Forensic and Investigative Accounting Chapter 9 Proper Evidence Management © 2009 CCH. All Rights Reserved. 4025 W. Peterson Ave. Chicago, IL 60646-6085 1 800 248 3248 www.CCHGroup.com

Forensic and Investigative Accounting Rules of Evidence The rules of evidence are the rules governing the admissibility of evidence in a legal proceeding and the weight to be given to evidence that is admitted. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting What Is Evidence? Evidence is testimony, writings, and material objects offered to prove an alleged fact or proposition. Direct evidence is evidence that directly proves a fact at issue, without the need for any inference or presumption. Circumstantial evidence is evidence from which a fact at issue may be proved indirectly. Chapter 9 Forensic and Investigative Accounting

Relevance Requirement Circumstantial evidence. Inflammatory evidence. Evidence about plaintiff’s character. Evidence of habit. Exclusionary rules. Evidence of liability. Chapter 9 Forensic and Investigative Accounting

Privileged Communications Attorney-client privilege. Employee communications. Work product rule. Attorney-requested accounting work. Medical privilege. Spousal privilege. Other types. Religious. Governmental. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Hearsay Rule Hearsay is an oral or written assertion, other than one made by the declarant while testifying at the trial or hearing, offered in evidence to prove the truth of the matter asserted. As a general rule, hearsay is not admissible as evidence in a legal proceeding (except by an expert witness). (continued on next slide) Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Hearsay Rule In some situations a statement that appears to be hearsay is offered to prove a fact other than the matter asserted: Legally operative fact. Effect on the listener. State of mind of the declarant. Impeachment. (continued on next slide) Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Hearsay Rule There are three concepts underlying the exceptions to the general rule barring hearsay: Trustworthiness. Unavailability of the declarant. Practical considerations. Chapter 9 Forensic and Investigative Accounting

Authentication Requirement To be admissible as evidence in a legal proceeding, a document or other material usually must be authenticated or identified as to what its proponent claims it to be. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Best Evidence Rule Under the best evidence rule (also referred to as the original writing rule), to prove the contents of a writing, recording, or photograph, the original writing, recording, or photograph usually must be presented. Attorneys can get around this rule. Chapter 9 Forensic and Investigative Accounting

Demonstrative Evidence Demonstrative evidence is an item that illustrates testimony but has no probative value in itself (such as a chart, diagram, photograph, video, or model). Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Special Rules Criminal cases. Administrative proceedings. Tone of the proceedings. Residuum rule. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Residuum Rule The residuum rule is that no finding may be supported solely by hearsay evidence. Chapter 9 Forensic and Investigative Accounting

Maximizing Client Confidentiality Michael Mostek, in Expert Witnessing in Forensic Accounting, provides the following advice for protecting the work product privilege: The attorney should directly retain the consultant. The agreement should be between attorney and expert. The expert should obtain facts through, or at the direction of, the attorney. The investigation should be done at the direction of the attorney. The attorney should be present when the consultant meets with the client. Chapter 9 Forensic and Investigative Accounting

AICPA Top Technologies Task Force The task force found the following top ten technologies for 2007 in descending order of importance: Information security management. Identity and access management. Conforming to assurance and compliance standards. Privacy management. (continued on next slide) Chapter 9 Forensic and Investigative Accounting

AICPA Top Technologies Task Force Disaster recovery planning (DRP) and business continuity management (BCM). IT governance. Securing and controlling information distribution. Mobile and remote computing. Electronic archiving and data retention. Document, content, and knowledge management. Chapter 9 Forensic and Investigative Accounting

Using Technology to Gather Evidence Drill-down functionality. Electronic imaging. Benford’s law. Digital Analysis Tests and Statistics (DATAS). Data warehousing/mining. Data extraction versus data investigation. Inductive vs. deductive method. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Computer Evidence Protecting data in hardware seizures. Insidious e-mails. Documenting computer evidence. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Evidence Management Do not mark, staple, or otherwise alter any documents or other evidence that might find its way into court. Record how the documents were obtained and who has handled it (chain of custody). Use see-through holders to avoid putting fingerprints on documents. (continued on next slide) Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Evidence Management Store original documents and working papers in fireproof safes or locked cabinets. Protect material stored on a computer with a password. Make backup copies on a regular basis and store in a separate location. Copy, inventory, and index evidence so that it can be readily found when needed. Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Questioned Documents Invoices and other documents may be fake or altered when: Font sizes or types are not consistent. No address is shown for the vendor or customer; this situation is especially suspicious if a vendor has not identified an address to which a check can be sent. The document has no identifying numbers such as invoice number, purchase order number, or customer number. (continued on next slide) Chapter 9 Forensic and Investigative Accounting

Forensic and Investigative Accounting Questioned Documents All invoice numbers on invoices from vendors are numbered sequentially, with no numbers skipped. No tax is shown for taxable items. No shipping or freight cost is shown for items that would have been shipped at the purchaser’s expense. Little or no detail is provided on the invoice or document. Chapter 9 Forensic and Investigative Accounting