Business Income & Extra Expense Calculations

One of the primary business lines for Pario’s Forensic Accounting Services is the analysis and calculation of Loss of Business Income and Extra Expense, when an insured’s operations are suspended as a result of physical damage caused by covered peril.

The typical commercial insurance policy defines Business Income as the net income (profit or loss) before taxes that would have been earned or incurred, plus continuing normal operating expenses incurred (including payroll). Pario’s Forensic Accountants have extensive experience in the projection of sales or revenue, and employ a variety of projection methodologies, giving them the skills necessary for calculating lost Business Income.

Extra Expense is often included in Business Interruption coverage. Pario’s accountants have a comprehensive knowledge in loss measurement associated this category of insurance coverage. Our accountants achieve this task by calculating the extent to which an operating expense is incurred in excess of “normal levels” and estimating the loss of Business Income otherwise payable, associated with the insured’s expeditious repair or replacement of its assets damaged in the loss incident. The latter involves projecting the loss averted through the reduction in the period of restoration resulting from the expedited repair.

Loss of Profits and Mitigation Cost in Liability Matters

In Liability claims, the losses transition to a Loss of Profits and/or Mitigation Cost model. These calculations are similar to the Loss of Business Income & Extra Expense analysis that Pario’s Forensic Accountants conduct. The difference, of course, is that there is no applicable policy language. Therefore, for these matters, it is important to consider that while there are no contractual requirements to the measurement of the loss, the claimant and its representatives will often cooperate in the analysis and calculation of the Loss of Profits and Mitigation costs.

Pario’s Forensic Accountants work with the claimant to document and verify its Loss of Profits. As with the Loss of Business Income methodology, the key to this is an accurate and supported projection in revenue. Our accountants use records and documentation to facilitate their calculations and analysis.

Mitigation costs are similar to that of Extra Expense in that these are expenses incurred to avoid or minimize the Loss of Profits. While there are no policy language restrictions to the measurement of these costs, we report on the extent to which these costs relate to mitigation, and confirm that the costs are incurred.

Misappropriation of Assets, Employee Dishonesty & Fidelity Investigations

Pario’s Forensic Accountants provide investigations of Employee Dishonesty or Fidelity losses, a common area of property insurance coverage. These investigations look into the transactional detail associated with the claimed misappropriation, analyzing circumstances surrounding the discovery of the loss; analysis and review of the internal control structure and control environment; investigation into the method of concealment of the misappropriation loss from the insured; tracing the cash misappropriated and reporting on potential availability of funds for restitution from the subject employee; and tracing the claimed misappropriation to supporting documentation and ledger transactions, providing a detailed conclusion regarding the loss sustained.

Pario’s Forensic Accountants have experience in corollary causes of loss related to Commercial Crime Coverage and Financial Institution Bond policies. In addition to Employee Dishonesty, these include burglary, theft, disappearance, fraud, and forgery related to the coverage forms attached to Commercial Crime Coverage. With respect to Financial Institution Bond losses, this relates to on-premises, in-transit, forgery, or alteration and loan loss in addition to the Fidelity or Employee Dishonesty insuring agreement.

Builder's Risk, Surety & Construction

Pario’s Forensic Accountants have extensive experience in the analysis of Lost Business Income associated with delay in opening, resulting from Builder’s Risk loss. Insurance policies vary, often providing cover for Business Interruption or Loss of Rent, and while there are similarities in the measurement of these losses to that of calculating a Loss of Business Income and Extra Expense loss, there are also important differences.

Builder’s Risk involves soft costs. This concept, as well as specific definitions and limitations, are typically delineated in the insurance policy. Pario is skilled at analyzing these costs, assuring that they comport to our client’s instructions and confirming that these costs are incurred and recognized in the appropriate period.

With regards to Surety, Pario’s experience lies primarily in the analysis of the financial condition of the Principal (typically the general contractor on the project). We use a detailed analysis of cash flow and projected cash flow, as well as standard and specialized investigative tools to evaluate the financial health of the Principal.

Our accountants are familiar with the documentation and accounting processes associated with the construction industry. This experience and knowledge involves Builder’s Risk and Surety, as well as many other types of losses in which construction cost is involved.

Fraud (Financial Condition) Analyses

Our skilled Forensic Accountants are often called upon when a client has determined that a claim is suspicious (typically involving a fire loss), and the client would like to understand the financial condition of the insured, during the period leading up to the loss.

