Financial Investigations With High Volumes of Data

fraud Sep 06, 2022

Cases with high volumes of bank data, such as money laundering, high net worth divorce, securities fraud, Ponzi schemes, tax fraud, and white collar crime, present special challenges for forensic accountants. High volumes of financial data can be overwhelming. How do you manage the data? How do you ensure the integrity of the data? How do you get usable intelligence from the data? An attorney's results in such a case will be directly related to how well the expert can put that data to work and make it mean something to the case.

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. In the event that financial data is produced on paper, the copies must be as clean as possible. Low quality scans of data on paper may render data useless in the case.

Using 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 with bank documentation are that it is voluminous, and that it is usually in an unfriendly format. Bank documents almost always come on paper, or 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.

A better way is to use  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.

We're not just talking about OCR software that can recognize characters on a page. We're talking about a much bigger leap to software that recognizes formats of financial documents and can put the data in the right places in a database to be used by the investigator. This software can save hundreds of hours of data entry and months of delay in a case. It also significantly increases the accuracy of the data capture.

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, I 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. We would have known much sooner than the other sides where we stood financially. That could have provided an advantage in negotiations and trial strategy.

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. 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.

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