David Gannaway, MBA, CFE, CAMS, CVA, EA  Discusses the Key Role of a Forensic Accountant (Kovel Accountant) in White Collar Criminal Cases

 

Engagement

A forensic accountant is retained by counsel under the attorney client privilege rules as established by U.S. vs Kovel.  The technical term / role is defined as a “Kovel Accountant”.  The U.S. Court decided that an accountant can be an “interpreter” of complex accounting and financial calculations to assist counsel in their representation of an individual under investigation or indictment.  Therefore, the information shared, and strategies discussed between the two are generally protected and not disclosable to the Government.

Investigation Initiated by Government

Counsel may request the assistance of a Kovel Accountant when the client is notified that they are under investigation or learn that agents are interviewing witnesses.  This is typically led by a government prosecutor along with agents from various regulatory agencies (i.e., FBI, IRS Criminal Investigation, DEA, SEC). 

At the end of a Government investigation, the prosecutor may seek an indictment through a grand jury.  A grand jury, within the federal system, is a group of 16 to 24 individuals that are impaneled to hear from witnesses and review evidence obtained by the government during investigations.  Once the prosecutor believes they have enough evidence to bring charges against an individual, they seek a grand jury indictment whereby the members of the grand jury vote to that enough evidence has been presented to believe that there is probable cause (more than 50%) that a crime has been committed.

Indictment

After an individual has been indicted, a trial date is set, and the work of a Kovel Accountant begins.

Role of Kovel Accountant

• Review Indictment
• Understand charges brought (Bank Fraud, Embezzlement, Healthcare Fraud, Money Laundering, Tax Evasion)
• Understand amount of fraud as alleged
• What time period
• Who else may have been indicted / included within conspiracy
• Gather documentary evidence that client has
• Obtain “discovery” (documents obtained during government investigation that are required to be produced by the government to defense counsel according to the rules of evidence)
• Discuss theory of the case with defense counsel
• Identify financial records to analyze
• Analyze flow of funds or movement of assets that may corroborate the governments allegations or disprove them
• Upon defense counsel’s approval, interview client or witnesses regarding the acts alleged in the indictment
• Obtain client’s side of the story in relation to the transactions conducted
• Prepare damage or loss calculations based on analysis performed and witness statements
• Provide oral presentation along with supporting evidence to government agents / prosecutors before the trial begins to either negotiate a plea agreement or show why the government may not be able to prove their case beyond a reasonable doubt to a jury of 12 individuals.

Guilty Plea

After reviewing the evidence, many cases end with a guilty plea being entered by the client.  The Kovel Accountant’s analysis may be beneficial in mitigating or lowering the fraud loss amount which will bring a lower sentence that what was originally sought by the government.  These amounts may also be required to be paid by the client as restitution to the government or another victim.  Analyzing the client’s financial condition and ability to pay is critical in negotiating repayment terms.

Trial

The client may decide to go to trial.  The Kovel Accountant may accompany counsel during the trial to assist them in preparing cross examination questions of government witnesses.  Also, the Kovel Accountant, should verify that all calculations presented by the government are accurate and develop questions for counsel to use in cross examination regarding accounting principles or financial transactions.

Summary Witness

There may be a reason for counsel to call the Kovel Accountant as a defense summary witness regarding financial calculations made.  This is not offering an opinion.  This is factual, based on the Kovel Accountants analysis of the financial transactions that defense counsel would like for the jury to hear.  Of course, the government prosecutor will cross-examine the Kovel Accountant to disprove their testimony.

Expert Witness

A Kovel Accountant may be called by the defense as an expert witness.  Before the trial, defense counsel must disclose that they plan on calling a Kovel Accountant as an expert witness and provide to the government, your CV and area of expected testimony.

At trial, defense counsel must present the Kovel Accountant as an expert stating their qualifications and why they are qualified as an expert witness.  Before the Kovel Accountant testifies, they must be qualified by the Court as an expert.  The process is called Voir Dire.  The government may asked questions of the Kovel Accountant to show the Court that the person should not be admitted as an expert.  The Judge makes the final decision to accept or reject the Kovel Accountant as an expert.

