Professional negligence in forensic investigations

A forensic firm is hired to find out who has been stealing from a client. The team starts the work without a plan, loses a key laptop's log by letting the client's staff keep using it. Reports a loss figure that is later shown to be wrong. The client's lawyers cannot use the evidence, the thief goes free and the client sues the firm.

Forensic work has high stakes, so its practitioners owe a high standard of care, and failure has serious legal and professional consequences.

This topic covers the meaning of professional negligence, its four elements, the ways it can occur in a forensic investigation (planning and resources, evidence and reporting), other failings, the consequences and how firms reduce the risk. The previous topics covered the techniques of forensic work, and the next covers the expert report.

Key terms in plain English

Syllabus check

This topic is in syllabus area D, forensic accounting services (15% of marks). It covers:

• professional negligence in forensic investigations
• the elements and consequences of negligence
• ways to reduce professional negligence

CAMA 2020 and professional negligence

The Companies and Allied Matters Act 2020 (CAMA 2020) is the company law of Nigeria. The sections below apply to this topic.

The rules in more depth

What professional negligence is

Negligence occurs when a professional fails to meet professional standards of care, or to give the attention expected, leading to errors or omissions that compromise the integrity of evidence, an investigation or court proceedings in the service given to a client.

It can also be seen as causing injury to a person or damage to property by an act, or by failing to act with regard for the safety and rights of others. For a forensic practitioner, the standard is that of a reasonably skilled and careful practitioner in the same field, in the same circumstances, as a doctor to a patient.

Elements of negligence

All four must be shown. A mistake that causes no loss gives no claim for damages, though it may still lead to disciplinary action. Similarly, a loss that would have occurred even with perfect work is not caused by the breach.

Incidence of negligence in a forensic investigation

(a) Investigation-related negligence

• Inadequate planning: not preparing a comprehensive plan for the assignment. Without a plan, evidence is overlooked or the deadline is missed.
• Lack of experience or skill: professional due care is breached when a practitioner takes on work for which he lacks the skill or training. An accountant should decline an assignment that he is not competent to do.
• Insufficient resources: the firm lacks the time, budget or personnel for the work. Timing, budget and staff are crucial to preventing negligence.

(b) Evidence-related negligence. The evidence must be able to prove or disprove the allegation. Negligence arises through:

• contamination of evidence: where evidence is not properly handled, stored or transmitted, for example a device is used after seizure, a document is marked, or the chain of custody is not kept; and
• inadequate collection and analysis: physical, digital and testimonial evidence must be relevant, reliable and sufficient. Failure to analyse it properly, or misinterpreting or misrepresenting it, may be negligence.

(c) Reporting-related negligence. The investigator must report at the end. Negligence can occur where:

• the report is incomplete, inaccurate or late, leading to misinformed decisions;
• findings are not documented, including the working papers, conclusions, recommendations and supporting evidence; or
• findings and recommendations are not adequately communicated to the relevant stakeholders.

Other forms of negligence:

• Conflict of interest, which compromises the integrity of the investigation.
• Lack of objectivity: allowing bias and prejudice to influence findings and recommendations.
• Failure to follow procedures, protocols or standards.

Consequences of professional negligence

• Loss of credibility and damage to the firm's reputation.
• Financial consequences: damages payable to the client and the cost of defending a claim, as well as lost fees.
• Professional sanction: disciplinary action against the firm, such as withdrawal of licence or suspension from taking forensic engagements, depending on how serious the negligence is.
• Miscarriage of justice: the party who behaved unethically may be found not guilty because of faulty work, or an innocent person may be blamed.
• Stress: emotional stress or harm to the client.

In Nigeria, the professional accountant may face a complaint before the Institute's disciplinary bodies, such as the Investigating Panel and Disciplinary Committee, and in serious cases the regulatory powers of the Financial Reporting Council of Nigeria may apply. The client may also sue in the courts for breach of contract and in negligence.

Mitigating professional negligence

• Continuous training and education for all staff, especially on new developments in forensics.
• Risk assessment of each engagement, with procedures for responding to the risks identified.
• Peer review among firms on forensic engagements, to identify and deal with errors and reliability issues.
• Developing and following procedures, updated for new developments such as computer forensics.
• Periodic, at least annual, quality management assurance on forensic engagements.
• Monitoring and evaluation of the investigation process, to find areas for improvement.

Other protections are a clear engagement letter that sets out the scope, limits and the use of the report; a limit of liability where the law allows; professional indemnity insurance; supervision and review of work by a partner; documentation of key decisions and instructions from the client; and refusing work outside the firm's competence.

Applying the rules to a scenario

In the exam, apply the four elements to the facts, and name the type of negligence. Suppose a firm agreed to trace stolen funds but did not interview the finance team, did not secure the accounting server and reported a loss that turned out to be ₦20 million too high. The duty arose when the firm accepted the work. The breach is poor planning and inadequate evidence collection and analysis.

Causation exists if the client acted on the figure, for example by suing for too much and losing costs. The damage is the costs and lost recovery. The firm should have planned, secured the evidence, reviewed the work and checked the figure.

A defence may be available if the firm acted in line with accepted professional practice, if the client's own conduct caused the loss, or if the loss was too remote or the claim was made after the time allowed by law.

Worked examples

1. The firm lacks the skill: a breach of professional competence and due care.
2. It should have declined, or hired a specialist.

1. Evidence is contaminated.
2. The court may reject the evidence and the client's case may fail.

1. Reporting-related negligence: not timely.
2. The client may claim for the loss that followed.

1. A breach occurred, but there is no damage.
2. There may be no negligence claim, but the firm's quality system should deal with the lapse.

How to score full marks

• Define negligence and list the four elements.
• Group the ways it occurs into investigation, evidence, reporting and other.
• Give consequences and ways to reduce the risk.
• Apply the elements to the facts of the question.

Common mistakes in the exam

• Forgetting causation and damages.
• Listing negligence types without examples.
• Leaving out conflicts of interest and objectivity.
• Giving remedies but no consequences.

Quick revision

• Duty, breach, causation, damages.
• Investigation, evidence, reporting and other negligence.
• Credibility, money, sanction, justice, stress.
• Training, risk, peer review, procedures, quality, monitoring.

Practice questions

Questions 1 to 10 are multiple choice. Questions 11 to 13 are written. Try each before opening the answer.

Model answers

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