Forensic Economics Research Articles

Cryptocurrency as a New Object of Forensic Economic

Cryptocurrency as a New Object of Forensic Economic

Assessing Economic Damages in Personal Injury and Wrongful Death Litigation: The State of Montana

Abstract This article presents a guide for assessing economic damages in personal injury and wrongful death litigation in the state of Montana and is part of the Journal of Forensic Economics series of papers on this topic. The analysis provides experts with the information needed to produce opinions and give testimony on these subjects that is consistent common practice and Montana law.

Annuities for Lost Household Services Using Healthy Life Tables

Abstract Forensic economists have used Healthy Life Expectancy: 2018 Tables (Kurt V. Krueger, 2020) in valuing the loss of household or personal care services due to injury or death of their supplier. The tables are used to decide how far into the future to project the loss. We focus on two easily avoided errors that may arise in that decision. First, the present value (PV) of a healthy life annuity (HLA ending when death occurs) falls short of the PV of an annuity certain for the healthy life expectancy (HLE), at any positive interest rate. Second, services are lost only during the combined healthy life of the supplier and life of the recipient. The expected PV of the supplier’s healthy life and the recipient’s whole life falls short of either. The paper illustrates the size of these potential errors for various ages of the two people and net interest rates of 0-3%; the errors can be significant. We provide an Excel workbook at the Journal of Forensic Economics website that allows the user to avoid both errors for calculating the PV of relevant (healthy) life annuities, for any of the demographic groups covered in the HLE tables. The paper gives formulas used for the present values of the life tables.

PECULIARITIES OF CONDUCTING FORENSIC ECONOMIC STUDIES ON CONFIRMING THE AMOUNT OF MATERIAL DAMAGE (LOSSES) OF BANKS

The article is devoted to the generalization of methodical approaches and the competence of forensic economists when conducting research on confirming the amount of material damage (losses) of banks. The subject and objects of expert research on confirming the amount of material damage (losses) of banks have been determined. The subject of the study is a system of theoretical, methodical and practical aspects related to the expert study of issues of confirmation of the amount of material damage (losses) caused to banks from non-repayment of loans, determined by the controlling bodies within their competence. The algorithm for determining with the help of economic expertise issues related to causing material losses, as well as issues related to determining the presence and amount of losses in financial and credit relations, based on the generalization of the practice of appointing and conducting economic expertise, which can be applied in modern realities in Ukraine, is substantiated. The proposed main approaches to solving issues related to the assignment of material damage (losses) to banks from non-repayment of loans due to the debtor’s loss of obligation and/or loss of the ability to collect debts and the assignment of material damage (losses) to banks from non-repayment of loans due to the bank’s withdrawal claim rights with a discount.

Forensic Economics Regarding Fuel Accounting in Armed Forces of Ukraine

Theoretical best practices of forensic experts on peculiarities of fuel accounting in transport and defense fields has been studied and a list of legislative and regulatory acts regulating the procedure for accounting, movement and write-off of fuel and lubricants in military units is given. The authors aimed to highlight the issue of fuel accounting in conditions of martial law and Russian military aggression, document effective use of fuel by military units of the Armed Forces of Ukraine and territorial defense while carrying out combat missions. Research objects of forensic economic examinations are summarized, range of powers granted to experts while conducting such examinations is outlined. Peculiarities of the accounting and movement of military property that are characteristic of the rules for receiving, accounting, issuing and writing off material assets in Armed Forces of Ukraine are indicated. The issues and tasks solved by forensic experts while forensic economic examinations related to accounting and use of fuel by military units of Armed Forces of Ukraine are defined. The list of legislative and normative legal acts that should be guided by forensic economists in their professional activities while accounting for military property, is presented. Attention has been drawn to the unsettledness of some issues of such accounting (for example when some legislative acts have lost their validity, and new ones have not been adopted instead) causing certain difficulties. The main types of accounting of military property (quantitative and qualitative accounting; accounting of military property in numerical and value indicators) are highlighted and disclosed.

