An interview with business valuator and Forensic Accountant Kim Onisko, who is often called upon as an expert witness in his areas of expertise.
An Interview with Kim Onisko
Kim Onisko is a recognized authority in business valuation and forensic accounting and is the Audit and Forensic Accounting Partner with the Long Beach firm of Onisko & Scholz, LLP. Having worked in litigation since 1992, Kim is often called upon as an expert witness in the areas of accounting, economic damages, and forensic accounting.
He is Certified in Financial Forensics by the AICPA, Accredited in Business Valuations, and a Certified Fraud Examiner. An associate member of the Long Beach Bar Association, Kim presents continuing legal education to law firms on a regular basis and has also presented to the Long Beach Court.
Why would a family lawyer need a forensic accountant?
Well, there are a variety of financial calculations that need to be determined during a dissolution. There are four major ones: the first is income available for support, the second is valuation of the family business, the third is to make equitable asset divisions, and the fourth is to determine the marital standard of living.
What are the different designations used for forensic accountants?
The most widely seen are CPA, which is Certified Public Accountant. A second popular one is a CFF, that’s Certified in Financial Forensics. The next set would be business valuation credentials. Among three of them there would be an ABV, an ASA, and a CVA; these are all different associations that grant accreditation to business valuators. There’s also a CDFA, which is a Certified Divorce Financial Analyst, and, finally, there would be a CFE, which is a Certified Fraud Examiner.
Could you briefly explain each of these designations?
The first is a Certified Public Accountant, which is often referred to as a CPA. Today they are required five years of college followed by a two-year internship, a tough professional examination, and being signed off by other CPAs within the field. This is pretty much the gold standard for forensic accountants. There are a couple other designations that are only granted to the Certified Public Accountants by the American Institute of Certified Public Accounts, the AICPA; those are called a CFF and an ABV. A CFF is certified in financial forensics. There’s an exam for it and then there’s an experience requirement. The ABV is a business valuation credential, which also requires an exam plus an experience standard. Only CPAs can get those two credentials. The other designations—the ASA, CVA, CDFA, and CFE—they’re all non-CPA designations. Some of us CPAs choose to get them but it’s not required to have a CPA to get those accreditations.
It sounds like you do a lot of ongoing educating. Is it a requirement of the CPA to complete ongoing courses?
Yes. We’re required as a CPA to get a minimum of 80 hours, which is two full weeks, of continuing education each two-year cycle. So it’s about 40 hours a year. Members of our firm, however, get 50 to 60 hours per year simply because of the wide body of knowledge that we’re forced to deal with.
Which designations do you have?
I myself am a certified public accountant, a CPA. I’m also a CFF, which is Certified in Financial Forensics. I’m also an ABV, which is the Accreditation for Business Valuation from the American Institute of Certified Public Accountants. And on top of that, I’m a Certified Fraud Examiner.
What about the other CPAs who are working in your firm?
At the firm today, we have about eight other CPAs, two of them with Certified Fraud Examiner designations, another one with Accreditation in Business Valuation, and we have three other of the CPAs who have master’s degrees in taxation.
What type of cases do you feel that Onisko & Scholz is best at?
In the family law arena when there are allegations of fraud between the parties, where one party alleges hidden income exists and hasn’t been fully accounted for, those are the areas in which we excel because we do an awful lot of fraud work. So, if we are able to examine a set of books and records and the financial documents during a family law case, we can usually find out whether the allegations of hidden income are actually true or not and come up with a reasonable amount. The second area we’re good at is when the parties would prefer to use a neutral expert in a mediation setting between the attorneys to work through family law financial issues. Here in California, we’re appointed regularly as court appointed experts. It’s called a 730 designation in which attorneys and both parties are forced to use us in getting to the final numbers for the valuation of a business or if there is a hidden income issue.
In your experience, what percentage of times is there a case of hidden income or fraud?
Unfortunately, in most relationships between two members of the family unit, one is usually more sophisticated in financial understanding than the other. Consequently, when one party knows a lot more about the finances than the other in a situation of conflict in the family law area, often times one party who’s not in control of the finances thinks there is hidden income. I’d say we get called in on those quite frequently and often it’s just not a complete understanding of the financial picture of the family unit. How often is there really hidden income? Probably only one out of five times, so I’d give it about a 20% shot. But sometimes you need to explain the financial picture to the parties together so they understand there is no hidden income.
Doesn’t that give them peace of mind, if nothing else?
Yes, it does. When you can give them an understanding of what’s happening to them in this tough situation of a marital dissolution, it reduces the stress level.
How do you find hidden assets or income?
If we make a determination that we believe there is hidden income, the first thing we want to see is all of the financial records of the family unit. We want to see the financial records from the business; we want to get the personal financial records; and we want to get all the tax returns that are filed. Everybody files personal tax returns, but if there are business interests then we’re going to have business tax returns; there may be corporations, there may be partnerships. Then we take all those records, put them together, and trace where the money comes in and where it goes out to make a determination on whether or not money is being diverted or hidden from the family unit, and whether it’s moving on to places where one of the members of the matrimonial relationship can’t find it. A second way that we look at these things is by always reviewing the financial records while examining what kind of assets the family has put together and what their marital lifestyle is. For example, if the family is spending $400,000 a year, you have to make a presumption that the income of the family is a minimum of $400,000 a year. If it’s being represented at less than that, then we have to make a determination on how much income is being hidden.
How do you operate as a neutral in different situations and what does it actually mean to be neutral?
If we’re having a battle over the value of the family business and how much income is available for support, there’s a tendency for each attorney to want to hire their own expert and fight it out in court. Well, that’s a pretty expensive way to go about it and it usually gets about the same place you would get to if you used a neutrally-agreed-on single expert. If you’ve got two experts, one’s going to say the business is worth a million dollars, and the other one’s going to say it’s worth a million and a half dollars. The court is probably going to come up somewhere in the middle on that. Well, if you had used a neutral expert that wasn’t representing either party, they probably would have come up with the right number, the $1.25 million, in the first place.
When is a court-appointed expert necessary?
If we’re simply in mediation, it’s easy to work between the parties if both parties agree on the expert. When there is a conflict between the parties and the parties don’t trust one another, the attorneys can agree on an expert who is given quasi-judicial authority to come up with the numbers. That’s what we refer to as a court-appointed or 730 expert. When that expert comes up with the numbers in a litigated matter, the judge will take the word of the expert and make the awards based on those particular findings.
Do you offer continuing legal education to law firms?
Yes, we do that on a regular basis. We have a variety of courses for attorneys such as understanding basic financial statements, how to write a financial document request, how to read a personal tax return, and how to read a corporate tax return. We have another class on the tax impact of different asset classes so that the attorneys can get a good picture on how to divide assets between one side and the other while accounting for taxes.
What can an attorney expect if they’re working with Onisko & Scholz?
We attempt to have a communication level that is spoken in plain English with the attorneys and their clients so they understand at all times what we’re doing. We prefer to start with a budget and explain how much our services are going to cost and work within those parameters, and attempt at all times to communicate with the lawyers to let them know exactly where we are in the process of coming out with an ultimate finding.
Kim Onisko, MA, CPA, ABV, CFF, Cr.FA, is the Audit and Forensic Partner with Onisko & Scholz, LLP, a boutique CPA firm located in Long Beach, CA. He has worked in litigation since 1992 and is often called upon as an expert witness. To learn more about Onikso & Scholz, which serves clients across Southern California, please visit www.oniskoscholz.com.