In a financial fraud investigation, using technology to marshal big data can be a major help. But it’s just one piece of the puzzle. To complete the picture, a fraud investigator must rely on information gathered from a disparate array of sources—everything from in-person interviews to good, old-fashioned paper documents.
And a savvy investigator will also recognize that the owners of information may not always be playing fair. The owner may be involved in fraudulent activity and motivated to provide piecemeal material to help stop an investigator from getting at the answers.
Those tricks often fail, however. Even when the information is messy, weirdly formatted, or incomplete, experienced investigators have the know-how to ask the right questions, organize the material, and glean from it the essentials they need to reach conclusions and clearly and effectively communicate a story about the results.
There is, in other words, more than one way to put the investigative pieces together.
DON’T FEAR THE MESS
At the start of a financial fraud investigation, however, the puzzle may appear too daunting to tackle. The puzzle pieces—in other words, the information necessary to find and prove fraud—are often scattered, and they can take various shapes and forms that are not easily gathered, analyzed, and translated into useful evidence.
The fact that information is a mess shouldn’t stop an investigation, however. Investigative information comes in two forms: structured and unstructured. Structured material is well organized and can be more easily analyzed and explained. Think, for example, of transactions recorded by a company’s bank or a spreadsheet generated by a corporate accounting system.
It’s not uncommon for lawyers and business owners to attempt to rely solely on structured data to prove a case. For lawyers, structured items, such as tax returns or account information from a bank, are relatively easy to find and explain. For business owners, relying on structured data can reduce the costs of a financial fraud investigation.
The problem is that most information is not structured. In fact, by most estimates, 80-90 percent of the information that businesses currently produce is unstructured. By unstructured we mean material that is not organized in a consistent way and that requires a far greater effort to collect and examine. Unstructured information can include everything from e-mails and text messages to social media posts and even paper records.
This is where experienced fraud investigators are critical. They are experts at organizing and extracting evidence from unstructured information and they supplement this with time-tested investigative techniques. For instance, in interviews, an investigator will interpret not only the answers a person gives but non-verbal factors as well. Emotional “leakage” in the face and red flags in body language—such as physical discomfort or gestures that do not match what the person is saying—can help the investigator detect deception.
HOW DIGGING DEEPER YIELDS RESULTS
What about when a fraudster is throwing up roadblocks to stymie an investigation? Recently, we investigated a case involving a business that had made a large insurance claim just before it was due to make a balloon payment on a loan. The insurer asked us to look into the company’s financial position.
In response, the business owner—aware that a deeper examination would be costly and time-consuming for the insurer—turned over hard copy printouts of data from the company accounting system.
Even with minimal information and paper records, we spotted issues. The business relied almost exclusively on a single client, putting it in jeopardy should the client disappear. While the client paid its bills reliably and the company collected receivables quickly, the company’s balance sheet was in shambles and showed large, unexplained cash infusions.
With this limited information, we issued a report that noted the positives and negatives but that could offer no definitive conclusion about whether wrongdoing had occurred. Our recommendation was that the insurer would need more information to prove the claim was fraudulent.
The insurer then asked us to dig deeper into alternative sources of information. We gained access to records that revealed that the key client had stopped paying its bills just before the incident that triggered the insurance claim. And we spotted increasingly desperate e-mails from the business owner that clearly contradicted his previous testimony that the company was on solid financial ground. For the insurer, the deeper dive paid off.
HELPING FOCUS A FINANCIAL FRAUD INVESTIGATION
Business owners can take steps to help corral information and focus inquiries. If your organization is embarking upon an investigation, it can pinpoint material more effectively by taking a few key steps:
1. Ask: “What question are we really trying to answer?” It may sound simple, but if you don’t have a clear view of the goal, it will be far more difficult to home in on the information you are after.
2. Brainstorm alternative data sources. An accounting system is likely to provide only so many answers. Think about ways potential fraudsters may communicate. Will, for instance, a review of social media give you information about an employee who is taking lavish vacations or buying expensive items that seem well beyond their salary level?
3. Build on what you have. You may already have access to data that can be quickly leveraged to help advance an investigation, such as:
- Public information. What publicly available information can help fill in the information gaps? Our team has built powerful cases using publicly available data— such as mining Alabama’s open checkbook database, which lists unaudited state government expenditures by category, payee and agency.
- Previous reports. Do you have existing printed reports that would be costly to reconstruct? Widely available technology tools can be used to convert paper reports into usable data.
4. Once the picture begins to develop, ask more questions. Don’t assume that you will have all of the right questions from the outset, and don’t hesitate to ask additional questions as your investigation advances.
5. Keep digging – and continue to refine your questions. As you gather more information, make a concerted effort to sharpen the focus of your questions to help you concentrate on the most essential data.
Taking steps to focus your investigative efforts will help improve results. So, too, will engaging with an experienced investigative team that has the knowledge and resources to gather critical evidence.
Forensic Strategic Solutions has extensive experience identifying, retrieving, normalizing and analyzing large, diverse and complex data sets in fraud investigations. To learn more about our work, contact us for a consultation, or visit our practice area page on Forensic Technology.