Editors' Note

Jim Rodgers was a founding member, a former Vice President, President, and Executive Director of the National Association of Forensic Economics. Jim was also a recipient of the NAFE Past Presidents Award.Jim was a friend and supporter of the Journal of Forensic Economics. He was a member of the JFE Board of Editors and, along with Bob Male, was one of the original editors of papers that make up the JFE state paper series.In this issue, to honor Jim's memory, we are reprinting his 2002 paper on “Valuing Losses of Pension Benefits” In our opinion, this paper, along with his 2000 paper on “Estimating the Loss of Social Security Benefits,” is among the most important contributions that Jim made to forensic economic practice. In the paper reprinted here, Jim provides a typology of different types of retirement plans. He explains when it is appropriate and when it is not appropriate to use a simple percentage-of-earnings approach to estimate the value of lost pensions in personal injury, wrongful death, and employment termination litigation.Jim's paper on estimating the loss of Social Security benefits argues that the employer contribution to Social Security valued at either 6.2% or 7.65% of earnings is just plain wrong. Jim maintains that there is a weak connection between the percent of earnings contributed by employers and the actual value of the Social Security benefits received by workers. Because of this weak connection, Jim argues that damages experts should either ignore Social Security benefits or compute the present value of reduced Social Security benefits directly. On a more personal note, Steve Shapiro recalls one of his last telephone conversations with Jim. He complained about a damages report, which valued lost Social Security benefits at a fixed 6.2% of wages. Jim expressed frustration at forensic economists who did not want to read the body of relevant literature and instead took unwarranted shortcuts when preparing reports.In our next issue of the JFE, we anticipate including papers by Jack Ward and Steve Shapiro that they will be presenting at a special NAFE Session to honor Jim at the January 2023 Allied Social Sciences Associations Meeting in New Orleans.We remember Jim for his keen intellect, his ability to identify core issues in forensic economics problems, his affable sense of humor, his engaging Texas drawl, and his knack for making people feel welcome and at ease. He is missed.

Methods of forensic and economic examination of reliability of financial statements of the enterprise

Introduction. The current state of Ukraine's economy is characterized by an increase in offenses and crimes of an economic nature, most of which are committed by distorting the financial statements of the enterprise. In this situation, to fully meet the needs of forensic practice, there is a need to appoint and conduct forensic economic examination of the reliability of financial statements of the enterprise. The purpose of the paper is to study the content of forensic economic examination of the reliability of financial statements of the enterprise, the causes of distortions of financial statements of the enterprise and methods of their detection, as well as improving the methods of forensic economic examination of the reliability of financial statements. Results. The financial statements contain information about the financial condition and results of the enterprise. The reliability of the financial statements of the enterprise can be established when it is: formed in strict accordance with the requirements of laws, regulations governing accounting and financial reporting; reflects the real financial condition and results of the enterprise; does not contain distortions (intentional) (errors) or unintentional (fraud) in the reporting indicators, which can affect the decisions of users of reporting. Distortions in the financial statements may be the result of both errors and bad faith, as the error differs from the latter by the lack of intent underlying the action that led to the distortion of the financial statements. Forensic economic examination of the reliability of the company's financial statements is considered by the authors as a procedural action aimed at establishing the circumstances and facts of distortion of financial statements, conducted by a forensic economist on behalf of the investigating authority or court, which in the form of a forensic economist evidence to establish the truth in a criminal, civil, administrative or commercial case. The stages of forensic economic examination of the reliability of financial statements of the enterprise are presented, within which an indicative list of questions to which the forensic economist must provide answers in the conclusion and sequence of actions of forensic economist to establish the circumstances and facts of distortion in financial reporting forms. Conclusions. The proposed algorithms of actions of forensic economists, depending on the tasks and facilities provided for the expert study of the reliability of financial statements of the enterprise, should contribute to a better understanding of the nature of distortion (intentional and unintentional) reporting indicators, ways to identify them and increase the efficiency of forensic reliability financial statements of the enterprise.

Evaluation and Use the Forensic Financial and Economic Expertise’s Results of Operations with Digital Assets

The article considers the problem of assessment and use of the results of forensic financial and economic examination of transactions with digital assets, including those created using blockchain technology. The problems of assessing the competence of the forensic expert, as well as the peculiarities of assessing the expert opinion of the forensic financial and economic examination of transactions with digital assets created using blockchain technology were determined. The issue of suitability of objects used by the forensic expert in the course of these examinations is considered.

Expert Study of Issues Related to the Calculation and Payment of Wages and Other Payments Established by Law: Guidelines

The right to receive fair wages is guaranteed by the state. The protection and restoration of violated rights are entrusted to various state structures, including investigative and judicial authorities. To establish an objective picture of the event in question and the fact of non-payment of wages to employees, a forensic economic examination is assigned. The following methodological guidelines consider the main approaches to conducting forensic examinations concerning getting the salary and other payments by an employee. These include the tasks of establishing the correctness of the amounts of wages paid, compliance with the due date for the payments, determining whether the employer has the financial capacity to pay the employees on time and in full. The author gives a list of the objects of expert research and provides their brief description. The article also addresses the content of questions that fall within the competence of a forensic economist and of those that do not. Based on the examples from expert practice, the author gives algorithms for solving the tasks on the calculation and payment of wages. The final part of the guidelines presents a brief analysis of the legal regulation of liability for non-payment of wages abroad.