We analyze the profitability, financing, and cash flow of the insured, as well as financial circumstances, agreements, expectations, and plans, in order to provide a detailed report on the financial condition of the insured. Often, these types of analyses involve a detailed review of banking and general ledger detail to ensure that the financial records have not been manipulated to artificially inflate the financial position of the insured.

Where there is a determination of an eroding financial condition that is considered to be pointing toward insolvency, the information may be utilized to formulate financial motive for insurance fraud. In conjunction with these types of engagements, we are also frequently asked to analyze the veracity of the underlying insurance claims. This often provides valuable information that correlates to the conclusions drawn, regarding financial condition.

Inventory/Contents Valuations

The typical engagement in this category involves what we term as “inventory rollforward” or “inventory transition” analysis. This involves reconstructing the inventory balance when there has been an out-of-sight inventory loss—occurring when the inventory is damaged beyond recognition and, as such, cannot be physically inventoried. Therefore, to determine the loss of inventory, a transactional rollforward must be completed to approximate the loss of inventory. The basic form of an inventory rollforward begins with a pre-loss physical inventory, then adds the purchases and subtracts sales (at cost) from the date of that inventory through the date of the loss.

The more traditional inventory loss involves the taking of a physical count of the damaged inventory and then extending it at its replacement cost. Pario’s Forensic Accountants may also be retained to assist with the valuation of contents other than inventory. This usually involves an analysis of historical and replacement costs for equipment and other materials. Together with the inventory loss, the total contents provide important information for the determination of the values at risk and compliance with the coinsurance requirement in the insurance policy.

Financial Damages Calculation – Lost Profits & Incremental Expense (Cost to Mitigate)

One of the primary business lines for Pario’s Forensic Accounting Services is the analysis and calculation of Lost Profits and Incremental Expense when an entity’s operations are suspended because of negligence or breach of contract. The generally accepted definition of Lost Profits is lost sales or revenue minus avoided costs. Lost Profits in the litigation context are those profits that would have been earned, except for the negligence, breach of contract, or other cause of action relevant to the case.

The key to the calculation of Lost Profits is an accurate and supported sales or revenue projection, from which Lost Profits flow. Pario’s Forensic Accountants are skilled in a variety of methodologies used to determine this. We have learned, through our experience, that communication and involvement in discovery of financial documentation (especially in the requests for production of documents) is a critical factor for an accurate and supported projection.

Lost Profits may include incremental or mitigation expenses, which are those expenses that serve to avoid or minimize Lost Profits. When analyzing Lost Profits, Pario’s team also calculate the incremental cost associated with mitigating the loss. This frequently involves an estimate of the Lost Profits averted through the incremental or mitigation costs incurred. Our Accountants are familiar with the concepts of “ex-ante” and “ex-post”, and “hybrid ex-ante” as they relate to financial damages in Lost Profits cases. As the application of these concepts is jurisdictional, we confirm with attorneys before utilization.

Subrogation / Recovery of Financial Damages

Pario’s Forensic Accountants’ involvement in Lost Profits cases have included Subrogation cases where the insurance carrier seeks recovery in the underlying insurance claim from a negligent third party. Subrogation is, by definition, the act of the collection of a debt by one party on behalf of another. Losses are deemed recoverable when they are the fault of another party, and that party has the ability to pay for them, either personally or through their insurance company.

Pario’s Accountants work as efficiently as possible to complete the Subrogation claim process. Our team possesses the necessary background and experience to deal with Subrogation and Recovery of Financial Damages cases in a timely, comprehensive manner.

Economic Loss in Injury and Death Cases

The calculation of Economic Loss in Injury and Death cases is necessary when a third party is sued for negligence in causing the injury or death of the plaintiff. The damages in these cases generally involve the present value of lost future wages discounted to present value of the approximate date of loss. One of the keys to this analysis is the work-life expectancy of the plaintiff as of the date of the incident. This drives the time horizon for the calculation of the financial damages.

Other important concepts involving the calculation of loss in injury-related cases include income growth rates, taxation, benefits, saved expenses, cost of household services, period of recovery, and alternative employment or mitigation. In death-related cases, we also analyze and calculate saved consumption, which are the saved expenses that would have been incurred, had the relevant incident not occurred.

Critical to these cases is the availability of sufficient relevant data necessary to evaluate and calculate the financial damages. This includes of involvement in the discovery process to request that all relevant documentation is produced by the attorneys representing our client. In addition, and equally relevant to the sufficiency of documentation, is that of gathering publicly available data associated with work-life, discount rates, employment statistics and pay rates, wage-growth data, household expense, and consumption data. Pario’s team is experienced and skilled in conducting this research to ascertain necessary research information needed to accurately calculate the economic damages.

