Marion Wickersham, MS, CICA, Forensic Accounting and Fraud Examination Consultant ::::
Case Synopsis: The self-employed owner of a pizzeria restaurant was allegedly injured in a trip and fall incident in 2014. Plaintiff’s expert argued that as a result of the injury, the plaintiff would have to close the pizzeria, but could obtain alternative employment elsewhere, claiming a loss of almost $1 million dollars.
Expert Analysis: Based upon an analysis of the documents provided in this case, specifically the plaintiff’s tax returns, it was determined that the plaintiff did not incur a loss directly and solely as a result of the subject incident. According to the tax records provided, the pizzeria’s net profits averaged around $30,000 for the five years preceding the subject incident, which were comparable to the net profits earned the year after the subject incident in 2015, also totaling around $30,000. Net profits of a business are subject to fluctuation based on many factors or variables including the economy and competition, among others. This is highlighted by the pizzeria’s gross sales, which fluctuated as high as around $250,000 in 2014 and as low as around $189,000 in 2013. Following the subject incident, the pizzeria’s gross sales remained in that same range; around $203,000 in 2015 and around $184,000 in 2016.
Jeffrey T. Willoughby, CPA, CFF, CFE, Forensic Accounting Consultant ::::
Description: A physician operating a specialty medical practice was allegedly forced to reduce the number of hours he spent working in his practice as a result of injuring himself at a local health club. The plaintiff argued a fall at a health club caused injuries which resulted in physical limitations requiring him to scale back his medical practice. Plaintiff claimed lost profits for a period of up to 20 years with calculated loss amounts ranging from $4,000,000 to $25,000,000.
Expert Analysis: An analysis of the Plaintiff’s calculation of lost earnings was presented in 30 different scenarios indicating lower gross sales and, by default, lower salary and business income. Calculations also included provisions for full and part-time losses as the doctor was currently working but was expected to be required to cut back hours and eventually close the practice.
Tax returns for the practice indicated a decrease in gross revenue in the year in which the accident occurred and subsequent decreases in the months following. Comparing the revenues pre- and post-injury, there was a definite decrease in gross revenue and the resulting net profit available to pay to the owner. It appears to be clear cut; injury occurs, revenues drop, lower profits result, one causes the other. The loss of net income or earnings is the difference between pre- and post-injury net income calculated out to a worklife expectancy.