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Who is the Fraudster? - The Case Against Destroying Draft Report

David Debenham, Partner
Lang Michener, LLP

Fraudsters benefit themselves by deceiving others. As an expert it is your task to uncover the deception and quantify the benefit to the fraudster, and the loss to the victim. When testifying, you swear an oath to tell the truth, the whole truth, and nothing but the truth, in relation to allegedly fraudulent activities and the damage it has caused. It therefore mystifies me as to how forensic investigators can appear in classrooms and conferences and openly share ideas about how to best destroy their draft expert reports, and camouflage their communications with counsel rather than speaking up to stop these pernicious practices. The reasons are obvious.

Let us start with you're the code of conduct for forensic accountants, the "Standard Practices for Investigative and Forensic Accounting Engagements.'"i] ('The Standards') The forensic accountant is to maintain a chain of custody of all relevant material,[ii] maintain an appropriate record of all relevant information received orally,[iii] and should maintain copies of all documents and other materials that are relevant to their findings and conclusions.[iv] One would presume this includes the extent to which the expert relies on the expertise of the client's lawyer in framing their findings and conclusions for the court.[v] The Standards require notes of all interviews, meetings, and discussions to be maintaining in the expert's working papers.[vi] The Standards make no exception based on whether those discussions may be privileged, and do not give any licence to exclude draft reports (i.e. those that have been sent to the client or her representative) from the working papers.[vii] The forensic accountant who testifies is supposed to honour the tribunal's requirement of transparency in the decision-making process to ensure that the trier of fact is satisfied with the expert witness's impartiality.[viii] Presuming privileged is waived by testifying at trial,[ix] how can the expert do this if communications with the client or the client's representative have not been recorded, or if it is left to speculation to determine how much an expert's draft report has been altered after communicating with the client, the client's lawyer, or other third parties?

While you might disagree with my interpretation of the Standards, the ACFI standards are clear on this subject: Rule 9, which addresses the need for the forensic investigator to adequately document their work, states that "any subsequent discovery of errors should be memorialized separately. The process of investigation is an inductive process of trial and error that can result in computational errors, careless misstatements, misinterpretations, and other mistakes. The forensic investigator should identify and describe any such errors and be prepared to clearly provide his or her reasoning as to why revisions were considered appropriate."[x] While you may disagree with the rule, how can you disagree with the idea that transparency should not only apply to the suspect activities but to your own as well?

Even if we disagree on the morality or legality of destroying draft reports, we cannot disagree that they make no sense from a practical point of view. Justice to be done has to be seen to be done, and how can you purport to be an advocate for a "just" position while at the same time engage in deceptive practices yourself? If you speak to someone and you change a report, is it not natural for someone to assume you changed that report as a result of that communication, particularly when you do not record what was said and do not keep a copy of the draft report? Do you expect a judge to believe that a draft report cannot be produced either by your office or the lawyer you sent it to if it was favourable to you or your case? Why do you think you can use circumstantial evidence against a fraudster without it being used against you? If your firm issues detailed time and billing rate reports to some of its clients but you issue 'For Services Rendered' accounts to your litigation client in an effort to hide the various conversations that took place between you and the client, isn't a trier of fact going to be convinced that there are some nefarious communications taking place between you and your client that you are trying to hide? Transparency protects you in cross-examination, and therefore the idea of playing hide and seek with the trier of fact is bad tactics, as well as bad ethics.

You object. You made some stupid mistakes in your draft report that you corrected in the final report, and you are simply saving yourself some embarrassment. Fine. You are human. That is why it is called a 'draft' report. I don't believe Einstein or Newton got it entirely right the first time either. The most scientific process is subjected to the rigour of outside examination before a final result is announced. No one is surprised by an opinion being fine-tuned as it is exposed to outside examination. This argument is a red herring, as no trier of fact, judge or jury, is terribly troubled about mechanical mistakes, errors, or refinements. They are more troubled by trying to hide something from them, leading to speculation that something more substantial has occurred that they are not being told about.

But what about if you made substantive amendments to your draft report because of something new that the client raised with you after reviewing your draft? This is exactly why you should preserve drafts and memorialize communications. If you make changes because of something new you were told, tribunal expects you to change your conclusions if something new is presented to you---- otherwise you are just a 'hired gun' who gives a fixed opinion for a fixed fee. If however you change your substantive conclusions because you have made a substantial blunder, your efforts at camouflaging pre-trial communications is done to save you personal embarrassment on a cross-examination that may cast doubt on your credibility. That is information that the other side and the tribunal is entitled to when it judges your credibility, and by depriving them of this information you are benefiting yourself at the expense of others, leading the outside observer to ask the question about you, 'who's the fraudster now?'

If you have made a mistake that casts doubt on your ability to testify, you should not testify rather than attempt to deceive the very tribunal to whom you owe the highest duty of candour as well as impartiality. If your mistake is not so large, then testify as to what you have done, supported by the proper memos of conversations and your draft report, and leave it to the competence of your client's legal counsel to ensure that your mistake is not given undue weight by the trial of fact--- that is the job of the advocate and not the expert. Hiding potentially relevant is contrary to the highest ideals of your profession, your legal obligation to the court, and as a practical matter, something that can only reflect badly on you in the eyes of your peers, the tribunal (as you will be caught out sooner or later), and even your client's counsel who will no longer respect you as a professional if you engage in these types of machinations (and either treat you as a hired gun in future engagements, or no longer retain you for future engagements).

Those who think that these kind of deceptive practices can be supported by legal arguments are mistaken. The argument that these communications are privileged in my jurisdiction misses the mark, even if true. If they are privileged they can be recorded and kept for posterity without any concern about them being entered into evidence. How does this justify failing to record oral communications or destroying them? Recording does not make privileged communications admissible. Moreover, privilege may be waived, and communications that may be privileged for some proceedings may not be privileged for others. For example, your communications with the lawyer may be admissible at a lawyer's disciplinary hearing, or your own. In these cases the destruction or camouflaging these communications will be depriving a tribunal of an accurate record of vital evidence.

This leads to the second objection, which is that these kinds of evidence are not relevant. Participants in proceedings do not determine what is relevant, nor should they. Experts are often not privy to all of the evidence, and issues, in the litigation, and are not in a position (in law or in fact) to determine the question of relevance, and, as we have just seen, what may be irrelevant in one proceeding may be relevant in another. Your efforts may constitute 'spoliation', which may subject you to a claim for damages in some jurisdiction. Finally, experts who seek to justify their behaviour on legal grounds are on more solid ground if they have lawyers make those arguments on their behalf, rather than rely on lawyers acting for clients whose self-interest and your own may not coincide.

Where does this leave us? Your machinations in hiding communications with the client or the client's lawyer may be destroying important evidence and therefore be illegal, it is probably unethical, and it is always self-defeating as your cross-examination shifts from a few questions about how the documentation you produced to the tribunal noting the changes you made to your draft report as a result of outside communications to a grueling investigation into the machinations you have undertaken to hide those communications, and any changes from the tribunal, and the imputation of ill-motives to you for doing so. In other words, why are you leaving yourself open to an investigation that leads the tribunal to compare the suspect's deceptions out of self-interest to those you have undertaken in the course of the pre-trial process to determine who truly is being the fraudster in this case?

[i]CA-IFA (Nov., 2006)
[iii]Standard s.400.09
[v]Standard, ss.400.01-400.16
[vi]Standard s.500.01(h).
[vii]Standard s.500.01 fn 10
[viii]Standard, s. 700.01
[ix]as is the case in most common law provinces
[xi]Law Society of Saskatchewan v. Merchant Law Group et al, [2008] SKCA 128