What is Verified Financial Intelligence and Why is it the New Litmus Test?

Part I in a Series Addressing Advances in Forensic Accounting and Financial Forensics

The author of this series of articles is co-founder of Valid8 Financial Forensics Software, a Seattle, WA and Boulder, CO-based professional service provider. These articles set forth techniques used to investigate financial fraud allegations and focus on the flow of funds.

As 2023 comes into clearer view, it is evident that the changing economic tides will bring a greater emphasis on scrutiny. With interest rates on the rise and recessionary fears growing, the tide is, at long last, going out—and when the tide recedes, we will truly see what lies beneath. Many experts predict that financial fraud investigations will fuel the years ahead.

Often the decision to take on a case is incumbent on our ability to identify at least some percentage of the concerning financial evidence. For fraud professionals, including CFEs, the ability to ascertain that from a mass of material is often a long and arduous process. It involves the decision to proceed with a fraud investigation—and then dive into the actual work of unwinding all the data, seeing correlations in that data, and gaining a clear picture. Each step has the potential to stall our work—or derail a case entirely.

How can we speed up the decisions around what is pursued? What tools and technologies can be utilized to automate data collection, review, and preparation, and establish a more concrete and complete evidence database?

Verified Financial Intelligence is a new category of enterprise software that does just that. It is quickly emerging as the new litmus test in some of the world’s most complex and noteworthy fraud cases. As SOC2-certified, professional-grade financial verification software solutions, Verified Financial Intelligence dramatically improves the approach, process, and final products of rendering a professional opinion.

With new solutions like these, the information on bank and brokerage statements, check images, and monetary transfers can be digitized, eliminating the need to undertake painstaking manual work while removing the risk-taking involved in manual verification procedures. Traditionally, sampling and client-provided data have been the norm, with limited financial diligence and significant manual data scrubbing. Manual data prep can consume as much as 80 to 90 percent of the allotted billable hours for an engagement. The current approach is not only tedious work and difficult to scale—attempts at improving it frequently involve introducing sampling—and increasing risk.

By utilizing data algorithms, Verified Financial Intelligence software helps fraud investigators achieve quality output while automating and accelerating data preparation’s low-level, mundane work. In addition, Verified Financial Intelligence integrates and verifies the data by aggregating data from multiple data sources—including client-supplied data and data extracted from accounting systems and independently sourced records. It traces an accounting cycle over time and provides a visualization of the revenue cycle. These data visualizations allow investigators to see the full story and to communicate those findings to clients, attorneys, judges, and jurors involved in a case. For fraud examiners, these tools can quickly evaluate areas of concern and move the decision to pursue an investigation forward, as well as speed up the quality of the data throughout the lifecycle of that investigation and any subsequent case.

The software’s ability to trace the flow of funds between accounts and legal entities has an array of applications to high-value financial investigation, including effectively reconciling data utilized in forensic accounting, high net-worth divorces, mergers and acquisitions, fraud investigations, and within government agencies. For those of us preparing for the coming wave of fraud investigations, it is proving to be the new litmus for managing evidence, exploring investigations, and paving the way to faster and better decision-making.

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Tod McDonald, CPA, CIRA, was the lead on an investigation that unraveled a $150 million dollar agri-business Ponzi scheme in Washington. He was a senior auditor at Ernst & Young early in his career and has spent decades working to clean up and turn around complex accounting and financial situations. Today, he is the co-founder of Valid8 Financial, helping forensic accountants, fiduciaries, attorneys, investigators, and auditors eliminate data prep work associated with finding and analyzing evidence of financial records.

Mr. McDonald can be contacted at (206) 920-1144 or by e-mail to: linkedin.com/in/todmcdonald/ or t.mcdonald@valid8financial.com.