Corrigendum to “Use of Healthy Life Expectancy to Estimate Future Provision of Household and Personal Services” [Journal of Forensic Economics 29(1), 2020, 101-112

Corrigendum to “Use of Healthy Life Expectancy to Estimate Future Provision of Household and Personal Services” [<i>Journal of Forensic Economics</i> 29(1), 2020, 101-112

Book Review

Book Review

Personal Consumption of Household Services

Abstract Unlike for personal consumption of income, there is no literature for personal consumption of household services. Absent such a literature, some forensic economists use a variety of methods to estimate personal consumption of household services while others make no estimate. Using the American Time Use Survey (ATUS) data from 2003-2019, this study estimated the percentage of household services that are self-consumed based on the characteristics of the decedent and the decedent's household. The results show that the personal consumption percentage varies with the household size; number of household adults; age of the youngest child; and the decedent's sex, age, employment status, and (when applicable) the employment status of the decedent's spouse/partner. Generally, the personal consumption percentage is higher for men than women, decreases with the number of household children, increases with the age of the youngest child, is higher for respondents employed full-time compared to other employment statuses, and lower when the respondent's spouse/partner is employed full-time compared to other employment statuses. Note that in making these estimates, fungibility of time presents challenges when accounting for the contributions of various household members in the production of household services. These challenges are likely substantial between adults and minors in a household. To ignore the contribution of household members other than the decedent will underestimate the personal consumption of household services, just as ignoring fungibility issues by including the contributions of all household members will overestimate the personal consumption of household services. Accordingly, this study developed a model for the personal consumption of household services that considers only the contributions of household adults.

On forensic economist specific expertise

Effectiveness level of the practical activities of forensic economists to some extent depends on theoretical validity of specific expertise and their clear regulation by law.&#x0D; This article purpose is to investigate the essence of special economic knowledge, to determine the boundaries of competence of forensic economists. While generalizing scientific content, the main systemic elements that reflect essence of special economic knowledge their forms, structure, characteristic features are considered.&#x0D; With the help of methods of analysis and synthesis, generalization, effectiveness dependence of the use of special economic knowledge and their relevance on the conditions of economic environment has been established. It was found that economic knowledge based on theoretical principles of economic sciences should be of a practical, applied nature, which makes appropriate requirements for organization of the educational procedure while professional training of persons entitled to conduct forensic economic examinations. In turn, the level of personal competence of a forensic economist depends on his practical skills and abilities and improves as more complex expert researches is carried out.&#x0D; It has been established that it is impossible for forensic economists to study issues that go beyond specific expertise scope and have a legal nature (establishing the circle of culpability of persons, interpreting norms of law, legal assessment of the actions of persons, including the establishment of cause-and-effect relationships between targeted actions and the resulting negative consequences) which deprives the forensic examination of the status of objective economic research.

Editors' Note

This issue's symposium on future research directions in forensic economics originated with papers that were presented at the January 4, 2020, National Association of Forensic Economics (NAFE) session “NAFE: An Agenda for Future Research” at the Allied Social Science Associations annual meeting in San Diego, California. The impetus for the session was to honor Jack Ward, the first editor of the Journal of Forensic Economics (JFE) by having him provide insights on what research in forensic economics has contributed to the current knowledge of practitioners, as well as his thoughts on the future directions of forensic economics research. This symposium contains papers on the topic of future research directions in forensic economics that were prepared by the presenters at the San Diego meeting.Jack Ward's paper suggests that there have been advances over the last three decades in forensic economics that include the Markov analyses of worklife expectancy; Expectancy Data's Dollar Value of a Day and Full-time Earnings in the United States that have advanced the projection of replacement household services and lost earnings; research based on Bureau of Labor Statistics Family Expenditure Survey data that has added greater precision to measures of self-consumption of earnings; and papers that have helped clarify differences between measuring probable earnings and earning capacity. Ward's paper concludes with a list of topics for further research in the forensic economics literature that includes more work on the role of race and gender in determining earnings; modeling dynamic changes in industry specific employment and wage growth; and the incorporation of Bayesian methodologies in lost wage projections, including the assignment of meaningful probabilities to outcomes.The paper by Michael Brookshire and Frank Slesnick discusses what their 10 surveys of NAFE members have revealed about important research topics. They argue that their surveys suggest that NAFE members place high importance on research on worklife of the disabled, worklife of the self-employed, personal consumption, and household services. Brookshire and Slesnick also offer, based on their experience as practitioners and researchers, the following agenda: whole-time approach to damages estimation; forensic economics in the classroom; a paper summarizing what is known as a result of the papers published in the JFE state paper series; tailoring, i.e., accounting for qualitative factors and variables omitted from standard economic models; the market for forensic economists; the definition of earning capacity; and what is meant by reasonable economic probability.The paper by Steven Shapiro suggests that despite the large body of published research in forensic economics, there are still controversial topics that are lacking consensus. Shapiro suggests that the controversial areas that should be the focus of research include the choice of interest rates for discounting; interest rates, earnings growth and inflation; interest rates, growth in medical costs and inflation; how many years of earnings history is necessary to project base earnings and earnings history; alternative approaches to hedonic damages; and punitive damages. Shapiro expresses the hope that research on these topics will improve the reliability and validity of the work of forensic economists.