An expert witness may provide opinions based on the documents admitted into evidence or educate the jury about accounting principles or tracing financial transactions.  The role of an expert witness is to “educate” the jury about an issue that is before them.

 

 

In this episode…

Some of the most successful expert witnesses concentrate on a specific niche. Knowing what you know, and more importantly, what you don’t know is critical when providing a reliable opinion. Mr. Gannaway recommends an extremely focused approach to expert witnessing:

Well, the main thing is [. . .] staying in your lane, and not going outside of that [. . .] being comfortable with the area of expertise that you have and then knowing if there’s anything that’s changing in that area to be aware of [. . .] so that you’re not making any mistakes along those lines. [W]hat you really have to focus on, is being laser-focused on the areas that you’re qualified as an expert in.

Our conversation moves to researching the opposition team, simplifying reports for the audience, and getting on the same page with the engaging attorney.

Episode Transcript:

Note:  Transcript has been lightly edited for clarity.

Host:  Noah Bolmer, Round Table Group

Guest: David Gannaway, Principal at Bederson LLP 

Noah Bolmer: Welcome to Discussions at the Round Table. I am your host, Noah Bolmer, and I am excited to welcome David Gannaway to the show. Mr. Gannaway is a principal at Bederson, LLP. He specializes in forensic accounting in support and tax controversy. He has over 20 years of experience consulting on white-collar financial crimes and internal corporate investigations. Mr. Gannaway is an experienced expert.

witness in civil and criminal proceedings and a frequent speaker at industry conferences. Mr. Gannaway holds an MBA from Fordham University’s Gabelli School of Business. Mr. Gannaway, thank you for joining me here today.

David Gannaway: I am well, thank you as well. No, it is nice to be a part of.

Noah Bolmer: Alright, let’s jump into it. You have spent several years as a special agent for the IRS. Is that right?

David Gannaway: Yes. As an agent for 20 years, I started as a revenue agent, where we conduct audits of individual corporate partnership returns. Then, I moved into the Criminal Investigation Division, where we conducted white-collar crime investigations and money laundering. Then, I moved into management with the IRS in different locations. I finished my career with the IRS as an Assistant Special Agent in charge of the New York Field Office in 2007. In 2007, I left the government to work in private practice and then I joined Bederson two years ago. They are a regional accounting firm that also has forensic services. Here in the tri-state area and the New Jersey, Connecticut, New York, and Pennsylvania area as well.

Noah Bolmer: How did you first get involved in expert witnessing? Was that before your move to which sector?

David Gannaway: I testified as a fact witness during my government service and then also completed the Department of Justice, money laundering expert witness training. So, I had that in my cadre, but I did not testify that time as a special agent. Later, when I went into private practice. I could utilize those skills from being a special agent and formulate those into both criminal and civil practice outside of the…

Noah Bolmer: Has your experience been primarily as a consulting or a testifying expert over the years?

David Gannaway: In most civil cases, depositions are rare. Those cases go to trial. In criminal cases, there are few as well. I have testified in both civil and criminal cases as an expert witness.

Noah Bolmer: Let’s talk about your first engagements. What were those calls like? Did you feel properly prepared the first few times for what you were getting into? What was that like?

David Gannaway: It was new, challenging, and different from working for the government for 20 years. I was on the defense side. Now, I have thirty-plus years of being on both sides of the aisle. I think that has been different from other consultants out there. The first case involved some foreign bank accounts in Switzerland when the UBS matter concluded with the IRS in 2009. There were major cases where the IRS had a voluntary disclosure program. That is how I became involved in working on cases involving international transactions with taxpayers or citizens of the United States with accounts in different company names to cover up money that was located outside the United States. They did not report the money they received on their income tax returns here in the United States. My first start in it was in March of 2009 when the IRS initiated that voluntary disclosure program.

Noah Bolmer: Boy, you hit the ground running. That is a big one to start on.

David Gannaway: Today, I remember there have been hundreds of individuals and companies that we have helped through the voluntary disclosure program. It has been something that comes from countries from Israel to Switzerland to the Netherlands and other places.

Noah Bolmer: Speaking of which, you have had some international work. Let’s compare and contrast. How is it different working as an expert witness abroad?

