Forensic Accounting: Investigations, Fraud or Abuse Sheri Fiske - - PDF document

www.fiskeco.com | Not for Distribution 1

Forensic Accounting: Investigations, Fraud or Abuse

Sheri Fiske Schultz

CP A/ ABV/ CFF

David Kaplan

CP A/ ABV/ CFF , JD - CV A

BDO US A, LLP, a Delaware limit ed liabilit y part nership, is t he U.S . member of BDO Int ernat ional Limit ed, a UK company limit ed by guarant ee, and forms part of t he int ernat ional BDO net work of independent member firms. BDO is t he brand name for t he BDO net work and for each of t he BDO Member Firms. BDO US A, LLP, a Delaware limit ed liabilit y part nership, is t he U.S . member of BDO Int ernat ional Limit ed, a UK company limit ed by guarant ee, and forms part of t he int ernat ional BDO net work of independent member firms. BDO is t he brand name for t he BDO net work and for each of t he BDO Member Firms. BDO US A, LLP, a Delaware limit ed liabilit y part nership, is t he U.S . member of BDO Int ernat ional Limit ed, a UK company limit ed by guarant ee, and forms part of t he int ernat ional BDO net work of independent member firms. BDO is t he brand name for t he BDO net work and for each of t he BDO Member Firms.

The Use of Artificial Intelligence in the Accounting and Legal Professions

www.fiskeco.com | Not for Distribution 2

Artificial Intelligence and the Future of Accountancy

• WHAT IS THE LONG-TERM VISION FOR AI

AND ACCOUNTANCY?

• HOW DO ARTIFICIAL AND HUMAN

INTELLIGENCE WORK TOGETHER?

• HOW ARE ACCOUNTANTS USING AI

CAPABILITIES?

Learning Objectives

• Participants will learn about the current AI tools that are being used in litigation

and forensic accounting matters.

• Participants will learn to recognize alternatives to traditional methods of

dealing with large and complex data in litigation and internal investigations.

www.fiskeco.com | Not for Distribution 3

NOTE:

All examples are for illustrative purposes only.

What do you think of when you hear the term “Artificial Intelligence?”

www.fiskeco.com | Not for Distribution 4

Artificial Intelligence – Overall Definition

The theory and development of computer systems able to perform tasks that normally require human intelligence, such as visual perception, speech recognition, decision-making, and translation between languages.

The Evolution of AI

As AI continues to evolve and machines become smarter, significant opportunities will emerge across the complexity spectrum. First, repetitive and routine manual and cognitive tasks will be automated to provide assisted intelligence; Next, in situations where the complexity of decisions is greater, AI will augment human decision making; and Finally, when machines are able to learn enough about the situation and make reliably predictable recommendations that humans can trust, they will become autonomous.

www.fiskeco.com | Not for Distribution 5

Where Are We Currently? The Crossroads of Analytics & Augmented Intelligence

• Cloud S

torage and Computing

• Big Data / Data Analytics
• Unintelligent Applications to AI
• Text Recognition
• Augmented Intelligence includes AI-related

disciplines like machine learning, natural language processing, image recognition, and neural networks.

Current Capabilities of Artificial Intelligence

www.fiskeco.com | Not for Distribution 6

Artificial intelligence

• 80,000 hands of poker (tournament was 20 days, 10 hours per day)
• Humans are losing by $750k
• AI system has vulnerabilities but fixes them quickly
• Learned to bluff
• S

pends nights improving strategy and decisions while lazy humans sleep

https:/ / www.theverge.com/ 2017/ 1/ 25/ 14358246/ ai-poker-t ournament-cmu-libratus-vs-human-losing

“ It’s not about the money, it’s about preserving human dignity, and it’s not going well.”

Poker-Playing Artificial Intelligence ROSS Intelligence

The ROS S Intelligence tool is an AI platform supporting legal research activities. Built on ROS S Intelligence’ s proprietary legal AI framework, Legal Cortex, combined with technologies such as IBM Watson's cognitive computing technology, ROS S uses Natural Language processing and machine learning capabilities to identify legal authorities relevant to particular questions. Users conduct searches by entering questions in plain language, rather than by complex search strings. ROS S ’ s cognitive computing and semantic analysis capabilities permit the tool to understand the intent of the question asked and identify answers “ in context” within the searched authorities.

www.fiskeco.com | Not for Distribution 7

Terminology

Boolean Search Method of search using keywords to identify documents containing particular words and Boolean connectors or operators that narrow results based on the relationships between the terms. Natural Language Search Method of search where a query is entered in plain language and is parsed by the search algorithm to identify content addressing the same topic. Natural Language Processing Artificial intelligence technology that derives computer-processable semantic and contextual meaning from natural, human language. Machine Learning Artificial intelligence capabilities that permit a computer or application to alter operations without explicit programming as it is exposed to new data.

BDO’s Use of Data Analytics and Artificial Intelligence

www.fiskeco.com | Not for Distribution 8

Investigation

6,000 Vendors Limited by:

• Location of interest
• Vendor spend over $50,000

160 Vendors to Review

CFO S tart Date CFO Termination Date

Investigation

Limited by:

• Specific user time of employment
• Round dollar amounts

11 Vendors to Review

CFO S tart Date CFO Termination Date

$350,000 fraud 2010 - 2015

www.fiskeco.com | Not for Distribution 9

Investigation Vendor Geographic Review

www.fiskeco.com | Not for Distribution 10

Related Party Distance Analysis

Payments begin with $40* ($400, $4,000, $40,000) $500k of payments are to Heavy Equipment Training Company

Benford’s Law

www.fiskeco.com | Not for Distribution 11

Domain expertise business rules Statistical methods Machine Learning Cross correlation Standard tests Advanced tests Completeness checks Benford’s law, regression, 3 digit testing… Humint Scoring Outlier detection Reinforced Learning External data source Sanction Lists Negative Databases

MindBridge‘s Ai Auditor

MINDBRIDGE AI AUDITOR Artificial Intelligence

ARTIFICIAL INTELLIGENCE TOOLS BDO’s use of artificial intelligence and machine learning ensures that

• ur review of transactions is

complete and limits the false positives for review

www.fiskeco.com | Not for Distribution 12

Contract Review

CONTRACT REVIEW TOOLS Import PDF documents, such as engagement letters or client contracts and apply text analytics to review for completeness and compliance.

Future Potential of AI in the Accounting and Legal Professions

www.fiskeco.com | Not for Distribution 13

Machines as Fiduciaries?

S

• me professionals, both financial and legal, bear considerable fiduciary
• responsibilities. We trust them to make sound decisions but as they are not only

professional but also human, misinterpretations and biases can occur. Could AI someday evolve to be more effective fiduciaries than their breathing counterparts? Would they be less prone to undue influences or poor decision making? In the case of public trust funds (e.g., for parks, educational institutions, and medical research), it is conceivable that AI could provide continuity over decades

• r even centuries to adhere to the original mandate.

Artificial Governance?

In the near future, intelligent machines may not only monitor compliance with regulations and organizational policies but could also evaluate employee performance or even control hiring and firing. One common perception is that AI may cause an invasion of privacy by monitoring human behavior and managing information about our lives. According to The Economist , “ machine learning” is a way of programming computers to understand things by producing for themselves the rules their programmers cannot specify. If machines someday assume a greater role in assessing situations on its own, where do we strike a balance between the gray area of human empathy and the black and white, yes or no, lines computers would draw?

www.fiskeco.com | Not for Distribution 14

Questions

info@ fiskeco.com | 954.236.8600 www.fiskeco.com