Opinion ID: 4200472
Heading Depth: 3
Heading Rank: 3

Heading: Audit Reports

Text: During the government’s re-examination of Barron, he discussed a report he completed for ThermoEnergy’s board of directors on September 30, 2009. The report communicated the results of the 2008 audit, which recommended diversifying Melton’s duties as chief financial officer because the “lack of segregation of duties in this area allowed [Melton] to make unauthorized disbursements for personal expenses and to pay a garnishment order with Company funds payable to a law firm instead of deducting the funds from his net pay.” Barron testified the report was “the required communication letter to the audit committee of the Board of Directors required by the CPA reporting standards to be issued annually after an audit of a corporation.” Melton objected, arguing, “This would have been done after Mr. Melton left the company.” The district court admitted the report. -11- “‘To preserve an error for appellate review, an objection must be timely and must clearly stat[e] the grounds for the objection. Errors not properly preserved are reviewed only for plain error.’” United States v. Price, 851 F.3d 824, 826 (8th Cir. 2017) (per curiam) (alteration in original) (quoting United States v. Pirani, 406 F.3d 543, 549 (8th Cir. 2005) (en banc)). Because’s Melton’s trial objection failed to state clear grounds, we review for plain error. See Fed. R. Crim. P. 52(b); Pirani, 406 F.3d at 549. The fact that Barron discovered significant irregularities does not render the report inadmissible under Fed. R. Evid. 803(6). See Cullen v. United States, 408 F.2d 1178, 1179-80 (8th Cir. 1969) (concluding audit records calculating amounts lost after a bank robbery were admissible because the fact that “such recording may occur after an unusual event such as a bank robbery does not alter the fact that the records were prepared in a regular manner”). But see Paddack v. Dave Christensen, Inc., 745 F.2d 1254, 1258-59 (9th Cir. 1984) (holding audit reports generated only after a suspected deficiency were not prepared in the course of regularly conducted business). As Barron explained, he prepared the report as part of his annual audit duties for ThermoEnergy. Any resulting prejudice arising from its conclusions and recommendations did not affect Melton’s substantial rights because Barron had already explained the results of his audit in his testimony—specifically, by expressing to the jury his concern that Melton was violating the law. See Fed. R. Evid. 403. More concerning was the admission of Roberts’ audit report which he prepared for the board of directors. The report contained an executive summary of the investigation into Melton’s credit card charges to ThermoEnergy, expense reimbursements to himself, payments made toward his personal garnishment, and failure to file and pay ThermoEnergy’s payroll taxes. Melton objected on the grounds of hearsay. The district court overruled Melton’s objection and admitted the report. Melton contends the report fell outside the business-records exception to hearsay because it was prepared to determine the extent of ThermoEnergy’s liability in -12- anticipation of litigation. We agree the report should not have been admitted under Fed. R. Evid. 803(6). The report was not a record of a regularly conducted activity, because it was created for the purpose of determining the legal implications of Melton’s conduct. Nonetheless, we conclude the district court’s abuse of discretion did not result in reversible error. Although the report itself contained Roberts’ written conclusions, his testimony at trial relayed his conversations with Melton during his investigation, and the report summarizing his testimony was cumulative. “‘Improper admission of evidence which is cumulative of matters shown by admissible evidence is harmless error.’” Davis v. White, 858 F.3d 1155, 1159 (8th Cir. 2017) (quoting Wilson v. City of Des Moines, 442 F.3d 637, 644 (8th Cir. 2006)); see also United States v. Londondio, 420 F.3d 777, 789 (8th Cir. 2005) (“The admission of hearsay evidence that is cumulative of earlier trial testimony by the declarant . . . is not likely to influence the jury and is therefore harmless error.”). Melton’s substantial rights were not affected by the report’s admission.