1. Forensic and Investigative Accounting
Chapter 12
Computing Economic Damages
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2. Measuring Damages in Personal Cases
Damage calculations that require additional knowledge and skills (other than those used in commercial damages), include:
Wrongful death.
Wrongful discharge.
Complete or partial disabilities.
Divorces.
Similar situations that take into account the economic value of persons.
Chapter 12
Forensic and Investigative Accounting

3. Use of a Forensic Economist or a Forensic Accountant
What does an attorney look for in and expert witness in economic damages cases?
What is the nature of the damage calculations?
Who is best suited to calculate and explain the damage components?
Historically forensic economists have provided most economic damage testimony
Now many more forensic accountants are providing economic damages testimony
Chapter 12
Forensic and Investigative Accounting

4. What is Necessary to Win a Economic Damages Case?
As with any civil litigation case it is necessary to prove:
Liability: some wrongful event has occurred, usually a tort
As a result of this wrongful event the plaintiff has incurred some measurable damages
The plaintiff must present and defend the damage amount
The defendant will attempt to reduce or eliminate any damage measure of the plaintiff
Chapter 12
Forensic and Investigative Accounting

5. General Theory of Economic Damages
The wrongful act of the tortfeaser has caused the plaintiff to be in a different position that he/she otherwise would be
Ideally the compensable damages will restore the injured party to his/her previous position
Damages will depend upon what the law will allow
Different states allow different measures of damages under varying circumstances
Chapter 12
Forensic and Investigative Accounting

6. Wrongful Death with Dependents
Lost wages
Lost benefits
Lost services provided to survivors
Funeral and administration of the estate
Less income that the deceased would have used for consumption
Chapter 12
Forensic and Investigative Accounting

7. Wrongful Death of a Child
Loss of a child’s services
Medical and funeral expenses
Cost of counseling for remaining family
Non-economic-loss of love and companionship to the end of the last parent’s life
Chapter 12
Forensic and Investigative Accounting

8. Issues that Impact Amount of Damages in a Personal Injury Case
For a person who has sustained permanent work-related disabilities, the issues that impact the amount of damages that will accrue to the injured person over his or her remaining lifetime include:
How long will the person live?
What level of injuries were sustained?
What is the impact of those injuries on the employee’s remaining work effort and abilities to perform services outside of the workplace?
Chapter 12
Forensic and Investigative Accounting

9. Calculation of Economic Damages in a Personal Injury Case
For a person who sustains permanent work-related disabilities, the calculation of economic damages would be based on a variety of issues, including:
What are the characteristics of that person’s work life?
What is the employee’s educational background?
What is the employee’s gender?
What is the employee’s expected time left in the work force?
Chapter 12
Forensic and Investigative Accounting

10. Government Data for Analysis and Support
There is a wealth of U.S. Government Data to use in case analysis and support
U.S. Department of Labor Bureau of Labor Statistics
The Economic Report of the President
The U S Census Bureau Statistical Abstract of the United States
Other
Chapter 12
Forensic and Investigative Accounting

11. The Role of Statistical Data in Measuring Economic Damages
Statistical data adds realism and conservatism to economic damage calculations
There are many factors that may not be part of a person’s work/life plans that have a statistical probability of occurring
Life expectancy
Unemployment
Earnings trends
Injuries
Others
Chapter 12
Forensic and Investigative Accounting

12. Measuring Economic Damages in a Wrongful Discharge Case
Commonly used components for measuring economic damages in a wrongful discharge case include:
Lost wages:
Earnings history
Earnings estimates
Royalties
Fringe benefits
Lost profits.
FICA tax payments that employer would have paid.
Health insurance premiums that employer would have paid.
Chapter 12
Forensic and Investigative Accounting

13. Present Value Concepts
Frequently wages and other employee benefits are adjusted for future expected growth.
Conversely, amounts that would have been received in the future should be adjusted to their present value.
These two processes can have a major impact on the net amount of damages in a case
Chapter 12
Forensic and Investigative Accounting

14. Determining Growth and Discount Rates
In some states there is a statutory rate of interest for certain types of cases
In other situations, the expert is expected to determine and defend an appropriate discount rate
Sometimes experts can use statistical data for growth or discount rates
Chapter 12
Forensic and Investigative Accounting

15. Common Components of Fringe Benefits
Paid health care.
Life insurance.
Education programs.
Payroll taxes (FICA taxes, federal and state unemployment taxes, workers’ compensation taxes).
You cannot “double count” damage costs
Chapter 12
Forensic and Investigative Accounting

16. Measuring Damages for Household Services
When a person is injured or killed, it may be logical to assess the amount of lost household services
What amount of services did the person in question provide before the event that caused the loss?
What amount of services can the person in question provide after the event? What percent of services was lost?
What is the “value” of the lost services?
Chapter 12
Forensic and Investigative Accounting

17. Examples of Job-Related Costs
Job-related costs need to be deducted form the Damage estimate. Job-related costs are costs that employees incur as the result of their employment. Some examples include:
Cost of commuting to work.
Union dues.
Professional fees.
Job-related clothing costs.
Chapter 12
Forensic and Investigative Accounting

18. Thoughts About Testifying in and Economic Damages Case
Be accurate and complete
Know the facts about the case well
“Prepare” your own cross examination
To the extent that it makes sense show that your analysis in conservative
Be truthful
Chapter 12
Forensic and Investigative Accounting