From Chaos to Clarity in Financial Investigations


The financial part of a case can become overwhelming very quickly. Particularly in cases involving white collar crime, securities fraud, Ponzi schemes, or other fraud recoveries, the trail of financial documentation is often very long. A forensic accountant needs to examine the financial documents and piece together the evidence in a way that attorneys, judges, and juries can understand.

When there are mountains of data, the investigator needs a way to quickly examine the data, assemble it in a format that is usable, find connections between transactions, and quantify results. Traditional forensic accounting techniques alone are no longer effective in these types of investigations. The volume of data can quickly overwhelm the investigator, and this affects the quality of the results.

Many of these cases involve moving money around rapidly between multiple bank and brokerage accounts to disguise the true sources and uses of funds. The long trail of financial documentation needs to be examined by a forensic accountant and the data must be pieced together to find where the money really went.

Using Sampling in Investigations

When the mountain of financial documentation grows too large, forensic accountants find a way to limit the work that must be done. They often use a technique called “scoping” or “sampling” in which they select a threshold below which no transactions are examined.

For example, the investigator may decide that transactions under $1,000 are insignificant to the investigation, and therefore will not be examined. Alternatively, the forensic accountant might choose to limit the amount of work by examining only certain types of transactions or transactions involving certain parties.

There is an obvious problem with scoping or sampling transactions, in that important information may be overlooked. The thresholds are usually arbitrary, and there is always a reasonable chance that a small transaction could provide valuable information to the investigator. A small transaction can point to a previously unknown bank account, person, or entity, and the investigator who uses sampling runs the risk of missing this clue.

Sampling can’t always be avoided when using traditional investigative techniques, however. When there is a large volume of financial data to be examined and tabulated, and the forensic accounting team is limited in terms of people, time, or money, they are often forced to make difficult choices about which transactions to examine.

So, how can investigators avoid the sampling trap when there is a large amount of data? What is the solution to the problem of the investigative bottleneck created by financial documentation?

Dissecting the Numbers

The secret to quickly getting to the heart of the financial analysis is using technology to extract data from databases, electronic images, or paper documents (even those of questionable quality). I use proprietary software that does this (most often taking data from PDF that have varying formats), putting it into a database, and reconciling it to guarantee accuracy. I then have data that is organized in a way that is useful to me as a financial investigator, and I can also use software to run advanced analytics to identify anomalies and transactions of interest.

The ability to quickly and accurately examine financial data is especially helpful in cases involving large volumes of banking data. Often in fraud cases, bank statements, check copies, ACH reports, and deposit tickets need to be examined in detail to determine the flow of funds. Traditionally, this has been a time-consuming and expensive process, with varying results.

With the technology eliminating manual data entry, the forensic accountant can quickly begin the real investigative work of:

  • Examining and mapping the flow of funds
  • Identifying transaction patterns
  • Applying advanced analytics to detect anomalies in data
  • Extracting transactions of interest and easily examining supporting documentation
  • Identifying co-conspirators, hidden assets, and additional financial accounts
  • Proving or disproving investigative theories
  • Detecting and proving the elements of a fraud
  • Creating understandable charts and graphs to demonstrate the financial details

Paradigm Shift

The use of such sophisticated software in financial investigations represents a major paradigm shift for forensic accountants and their clients. No longer do we need forensic accountants to spend hundreds of billable hours manually examining transactions, entering them into a database, and checking the data for accuracy. This “busy work” has been all but eliminated in favor of the more accurate data capture and reconciliation done by the software.

The financial investigators can quickly get to the business of investigating, and their clients benefit from much quicker answers. What initially may have looked chaotic–tens of thousands of pages of financial data between hundreds of accounts and entities–is reduced to a usable format allowing the investigator (and the client) to gain clarity rapidly.

Don’t be fooled. Technology alone cannot replace the forensic accountant. A keen investigator is still needed to make the data meaningful and identify the smoking gun. But financial investigators can quickly get down to the real business of investigating with the help of computers and intelligent software. Not only can the clients get faster results, they can also get a better work product that is free from arbitrary sampling and data input errors.

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