We think money has gone missing. What decays while we decide what to do?
The traceable claim, and it does not recover on its own. Where misappropriated funds are commingled with clean money, courts commonly apply the lowest intermediate balance rule: the claimant’s traceable interest is capped at the lowest balance the account reached after the tainted deposit, and later deposits do not restore it. In re Dameron, 155 F.3d 718, 724 (4th Cir. 1998) puts it flatly — in no case is the trust permitted to be replenished by deposits made subsequent to the lowest intermediate balance, and if the account is depleted entirely the trust is considered lost. LIBR is not the only convention; pro rata, first-in-first-out and last-in-first-out are all applied, and pro rata tends to prevail where many similarly situated victims trace to a single account. But every one of them runs on the account’s balance history, which is why the statements and the underlying deposit items are the first records to secure. Two back-stops sit behind that. Bank Secrecy Act records generally need only be retained five years (31 CFR 1010.430(d)), though many institutions keep them longer. And retention of an accountant through counsel under United States v. Kovel, 296 F.2d 918 (2d Cir. 1961) protects work done to assist counsel in giving legal advice — it does not reach back over work the company already completed on its own, and there is no federal accountant-client privilege to fall back on. So the two cheap moves this week are to get counsel to retain the accountant before the work starts, and to get the bank records before the retention window closes.
Can a forensic accountant tell us whether this was fraud?
Not in those words, and it is worth knowing why before you retain anyone. AICPA Statement on Standards for Forensic Services No. 1 states that because the ultimate decision regarding the occurrence of fraud is determined by a trier of fact, a member performing forensic services is prohibited from opining regarding the ultimate conclusion of fraud. The ACFE draws the same line for certified fraud examiners: no opinion shall be expressed regarding the legal guilt or innocence of any person or party. What the standards permit, though, is almost everything short of the verdict. SSFS No. 1 expressly allows expert opinions on whether evidence is consistent with certain elements of fraud, and the ACFE’s own guidance allows an examiner to conclude that a person misappropriated cash, misrepresented a transaction or concealed funds, and that each element of a statute is satisfied — and to stop there. The finding survives; only the label is withheld. Two caveats, because they matter. These are membership obligations rather than rules of evidence, and they bind AICPA members and CFEs; an expert who is neither is not reached by either document. And an expert who reaches for the label anyway has given opposing counsel a motion to file, because courts regularly strike expert opinions that state legal conclusions — even though Rule 704(a) says an opinion is not objectionable just because it embraces an ultimate issue.
What does the Institute actually do?
It explains what the questions in a fraud or forensic accounting matter are and what evidence they need: how a scheme of this shape would have to have worked and what trail it would leave, what the records can and cannot establish and how they are rebuilt when they are missing, what remains traceable and what the remedy depends on, and whether an investigation was conducted well enough to survive attack. It is a reference and a diagnostic. It also explains what the credentials certify, which is less than most buyers assume — the CFF requires an active CPA license, the CFE requires no accounting license and no particular field of study, and ABV, CVA and ASA are valuation credentials rather than investigative ones, so screening on letters alone can produce an expert who cannot opine on the accounting treatment at issue. The Institute does not investigate live matters, does not say whether a particular person took anything, and does not opine on whether fraud occurred — that last one is the opinion nobody bound by these standards is permitted to give.
Our auditors never found this. Should they have — and can they investigate it now?
Two questions, two different answers. On the first, the standards are more specific than either side usually admits. AU-C 240 for private-company audits, and PCAOB AS 2401 for issuers, place primary responsibility for preventing and detecting fraud on management and those charged with governance, and promise reasonable rather than absolute assurance about material misstatement, whether caused by fraud or error. But reasonable assurance is an affirmative obligation, not a disclaimer, and materiality bounds the auditor in a way that relevance does not bound an examiner. In the ACFE’s Occupational Fraud 2026: A Report to the Nations, external audit was the source of initial detection in 2% of cases, against 15% for internal audit and 43% for tips — which says something about what an audit is built to do rather than settling whether any particular audit fell short. That second question is a standard-of-care question on its own record, and this Institute serves both sides of it. On whether the audit firm can now investigate: where the company is an SEC registrant, its accountant’s independence is impaired by providing expert services advocating the audit client’s interests in litigation or a regulatory proceeding (17 CFR 210.2-01(c)(4)). The narrow thing the auditor may still do is give a factual account of the work it actually performed.
How is the Institute paid?
The orientation and the reference material are free and require no account. Where a party wants the investigative scope, the records analysis or the tracing reviewed independently — ideally before a theory is committed to — that is a private engagement billed as a fixed fee agreed in writing beforehand. Where a matter needs a retained testifying expert, the Institute helps identify the right one through its expert network. It never takes a share of anything recovered. SSFS No. 1 carries a contingent-fee prohibition for forensic services, and quite apart from the standard, a fee that moves with the finding is the first thing a competent cross-examination goes after.
Do you calculate what the fraud cost us?
Some of it — and the line runs by question rather than by profession, which matters, because the same CPA very often does both halves. The AICPA’s CFF body of knowledge includes economic damage calculations and NACVA’s MAFF lists commercial damages and lost profits alongside fraud investigation, so anyone telling you that forensic accountants do not do damages work is simply wrong. The test we apply is different: is this an operation on the historical record, or does it require assuming a world that never happened? Reconstructing what actually moved out of an account, allocating an already-recovered fund among claimants, and testing direct depletion under a fidelity policy are all arithmetic performed on documents that exist, and they are ours. The but-for world — lost profits by any method, business value, apportionment, present value, prejudgment interest — is a model rather than a record, and it belongs to our Economic Damages Institute, which covers those measures properly. The two fit together under Rule 703: the damages expert relies on the reconstructed factual record as the predicate for the model. A matter needing both is often two engagements and sometimes two experts, and it is far cheaper to know that at the outset than at expert disclosure.