David Gannaway: The thing I look at is that the facts are still the facts. You must rely on counsel to guide the nuances, the country, or the Court where you are litigating. I must rely upon counsel to educate me and help me with the rules and so forth in the country where we are working.

Noah Bolmer: Any super notable peculiarities that threw a curveball at you while you were working internationally?

David Gannaway: They look at it differently and there may be some different evidentiary, more internal court proceedings for administering cases, and how the proceedings go forward. Other than that, it is the facts are the facts and we are trying to present the information from the financial investigative standpoint to show whether there was fraud committed, someone has been taking money from a company, or there has been alleged tax fraud that we try to defend people are against the tax situations.

Noah Bolmer: Sure. As a former IRS agent and a forensic accountant, you must know many of the ever-changing codes. How do you manage to remain an expert?

David Gannaway: The main thing is it is one of the new terms we have heard over the past few years. It is staying in your lane, not going outside of that. Being comfortable with your area of expertise and knowing if there are any changes to be aware of is top of mind. So, you are not making any mistakes along those lines. It is not like the Internal Revenue Code which may be thousands upon thousands of pages, but income tax evasion or filing a false tax return is still the same code sections that have been previously, unless there has been a change or anything along those lines. What you must focus on is being laser-focused on the areas in which you are qualified as an expert.

Noah Bolmer: Do you do any continuing education or informally do anything specific to stay up on your expertise?

David Gannaway: Yes, I do both. I take classes but being a presenter and speaker for the National Association of Enrolled Agents helps me keep up with the issues. Whether it was like now when we have been dealing with digital assets. I gave a presentation three or four months ago, where we were going to look at the IRS and how they are looking at digital assets and cryptocurrency. So yes, I am familiar with those, and both take courses and be a speaker on behalf of the National Association of Enrolled Agents.

Noah Bolmer: Is it better to expand or is it better to stick to a particular niche?

David Gannaway: I think it is better to stay in your particular niche. So, you have years of experience and are not questioned about being pre-qualified or qualified in the court you are preparing and submitting an expert witness report to or testify for during the hearing. I think for me it is staying within that area of expertise.

Noah Bolmer: When you were first called for a potential engagement, what was that vetting process like for you? What are the things that you consider when you decide whether to take on an engagement? What are the things that they are looking for in you?

David Gannaway: First, is how they have come across my name or received a referral that I can be able to provide the type of assistance that they need. The first thing we do at our firm is do a conflict check to make sure that we have not worked for this client four or five years ago on a separate matter or if it was something related to the issue, we have in front of us. We do the internal conflict of interest check. Second, from a firm and insurance perspective, we make sure it is where we need to be in the area that we need to be practicing. We do not want to raise any concerns or risks to our insurance on behalf of the firm. That is what we do to make sure we can analyze both of those situations to make sure that we are taking care of the client. We make sure we are doing things to protect the firm.

Noah Bolmer: Besides conflict-of-interest issues, what else enters the calculus of whether it is a good engagement for both you and the attorney?

David Gannaway: I think it is the facts and the issue the attorney is trying to present and whether it is a skill I have or I had testified in another case, have the experience to show the proof, or made the calculation to help with the matter.

Noah Bolmer: You have turned down a significant number of cases.

David Gannaway: No, I do not turn down many cases at all. Most of them do primary responsibility checks and everyone knows the type of work that I do. So, I do not get calls to come out and do an evaluation of the Brooklyn Bridge or something along those lines. That is one of those things where you must be out there so attorneys know what type of services you can provide. Then, they will match you to the issues they have in front of them. How they want to cover it from a theory of the case standpoint

Noah Bolmer: So, once you have been vetted, have vetted them, and have accepted an engagement, the first thing you do is typically a report. What is your process for developing a report?

