INSIGHT: Bad Guys Use Tech to Defraud Companies; Legal Investigation Teams Need It, Too

Dec. 30, 2019, 9:00 AM

As companies develop digitally-connected ecosystems and extended networks of third parties, the challenge to recognize and solve deeper or broader problems becomes increasingly difficult. Often in larger and more complex organizations, the mechanisms to fight fraud and misconduct effectively can lag considerably.

Companies have yet to take full advantage of their three greatest assets: available organizational corporate data, technologies that can sense and read signals within vast data populations, and the legal department’s investigative professionals. If bad actors can take advantage of technology to defraud your organization, legal teams trying to stop them must too.

To combat fraud using an enterprise-wide, tech-enabled approach that combines the power of the computer with the business–and tech–savviness of legal team investigators, consider the below.

Get Investigator Groups Out of Silos

While legal teams typically lead investigations, some also involve human resources, compliance, security or internal audit. And, as more functions get involved, coordination and communication between them often seems to disappear, usually for confidentiality reasons. Unfortunately, this can result in disjointed efforts that can lead to potential fraud risks being missed, improperly identified, and under analyzed.

For example, while supporting a corporate investigation into employee-vendor corruption, we later discovered earlier risk assessments by the organization’s internal audit team had identified similar types of issues elsewhere across the organization at different points in time.

If the company had created a process or leveraged shared case management technology to communicate issues and analyze them through a broader lens, internal investigators might have developed a better understanding of the true nature and scope of a larger corruption scheme, as we later did.

Try a Tech-Enabled Portfolio Approach

The Association of Certified Fraud Examiners found that 40% of investigations can take a month or longer to close using traditional methods. But a tech-enabled approach wielded by investigative specialists can often generate results in a fraction of that time, offering better efficiency and more effective insights.

Applying a diverse portfolio of tech-enabled investigative techniques and approaches guided by experienced investigators and other professionals well-versed in business can help unearth wrongdoing hiding in ever-increasing data sets.

For example, investigators—along with any data scientists or business specialists they involve—can discern how outlier activities compare to other similar activities, effectively performing a form of behavioral analytics on actions that may or may not be fraudulent.

In another example, using advanced eDiscovery tools, companies now have the ability to mine volumes of unstructured data in fractions of the time it took in the past to get through this information.

Why rely only on traditional approaches like keyword searches and manual review of large volumes of documents when machine learning and other cognitive capabilities can generate insights humans may never have detected? It’s now possible to get eyes on the right documents more quickly and advance investigations with better insights.

Tech-enabled approaches are also being deployed for public record and social media data as well. Depending on the jurisdictions involved and privacy settings, investigators may be able to collect public source-based information—including corporate registries; litigation, tax and criminal records; news media, social media platforms and internet searches—to create visual links between seemingly unrelated information.

The ability to turn information into insights using visual data tools and data mining tools, again, enables investigators to advance at a pace unlike what they could accomplish manually.

Technology is making it easier for investigators to better assemble puzzle pieces that show the full fraud “picture.” Many times, we’ve seen the presentation of such investigative results to subjects lead to admissions of guilt and subsequent issue resolution.

Use Predictive Capabilities of Tech-Enabled Investigation Programs

Once a tech-enabled investigation structure is in place, legal teams can reverse-engineer them by developing algorithms to predict, detect and help prevent “bad behavior.”

For example, in the previously mentioned corporate corruption investigation, we helped the organization build a predictive model to classify expenses into categories (e.g. airline tickets were travel expenses, restaurant charges were meal expenses). Going forward, the categorizations of expenses helped the company identify employees who were misclassifying expenses to distort aggregated totals.

The tech-enabled investigation capabilities that legal teams develop can also be used to create value for other parts of the organization, such as supply chain or finance.

For example, we’ve assisted in corruption investigations where purchasing and shipping information was ultimately used to identify the perpetrators of fraud schemes. The same data and investigation insights may also be useful to the company’s supply chain or finance teams to identify inefficiencies, opportunities to improve margins, and eliminate duplication of vendors preventing the company from taking advantage of pricing discounts through consolidation.

Adopting a Tech-Enabled Approach

The future of internal investigations will include a tech-enabled approach, but adoption of the approach will vary. Where you start will likely be dependent on internal capabilities, investments in technology, and a willingness to recognize the importance technology and analytics can play in investigations.

Regulators are already using advanced technologies to conduct their own investigations. Investors, the public and other stakeholders expect ever-better risk management for allegations of bad acts. As such, without embracing the future, organizations may be ignorant of new industry fraud schemes as they go undetected longer, giving bad actors time to target a broader swath of organizations. Now is the time to consider jump starting a tech-enabled investigation program.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Samantha Parish is a Deloitte Risk & Financial Advisory principal in the San Francisco office of Deloitte Financial Advisory Services LLP and Deloitte’s Global Financial Advisory Technology, Media, and Telecommunications industry leader. She specializes in complex domestic and cross-border forensic investigations, corruption investigations and related proactive compliance programs.

Bill Pollard is a Deloitte Risk & Financial Advisory partner in the Chicago office of Deloitte Financial Advisory Services LLP. He specializes in complex forensic investigations including government investigations, accounting restatements and is a leader in delivering technology enabled data driven solutions for investigations.

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