January 2003 Topics
 Accounting rot, burn bag, clip-on fraud,
drive-by tests, e-posse, electronic posse,
perp walk, corporate perp walk, and photowalk
 

This article is in the January/February 2003 issue of
The White Paper, the Journal of the Association of Certified Fraud Examiners.
 

Fraud In Other Words: Professional Jargon and Uncensored Street Slang
By Larry C. Adams, CFE, CPA, CIA, CISA
 

Accounting Rot
Financial reporting that is deliberately falsified to meet pre-determined earnings targets for a company and cash bonus targets for its executives. Short-term earnings are manipulated repeatedly through discretionary accruals to avoid earnings decreases and losses. The tinkering transactions are often hidden. Accounting rot is widespread and just waiting to be revealed. It is caused by greed, conspiracy in high places, and federal regulatory failure. At a Business Week CFOs Conference, 67% of the chief financial officers said they had been asked by their chief executive officers to falsify financial results, and 12% did cook the books.
William S. Lerach, “An Alarming Decline in the Quality of Financial Reporting”, www.eperils.com/alarmlerach.doc, October 07, 2002.
 

Burn Bag
A security bag used to dispose of secret documents, photographs, computer disks and tapes to keep highly sensitive data truly private. A burn bag, made of canvas or recycled paper, is serially numbered and sealed. The chain of custody is logged. The burn bag and its contents are completely incinerated, rather than being shredded, recycled or deposited in a landfill. The remains are stirred until nothing exists except ashes. Department of Defense procedures require two persons to witness the destruction. State departments, political organizations, medical organizations, insurance companies, and major corporations also use burn bags.
http://www.fas.org/irp/doddir/army/
ar380-5/ix.htm, October 8, 2002.
 

Clip-on Fraud
The physical rerouting of a company’s telephone lines using alligator clips to connect the lines to a fraudster’s location. The connection is made on the telephone company side of the corporate telephone switch. The connection can be made inside a multistory building or at a wire-distribution box, miles away from the victim’s site. The fraudster’s location is frequently a storefront “call-sell” operation in a neighborhood with a high immigrant population, where callers line up for the opportunity to phone their home countries at a fraction of regular phone company rates. The fraudster gets cash for the calls and the company with the tapped lines gets an enormous phone bill. Phone fraud is so common that it is jocularly known as the nation’s “fourth largest carrier”.
Jeffrey C. Hodgson, “Telephone Fraud: Proactive Solutions to a Costly Menace”, http://www.beckcomputers.com/botfiles/
botmenace.html, October 7, 2002.
 

Drive-by Tests
Reports submitted without collecting any real data. In 2002, a nationwide company admitted there was an established pattern of conducting bogus tests of underground fuel storage tanks. Its examiners had faked or falsified environmental tests at military bases, postal facilities, and a NASA facility. Untested leaky tanks pose a public health risk and a danger of fire and explosion.
Dennis Wagner, “Inspection Firms Pleads Guilty Over Fake Fuel Tests”, Arizona Republic, July 7, 2002.
 

E-Posse (Electronic Posse)
A community-minded group of virtual vigilantes who help warn consumers about auction fraud on the Internet. Many groups of volunteers use fraud-related message boards to post information about auctions, merchandise and sellers they suspect might be fraudulent. While the auction site owner may be the only party that can legitimately stop an auction, an e-posse can drive off unwary bidders by “jamming auctions”. When an e-posse member becomes suspicious of a deal that looks too good to be true, he alerts other members about the scam. Together, they easily set up multiple fake bidder IDs and jam the auction with high bids to drive the price out of sight. The vigilante’s objective is to protect naïve bidders by always having a high bid in place.
Tom Mainwell, “E-Posses Patrol for Auction Fraud”, PCWorld.com, February 22, 2002, http://www.pcworld.com/news/article/
0,aid,86083,00.asp, September 2, 2002.
 

 Perp Walk (Corporate Perp Walk, