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Building a Stronger Case: The Power of AI in Financial Fraud Investigations

By Tod McDonald

AI-powered verified financial intelligence (VFI) marks a turning point in financial fraud investigations.

financial fraud investigations

Executing investigations into potential fraud is prolonged and expensive, whether it’s a partnership dispute, suspected embezzlement, white-collar defense, bankruptcy or restructuring, or a lifestyle analysis in family law cases. The sheer volume and complexity of the data often require hiring forensic accountants or expert witnesses to determine what happened. The additional cost and time make unraveling complex fraud schemes extremely challenging and expensive.

Data gathering and preparation present the biggest hurdle, with professionals spending 90% of investigation time on data preparation and management tasks, often forcing a trade-off between time and cost and comprehensive analysis. Ideally, lawyers and forensic accounting experts should be analyzing the data, tracking money movement and building cases based on the entire financial history, not manually entering and reconciling statements and transactions.

E-discovery revolutionized how lawyers gather and review documents for legal cases. AI-powered verified financial intelligence (VFI) will do the same for financial investigations.

AI Reduces the Burden of Data Preparation and Analysis

If time or budget are limited, traditional investigative methods rely on largely manual efforts or a brief skim of detailed financial records. Checking, savings, credit card and brokerage account statements, along with copies of checks and deposit slips, originate from multiple institutions, many times including numerous accounts. Legal and accounting teams are tasked with manually reviewing, sorting and separating these records, often finding themselves responsible for manual data entry and reconciling statements to ensure accuracy before they can track the flow of funds.

This tedious workflow in the context of case deadlines makes examining every transaction unfeasible.

Automating Data Preparation

AI-powered software can extract transactions from any statement or system without a template, reducing the manual burden while increasing the capacity for the volume of data that can be examined.

Beyond ingesting the information, AI platforms can automatically verify data quality and reconcile transactions. Algorithms identify and address inconsistencies, such as missing, duplicate and wrong transaction extractions. Then, AI matches and merges entries from across accounts, institutions and time periods, even automatically classifying transactions into common categories. Built-in quality controls alert investigators to missing or inaccurate data, such as the absence of a monthly statement or incongruent account numbers.

Automated matching and reconciliation produce accurate, complete and verified financial intelligence in hours, while humans would require weeks or months to complete the same tasks on a much more limited dataset. With AI, new information integrates seamlessly into the database and meets the same quality standards without additional human review.

Empowering Analysis in Fraud Investigations

Automated processes allow for more thorough investigations and reduce time to insight. The errors uncovered during data verification guide the investigations. AI might flag missing statements, conflicting balances or other unexplained discrepancies, prompting the legal team to seek more information.

Sometimes, missing data issues are simply mistakes, but they could signal nefarious activities. These variances are much more difficult to identify with a manual effort. With AI alerts, investigators can properly review transactions of interest to make informed conclusions.

Centralized databases enable investigators to query financial transactions quickly based on different criteria. For example, if a client suspects fraudulent activity occurred within a specific date range, the legal team can retrieve and examine all transactions from that timeframe across every relevant account.

The complex web of financial transactions is difficult to visualize and analyze in spreadsheets. Visualization tools give investigators a better perspective. AI-powered platforms turn thousands of transactions into easy-to-follow graphics, such as diagrams showing the movement of funds between accounts and entities. With this insight, legal teams can easily spot unusual or suspicious movements and drill down into specific transactions. For instance, large transfers might warrant additional scrutiny. More importantly, simple visualizations representing the flow of funds between accounts and legal entities help attorneys develop powerful case narratives.

Supporting Case Building and Collaboration

With insight into every transaction, lawyers can gather complete evidence to move forward confidently in prosecuting or recovering fraud claims. Teams can also run more sophisticated analyses to uncover complex fraud that may not be evident without a robust financial review of transactions.

The comprehensive dataset strengthens a case’s credibility, leaving little room for the opposing counsel to claim that evidence was overlooked. Additionally, technology establishes a clear chain of custody for auditable and courtroom-ready evidence and visualization tools simplify complex information into visual stories for judges and juries. 

Building cases requires collaboration, adding additional time to investigations. A centralized digital database reduces communication lapses by allowing multiple stakeholders to work from the same information and make real-time notes. This capability streamlines evidence sharing and version control.

Despite AI’s strengths, it cannot — and should not — draw conclusions. The technology surfaces key facts, but legal teams must still apply their acumen to interpret the evidence and build compelling cases.

The Future of Financial Investigations

The advent of AI-powered verified financial intelligence marks a turning point in the fight against financial fraud. Gone are the days of countless hours spent on manual data entry and quality control verification. With AI handling the heavy lifting, legal teams can swiftly obtain accurate, comprehensive financial records for unparalleled insight, resulting in the capacity to take on and win more cases.

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Tod McDonald

Tod McDonald, CPA, CIRA, is co-founder of Valid8 Financial. Early in his career, Tod was an auditor with Ernst & Young and has spent decades navigating complex financial situations, including leading an investigation that unraveled a $200 million real estate investment Ponzi scheme in Washington state. He co-founded Valid8 Financial to build a Verified Financial Intelligence solution to expedite data prep, eliminate sample risk and improve the speed and quality of rendering a professional opinion on complex financial cases.

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