Financial Investigations

Deter, Detect, and Disclose Financial Malpractice

Financial wrongdoing is rarely discovered by the control that was supposed to catch it. It surfaces through an anomaly nobody could explain, a whistleblower, an auditor’s follow-up question, or a journalist’s call. By then the question is no longer whether something happened, but how far it reaches, who was involved, and what you are now obliged to disclose.

Financial investigations can identify and remediate forms of financial malfeasance and often require a multi-pronged approach that cuts across specializations and geographies. 

Our people come out of the traditional asset classes, equities and fixed income among them. That matters more than it sounds: tracing misappropriation through real instruments and structures requires knowing how they are supposed to behave before you can see where they did not.

Understanding Financial Investigations

A financial investigation is a structured inquiry into the financial dealings and records of an organization or an individual — typically to establish whether funds were misappropriated, whether trading was improper, or whether reported figures reflect what actually happened. It combines forensic accounting, data analysis and legal judgment, because a finding that cannot be supported in each of those three registers is not yet a finding.

How Financial Investigations work

Financial investigations are built on several key steps and need to be staffed with experts in the field:

1. Data Collection: Gathering extensive financial records, transaction histories, and relevant documentation.
2. Forensic Analysis: Employing forensic accounting techniques to scrutinize financial data, identify anomalies, and trace funds.
3. Legal Review: Analyzing the legal implications of the findings, including potential breaches of regulations and laws.
4. Reporting: Setting out what was found, how far it extends, what remains unresolved, and what each finding obliges you to do next.

What the report has to do

The reporting phase is where an investigation either becomes useful or does not. A finding that cannot be explained to a board in ten minutes, or defended to a regulator in writing, has not finished being work. Each report is built to:

• Highlight Key Findings: Distilling complex financial data into understandable, relevant insights.
• Provide Strategic Recommendations: Offering practical, strategic advice based on the investigation's outcomes.
• Facilitate Informed Decision-Making: Ensuring that leadership and management have the necessary information to make well-informed decisions.
• Point at the control gap: Naming what allowed the conduct, so the same failure is not investigated twice.

The point of a report is that somebody has to act on it. That is usually a board, a regulator, or counsel — each needing a different level of detail from the same set of facts, and each needing to know plainly which findings are established and which are still inference.

Drawing on a global network of peers, such as fellow members of the ACFE, we are in constant exchange with practitioners across the world, which keeps us current on emerging typologies as well as on investigative practice.

When to Launch Financial Investigations

The trigger for a financial investigation can be anything from a whistleblower top to an internal disclosure, or even a piece about the organization in the media. Organizations should consider financial investigations in various scenarios and almost certainly always in the following cases:

• Suspicion of Misconduct: If there are indicators or suspicions of financial irregularities within the organization.
• Compliance Audits: As follow-up of findings of an audit or as part of regular compliance checks to ensure adherence to financial laws and regulations.
• Post-Transaction Analysis: Following significant business deals to ensure the financial integrity of the transactions and the organization as a whole.

Differentiating Financial Investigations from Other Corporate Inquiries

Financial investigations differ from other types of corporate investigations in their focus and methodology. While most corporate investigations might concentrate on general operational or ethical concerns, financial investigations specifically target the financial aspects of a business, requiring specialized skills in accounting, finance, and legal compliance.

Before the fact, and after it

Some clients come to us because something has happened. Others come because they would rather find out now whether anything is happening. The work is related but not the same, and it is worth being explicit about which one you are commissioning.

Two kinds of engagement

This work splits into two kinds, commissioned for entirely different reasons. It is worth being clear about which one you need, because the scope, the cost, and above all the urgency are not comparable.

Before: looking for what nobody has reported

This work assumes nothing has been reported and asks where the organization would be vulnerable if something were. It involves: 

• Risk Assessment: Evaluating financial processes and controls to identify potential vulnerabilities to fraud or misconduct.
• Compliance Audits: Regularly reviewing and auditing financial practices to ensure they align with legal and regulatory standards.
• Training: Giving staff the knowledge to recognize an irregularity and a route to report it that they trust.
• Controls: Putting in place the financial controls and practices that make the conduct harder to attempt and easier to spot.

The aim is unglamorous: make the opportunity smaller, make detection likelier, and make sure the people who would notice first have somewhere to take it.

Reactive Financial Investigations: Addressing Issues After They Arise

Reactive financial investigations, on the other hand, are initiated in response to indications of financial wrongdoing. They include:

• Incident Response: Conducting immediate investigations following the detection of financial irregularities or alerts from whistleblowers or audit findings.
• Forensic analysis: Reconstructing the transactions, including the ones structured so they would not read as a single sequence.
• Legal Implication Assessment: Working with legal experts to understand the ramifications of the findings and to prepare for potential litigation or regulatory action.
• Remediation and Recovery: Implementing measures to recover lost funds, rectify impacted financial records, and prevent recurrence of similar issues.

Reactive investigations aim to address and resolve existing financial issues, mitigate damages, and ensure compliance with legal and regulatory standards.

Why most clients end up doing both

Most organizations arrive through the reactive door and stay for the preventive work. An investigation almost always exposes the control gap that allowed the conduct in the first place, and closing that gap costs considerably less than investigating the same failure twice.

Falcone International’s Approach to Financial Investigations

Our approach combines deep financial expertise with global insights:

• Expert Team: Bringing together seasoned professionals in forensic accounting, data analytics, and financial crime investigations.
• Global Reach with Local Expertise: Our network of global offices allows us to conduct investigations with a nuanced understanding of regional financial practices and laws.
• Preventive Strategies: Implementing best practices to detect and deter financial crimes before they occur.
• Investigations: Fraud, bribery and corruption matters, including the multi-jurisdiction ones.
• Cooperation with Authorities: Assisting in liaising with law enforcement and regulatory bodies during ongoing investigations.

How Falcone International can help with financial integrity

If you are weighing whether something warrants a formal investigation, that conversation is usually short and worth having early. The cost of establishing that nothing is wrong is almost always lower than the cost of finding out late that something was.

Straight answers

Have funds been misappropriated, and who benefited?
The first half is usually establishable from the records. The second is the harder and more useful question, because value rarely stops at the person who moved it.

How do we secure evidence, analog and digital?
Before anyone is asked anything. Preservation precedes investigation — the first sign that an organization is looking is often when relevant material stops existing.

Is there exposure beyond the missing money?
Frequently, and it is usually the larger number: regulatory notification, disclosure to counterparties, an audit qualification, and the cost of demonstrating that the control gap is closed.

Can we prove who was involved?
To a civil standard more often than a criminal one. We are explicit about which standard a body of evidence reaches, because that determines what you can realistically do with it.

Should we go to the authorities?
Sometimes obligatory, sometimes tactical, always a question for counsel. What helps in every case is arriving with the facts already established rather than asking an authority to work them out — the pattern in our money laundering case study.