Viewpoints

Downside of Technology ? Desktop Publishing Crimes

Tracy Moran

Originally Published In:
BUSINESS STRATEGIES MAGAZINE
August 2005
Author: Tracy Moran, CPA

Significant advances in computer technology have lead to significant and unwelcome advances in fraud.  Skilled fraudsters use computers in an impressive variety of ways to commit crimes through cunning and deception.  From computer crimes against networks, (i.e. data alteration and hacking), to counterfeit works of art created with photography and laser scanners, the techniques and schemes perpetrated are limited only by the fraudster’s imagination.  

Among the most popular and easiest-to-commit frauds (due to the availability of the “tools” - computers, scanners and color printers) are those that use desktop publishing techniques for counterfeiting financials instruments.  Financial instruments include such documents as commercial checks, securities, travelers’ checks, money orders and other negotiable instruments.  According to the Association of Certified Fraud Examiners’ “Encyclopedia of Fraud”, these so-called “desk-top publishing” crimes cost businesses and individuals in excess of $12 billion a year.

Computer technology has triggered a major growth spurt in this fraud risk area.  The Federal Bureau of Investigations’ 2003 Financial Institution Fraud and Failure Report states, “during the late 80s and early 90s, approximately 60% of the fraud reported by financial institutions was related to bank insider abuse.”   External frauds, like those involving counterfeit financial instruments, now top insider abuse as the most significant fraud issue facing financial institutions. 

Banks are not the only ones facing this threat; all organizations and individuals are at risk as well.  This risk is partially created from the continued reliance on paper instruments, which may be easily replicated or altered for financial transactions with desktop publishing techniques.  The simplicity of creating false documents is also enhanced by the access that individuals may have to sensitive and valuable banking information such as account numbers and the signatures of authorized check signers. The banking information that may then be used against you, the business organization or the individual, to access your business or personal bank accounts. 
Consider the opportunity points for access to the physical check document when a paper check is prepared.  For example, the first access point may be the physical location of the blank check stock.  It is likely to be readily available to the person preparing the checks and possibly others, many others, if the blank check stock is not kept in a secured area. 

Yes - it is much easier for the box of blank check stock to sit next to the laser printer.  After all, even if the account information is at the check’s bottom, the check number, the amounts and possibly the signature are printed by the computer.  Where is the risk?  Now think of all of the individuals that pass through the accounting area on a regular basis such as organization employees from other departments, housekeeping, security personnel and visitors to name a few.  Ease of access for the check preparer has created easy access for would-be fraudsters as well.

The check preparation process may include a requirement for a handwritten versus a laser printed signature.  The check may pass through multiple sets of hands on its way to being hand-signed, for example, mail room personnel or administrative assistants that do not have a significant role in the check issuing process, yet have access to account information by virtue of the documents passing through their work area.  Also consider how secure checks are once they are signed, but waiting for mailing.  A signed check could be scanned into a computer and reprinted with a new payee and amount and still have the correct account information and authorized signature to make it appear the check is authentic. 

The check is then sent to the vendor and there is no telling how many hands it passes through before being deposited for payment – receptionist, mailroom, administrative assistants, multiple accounting department employees, courier service to the bank.  Your vendor may make copies of checks to maintain on file.  Now multiply the vendor’s access to your information by the number of checks issued in a year.

While there is no 100% fool-proof method to secure your banking information or any of your other assets, having a solid understanding your organization’s internal controls and potential weak spots are key elements to protecting your assets.  Are cancelled checks returned with the monthly bank statement?  What happens to these documents once the bank account is reconciled?   How vulnerable is your critical banking information?

Also understand your vendor’s method of handling your payments and try to get a sense of their internal controls.  How well do they understand their own process and can they tell you exactly who touches your check and when? 
For simplicity’s sake, you may consider using electronic payment methods whenever possible.  Use of electronic payment methods do not eliminate completely the potential for fraud to occur.  However, reducing the use of paper instruments whenever possible does limit the opportunity and the risk that you will have a fraud occur using desktop publishing techniques.

Disclaimer: The Bonadio Group provides the information in Viewpoints for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in Viewpoints are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.