* All names and identities are fictitious and have been changed.
THE PROBLEM: Sunray Banque is a mid-sized, publicly-traded financial institution that handles both commercial and private loans. Over the last two years the company underwent a series of major organizational transitions that required a revamp of policy and procedure to align with newer federal regulation changes.
To ensure compliance with the regulatory guidelines, Sunray hired a large independent accounting firm by the name of Count On Us, Inc. An Audit Committee was promptly assembled and the group was tasked with overseeing a comprehensive company-wide audit.
Forensic accountants from Count On Us spent several months thoroughly examining expense and loan records, loan applications, the bank’s approval processes, and financial data in both electronic and paper form. When the audit was completed, reports showed a few minor issues required remediation, but one particular finding was cause for concern: loan and expense activities of individual Board Members were suspiciously missing proper paperwork to match their electronic records. The Audit Committee determined an official investigation was required.
Throughout Sunray’s history, surplus funds for this type of serious situation had never been allocated due to the bank’s size and market capitalization. Despite the financial cost, an investigation needed to be launched for fear of exhibiting bias and a lack of due diligence.
THE SOLUTION: DIGITAL4nx’s digital forensic examiners were immediately dispatched to meet with the bank’s IT department and Audit Committee. A detailed electronic search was needed to corroborate evidence in support of the audit team’s suspicions and findings.
The time needed to produce proof for why the critical data was missing was also of the
essence. Sunray was under immense pressure to resolve their complex accounting discrepancies before the release of their next mandatory financial statement.
As the first order of business, Digital4nx needed to understand the bank’s infrastructure and learn what data was accessible in paper versus an electronic format. Knowing this information allowed Digital4nx to quickly and efficiently design the right forensic methodology approach; a job that required master-level listening skills, knowledge of computer systems, network architecture, and advanced forensic accounting principles.
After only one meeting, Digital4nx analysts were able to determine the exact focus of their investigation. Forensic examiners would be identifying and extracting in-depth digital evidence for the forensic accountants to validate volumes of existing paper-based documentation. All electronic evidence discovered would also need to be used to support future litigation proceedings.
Examiners identified the following computer systems for immediate forensic analysis and reporting:
- Laptops issued to managers in the loan origination department
- Desktops used by managers, certain bank employees, and Board members
- All Email (Exchange) servers and Voicemail Systems
Below are the digital artifacts forensically recovered from those devices:
- Email addresses created using various free web-based accounts
- Deleted emails discussing approval of loans and mortgages for ‘friends of the bank’ that would typically be denied or issued at substantially higher interest rates
- Internal suspect employee network and Internet-related activity supplied from the Bank’s IT department that yielded deleted loan approval documents showing the
drastically reduced interest rates
The final reports generated were based on the digital artifact evidence provided by Digital4nx, and also included a forensic analysis of the bank’s internal banking systems.
Digital4nx delivered all extracted and analyzed information to Sunray and the forensic accountants in an easy to review and audit electronic report format. They were even able to generate reports from the banks’ database logs, which showed precisely how the bank’s internal system controls were circumvented, and by which system users.
Using the report information provided, Count On Us was able to corroborate particular aspects of their audit investigation and conclude certain bank officers did, in fact, alter information supplied by certain loan applicants. Approval for loans and expenses that fell well outside the bank’s normal approval criteria were also clearly shown to be influenced by key bank employees. DIGITAL4nx even uncovered certain nefarious activities conducted by the suspect employees that the auditors did not originally suspect, but which nevertheless, played an important role in the overall investigation and the final outcome of the case.
THE FINAL OUTCOME: Because of Digital4nx’s detailed level of investigative pre-planning, virtually all potential duplication of efforts with the Count On Us forensic accountants was eliminated, saving Sunray Banque critical time and money.
Digital artifacts collected by the expert examiners in a forensically sound manner from the systems investigated allowed the Bank’s Auditing Committee, along with the forensic accountants, and Sunray’s new Board of Directors to:
- Conclude beyond a reasonable doubt that certain Bank employees had violated Bank policy and possibly violated certain federal regulations regarding actions by officers of public corporations
- Terminate some accused employees, and negotiate settlement agreements favorable to the Bank
- Reduce and revise severance packages and benefits of suspect employees owed under pre-existing employment agreements
- Use the expert Digital4nx reports and expert witness examiners for litigation support in a court of law
Sunray was also able to negotiate higher interest rates with better payment terms on all suspect loans to better benefit their shareholders, and bring the bank into full compliance. Because of Digital4nx’s expert teamwork, Sunray Banque even made their important deadlines with regards to certain SEC filings and regulatory mandates. In the end, the Bank saved an enormous amount of money and time, and the bank’s overall exposure to severe penalties and negative publicity was firmly under their control.
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Disclaimer: The information contained in this case study is educational only. This is not intended to fully cover everything related to the investigation or constitute expert advice, legal advice or otherwise. You should always seek the advice and counsel of an attorney while proceeding with these matters. Results may vary as each case is unique and the types of artifacts may not exist depending on many variables. Contact us for a confidential initial consultation.
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