An Agenda for Future Research in Forensic Economics: Topics from NAFE Surveys and Additional Proposals

Abstract This paper provides suggestions for future research by forensic economists, focused upon personal injury and wrongful death cases. The paper is particially based on questions from our 10 surveys of NAFE members over 25 years, in which members were directly asked to rank future areas of forensic economic research in importance. We discuss answers to important questions where there is little or no consensus among respondents, and where consensus is reasonably clear, as this may influence topics chosen for future research. We also discuss research topics by drawing on our own experience as forensic economists.

An Agenda for Future Research in Forensic Economics: New Approaches to Viewing Controversial Topics

AbstractDespite a large body of published research in forensic economics, there are still controversial topics that are lacking consensus. This paper presents an agenda for research on controversial topics in the hope that the results of such research will improve the reliability and validity of the work of forensic economists. Specifically, the paper presents suggestions for research on the choice of interest rates for discounting; interest rates, earnings growth and inflation; interest rates, growth in medical costs and inflation; how many years of earnings history is necessary to project base earnings and earnings history; alternative approaches to hedonic damages; and punitive damages.

An Agenda for Future Research in Forensic Economics: Setting Standards of Validity and Reliability in Measuring Progress

Abstract While considerable progress in research in the field of Forensic Economics has been achieved over the past 35 years, a number of areas of need for further research persist. This paper provides an overview of the scope of research in the field and the critiques of that research gathered through member surveys, submissions by journal editors, and publications of Richard Posner and the author.

Theoretical and methodological foundations of forensic economics

In modern conditions, the need to increase efficiency of forensic expert activity in economic field depends on development of theoretical and methodological base of forensic economics, interpretation of this economic and legal category in legislative field and determination of the system-forming factor of totality of forensic examinations.&#x0D; While systematizing scientific content, the main key issues related to theoretical development foundations of this type of forensic science are considered. The key informative informational blocks of forensic economics are highlighted: the first block is procedural nature of forensic examination assignment and conducting; second block is the use of specific expertise in the field of economics; third block is the topic of forensic economic examination; fourth block is the purpose of the results of economic research. An attempt has been made to improve interpretation of forensic economics as an economic andlegal category, as well as to substantiate its classification on the basis of dividing social production into material and non-material fields that are studied by the corresponding economic sciences.&#x0D; Thanks to the use of dialectical method, it is substantiated that solution to this methodological issue lies in the field of material production. Consideration of the relations between the economy and other fields of social activity demonstrated that economy is primary that allowed, as a result of the division of social production into the field of material production (material goods and material services; object of economic relations has a materialized form) and intangible production (intangible goods and intangible services; object economic relations has a non-material form) to determine the system-forming factor of various types of forensic economic examinations.

Detecting Financial Misreporting with Real Production Activity: Evidence from an Electricity Consumption Analysis*

ABSTRACTThis study examines whether a real production activity measure, firm‐level electricity consumption growth, is useful in detecting firm financial misreporting. Identifying proxies for a firm's underlying financial performance that are not a function of the firm's accounting system is essential for detection of misreporting. We propose that the difference between revenue growth and electricity consumption growth (i.e., growth wedge (GW)) is a useful signal of financial misreporting. Using electricity consumption data for Korean firms from 2006 to 2014, we find that the GW is positively associated with discretionary revenues and accruals and the likelihood of financial misreporting as proxied by accounting restatements, qualified audit opinions, and regulatory enforcement actions. The GW provides incremental information over firm characteristics and earnings management signals examined by prior research. Our findings are robust to a battery of additional tests, including within‐firm and industry comparisons that do not require access to cross‐sectional firm‐level electricity data. Overall, our study documents new evidence on the role of a real production activity measure from an independent reporting entity in detecting financial misreporting. Our evidence speaks to the potential usefulness of real activity metrics in forensic economics.

Assessing Economic Damages in Personal Injury and Wrongful Death Litigation: The State of Maryland

Abstract This article is one in the Journal of Forensic Economics series providing experts with information about how to prepare and testify about economic damages in personal injury and wrongful death cases in the state of Maryland.1 Topics covered include a review of the Maryland state court system, rules regarding expert testimony, and wrongful death and personal injury economic damages calculations. An Appendix contains the relevant statutes.