David Gannaway: Let me back up before we get to report writing. Sometimes, we get called in at the initial part of the investigation or when there is an allegation. Sometimes we get called three weeks before something is due in court, and they have been working on it for two years. That is the gamut as it goes for someone in my industry now. If you get the first call and you are there within the first few months of when they are going to start investigating the case, then you can start helping and looking and developing the evidence at that point. If you get the call three weeks before, and they need a report, then the water is already under the bridge. The first thing I do is understand what the complaint is. Where is the plaintiff or the defendant in that case or if it is a defense case in white color matters, you have an indictment that has been presented. Knowing the status of the case is where it helps to understand how I can help them and help the client try to resolve the case in both civil and criminal matters. Most of the time it is more toward the end when we get the phone call and then I look at what has transpired in the litigation and what areas they need me to review and address. From there, after getting the evidence and starting to look through it, I will meet with counsel to say this is what I have come across in the evidence that I have been able to obtain. Then, we can file or prepare a report based on the issues at hand and the conclusions I have drawn from the evidence I have seen, and that will be prepared. Next, the witness report is provided to counsel. You normally do not get guidelines, and counsel is not telling you how to write the report, but they still opine on the facts of the investigation or the issues that they are asking us to render.

Noah Bolmer: It is interesting, and this is a common refrain. I have heard from other expert witnesses that they would have been more effective if brought in earlier. Is that something you have come across? When you talk about getting brought in late in the case, do you feel you would be more effective if brought in earlier?

David Gannaway: I believe in both situations. Something happened several years ago. It was a civil litigation case, and the defendant was suspected of moving money offshore. I was retained later in the matter when the active complaint was filed. When they hired me, I was going through the evidence, and one of the first things I looked through and asked for was copies of their income tax returns. Counsel said they did not have them. So, I asked for them, and counsel obtained the amended returns. Their Bank Secrecy Act reports disclosed the location of the offshore accounts, which was a part of supporting the case because at the time they had those accounts offshore, and the complaint was filed in this matter, they cleaned up their offshore tax situations. We had the tax returns that were the first nail in the coffin for proving the case that they disclosed to the government that they had offshore accounts. So, if I had been brought in earlier, we would have found it earlier. But again, being brought in at the right time allowed me to obtain the necessary information and analyze the facts. If I had been hired three weeks before the trial date discovery may have already been closed before that information was obtained. So, that is the difference. Timing is important, and I would like to be retained as early as possible.

Noah Bolmer: On the topic of reports, as you know, there are different types of reports. There are initial reports and there are rebuttal reports. Have you written both types of reports?

David Gannaway: Yes, we do. The report that we prepared and the rebuttal report from the opposing expert, yes.

Noah Bolmer: Tell me a little about the difference between the reports and your strategic approach to writing both.

David Gannaway: If it is the initial report, it is going to be the evaluation of the evidence with our theory of the case and the complaint that may be filed, and so forth. Counsel is looking for someone to make the documents come alive. Look at it. You are going to try to fix something complex and make it simple for the average person to understand. That is my role in that type of situation. The rebuttal report has already been prepared by the other side and I go in and look it over with a fine-tooth comb to find any weaknesses that are that are there. Then, I can exploit them so that we can help. mitigate the case to a settlement, or if it goes to trial then we will use those to drill on in cross-examination.

Noah Bolmer: Do the attorneys typically tell you about the objective visa via the rebuttal report? Are they saying, “We are probably looking to settle,” or “This is probably going to trial.”? Do you tailor your reports thusly or attack it the best you can and then find out later?

David Gannaway: I used to referee high school and college basketball years ago, and you call them as you see them and that is the way I do it now. You call them as you see them and because you do not know if you are going to trial or not go to trial, things happen. So, I call them when I see them and work with counsel showing them the evidence that we have and reviewing it that way. I think that has always been my approach.

Noah Bolmer: Let’s talk about scope for a minute. When you are first engaged, how do you make sure you are doing everything the attorney wants, but nothing more? How do you stay within the confines of scope? Do you often have to go back and talk to attorneys to question them to clarify the project’s scope, so you are not doing too much?

David Gannaway: Yes, the main thing is if a complaint has been filed that defines the scope for you and to start to do the analysis. What I focus on is to get an understanding from counsel of what they want us to look at. That is XYZ, stay focused on those issues, and that is what we deliver. If there has not been a complaint filed or at the beginning of a criminal investigation conducted by the IRS or FBI, I would look at it and say, “Okay, this is some of the evidence that may be damaging to us, and this is what may be a strength to us.” It depends on the where, what timing, and in what part of the investigation, but the layout of the latter if the complaint has been filed. That is when you focus on what has been put in writing, and what is the other side’s case.

