How can Forensic Accountants help?

Many personal injury, medical negligence and fatal accident cases are straightforward in numerical terms and so solicitors are comfortable to handle them, perhaps with some input from Counsel. However, in certain cases, the input of an expert forensic accountant would be worthwhile and, indeed, it may be necessary if the solicitor is to fulfil his duties to his client.

  1. Loss of Earnings by Self-Employed Individuals

    There is clearly a case for using forensic accountants where the claimant was self-employed and had a varying pattern of earnings before the accident. For the purpose of the claim, the post-accident profits of the business need to be evaluated on two bases:
    1. The future profits of the business under the present circumstances, i.e. given that the accident has occurred; and
    2. The future profits of the business if the accident had not occurred.

      The loss is the difference between the two sets of figures. The forensic accountant needs to get behind the historical numbers to understand the trends before the accident. They then need to investigate the market trends after the accident. Would sales or profit margins have grown if the accident had not occurred because the market or demand for products or services was growing? Alternatively, would they have shrunk because of changing market conditions?
  2. Loss of Earnings for an Employed Individual

    In this case, an expert witness report about the annual loss of earnings is unlikely to be required, although forensic accountants are able to prepare the Schedule of Special Damages, if required.
  3. Loss of Pension

    Claims for loss of pension are calculated in different ways because of the wide range of pension arrangements that are available.
    1. Final Salary Schemes

      The value of final salary pension schemes is now widely recognised and that makes it even more important to accurately access the impact of the accident of the claimant's pension arrangements. Most public sector pension arrangements are final salary schemes and a few of the larger private companies also still have them. However, many private companies have closed their final salary schemes to new members and so the prospect of finding a new private sector job with a final salary pension arrangement is increasingly remote.

      Pension loss claims in relation to final salary schemes require a standard form of calculation and an experienced forensic accountant can assist with this. We can also interpret the pension documentation and ensure that the right bits of paper are obtained from the claimant, the employer, or the pension provider.
    2. Personal Pensions

      The pension which will ultimately be obtained from a personal pension arrangement is solely determined by the size of the pension pot upon retirement. Hence, it is really an investment arrangement with specific tax advantages. The most obvious advantage is the tax relief which can be obtained in relation to the premiums paid, and so the simple approach to evaluating the loss of pension in this situation is the loss of tax relief.

      For small claims and for basic rate taxpayers, this simple approach will be reasonably accurate. However, for large claims and for higher rate taxpayers, it is likely to be inaccurate because there are other tax consequences of having the investments within a pension arrangement. The alternative, more accurate, approach is to project the build up of the pension pot during the working life of the claimant and how it will then be utilised after retirement. These projected cash flows can then be discounted back to the trial date. This is certainly rather complex and so it is worthwhile calling on the services of a forensic accountant when significant sums are involved.
    3. Loss of State Pension

      For employed individuals who were contracted in to the State Pension arrangement, there will also be a loss of pension benefit under the Second State Pension ('S2P'). This is frequently overlooked and yet the loss of this can be considerable. We can assist with these calculations.
  4. Fatal Accident Claims

    All of the issues raised above could apply to a fatal accident claim. However, even with a straightforward employed individual, the calculations are relatively complex and a forensic accountant could assist in their preparation.
  5. Periodic Payments

    The introduction of the new periodic payments regime poses problems for PI and medical negligence lawyers trying to advise their clients on the advantages and disadvantages of lump sums compared with periodic payments.

    They are now required to consider whether, and to what extent, a periodic payment is preferable to a lump sum. Such a comparison is far from straightforward and has been likened to comparing apples with pears. Solicitors arguably now have a duty to direct their clients to obtain relevant advice so that they can make an informed decision.

    A forensic accountant will be able to assist the claimant to identify their true capital requirements and their true income needs. These may both differ considerably from the amounts that they are eligible to claim. Having established the capital and income needs of the claimant, it becomes possible to address the question of how these needs can best be met, and, specifically, to what extent they can be met by means of periodic payments.

    The forensic accountant can then assist in the exercise of matching the form of award to the claimant's needs. There are advantages and disadvantages of periodic payments and these need to be considered in the specific circumstances of a particular case. A more detailed briefing paper in relation to periodic payments is available under the Publication section of this website within NIFA News Issue 15.