Services: Investigations, Forensics, & Risks
A cross-border civil dispute arose in a purchase and sale transaction between a local US manufacturer of neoprene kitchen products operating primarily out of California (the “Seller”) and a larger Canadian food services business that served the global food industry, operating out of Toronto, Canada (the “Buyer”). The share purchase agreement between the Buyer and the Seller specified annual royalties (earn-out payments) payable to the Seller based on the Buyer’s reported annual net sales of the Seller’s acquired products. The Seller alleged that the Buyer underreported substantial sales of the Seller’s products over a ten-year period and was thus owed substantial sums of unpaid royalties from the Buyer. Counsel for the Seller and the Buyer sought to retain forensic accountants with cross-border expertise to perform a forensic audit of the Buyer’s reported net revenue and to verify the completeness and accuracy of the annual royalty payments to the Seller.
With its cross-border presence and experienced US and Canadian forensic accounting expertise, Delta Consulting Group Canada was appointed as the independent Court-Ordered accounting expert with a court-ordered mandate to determine whether the Buyer had appropriately accounted for and paid the Seller all monies due pursuant to the Share Purchase Agreement, and if not, to identify the amount due to the Seller. Delta mobilized a team of forensic accountants to conduct a detailed forensic audit and designed and executed over 30 individual forensic auditing procedures tailored specifically to verify the completeness and accuracy of the Buyer’s reported revenue. The forensic audit involved a detailed examination of supporting source documents (such as sales invoices, transfer pricing records, bank statements, and similar), conducting interviews of both the Buyer and Seller’s representatives and the inspection of inventory and manufacturing facilities.
The findings of Delta’s forensic audit were detailed in a 130+ page expert report, which was presented at trial before the Honorable Judge James Crandall of the Superior Court of California, County of Orange, Central Justice Center. In his Statement of Decisions, Judge Crandall described Delta, in its role as the independent court-appointed forensic auditor, as “a highly qualified expert witness”, and further stated that “the court found [Delta’s] testimony completely credible. [Delta] appeared to have no bias toward either side”. Judge Crandall incorporated the findings of Delta’s forensic audit in his decision of additional royalties owing from the Buyer to the Seller.