Adventures in Research and Investigations

If someone had asked me what I wanted to do in life when I was growing up, the research and investigation fields would not even have been a blip on my radar. Back in 2006, I answered a job posting in the local newspaper for a research position at a forensic accounting firm. Actually, my mother stumbled across the posting, thought it sounded interesting, and suggested I apply, because “you like to learn new things.” Little did I know the path my life would take, leading me to become licensed as a private detective in my home state of New Jersey and overseeing my own team dedicated solely to research and investigations.

My career began in a supporting role for Morrison & Company, a 16-person forensics and valuation firm in northern New Jersey. We merged into Withum in December 2010, bringing its total number of employees at the time to 400. As the firm grew, the forensics team noticed that questions were trickling in from people outside our department: “My client is looking to replace its retiring CFO and is asking for compensation data to determine what the going rate is” or “my client is looking to expand its business and seeks intelligence on a potential community and location, as well as market data on what its company is worth compared to its competitors.” We started seeing higher demand for research, which continues to grow, especially as the accounting world expands. Traditional accountants are no longer just the “numbers” guys, but trusted advisors who need accurate and reliable data across a wide array of industries. As a result, my position has evolved into providing research and investigative support for the entire firm and its clients.

My team provides corporate intelligence for valuation experts and due diligence for business decision makers, including both industry research and investigations. The information is out there; our job is to know how and where to find it.

Our economic and industry research is used in business valuations, damage calculations, and important business decisions. The performance of a company and an industry depends on the performance of national and local economies. Thus, business valuation reports typically include a detailed review of the relevant national and local economies as well as their impact on a company’s industry. This information is also important for executives to consider before making business decisions, such as whether to build a new factory or expand a restaurant chain into a new location.

We use several well-known resources to analyze the economy, including Business Valuation Resources’ Economic Update and the National Economic Review, subscription-based services that provide annual, quarterly, and monthly analyses of the economy’s historical performance and future outlook. When it comes to COVID-19 data, a useful economic resource is Tagnifi. Virtually every business was affected by COVID-19 in some way, so for valuation dates after the pandemic started, we include in our industry and economic analyses a brief overview of how the pandemic began and rapidly spread, and incorporate the appropriate quarterly Tagnifi data to show the pandemic’s impact on the industry as of the valuation date.

There are several sources for local data, including DataUSA and the Bureau of Labor Statistics, but I have found that libraries and websites are often excellent places to find local information, especially for unusual requests. Years ago, we were retained to value interests in citrus groves for estate tax purposes. The groves were located in Florida, which suffers from Huanglongbing, more commonly known as citrus greening, a debilitating disease that destroys citrus trees. I was tasked with researching the effects of citrus greening overall, but also more specifically in Indian River, where the trees were located. Not only did I find local community websites and news articles on the topic, but I was able to speak to the local librarian, who directed me to the Indian River Citrus League. The league provided a large amount of information about Indian River’s fight against citrus greening and how it has impacted the local area. While Florida overall had lost almost 100,000 citrus acres, the Indian River area was hit extremely hard by citrus greening, to the point where eight out of 16 packinghouses were forced to close, and hundreds of jobs were lost. Just by reaching out to the local librarian, I was able to make many other connections and obtain useful information about the citrus industry and how its performance affected the region.

The citrus grove example was a specialized request. In these situations, knowing where to obtain information and how to compile it in a way that provides an overall picture of the industry’s performance and outlook is a valuable skillset. Most industries are classified according to Standard Industrial Classification (SIC), North American Industry Classification System (NAICS), and Global Industry Classification Standard (GICS) codes. The government uses these codes to identify and classify categories of activity that represent a company’s primary line of business and the industry in which it operates. These codes allow us to review and analyze the industry using more comprehensive industry resources—such as IBISWorld, First Research, and trade organizations—to obtain an overview of an industry’s historical and current trends and expected future performance. These insights help the expert understand trends that may explain the client’s performance. For example, a landscaping company may thrive if it offers lawn care in the summer and snow removal in the winter. However, when the economy is performing poorly, homeowners may choose to mow their lawns and shovel their paths to save money, causing the company to lose clients and income.

Not all industry requests involve an analysis for a valuation report. Often, clients just want to understand how their businesses are performing relative to their industry peers. In these instances, I look to benchmarking resources, such as the Risk Management Association, to research industry metrics. A side-by-side review of industry metrics with a client company’s metrics can help identify key areas where there is room for improvement or where the company is outperforming its peers.

I am frequently contacted on behalf of family-owned businesses that are considering selling their companies or doing estate or gift planning. Market data resources— including Business Valuation Resources, CapitalIQ, and Pitchbook—provide a range of values for a company. While these databases serve a broad range of industries, there are more targeted resources, such as the Goodwill Registry for medical specialties and Altman Weil for legal practices.

