Forensic Accounting and Fraud Examination, 2nd Edition

1Core Foundation Related to Forensic Accounting and Fraud Examination

Forensic accounting is simply defined as the intersection of accounting and the law. Consider an insurance claim whereby the insured is claiming that a contractor provided inferior work in March 2017 by placing an exposed water pipe in an unheated attic. In the first week of February 2018, during a two-day cold spell when temperatures dropped below freezing, the water pipe burst causing hundreds of thousands of dollars of water damage throughout 70% (4,200 of 6,000 square feet) of the building. Some questions to ponder include:

• Is the contractor liable for the water pipe failure 11 months later?
• What if there was a three-day cold spell in January 2018 and the pipe did not break? Would the contractor still be liable for the cost of damages from a water pipe break in February 2018?
• What if the water damage occurred at a retail establishment that needed to be closed for three months to repair the damage? Further consider that the business is located in “spring break territory” and earns 50% of its annual income (profit) during February, March, and April?
• Should the damages include lost profits?
• Is the extent of the damage (70% of the total square footage) relevant?
• Was there a contract between the contractor and the claimant?
• What parts of the contract might be relevant?
• Was there a warranty, implied or in writing (contractual)?

There are two overarching questions: (1) Is the contractor liable, and (2) If so, ...