Misappropriation of Assets, Employee Dishonesty & Fidelity Investigations

Pario’s Forensic Accountants are skilled in the investigation of damages in Misappropriation of Assets cases. This involves looking into the transactional detail associated with the misappropriation. Accountants will investigate the circumstances surrounding the discovery of the loss and the misappropriation methodology or scheme, including any relevant discovery documents. This information provides us with important data regarding the method of defalcation by the subject employee(s).

The team then performs an analysis and review of the internal control structure and control environment. This provides insight into any weaknesses in controls that lead to the opportunity of the subject employee(s) to misappropriate cash or other assets. Investigation into the method of concealment of the misappropriation from the employer is also necessary.

In litigation, these cases typically involve civil litigation for restitution or recovery, where restitution is seeking the repayment of misappropriated funds from the employee(s) and any of their collaborators, whereas recovery is a negligence action against third parties who were negligent in preventing or discovering the misappropriation.

Fraud (Financial Condition) Analyses

Pario’s litigation clients call upon our professionals in those instances where they have determined that an insurance claim is suspicious (typically involving a fire loss), and the client would like to understand the financial condition of the insured during the period leading up to the loss. In these cases, we analyze the profitability, financing, and cash flow of the insured, as well as financial circumstances, agreements, expectations, and plans, and provide a detailed report of the insured during the relevant period.

These types of analyses often involve a detailed review of banking and general ledger detail, to assure that the financial records have not been manipulated to artificially inflate the financial position of the insured. Where there is a determination of eroding financial condition that is considered to be pointing towards insolvency, the information may be utilized to formulate a determination of financial motive for insurance fraud.

In conjunction with these types of engagements, we are also frequently asked to analyze the veracity of the underlying insurance claims. This often provides valuable information that correlates to the conclusions drawn regarding financial condition.

Business Valuation

Pario’s Forensic Accountants have a comprehensive knowledge in the analysis and calculation of Business Value in conjunction with financial damages in litigation. Through our experience and accreditation in Business Valuation, our team of professionals are familiar with the requirements in valuing a business in a Diminution of Destruction of Business Value case. This includes knowledge and experience in the appraisal of value utilizing the three commonly accepted methodologies of cost, market, and discounted cash flow. As one might expect, the discounted cash flow methodology is the one typically most heavily weighted in these analyses, in that the ability of an entity to generate cash flow is a primary determinate of value.

A corollary to the calculation of Business Value for financial damages in litigation is that of understanding the financing of an operation and its correlation to the cost of capital or the prospective cost of capital. For example, commonly utilized methodologies in determining the discount rate to apply to projected cash flows include the build-up method and the capital-asset pricing model. These methodologies recognize the risk associated with the size of the business, its financial structure, and marketability of its stock, as well as industry and general market risk, among others.

As in all litigation cases, discovery and involving the expert in the requests for production of documents as well as other techniques (interrogation and depositions) are critically important to our professionals gathering sufficient relevant data with which to calculate the Business Value relevant to the financial damages in the case.

T Mark Nixon

President
markn@parioforensic.com | T: 314.650.7865

Mark Nixon is the President of Pario Forensic Accounting and has over 25 years of experience in insurance claims adjusting specializing in Medical Malpractice and large commercial losses. He was previously a paramedic/firefighter, arson investigator and adjunct instructor at the Greater St. Louis County Fire Academy. He attended Drake University and has completed several casualty and property schools and professional development courses. He is a frequent lecturer to national conferences and symposiums on insurance loss adjustments. He is certified for OSHA’s Compliance in Hazardous Waste Operations and Emergency Response and for Advanced Arson Investigation Techniques through the National Academy of the U.S. Bureau of Alcohol, Tobacco and Firearms.

Randall Wilson

Director of Forensic Accounting Services
randyw@parioforensic.com | T: 314.909.3148

Randall Wilson is currently the Director of Forensic Accounting Services in St. Louis, Missouri. He holds CPA, CFF, ABV, CFE, CR.FA, and DABFA certifications. After graduating from the University of Wisconsin with a Bachelor of Business Administration degree in Finance and from Illinois State University with a Master of Arts – Western European Studies, with emphasis in International Business, Randy began what has become a 30 plus year career in forensic accounting.

