal injury
Industry: Leisure, media & entertainment

Our client was a glamour model and online adult performer who underwent breast enhancement surgery following the birth of her child. It was agreed that this surgery was negligent and required further, corrective surgery.

Our client claimed that she was unable to work topless until the corrective surgery had been completed. The instructions were to calculate her loss of earnings during the period in which she was incapacitated. This included considering her earnings before pregnancy and after the initial surgery as well as estimating the earnings from her nascent YouTube channel and webcam businesses.

Following a review of her tax returns, invoices and bank statements we calculated these lost earnings at £102k after tax and national insurance.