The Cost of a Fraud Investigation = $7 Per Banking Transaction

During a recent product demonstration, Jeffrey Bussell, JD, MBA, CFE, Managing Director at FTM Advisors, mentioned a forensic analysis he was a part of during his years at a large national accounting firm.  They were looking at the cost to the firm and the client where you have to both manually input and analyze banking activity because you cannot simply rely on a company’s accounting records to accurately reflect the information on the bank statements.  Further, the time incurred performing an analysis will ultimately have little value if you do not begin with a complete and accurate set of data.

“During our analysis, we found that the majority, approximately 75% of our incurred time, was spent up front preparing data to be both accurate and standardized.  Once we had clean, accurate data, the categorization, analysis, and formatting of the results was straightforward.” – Jeffrey Bussell

Data Prep

Analysis and Output

75%

25%

Because many of these projects are based on hourly fees (even flat fee bids ultimately assume a number of hours of work), forensic projects can be expensive.

“We looked at several projects and added up the total hours associated with them.  We applied our internal costs (not the billed rate) for those resources then divided the total cost by the number of banking transactions.  The average cost per bank statement line item came out to about $7.” – Jeffrey Bussell

In a separate discussion, another accountant from a specialized forensic accounting firm, confirmed this cost.

“Our per transaction costs were between $7 and $8 for a case that we recently closed.” Accountant: CFE, CIRA, CSAR

If you add the firm’s margin on top of the costs, clients can easily pay more than $10 per transaction. The high cost and time required to get independently sourced, accurate banking activity ends up being a barrier for many smaller engagements and can affect fee realization on larger engagements because many clients balk at the increased time spent and fees incurred for a task they mistakenly believe to be relatively simple.

New data solutions that can quickly and accurately ingest and reconcile data can radically alter these economics and speed up the overall engagement. Thus, allowing professional consultants to focus on higher value and more strategic work while improving project profitability. The days of charging clients large fees for data entry work are over – and this is a good thing.