You Have the Data, Now What?

Many of the cases I work currently focus on the tracing of funds through multiple bank, brokerage, and credit card accounts. I am typically working with tens of thousands of transactions at a time, so the sheer volume of the data could be overwhelming.

I have put together a proprietary software system that enables me to capture manage, and analyze the data. The system eliminates the need for staff assistance (and the dangers that go along with having multiple people touch the database and possibly corrupt the data). How does the system work? Read on.

Getting the Data

The process of discovery can be long and agonizing for everyone.  There is often a push and pull between the parties in the discovery process, as opposing counsel rarely wants to voluntarily give up damaging financial data.  It often takes several rounds of requests to get the information we seek.

Counsel has to be careful to ask for the right data in the right format. Not properly identifying the information we are seeking can lead to denials that the information exists.  One of the goals in discovery is to be specific enough that we get targeted data, but general enough that we still get other important data we didn’t know existed.

The format of the data is important as well. Even with technological advances, much discovery is produced in paper format. If possible, however, we should seek to get financial data in a digital format that we can use. This means asking for the data in native format (if the other side uses widely available software) or exported to a spreadsheet or xml file.

Once You Have the Data
If getting the data was a challenge, making it useful might be even more difficult. Imagine hundreds of bankers boxes of financial documents. Imagine only twenty or thirty. That’s still a lot of data, and someone has to do something with it.

One of the most common types of financial data that is sought during discovery is bank documentation. Parties seek bank statements and copies of checks and deposit tickets to see exactly what happened with money. Many times, this third party source documentation is critical because accounting records are deemed unreliable. Often the bank data is the only documentation that will tell us the truth about the money.

Two consistent problems exist with bank documentation: It is voluminous, and it is usually in an unfriendly format. Bank documents almost always come on paper, or as digital images of the paper statements. There are thousands of banks, each with several different formats for their statements, and so there is little uniformity among the statements.

The forensic accountants are left to sort through these documents, using a spreadsheet, database, or simple accounting software to enter the data and categorize the transactions. There is virtually no other option but manual data entry to extract the information from the bank documents.  Unfortunately, this method is time consuming and prone to errors.

Faster, Better Results
There is another way, however. Specialized software can pull the data off the documents or digital images, automatically reconcile the data to ensure accuracy, and put it in a database to allow the financial investigator to immediately begin using the data.

This may not sound revolutionary, but it is. This software can save hundreds of hours of data entry and months of delay in a case. It not only extracts data from the bank statements, it can also match the check copies and deposit tickets to the transactions on the bank statements, saving additional time and effort usually devoted to manual matching of the transactions.

This method also significantly increases the accuracy of the data capture. Further benefits include the linking of images of the bank statement and check copies to the data in the database. If we see a transaction of interest in the database, with one simple mouse click, we can look at the image of the actual document which contains that transaction.

Litigation Advantage
The benefit in litigation is easily seen in a real world example. A divorce case involved a high volume of bank documents, as we attempted to find out how and where the spouse spent a significant amount of money over the last several years of the marriage.

Doing things the old way, staff logged approximately 375 hours over a period of four months entering the transactions into a database and categorizing them for analysis. The opposing expert had a similar burden, since they wanted to do their own analysis of the spending.

Using the technology discussed above, the data could have been extracted from the bank documents, put into a database, and categorized in a matter of a few weeks or less. This increased speed would have offered an obvious advantage in the litigation.

One of the early steps in litigation is getting information and data. But that data is rendered worthless if your forensic accountant is not able to put the data to use. New tools available to financial investigators have made it possible to put the data to work in a fraction of the time it would ordinarily take.

Cases with high volumes of bank data, such as money laundering, securities fraud, Ponzi schemes, tax fraud, and white collar crime, are ideal candidates for such technology. Greater speed and accuracy coupled with better tools to analyze the data gives the attorney faster answers about the trail of money, and that intelligence provides a marked advantage in litigation.

Tracy L. Coenen, CPA, CFF is a forensic accountant and fraud investigator with Sequence Inc. in Milwaukee and Chicago. She has conducted hundreds of high-stakes investigations involving financial statement fraud, securities fraud, investment fraud, bankruptcy and receivership, and criminal defense. Tracy is the author of Expert Fraud Investigation: A Step-by-Step Guide and Essentials of Corporate Fraud, and has been qualified as an expert witness in both state and federal courts. She can be reached at [email protected] or 312.498.3661.

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