Michael Haugen 2013-07-17 00:13:49
Numbers Game: The Story Behind the Numbers Michael Haugen is a certified public accountant and certified fraud examiner with extensive experience in financial forensics applied in litigation support, fraud investigation, and verification of economic damages in insurance claims. Mr. Haugen has assisted in the successful resolution of hundreds of financial damages claims involving exposure in excess of tens of millions of dollars. His experience in economic damages includes, for example, lost profits, breach of contract, extra expenses, post-acquisition disputes, intellectual property, wrongful death/personal injury, and analysis of financial condition. For more information, please call 480-620-8486 or visit www.eppsforensics.com. Everyone, at some point in their life, has made a decision that was founded on their interpretation or conclusion regarding numbers. For example, consider the decision of whether or not the cost savings of buying a used appliance for $1,200 is worth the added risk of not buying a new appliance at a cost of $1,600. For some, the $400 savings of buying the used appliance is well worth it. But while the $400, or 25 percent, savings may seem like a lot, identifying what it truly reflects may swing the purchase decision back to buying a new appliance. Specifically, the shorter useful life of the used appliance may eat up the majority of the $400 savings such that when you add in the value of free delivery to buying a new appliance it becomes evident buying the new appliance is a better deal. Taken at face value, numbers in and of themselves may appear to tell one story but the events, facts, and circumstances they portray may not follow what is seemingly obvious by looking at just the numbers themselves. The example above is a perfect illustration of this. It demonstrates the risk of reaching the wrong conclusion if the story behind the numbers is misunderstood. In the context of litigation, where the goal is for the trier of fact to reach an accurate conclusion, every effort is made to avoid such an occurrence. It is therefore not surprising that financial experts are often retained to provided clarity and insight on the story behind disputed economic damages. In a recent case, with millions of dollars on the table, financial damages were alleged on the basis that sales decreased significantly due to an event (the triggering event) which was the subject of the suit. It was in fact true that subsequent to the triggering event, sales decreased significantly. The plaintiff-included the entire sales decrease in damages. At face value, the facts of the case didn’t seem to leave much room for an alternative interpretation. Detailed testing, however, proved differently. In-depth sales analysis revealed that multiple factors, completely unrelated to the triggering event, contributed to the sales decrease and that the timing of the sales decrease, albeit consistent with the triggering event, was merely coincidental. Specifically, sales decreased in large part due to changing unit sales prices stemming from international trade regulation, decreasing exchange rates, and discontinued product lines. These factors had no relationship to the triggering event, but none of the decreased sales they caused was excluded from the alleged damages. When such findings were presented in testimony, the jury was armed with the story behind the numbers. They had the information needed to not only make a more informed decision regarding the damages amount but also to evaluate the credibility of the two experts. Finding the story behind the numbers is not always limited to evaluating financial data. Financial experts often rely on non-financial data to corroborate and explain the “why” behind financial data. For example, in one case involving a driver for a freight company, an individual’s driving service income decreased subsequent to the suit’s triggering event. The economic damages case was strengthened by evaluating the number of truckloads assigned to each driver of the freight company. Specifically, it was found that the quantity of truckload assignments increased for every driver of the freight company except the plaintiff; whose truckload assignment count paralleled his decreasing income. This finding helped close the door to potential rebuttal arguments that plaintiff’s income decrease subsequent to the triggering event was only a function of hauling rate changes or a decrease in the total number of truckload assignments available. The foundation of the lost income claim was further substantiated by the real story identified within the non-financial data. As the saying goes, knowledge is power. Knowing why an appliance is discounted a certain amount, not just the amount it is discounted, may change your vote from buying used to buying new. The same may be true with your next case that involves financial damages. Arming the trier of fact with not just the “how much,” but also the “why,” may be information critical to resolution of the case. So consider consulting with a qualified financial expert on your next case involving financial damages. After all, it is the story behind the numbers that may make the case.
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