Noah Bolmer: Let’s talk about depositions, cross-examinations, and being questioned by the other side. How do you keep your cool? What do you do when you are under pressure? How do you make sure that you are adequately prepared for what the other side is going to ask you? Are there techniques that attorneys employ that have been particularly effective or particularly ineffective for those sorts of situations?

David Gannaway: One of the first things I do is research opposing counsel, their client, and the experts they have. I also learn about the judge and ask colleagues if they have had matters before him or her. So, I want to know as much as possible about who is on the other side. That is one of the first things that I do. When you get into depositions and being cross-examined, that is from my training and doing it over years and then being comfortable with the knowledge that you have, and the work you have completed. Let’s start by reviewing my report, and anticipating questions that may be asked by opposing counsel from my years of experience. I will work with counsel, and we are going to go over the status of the litigation, any calculations made, and any conclusions reached so we are on the same page at that point. In time, that is how I am.

Noah Bolmer: Before we wrap up, I would like to ask you about the attorneys that you have encountered throughout your career. Are there any that stand out as being a great partner and a great relationship? Somebody you would like to work with again. What makes that relationship great? What are the things that attorneys and experts strive for to make these relationships as effective and efficient as possible?

David Gannaway: One of the things from my experience with the government as an IRS agent is working with the Assistant United States Attorney, the federal prosecutor. After I left the Internal Revenue Service and was in private practice, I focused on working with former Assistant United States Attorneys because they understood the skills I brought to the table. They have been in many cases with former FBI agents and former IRS criminal investigations specialists. Those are the type of attorneys that I looked at to work with because again, we have been in trials together or they have been at the trials where they know the agents and they know what skills we bring to the table. Many times, in the private sector, I have worked with attorneys who have not worked for the government, and they have a completely different approach. They have been working for the defense or in civil litigation matters their whole career and have a different perspective. I try to blend in. What did I learn from an Assistant United States Attorney? What am I learning now from the civil litigators? How can I combine both of those to help me be a better witness and do a better job? That is how I have taken something from both sides from the Assistant United States Attorneys that I have worked with and the defense attorneys I am working with now. They have their experiences as well.

Noah Bolmer: So, it is an amalgamation. Do you have any specifics? A case or a situation that changed the way or reinforced the way that you act as an expert witness.

David Gannaway: I think the thing is I still know how to conduct the investigations. Whether it was a case 10 years ago or three weeks ago, fraud and things like that you may be surprised that you hear, “Oh gosh, they are doing that” [and] “This is how it is done.” Things along those lines, but now I focus on, “How can I take these experiences, learn, and work with the attorneys past and present?” In a manner that flows in with their theory of the case and working with them. It is a situation where it may be done one way with one attorney, and then done a different way and another attorney. I am learning and adapting. It depends on who I am working with because they may have different approaches and do it differently than someone that I worked with on the same type of case three years ago. One of the things I do not say is, “I did it this way three years ago” [or] “We need to do this because . . . it is not the right thing.” I am flexible and follow the counsel that I am working with, and their approach is.

Noah Bolmer: Do you have any last advice for experts, particularly newer experts or attorneys working with newer experts before we wrap up?

David Gannaway: One of the things I started to talk about is that you need to know your report and its strengths. It is like they say now you go for a job interview, and you take your resume. For me it is knowing the strengths that you have, relying upon the prior testimony you presented, and knowing how to take something complex and make it simple so the average person can understand it. One of the things that I always did was to be firm, and respectful, and educate the judge and jury about the issue that I have been retained to give. What I try to do is approach it in that manner because you do not want to come across, in my experience, whether it is on both sides if come across as hired. The jury can tell when you are in a trial how someone presents it. That is the way I found that it was not good for the client with an expert up there who looked like they were the hired gun to come in and say whatever they needed to say. I do not think that is going to be very effective for the client because the jury can see straight through that.

Noah Bolmer: Excellent advice. Thank you, Mr. Gannaway, for joining me.

David Gannaway: Thank you and the Round Table Group. I appreciate it.

Noah Bolmer: And thank you to our listeners for joining us here for another Discussion at the Round Table. Cheers.