Forensic accountants use their skills to compile, organize, and analyze data to present information to insurance adjusters that assists them in understanding financial information and establishing fact patterns as it relates to adjusting insurance claims.
Insurance claims relating to hurricanes can be incredibly tricky due to coverage issues and policy limits. For example, some policies may only have coverage in place for damages that were created by wind and some policies may have coverage for both wind and flood. Determining what damage is categorized as caused by wind versus flood is a daunting task. Engineering experts are often utilized to assist in this determination. A forensic accountant can be helpful with this as well; working hand in hand with the engineering experts to compile documentation, audit invoices, and generate reports with great detail. All of this information at their fingertips aids insurance adjusters in understanding the magnitude of costs and ultimately assists in making crucial coverage decisions.
Our team has experience with auditing multi-million dollar reconstruction projects as it relates to rebuilding both commercial and private property damage caused by a hurricane or tropical storm. Specifically, we are experienced in reviewing contracts of general contractors and subcontractors to aid in the determination of inappropriate mark-ups, duplication of charges, or overcharging labor and materials. In our experience, the larger the reconstruction effort, the more likely that overcharges and duplications will be overlooked. Our team can assist in auditing construction invoices and compile reports which categorize and detail charges.
Property damage audit is just one facet of the forensic accountant’s role in hurricane insurance claims. When a business has sustained property damage, there is a period of restoration. During this rebuilding period, a business may be completely shut down or partially shut down. This impairment to a business often results in a loss of profits. Business interruption claims can be extremely complicated with many different revenue streams affected.
An expert forensic accountant can compute loss of income attributable to a disaster, working with insurance providers to identify, quantify, and prove the value of the loss. This forensic expert can perform a rough order of magnitude calculation up front to assist the adjuster in setting appropriate reserves with some basic financial information, which can be very helpful with a large loss where multiple insurers and layers of coverage are involved.
Forensic Accountants evaluate, audit and measure extra expenses that are incurred to avoid or minimize the suspension of business. Initially, the financial professional will meet and have a discussion with the insured to better understand the loss and to gather the records necessary (financial statements, tax returns, reports, payroll records, etc.) to evaluate the loss. In projecting income, it is vital to consider the trends of the industry and compare the projected revenue to the actual revenue for the period of restoration, as well as offset lost revenue by the value of expenses that were not paid. We also consider other factors that may have had an impact on sales that may have been unrelated to the insurable event (for example, decline in the economy, or a change in business model).
This hurricane season has already begun to wreak havoc on the United States. The value of property damage from Hurricane Harvey and Hurricane Irma is still unknown. It may take years for all of the insurance claims to be resolved before we can know the true magnitude. It is important for insurance adjusters, business owners, and private homeowners to know that they are not alone when it comes time to put everything back together.