Calculating Economic Damages: It’s About Far More than the Math

Economic damages are designed to give claimants a chance to recover their financial positions in the wake of injuries caused by another party. To calculate those damages, however, is no easy task. Experts are required to help counsel and claimants build a credible calculation that matches the facts and circumstances of a case and can help tell a story about the data that triers of fact will understand and embrace. 

Without this kind of careful review and analysis, risks can multiply. Speculative projections or cherry-picked numbers that are not rooted in evidence are likely to result in a poor outcome in front of a judge or jury. Further, an expert must clearly understand professional accounting standards, have the right qualifications, and possess excellent communications skills if they are to overcome challenges from opposing counsel.

Calculating economic damages is not a straightforward process.

Experts must consider all evidence in the record—and will be open to attack if they blindly assume a plaintiff’s lost profits are all attributable to the actions of a defendant. They must consider other reasons the plaintiff could have experienced losses.  Failure to consider the sufficient relevant data (a term of art in the CPA’s professional standards of conduct) is a significant reason expert testimony is excluded from cases.

An expert opinion that is illogical or inconsistent with the evidence will crumble under scrutiny and may be excluded by a trier of fact. To avoid this, it is critical for experts to rely upon independent data to confirm that economic damages calculations are reasonable and that they will reconcile with the information available in the case. Also helpful is a strong dose of common sense, as well as the knowledge that data can tell a clear story that can help an expert determine whether a damages calculation aligns with the evidence or relies solely on speculation. 

Economic damages must be computed with reasonable certainty.

An expert should be involved in the discovery process and request information necessary to complete calculations.  Attorneys can be helpful in identifying categories of documents available, but the expert must decide what is relevant for his or her analysis and opinion.  

Often, the specific information that we want to review is not obtainable. In these situations, experts need to determine if there is sufficient relevant data to determine damages to a reasonable degree of certainty.

Independent research can assist in forming the basis of expert opinions and should be used to test the reasonableness of the assumptions and data utilized in calculations. It is important to verify that opinions are logical and supported by sufficient, relevant data.  Reconciling opinions to the realities of the case is a critical element to ensure they will withstand cross examination.

Why could an expert’s opinion be excluded?

An expert must consider sufficient, relevant data in the record or readily available for review. Cherry-picking or ignoring pertinent information allows the possibility of challenges to opinions or the exclusion by the court.  As we have noted, the expert should consider all appropriate evidence in the matter and be sure the story he or she tells is consistent with the events in the record.

An expert must demonstrate that the methodology used is reasonable, generally accepted in the professional community, and/or has been tested by other professionals. Experts must also establish that they have the appropriate level of skill, knowledge, experience, education, and training to offer expert opinions in a court of law.  Failure to make evident any of the above may result in an expert opinion being excluded from evidence.

Takeaway: A damages calculation is no simple matter. 

Calculating economic damages based on a lost-profits methodology is not a straightforward affair. For claimants and their counsel, it is critical to find a professional who understands the relationship between economic damages calculations and the evidence in record.  Equally important is finding the expert who can clearly and effectively communicate that story to a judge, jury, or other trier of fact.

Contact us to learn more about our litigation services.

Financial Fraud Investigations: Why an Employee’s Vacation is a Great Time to Detect Fraud

Time off isn’t just a necessity to help employees recover and regroup, it’s also an opportunity for an organization to measure its efficiency and to uncover vulnerabilities it may face from fraud, waste, and abuse.

Here are just a few of the ways an organization can leverage its vacation and time-off policies to help detect fraudulent activity and prevent—or, if necessary, launch—a financial fraud investigation.

1) Don’t let an employee’s time off go to waste. The first rule of a successful fraud is that it must be hidden from view. Employees who engage in fraud are often adept at using their positions to cover their tracks.

When an employee is away from the office for more than a day or two, another employee should be asked to perform the position’s key functions. If the fill-in employee notices that something isn’t right — for example, the vacationing employee isn’t following company policy or has hidden away key information critical to performing the task — a deeper review is likely necessary.

This kind of check is particularly important for positions focused on accepting or disbursing cash, purchasing goods and services, or receiving or shipping goods. All of these areas are traditional breeding grounds for employee-related misconduct, such as embezzlement fraud.

2) An employee who never takes time off should raise red flags. In an age when tech startups lionize workers for putting in 80-hour weeks and July 5 has been named “National Workaholics Day,” managers might be forgiven for thinking its counterintuitive to suspect employees who refuse to take time off.