When performing business valuations, experts often need to determine reasonable compensation for a company’s owners. Factors used to determine appropriate compensation include, but are not limited to, the individual’s age, hours worked, years of experience, and duties performed, as well as the nature of the business, its location, and its revenues. These details help determine whether a person falls under multiple job titles. For example, does the person oversee day-to-day operations and do the bookkeeping? Does the person also handle human resource issues? If so, we gather compensation data for several job titles that can be factored into the final calculation. Go-to resources for compensation data include Salary.com, ZipRecruiter, and Economic Research Institute (ERI). We perform searches using a job title similar to a subject’s position and narrow down our search regionally by zip code and town or city. My team relies heavily on ERI, which allows for the use of company revenue, along with location and job titles, to narrow down executive compensation ranges, including stock options, non-equity compensation, and pensions. ERI also provides a peer study that allows us to compare a subject’s compensation with that of similar employees of public companies.

In addition to the research described above, we also perform investigations into both individuals and entities.

Sources for background investigations of companies and individuals include public records and “open-source intelligence.” This information is especially pertinent when conducting due diligence on a prospective client, performing asset searches in determining the worth of an individual or company, pre-screening individuals for potential employment, and assessing an individual’s credibility. Investigations of individuals can lead to the discovery of a wide range of information, including:

Several years ago, we were retained in a matter involving an individual brought to trial by the federal government for tax evasion. Our client’s accountant had created shell companies for monies to pass through, and the government planned to call the accountant as its star witness. Our own investigation into the accountant revealed that criminal charges had been filed against her. We also discovered that while she had taken some bookkeeping classes, she was not a certified public accountant. By calling the court clerk in the relevant jurisdiction, we were able to obtain official court records, notes from court appearances, and details of prior charges against her. These charges involved theft over $1,000, forgery over $10,000, fraud involving insufficient funds, two counts of passing forged information, 12 counts of passing worthless checks, and larceny. We had the records in hand within two days to support our cross-examination and, in the end, the government never called the accountant to the witness stand. The moral of this story is that you should conduct due diligence not only on potential witnesses, but on anyone you intend to do business with. If our client had done so, he never would have retained the accountant and fallen victim to her schemes.

Another great resource for investigating a person’s background is Ancestry. For example, we are often contacted by attorneys involved in damage claims against pharmaceutical companies related to cancer or mesothelioma diagnoses. We conduct background investigations into the plaintiffs to determine whether they were previously exposed to asbestos, whether they have several lawsuits or bankruptcies in their past, or whether any other facts make them less credible as witnesses. Ancestry may reveal whether a plaintiff could have been exposed in other ways. Perhaps the plaintiff worked in a factory setting or had a parent who worked in the coal mines and brought dust into the house on their clothing, causing other family members to become ill. Ancestry provides a lot of useful information and historical documents that help us piece together the plaintiff’s family and employment history. It also provides the sources of its information. For example, a notice of death can lead you directly to the obituary. In a recent case, we were asked to locate a person’s military history. Through Ancestry’s sources, we were able to locate and directly search the National Archives Database. This led us to the person’s entire military history, including enlistment and discharge dates, commendations, reprimands, and even the locations where the person served.

Entity background checks are essential for locating assets, investors, or related parties; identifying past ownership; and conducting due diligence before a potential investment. Relevant information includes:

I find Dun & Bradstreet’s Credit Reporter (D&B) to be a helpful resource in obtaining a complete picture of a company. One benefit of D&B is that, in addition to reporting liens or financial issues found in public records, the company also allows self-reporting. Information provided by company owners, employees, and outside accountants can be quite revealing. For example, owners may tell us that their company is doing poorly but advise D&B that they are growing and have expanded to several other locations. In one case, an owner provided financial statements showing that the company had no cash, but his accountant told D&B that it had $1 million in the bank.

Much of the information described above, for both individuals and entities, is publicly available. However, several databases—such as LexisNexis, Westlaw, and TLO—compile everything into a neatly packaged report that avoids the time and expense of manually searching separate federal, state, and local resources. Of course, anything questionable, such as criminal filings or court records, should always be verified with original government sources, such as Pacer. But these databases provide a great starting point to capture an individual or entity’s overall profile. Another great source, which offers a directory to assist in verifying data collected, is BRB Publications. I find it most useful for its listing of state records broken out by county, which helps identify the right court site to visit for further details on any litigation filings.

As soon as we are engaged in a new matter, our supporting role begins. When working on valuation matters, my team reviews all of the market data, benchmarking, and compensation databases mentioned above and gathers the applicable data into a “one-stop shopping” file. We spend time reviewing and preparing thorough economic and industry analyses in a format ready to be reviewed and analyzed by the valuation expert. We conduct investigative matters in the same way. We gather and review all accessible public record data needed to prepare a thorough report detailing a person’s life or a company’s operations, reputation, and financial status.

Typically, we conduct our research after holding initial introductory meetings and receiving and processing documents. With this information, the partner overseeing the matter has a complete research package. Having a research team dedicated solely to this role helps ensure the thoroughness of the data used and allows the experts to devote their time to the final work product.

Since starting this role in 2006, I have also maintained a constantly expanding internal digital library database with relevant publications, articles, and court cases relating to anything involving industry and public record research. As our firm and team members have grown throughout various locations, this centralized library has become even more vital for sharing our resources throughout the firm, especially when we need to reference similar past cases.

Author: Christina Giorgio | [email protected]

This article was first published in The National Association of Certified Valuators and Analysts (NACVA)’s journal, The Value Examiner.