Using specialized data-mining software in complex litigation support and forensic accounting engagements can yield significant cost and time savings. In most forensic accounting engagements, time is of the essence and, when litigation is involved, deadlines for discovery or accepting proposed settlement offers can become a major issue.
If it normally takes several weeks to perform a particular analysis of large amounts of data and the analysis results in a dead end, the use of data-mining software can be especially valuable in affording time to conduct alternate analyses. A recent engagement of mine, which I detail below, required only one person working for three days as opposed to a team of two people working for several weeks to perform the analyses and obtain the results.
In this particular engagement, a multi-location retailer believed that its controller may have been defrauding the company through a variety of means. It was suspected that the controller was purchasing goods from the company without payment and making fraudulent payments to one or more of her own businesses through accounts payable.
The controller had been married multiple times and had been known by eight different names including alternate spellings. In addition, she had lived at six different addresses during her tenure as controller.
I obtained an electronic copy of all company sales and accounts receivable transactions for the 10 years that the controller had been with the company. This consisted of more than 1 million transactions in more than 250,000 customer accounts.
Using specialized data-mining software, I was able to analyze customer accounts and transactions for matches with any of the controller’s names or known addresses. I also reviewed the write-offs of any balances in such customer accounts.
I determined that the controller had purchased goods through eight different customer accounts, that a former spouse had purchased goods through two different customer accounts, and that a former live-in boyfriend had purchased goods through yet another two different customer accounts. During further research of nonpayment account reductions in balance, I found that on 13 different occasions the controller had written and processed either credit memos or write-offs to these accounts. Each of these nonpayment account reductions was determined to be improper and had been processed without the proper approvals.
I also obtained the company’s vendor files. Using the same data-mining software, I compared the billing and payment addresses of the company’s 1,200 vendors with the known addresses of the controller. I was able to determine that payments had been made over several years to a consulting company with the same address as one of the controller’s known addresses.
As demonstrated by this particular engagement, the benefits of using specialized data-mining software in complex litigation support and forensic accounting engagements can be substantial and should be seriously considered in such cases for cost and time savings.
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