However, in financial fraud investigations, examiners routinely find that employees under suspicion go undetected because they have exerted control over the flow of information around their work. Those employees are often the first to arrive at the office and the last to go home, and they rarely—if ever—take time off.

Refusing to take vacation should be seen as a potential red flag. Dishonest employees know that they will be unable to hide their activities if they are gone for more than a couple of days. To fight back, companies can embed a simple solution in their employee handbooks: They can make vacations mandatory.

As we noted previously, during the mandatory vacation period, the company can assign another worker to an employee’s tasks to detect any potential wrongdoing. And the knowledge that a person’s job will be under scrutiny during time away may serve as a preventative measure as well. Employees may be less likely to engage in fraud if they have a reasonable fear of detection.

3) Don’t wait for vacations to rotate job duties. Though a vacation allows an employer the opportunity to perform a spot check to help detect fraud, an organization needn’t wait for time off to rotate job duties.

In areas of particular vulnerability for issues like embezzlement fraud (an accounting department, for instance), a regular rotation of job duties among employees can serve as a strong fraud deterrent. Again, when employees know they will have others picking up where they left off, they are much less likely to use their positions to perpetrate a fraud.

4) Don’t be afraid to go deeper. Simply having an employee take over another worker’s duties may not be enough if managers suspect that a fraud is underway. A forensic examination may be necessary. This may start with a more in-depth review of accounting records and may extend to a suspected employee’s digital and personal activities.

A forensic examination may uncover fictitious vendors, invoices or payments that are consistently just below approval limits, duplicate invoices, and unexpected changes to the volume and amounts of transactions, among other issues.

To learn more about the ways an organization can leverage an employee’s time off to detect and prevent fraud or to discuss a more in-depth forensic examination, contact us for a consultation.








In a Financial Fraud Investigation, It Pays to Follow the Digital Footprint

Fraudsters often believe they have covered their tracks so well that their activity is untraceable, but they are increasingly running into a significant obstacle when attempting to hide their crimes: Their digital footprint.

During the last decade, people have integrated digital tools into their personal and business lives at an astonishing rate. Since 2010, for instance, the portion of the global population actively using the web has increased from 27 percent to nearly 60 percent—and the number is climbing rapidly.

And for every text, email, card swipe, social media post, and web surfing session, those internet users are leaving digital breadcrumbs. In a financial fraud investigation, digital records can be crucial in proving fraudulent activity has occurred and can also help financial fraud investigators uncover the size and scope of a fraud and identify who is involved in a scheme.


Clearly, analysis and interpretation of electronic evidence is now a standard part of a forensic investigation. During a forensic examination, modern fraud investigators understand that no physical evidential paper trail may exist and that fraudsters may be adept at covering up their activity in an organization’s electronic accounting system.

This means the investigator must cast a much broader net. As adept as an alleged fraudster may be at hiding a transaction in an accounting program, they may not know how—or even think—to permanently eliminate incriminating emails and documents from a hard drive or cloud storage system. A voice mail stored on a web-based telephone network or a recorded video call can give them away, as can the remnants of a text message chain.

In fact, a digital footprint is often far larger than a person may anticipate, and it is far more difficult  to cover up than a physical paper trail. Deleting or encrypting messages or documents are not safeguards, as they still provide evidence via the metadata they generate.


In a  financial fraud investigation, it pays to look in every electronic corner—even those that, at first glance, may seem the least likely to produce viable evidence of financial misconduct.

This includes social media. A person’s Facebook, Instagram, Twitter and other feeds can actually become something of a goldmine for investigators. Through social media, fraud examiners have access to an abundance of metadata, including timestamps and geolocations. They can examine photos, and parse the content of postings for clues.

People are often so immersed in social media that they often share a wealth of information that can be immensely helpful in a forensic examination. They may, for example, discuss or display major purchases that do not align with their current compensation—and that can trigger a line of inquiry for investigators. They may post on a timeline their whereabouts at a particular moment that contradicts an alibi or that places them in the right location at the right time to commit a fraud.

In the end, the digital portion of a  financial fraud investigation can be critical in halting a fraud, provided one has the expertise to know where to look and how to extract information that may not be obvious to the naked eye. To learn more about how FSS helps organizations combat fraud via digital financial fraud investigations, contact us here.