Elevate Your Approach to Occupational Fraud Investigations

A year or more is a long time for someone to hide nefarious activities. Many business leaders who discover fraud ask themselves, “How did I miss this?” There’s usually not one single reason but rather a variety of factors. Understanding these circumstances helps forensic accountants better serve their clients. 

Blind spots 

Most businesses don’t expect to be fraud victims, so they aren’t looking for it. In some cases, organizations have insufficient internal controls to prevent or catch fraudulent behavior. The ACFE reported that more than half of cases occur due to a lack of internal controls or an override of existing controls.

A business conducts thousands or even millions of transactions; reviewing each one is not feasible. This reality gives a trusted person the cover they need to hide their misdeeds in an endless stream of unscrutinized data. 

A leader’s explicit trust in their employees may lead them to disregard or rationalize subtle red flags. In these cases, they may not acknowledge the fraud until it becomes too damaging to dismiss. 

“I have had company leaders literally push the document away when I show them the evidence of fraud,” said Couch. “It's as if their minds can't reconcile the betrayal with their trust in that person.”

Burdensome investigations

The difficulty of conducting an investigation also contributes to fraud schemes' longevity. Financial evidence preparation and analysis are long and arduous, and many organizations — especially smaller ones — lack the resources to execute an inquiry themselves. 

But hiring investigators, lawyers or forensic accountants is also expensive and time-consuming. Forensic accountants work diligently, but manual data preparation is laborious, often taking days or even weeks. Businesses pay accounting teams by the hour, and these fees add up quickly. 

For many businesses, one or two suspicious transactions or bank statements do not justify the cost and hassle of an investigation, so they let it go until they are certain they are being defrauded. By then, the losses will be significant, and recovery will be far more difficult.

Risk vs. reward considerations

Businesses often start with vague suspicions or red flags, leading them to wonder if it’s worth the time and resources to investigate. There's no guarantee that an investigation will uncover actual fraud. Even if it does, the evidence may not be enough to definitively prove it, especially when time constraints allow only a cursory glance at the mountain of data, hampering the development of a robust case narrative. 

An unsuccessful investigation wastes resources and damages relationships, while a successful prosecution may generate negative publicity. Even though the business is the victim, its name becomes associated with the criminal case. 

The ACFE found that nearly 60% of businesses did not recover any of their losses, leaving some leaders skeptical about an investigation’s return on investment. 

“Consider the perspective of a regional soccer association president who has diligently raised $60,000 over the course of a season. They may suspect fraud, but the prospect of initiating an investigation, with anticipated costs consuming a significant percentage of these funds, inevitably prompts concerns about the likelihood of confirming fraud and the recoverability of potential losses,” said McDonald. “Situations like this are very common, which is why many cases never see the light of day.”

Fraud investigations don’t have to be prolonged, burdensome and costly. The challenges of uncovering occupational fraud lie not in the scheme’s complexity but rather in preparing vast amounts of financial evidence.

Faster time to insight with automated data preparation

The most demanding aspect of a financial fraud investigation is the exhaustive extraction and cross-checking of data to find anomalies that suggest fraud. 

Right now, forensic accountants spend days or weeks manually combing through thousands of documents and transactions to extract, verify, reconcile and categorize financial evidence. Valid8’s research shows these low-level activities constitute 90% of the investigation time in most cases, leaving precious little capacity for in-depth analysis. 

Data preparation and reconciliation is an ideal application for VFI platforms. Professionals can use these solutions to upload all financial evidence, including client accounting transactions, bank statements, brokerage statements, check images and deposit slips. 

VFI organizes and verifies every piece of information in hours, including categorizing transactions and matching checks and deposit slips to banking transactions. That saves accountants significant headaches while reducing human error and delivering a more comprehensive, straightforward dataset that will stand up to rigorous courtroom standards. As teams gather more evidence, they can seamlessly incorporate it into the dataset. 

VFI dramatically shortens the time to insight from weeks to days, which can be a balm for fraud victims.

Finally, VFI visualization tools turn large datasets into visual narratives, enabling evidence-based views connecting the source and usage of funds. The intuitive images immediately highlight unusual or suspicious activities so accounting teams can undertake high-level tasks such as subpoenaing missing accounts and statements or scrutinizing irregular money movements. 

VFI does not make conclusions regarding fraud. It manages the data, allowing accountants to spend their time analyzing the evidence and building a narrative.

With VFI, investigations immediately become faster, more economical and more thorough, generating a greater capacity for cases.

Supporting successful outcomes

Access to the comprehensive banking history of a client enables complete analysis, which in turn creates robust and thorough evidence. VFI gives investigation teams confidence in their cases, knowing no data was overlooked. The evidence’s completeness and clear chain of custody strengthen its credibility and leave little room for challenges from opposing counsel.

VFI visualization tools simplify complex financial evidence into a straightforward story for stakeholders, judges and juries. Visual aids generated by these platforms bolster expert witness testimony by providing clear, compelling pictures of the fraud scheme. In addition to proving the case, clarity expedites settlement decisions.

VFI enhances the forensic accounting field, producing many benefits, including:

• Reduced losses and higher recovery rates‍
  Accelerated verification of fraudulent activity enables organizations to disrupt fraud schemes more quickly, mitigating financial damages. Additionally, the timely recognition of fraud increases the chances of recouping losses. 

• Capacity to take on more cases‍
  By expediting data preparation, firms free up time and resources to take on additional investigations without hiring additional staff. Forensic accountants also gain the analytical capabilities to pursue more complex cases.

• More affordable and accessible investigations‍
  With shorter, more thorough and more cost-effective ways forward, investigations become more accessible for smaller organizations. 

• Enhanced reputation building
  ‍Firms using VFI can provide exceptional service at competitive rates, helping them build a distinguished reputation in the industry to attract larger, more high-profile cases.

• Higher staff retention rates
  Eliminating tedious tasks makes forensic accounting jobs more rewarding. Employees are more likely to be attracted to a firm using modern processes and technology. Retention increases at firms that provide opportunities for employees to use their critical thinking skills rather than spend their days predominantly entering and reconciling data.

• Fraud deterrence
  ‍In the long term, the increased frequency and reach of comprehensive, effective fraud investigations will close the door on fraudsters. The heightened probability of detection serves as a significant disincentive for potential perpetrators. 

Valid8’s Verified Financial Intelligence Platform

Valid8, the global leader in Verified Financial Intelligence (VFI) technology, was designed by forensic accountants to help professionals follow the money faster and more accurately, eliminating investigative risk, addressing staffing challenges, and improving the speed and quality of rendering a professional opinion. 

Valid8 uses the latest in AI and automation technology to rapidly parse, categorize, match, and reconcile financial data from numerous sources. Hundreds of firms use Valid8’s software on some of the world’s most complex, high-profile cases.

If you’d like to take the first step toward enhancing occupational fraud investigations, contact us at info@valid8financial.com to schedule your 30-minute demo and let our team show you how you can reduce manual work and increase the thoroughness of your investigations.

Acknowledgment

Valid8 Financial would like to thank Tiffany Couch for her contribution to this ebook. Her insight and expertise, formed from decades of forensic accounting experience, illuminated the personal toll of financial fraud. This perspective drives home the value of providing expedited, conclusive evidence to clients so they can move forward personally and professionally. Couch is Acuity Forensics' CEO, founder and principal and author of The Thief in Your Company.