Vol 9 (2012) - Issue 6

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Follow the Money with Structured Data

Databases and their contents contain the lifeblood of most organisations. These records become a focal point for creditors, courts, enterprises, legal counsel, advisors and restructuring professionals during bankruptcy proceedings. Analysis of these databases become paramount in identifying and securing assets, identifying and quantifying fraudulent transfers, understanding the creditor landscape, assessing working capital needs and developing a rolling 90 day cash flow . Preservation of electronically stored information ('ESI') for insolvent companies, while important and required, can be more complicated than typical preservation exercises due to loss of institutional knowledge and key resources. Companies heading towards or in bankruptcy are commonly under pressure to implement a variety of cost-cutting measures to address short term capital needs and to prevent violations of covenants imposed by securitised lenders. Very often this translates into the need to reduce the workforce in 'non-core' areas, rightly or wrongly, including IT. With the pressure of the situation and short term decision-making, the personnel being shown the door are often the developers, administrators, and users of key databases and business applications. As the company develops its reorganisation or exit plan, the databases become key yet again in assisting in the carve out of divisions, sale of assets, migration of customer or supplier information and the like.
The preservation of critical financial information held in ever-changing 'live' financial and operational databases is the first step in ensuring the ability to determine the cause of insolvency, answer questions by interested parties and begin to regain financial control of what can often be described as a death spiral. Many organisations use a multitude of programs, databases, applications and tools to conduct their business. Ensuring key systems are preserved at the outset can save time and cost as the proceedings run their course. Legal and advisory firms will immediately take inventory of applications used, a description of their business purpose and review or create a system schema to understand the flow of data through the organisation and identify systems of record for key data points. These systems are quite often voluminous, specialised and contain significant duplication.
Unstructured data, particularly email, instant messages and chats and the typical 'office' documents (Microsoft Word, Excel and PowerPoint) provides evidence of the communication of activities giving insight into who knew what and when they knew it. It leads to understanding key custodians in investigating the 'how' behind the insolvency. The structured data in transactional, operational and financial databases provides direct evidence of actions taken, processes run and enables quantum to be assessed: these systems will show how money was moved or the approval of transfers, payees, dates, etc. Thus, the database systems provide a way to 'follow the money' and either recreate what happened or unwind an estate to safeguard assets, recover disbursements made after insolvency occurred and quantify case flow expectations into and out of the business based on receivables and payables. These systems may become especially useful when communications are incomplete or, in the case of bankruptcy, arising from fraudulent individuals or deliberate obfuscation.
Unlike unstructured data, which typically exists as static, self-contained files that can be preserved, collected, and processed as stand-alone documents, structured data exists as pieces within a larger system, usually quite complex and with many parts. In fact, a database record may only make sense after a number of fields are combined from underlying tables to makes sense of codes and values indicative of product types, transaction types, status and other information.
As a result, a 'forensic' and efficient way to analyse these databases and harness information, to facilitate proceedings and garner insight for investigations is by tracing the financial trail and identifying irregularities – for example, you could review all payments made, who made and approved them and to whom they were made. You could profile these payments against the transaction populations to look for anomalies, deviations and problematic trends. Additionally, you will gain insight into whether the custodians identified within the organisation represent the proper population of people, deal with their assets appropriately, and begin to restore order. Irrespective of the outcome, structured data can be used to follow the money and hence provide crucial evidence.