Forensic accounting is a key component of financial investigations and monitoring the financial truth of your business. But with emerging technologies, it’s become easier than ever for bad actors to hide criminal activity.
Artificial Intelligence (AI) can create complex schemes that are almost impossible to detect through traditional forensic accounting methods. That’s why it’s essential to use AI forensic accounting tools to stay ahead of the latest fraud and money laundering trends.
Let’s take a look at some of the ways in which AI is revolutionizing forensic accounting and how legal firms, compliance officers, CFOs, procurement teams and more are reaping the benefits.
Streamlining Data Ingestion and Cleaning
Arguably the biggest challenge in forensic accounting is preparing the data for analysis. In many cases, data preparation takes up to 75% of the total investigation time.
That’s because before you can even begin to investigate financial activity, you need to collect, standardize, and import financial transactions from a variety of sources. This may include credit card statements, bank statements, transaction histories from brokerage accounts and more — all of which are in different formats.
Further complicating matters, the data can be provided in everything from paper copies to PDFs to CSV files. It’s not uncommon for a financial investigation to include millions of transactions, so standardizing each transaction into a common format and importing it all into a single system of record is a massive undertaking. No wonder the biggest complaint we hear from forensic accountants is that they’re drowning in data.Â
AI makes this process much simpler, easier and faster. It can quickly scan transactions, identify names, dates, account numbers, amounts, currencies and more, and then standardize it all into a common format in a single, searchable database. This approach can reduce data preparation time by up to 90% — a massive savings in both time and expense. It also increases accuracy, as tedious manual processing is notoriously error-prone.
Automatically Identifying Patterns
Once the data is prepared, analysis can begin. But looking for anomalous transactions can be like looking for a needle in a haystack. Traditionally, forensic accountants would have to look across dozens of spreadsheets, filtering and sorting to try to spot outliers. This approach is time-consuming and makes it easy to miss suspicious activity.
Advanced technology like AI eases this burden by analyzing patterns in the data and identifying outliers for you. It can quickly spot anomalies that only the most seasoned investigators would be able to detect through a lot of time and painstaking effort. A sophisticated platform like Sedra Solutions not only flags these transactions but also makes it very easy for you to drill down and investigate further.
Visualizing Complex Connections
One of the hardest things to spot is complex connections between two parties. That’s why a common money laundering technique is layering, where payment is sent through several intermediaries to hide the connection between the two parties. If person A sends $9,999 to person B who sends it to person C who sends it to person D, and each person takes a cut along the way as payment for being part of the money laundering scheme, it’s extremely difficult to trace that person A and D are connected.
Using AI and a graph database, modern financial investigation tools can help you visualize these connections instantly. Sedra Solutions lets you enter the name of person A and person D, immediately see the connection between them, and click on the connection to investigate the underlying transactions.
This is truly game-changing functionality that makes financial investigations so much faster and easier while enabling you to catch far more suspicious activity. For example, in this case study, they were able to find 15 additional financial accounts, greatly expanding the scope of the case under investigation.
What are the Best AI Forensic Accounting Tools?
The best AI forensic accounting tools drastically reduce the time it takes to prepare the data before the investigation can begin. Instead of spending weeks or months importing and standardizing financial transactions from various sources, they should enable you to onboard all your data in a matter of days.
Additionally, the best tools detect patterns in the data and automatically flag potentially suspicious transactions. And they should also make it easy to spot connections by allowing you to enter the names of two parties and immediately see the financial connection between them.
The best AI financial investigation platform is Sedra Solutions. It was designed by the forensic accountants at Sedra Global Consulting who saw the potential of an AI-driven platform that could shorten investigation time while increasing accuracy. Because it was purpose-built by experts in the field, it solves the very specific challenges faced by financial investigators. Â
We encourage you to check out other solutions on the market to see what best fits your needs. To help you get started with your evaluation, we’ve compiled checklists of essential features and functionality in a Financial Investigation Buyer’s Guide, which you can download here. Or just contact us to start a conversation about your specific challenges and we’ll be happy to schedule a demo.