"Fraud is here to stay and it will escalate, it's a matter of staying on top of it," reflects fraud expert Phillip C. Levi, partner at the Montreal forensic accounting and auditing firm Levi & Sinclair. He's talking about all flavors of fraud, from Ponzi schemes to mutual fund fraud.
When he investigates fraud, Levi uses Monarch business intelligence software from Datawatch. This software, he says, reads documents and reports in any format, parses the information contained therein (or subsets of the data), and exports it to Excel. Monarch users on Wall Street include J.P. Morgan Chase, Citibank, Scottrade and Wells Fargo. Levi notes that the 2007 version of Excel can accommodate a million rows, versus the 64,000 rows supported in the previous version. "Although 64,000 sounds like a heck of a lot for purposes of a spreadsheet application, it's not when you're looking at a database application," he points out.
Monarch 10.5 is Windows 7 compatible and reads PDF reports. "The world is putting out all forms of documents in PDF format," Levi says. "To be able to take that PDF document and slice it up, take what you want and put it into Excel is a big plus." There is a small learning curve to learning how to use Monarch as well as licensing fees, he notes.
The second improvement to Monarch released today is called Monarch Context. It's a free Excel plug-in that anyone in an organization can use to sync the data in the Excel spreadsheet created by Monarch 10.5 with any embedded source report report. Users can then later click to see the context around the number in the original report, for instance to see how diluted earnings per share were calculated. "The report itself is embedded in the worksheet," Levi explains. The user clicks on a cell and a window opens up that shows where the information came from in the original report, in its native format. "That ability, from an analyst's perspective is tremendous."
Such tools won't help inexperienced regulators detect Ponzi schemes, he notes. "These are tools to help the qualified and capable analyst, investigator or regulator do his job more efficiently," he says. "It changes an investigation or audit from a sampling to the ability to do 100% verification in the same, if not less time." Wall Street firms could go in and identify red flags or missing pieces of information and potentially clean them up before auditors come in.