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An Ottawa startup that is using artificial intelligence to transform how auditors and financial regulators unearth fraud and irregularities has secured $29.6-million in venture capital and government funding.

Mindbridge Analytics Inc. chief executive Eli Fathi told The Globe and Mail the company has raised $15.1-million in venture capital led by New York’s PeakSpan Capital in a group that includes existing Canadian investors Real Ventures, National Bank of Canada, the Group Ventures and New York’s Reciprocal Ventures.

And on Wednesday, federal Innovation Minister Navdeep Bains will announce that Ottawa is committing $14.5-million to Mindbridge through its Strategic Innovation Fund. The money will be paid over seven years, offsetting some of the company’s research and development spending as it broadens its cloud-based platform for applications in a range of industries.

Mindbridge’s software helps auditors by reviewing all accounting entries within a particular assignment, such as an audit of a company’s general ledger. That compares with the standard practice in which auditors manually review only a fraction of transactions. The software flags irregularities or questionable entries that auditors can examine more closely. The company says the tool is not meant to replace auditors, but make them more effective at pinpointing problems.

“The entire market of auditors will adopt AI,” PeakSpan partner Brian Mulvey said. “Those who don’t will cease to be relevant.”

The company, an early mover in Canada’s thriving artificial intelligence (AI) scene, has 260 certified public accounting firm customers in 14 countries, including 40 of the top 100 CPA firms in the United States, and has done projects for the Bank of England and Payments Canada, the body that oversees the movement of funds between Canadian financial institutions. Payments Canada chief legal officer Anne Butler said the liquidity management system Mindbridge is building to monitor large-sized transfers “is giving us intelligence we didn’t have previously to monitor and be informed more quickly where there may be problems.”

AI has become a big issue in the accounting industry. Some fear the technology will supplant auditors, while firms in the shadow of the industry’s “big four” (KPMG, Deloitte, Ernst & Young and PricewaterhouseCoopers) worry about falling behind the giants that have invested millions in their own proprietary AI tools. Regulators and licensing bodies have been slow to adapt standards to reflect the changes AI could bring – but they haven’t banned the use of AI.

Samantha Bowling, owner of Garbelman Winslow, a boutique CPA firm in Maryland specializing in audits of non-profit organizations, said using Mindbridge software has enabled her to zero in on entries such as credit card transactions that “I never would have seen or questioned in the past” because they were too small and numerous. She said she has also found improper transactions, including an instance where a non-profit had double-paid real estate fees, and another in which an officer charged personal expenses to his employer. “I think this will deter fraud,” she said, adding that she wouldn’t do an audit without AI.

Doug Wiescinski, who heads a joint venture to invest collaboratively in technology among four “super-regional” CPA firms that are in the U.S. top 20, said “the more we roll [Mindbridge software] out, the more the clients like it.” He said the four firms – BKD, Dixon Hughes Goodman, Moss Adams and Plante Moran – had used it for hundreds of audits and he expected other “progressive firms will adapt” it to bring “quality, efficiency and effectiveness” to their work and make them more competitive.

Mindbridge has close to 100 employees. Its management team includes chief technology officer Robin Grosset, former chief architect of IBM’s Watson analytics group.

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