Randy has a wealth of knowledge and a multitude of industry experience, with expertise in areas such as fraud, economic loss analysis, loss of profits, personal injury and wrongful death, and business valuation. He has authored and participated in several seminar presentations regarding forensic accounting, fidelity, fraud, insurance claims analysis, lost profits, and measurement of damages to members of the insurance industry, legal profession, and corporate groups. He has also written articles that were published in both national and international publications. He has testified on numerous occasions in Federal and State court as an expert witness.

Mr. Wilson is a founding member of the faculty for the master’s program in Forensic Accounting at Webster University in St. Louis. As an adjunct professor in the program since it began in 2012, Randy has been teaching the course entitled “Special Topics in Litigation Accounting.” In addition, he and Keith Seiffert taught Intermediate Accounting II as substitute professors in 2013 at Webster University.

Keith P. Seiffert

Forensic Accountant Manager
keiths@parioforensic.com | T: 314.779.0553

Keith Seiffert is currently a Forensic Accounting Manager with Pario Forensic Accounting Services. After graduating from Southeast Missouri State University with a Bachelor of Science in Business Administration, specializing in accounting, Keith began his notable career by obtaining both the CPA and CFE accreditations. He has over 10 years of accounting experience in both auditing and forensic accounting. Keith has extensive experience in detailed financial analytics and comprehensive tracing and vouching of general ledger amounts.

Keith’s forensic accounting experience includes insurance, corporate, and legal matters. Within the insurance industry, he has worked on matters involving the property, liability, and financial policies, which includes services such as business interruption, employee dishonesty/fraud investigations, inventory/contents reconstruction, and economic loss in injury and death.

Keith has been involved in the preparation of expert accounting evidence for use in arbitration, mediation, and trial as well as consultation services for other litigious issues. He has provided expert witness testimony in deposition. Some legal matters in which Keith has been involved includes lost profits, fraud investigations, financial condition analyses, and economic loss in injury and death. Also, Keith has been involved in the preparation of educational materials and has provided presentations on forensic accounting topics to clients, colleagues, and students.

Rachel Stern

Senior Forensic Accountant
rachels@parioforensic.com | T: 314.909.3111

Rachel Stern is presently a Senior Forensic Accountant at Pario Forensic Accounting Services. She holds the CFE credential. Upon graduating from Truman State University with a Bachelor of Science in Accounting, Rachel gained relevant experience within the insurance, legal, governmental, and non-profit industries, among others. Rachel is currently a candidate for completion of the uniform CPA examination. Having successfully completed two of the four parts, she is well on her way to completion.

Within the forensic accounting field, she has been involved in business interruption and extra expense claims, lost profits cases, marital and contract dispute cases, and employee misappropriation investigations. Additional complementary experience includes internal audit and external financial statement audits which included inventory valuations, vouching and tracing amounts within general ledger detail, bank reconciliations, internal control reviews, and compliance testing. Each of her roles has involved obtaining the necessary documentation to support conclusions. Her wealth of knowledge in these disciplines gives her a comprehensive and well-rounded perspective.

Kenneth Neumann

Senior Forensic Specialist
kennethn@parioforensic.com | T: 636.735.3461

Kenneth Neumann is currently a Senior Forensic Specialist at Pario Forensic Accounting Services. He holds CPA, CFF, ABV, and CFE-retired certifications. Ken has over 40 years of comprehensive industry experience, with over 30 years exclusive to forensic accounting. Ken’s education includes a Bachelor of Arts, Accounting degree from Capital University. He has testified as an expert in both State and Federal courts for both Plaintiffs and Defendants.

His expert witness experience includes topics such as economic loss, financial analysis, and fraud. Ken is a frequent presenter on forensic financial investigations, accounting and economic issues to industry organizations, law firms, and private companies. He has developed and presented industry standard/technical training in prior roles for legal services professionals. He has also authored articles published in both legal and accounting publications on forensic topics. Ken has also testified on numerous occasions in Federal and State court as an expert witness.

Jon Pini

Chief Financial Officer
jonp@parioforensic.com | T: 314.504.4653

Jon Pini is presently the Chief Financial Officer of Pario Forensic Accounting Services and serves as an auxiliary Staff Forensic Accountant at Pario. Jon has over 25 years of accounting and finance experience in the software, non-profit, aviation, financial markets, and insurance industries. He started his career as a CPA for Ernst & Young, LLP, in the Silicon Valley practice focusing on audit, internal control, and management consulting engagements. He has served as CFO for over the past 10 years.

