With additional capacity, agencies can conduct more investigations, pursue more cases and secure more convictions.
An extended period of economic growth and stability is subsiding. As the financial tide rolls out, we will likely become aware of rampant fraud that has been hiding beneath the surface.
When the economy is strong, corporations and business leaders are more likely to get away with dubious or even illegal actions because of cheaper capital and sometimes lax oversight. But when the availability of capital dries up, scrutiny increases, and cracks become visible.
Bernie Madoff is the quintessential example of an economic downturn exposing fraud. For years, Madoff ran a massive Ponzi scheme, using money from new investors to pay returns to existing investors. As long as new investors wanted in, he could cover up his misdeeds. But a large number of his investors rushed to withdraw money during the 2008 Great Recession, revealing the true financial picture.
A slowing economy may also spawn new fraud schemes as executives feel pressure to maintain growth and get creative with their accounting. Research estimates that “in an average year, 10% of all large public corporations commit (alleged) securities fraud” and “41% of companies misrepresent their financial reports.” These numbers likely increase when economic uncertainty grows.
However, separating true fraud from poor accounting practices requires time-consuming and resource-intensive investigations. Many enforcement agencies lack the bandwidth to pursue every potential case, allowing many schemes to proceed unchecked.
Prosecuting and convicting fraudsters is critical to deterring future crimes and protecting investors. Investigators must find a force multiplier to enhance their capacity during a time of increased fraudulent activity. Technology can reduce the administrative burden of investigating large quantities of banking data, accelerate time to insight and support case building.
Streamlining data prep
Manual data preparation usurps the vast majority of the time allotted for an investigation. Instead of analyzing data and building narratives, investigators, legal professionals and/or their accounting partners spend the bulk of their time manually reviewing, sorting, separating and reconciling financial records. Given the variety of financial documents, high number of institutions and sheer volume of transactions, professionals cannot scrutinize every line item in the course of the investigation, introducing investigative risk.
AI automates data preparation to enhance financial visibility. Verified financial intelligence (VFI) software can extract transactions from a wide variety of banking document formats without a template, accelerating data intake and reducing the workload for investigation teams.
Once the data is ingested, VFI software consolidates and matches transactions across documents, accounts, institutions and time periods. The VFI platform ensures data integrity by automatically running quality assurance tests that detect and flag inconsistencies, including missing statements, duplicate entries and incongruent transactions. Any new evidence obtained and uploaded is seamlessly integrated into the database. AI gives investigation teams a comprehensive, verified financial dataset in a matter of hours, compared to the limited dataset that takes days or weeks to complete manually.
Enhancing analysis
A shortened data preparation timeline means investigative teams have more time for analysis. A manual review may inadvertently overlook inconsistencies signaling potential misdeeds, but VFI brings these data issues to light. Based on the platform’s insight, teams can more easily identify and examine specific transactions of interest, subpoena missing statements and even uncover undisclosed accounts.
Some discrepancies could be mistakes, such as a statement typo or an addition error, but others may signal potential fraud, like a deliberate omission or manipulation of documents. VFI does not determine the existence of criminal activity; it merely flags the unusual activity so investigators can dig deeper into individual transactions to make an informed decision on intent and develop a more complete narrative.
VFI platforms’ visualization tools further enhance case building by clearly tracing the intricate web of financial transactions. While spreadsheet columns and rows can inhibit this visibility, VFI solutions transform thousands of transactions into intuitive images, enabling legal teams to quickly identify anomalous or suspicious activities for closer investigation. This perspective helps legal teams and prosecutors follow the money to build their case.
Building a stronger case
VFI platforms deliver a comprehensive, verified, courtroom-ready financial history with a clear evidentiary chain of custody. With the additional data depth and increased analysis capacity, investigation teams can calculate exact losses and execute more thorough examinations to uncover more sophisticated schemes. Visualizations support court presentations by making complex information easy to digest. Backed by this enhanced data, prosecutors can confidently proceed with prosecuting fraud claims and/or recovering stolen funds.
VFI technology enables enforcement agencies to move beyond investigating only the biggest and most obvious fraud schemes. With additional capacity, agencies can conduct more investigations, pursue more cases and secure more convictions. This increased efficiency and effectiveness in combating fraud is particularly crucial as pressure on executives builds during this economic downturn. Backed by AI, enforcement agencies can send a strong message that financial crimes will not be tolerated.
Join the conversation!