When Seeing is Believing

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

The increasing amount of data is daunting. Managing and making sense of the vast amount of information is paramount to professionals. In this article, the author shares how he has managed those first impressions and found value using AI and software to understand the information deluge.

In the 1990s, the Rubik’s cube craze had died down, but a new one had emerged: The Magic Eye books. People would flip through these books, which seemed to be pages upon pages of nothing but colorful dots, and perhaps see not much of anything at all. One might wonder why anyone would publish a book with a bunch of individual dots if they did not slow down to take in the full image. (You might be wondering what Magic Eye books have to do with forensic accounting, valuations, and investigations, but bear with me.)

Once you would allow your eyes—and your brain—to take those dots in, suddenly images would appear, as if by magic. A lion would leap from the dots or a bicycle would suddenly appear. These images were not quite magic, though they sometimes felt that way. They were stereograms made from duplicated and layered images that you had to focus behind to see clearly. Once you were looking past the image instead of at the image, your brain would interpret the newly focused level as the level where the image could be seen, and your depth perception would kick in. You would finally be able to see the three-dimensional image.

I have always appreciated the Magic Eye images and have often thought over the course of my career how much they mimic the work that forensic accountants, legal teams, and federal, state, or local investigators do.

While it is easy to get overwhelmed by the dots—or data points in any case—the most important part of forensic accounting, and our true value, is in uncovering the picture underneath all those dots.

We can all agree there are more dots than ever in our work. Securing case data from financial records has gotten more complex. Today, data comes from a myriad of sources, spanning handwritten checks to transfers through accounts such as Venmo or PayPal, credit card statements, cash deposits or withdrawals, or even cybersecurity funds transfers. Capturing the data needed to build a case, much less understanding if a case is even worth pursuing, can be daunting. But beyond that, what do we do once we start accumulating all this data?

In today’s world, we have moved from the beauty of the stereogram to the beauty of software, including enterprise-grade software platforms and the application of AI. The application of modern technologies is much like building a stereogram; with data ingestion technology that can accommodate the multitude of data types so that you have “all the dots.”

But today’s software goes beyond data aggregation. With software platforms such as verified financial intelligence, each of those dots can be verified. No more data sampling where only a percentage of the data is verified. No more manual processes where we spent scores of billable hours just recording the data and then crossed our fingers and held our breath, hoping that the portion of data we took the time to verify was illustrative of the full picture.

The latest software helps you digitize and create the page of dots, but it also allows you to verify those dots are validated data points. After verifying and validating all those individual data points, these software tools go one step further and create a visual. It is that visual that is just like a stereogram, allowing us to not only see all of the data but to see the sum of all that activity, revealing the actual image and the story behind all of those dots. The resulting reports are not entirely unlike a stereogram, although you do not need to look at them nearly as long before the full picture emerges. The reports from verified financial intelligence proffer a quick understanding of the transfer of funds for complex financial scenarios; a way for teams to decide whether they should even pursue a case and, later in the timeline of investigations, produce courtroom-ready evidence that can be more readily consumed and understood by judges, juries, and other litigants.

Many of us came up in our field in the 80s or 90s in firms and organizations where data entry and verification processes were manual. In a time when data continues to grow exponentially and where we have an uphill challenge to hire and retain new talent, we cannot afford to expend billable hours on these parts of the assignment. There is simply no need to have teams saddled with the mundane and time-consuming task of entering data, and the risky proposition of verifying only a percentage of that data.

With verified financial intelligence software platforms and AI, we can build accurate, reliable data sets and craft pictures showing how funds have flowed. And in a world swimming in data, a picture is worth a thousand words.

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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, by e-mail to t.mcdonald@valid8financial.com, or linkedin.com/in/todmcdonald/.