Jon has helped organizations focus on implementing and improving cash flow and financial objectives, financial and regulatory reporting, and overall internal controls. For the past three years, he also served as financial consultant to the Center for Head Injury Services helping to reorganize and improve its business dealings with various federal and state organizations. His education includes a Bachelor of Science from Santa Clara University in California. He is a Certified Public Accountant.

Heather Bridges

Divisional Controller and Staff Forensic Accountant
heatherb@parioforensic.com | T: 314.279.5842

Heather’s primary role is Divisional Controller for the parent company of Pario Forensic Accounting Services. Heather also serves as an auxiliary Staff Forensic Accountant at Pario Forensic. She holds her CPA certification, a Bachelor of Science in Accounting from the University of Missouri – St. Louis, and a Master’s in Business Administration with an emphasis in Accounting from St. Louis University. Heather has 10 years of experience in manufacturing, retail, and insurance industries.

She has a wealth of knowledge and experience vouching and tracing general ledger amounts, review and analysis of accounting books and records, detailed variance analysis, reconciliations of bank records and subsidiary ledgers, and identifying misstatements. She understands accounting transaction flow and accounting documentation. She has been involved in discovery and investigation of fraud and misappropriation. She is adept at identifying patterns in data, applying professional skepticism, and arriving at analytical conclusions.

Melissa Joynt

Forensic Accountant
melissaj@parioforensic.com | T: 705.999.9267

Melissa Joynt is a Forensic Accountant located in Ontario, Canada. She holds her CPA, CA, and CFF designations. Melissa brings over 20 years of experience in accounting and property adjusting, and most recently, was Director and Forensic Expert for a global claims firm. She has completed a variety of investigation and calculation work as it relates to personal injury, income loss, accident benefits, business interruption, fraud, and other insurance and non-insurance related matters. Throughout her career, she has worked for international and regional forensic accounting firms in addition to completing various duties in public accounting such as audits and preparing income tax returns. Melissa has become known as a leader for her work in the industry as well as for her relationship building, management skills, and strategic positioning throughout her career. Her education includes a degree in Psychology from York University.

About Us


Forensic Accountants combine their accounting knowledge with investigative skills in various settings, which enables them to provide objective and independent financial conclusions.

A Forensic Accountant can be employed by a variety of institutions and work with individuals in the insurance, legal, law enforcement, financial and governmental industries, among others. The demand for Forensic Accountants is rapidly increasing due to the complications of the interconnected global economy, size and impact of natural disasters, the heightened awareness and growing intolerance of fraudulent activity, vast collection of data, and the seemingly increasing litigious business environment among other factors.

Pario Forensic’s team of credentialed professionals offer over 100 years of combined experience in the forensic accounting world, which means they are equipped to meet your needs, whatever they may be. Learn more about our team in their biographies.

Solutions


Pario Forensic provides services to both the insurance and legal industries. Whether you are an adjuster or insurer looking for accounting assistance, or a legal service provider requiring court-ready analysis and investigation, our team can provide you with the specialized service you require. See our list of solutions to find out how Pario Forensic can assist you.

Insurance Solutions


Pario Forensic is an independent accounting team that is assigned a claim from an insurer or adjuster; receives pertinent information, details, and source documentation to support the claim from the insured; collaborates with additional investigative and legal support personnel as necessary; and makes clear, defensible determinations backed by evidence and supported by expertise.

Our insurance division assists adjusters and insurers in determining the amount of insured loss related to business interruption, extra expense, and inventory claims as well as losses arising from misappropriation and employee dishonesty investigations. Our Forensic Accountants provide comprehensive results to aid in the claims handling process.

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People


Pario’s team of Forensic Accountants have experience in handling of claims across the United States, so you know you will have the expertise needed, wherever you do business. Our team will handle your claims with care, efficiency, and expertise.

Randall Wilson

Randall Wilson

Director of Forensic Accounting Services

randyw@parioforensic.com | T: 314.909.3148

Keith Seiffert

Forensic Accounting Manager

keiths@parioforensic.com | T: 314.779.0553

Rachel Stern

Senior Forensic Accountant

rachels@parioforensic.com | T: 314.909.3111
Kenneth Neumann

Kenneth Neumann

Senior Forensic Specialist

kennethn@parioforensic.com | T: 636.735.3461
Mark Nixon

T Mark Nixon

President

markn@parioforensic.com | T: 314.650.7865

Jon Pini

Chief Financial Officer

jonp@parioforensic.com | T: 314.504.4653

Contact


13545 Barrett Parkway Dr
Suite 350
St. Louis, MO 631021
Tel: 314.779.0553
Toll Free: 1.800.489.2482