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Commentary: Follow the money, find the fraud

Tracy L. Coenen

Tracy L. Coenen

Forensic accounting has been around for decades, but only in the last ten years have people become aware of the profession on a wide scale. Many of the techniques used by forensic accountants to investigate fraud and analyze the numbers are the same today as they were decades ago.

Computers have made things easier, as we can track, sort, and manipulate data faster. While software solutions for analyzing data, managing documents, and following the money are being used in investigations, they’re not being used to their full potential. This is obviously a missed opportunity for clients.

Old fashioned investigations

The old way of investigating fraud – the one that requires manual data analysis – is tried and true. Examining source documents is critical to finding out what really happened with the money. There is no substitute for the judgment, skepticism, and investigative intuition of a seasoned forensic accountant.

There are two major problems, however, with relying solely on traditional investigative methods. First, it is incredibly time-consuming to sort through mounds of documents, cull the paper for important numbers, and manually compare and reconcile data. There is only so much work one person can do and when faced with hundreds of bankers boxes full of documents, an investigation can easily take several months.

The second problem with using only traditional forensic accounting techniques is the possibility of overlooking important data and inaccuracy in data entry. The more documents related to an investigation, the greater the chance for human error in examining things.

The sheer volume of data in cases causes forensic accountants to sample the data. Judgment calls will be made about what items to examine, often with a dollar figure as a cut-off point. Unfortunately, examining only some of the transactions leaves room for error. Sometimes a very small transaction can offer a hint about a fraud, and there is always a risk that a detail will be missed when sampling.

When important documents and numbers are isolated, the forensic accountants often engage in a manual process of entering them into software. The software can range from basic databases and spreadsheets to specialized investigative software. Unfortunately, manual data entry leaves room for errors that can impact the results of the investigation.

Investigative innovations

Forensic accountants are not quick to accept change. They rely on the techniques and methods they’ve been using for years and eye innovations suspiciously. New software that can radically change and improve investigations is not being warmly embraced yet.

There are a few very popular software packages that help fraud investigators manage and analyze data. They work well, but their purposes are rather limited. While all of the software can analyze data in many different ways, most times the software has limited functionality when it comes to hard copies of documents. The numbers from those papers need to get into the software, and much of that must be done manually.

Advanced software is available, however, which effectively handles any documentation connected to a fraud investigation. It goes beyond a typical attempt at scanning documents and hoping the computer recognizes the numbers and letters correctly. Next generation investigative software recognizes data in many different formats, puts the data into a database, and rapidly reconciles all the numbers.

The data is then analyzed and the software maps the flow of funds, searches for transaction patterns, creates charts and graphs, creates standard and customized reports, and much more. The data instantly becomes more valuable and usable for the fraud investigator, who can then dig deeper into the transactions and the flow of money. The software is so valuable not only because of its accuracy, but because it can analyze 100 percent of the transactions.

Such innovation might sound too good to be true, but it is not. Unfortunately, this type of software is not being widely used by financial investigators for a number of reasons. One factor is the high cost of the software and the difficulty integrating it into a traditional accounting firm. Traditional methods of billing for fraud investigation services don’t really work with a tool such as this software. Forensic accountants are also slow to adapt their investigations to incorporate new software and methods.

Hire the right investigator

Ultimately, the goal of a fraud investigation is a determination of how the fraud occurred, who did it, how it was concealed, and how much money has been lost. A forensic accountant using cutting-edge software can find those answers faster, more accurately, and with greater efficiency. The investigation will be more thorough, yet will take much less time than it would without the software.

It makes no sense to be satisfied with only traditional financial investigative techniques when there are state-of-the-art software options to assist the forensic accountant. Of course, making use of such software requires a competent investigator who not only knows how to use the software, but also knows how to further investigate any issue that may arise.

Tracy L. Coenen, CPA, CFF is the president of Sequence Inc., a forensic accounting firm with offices in Milwaukee and Chicago. She can be reached at tracy@sequenceinc.com.

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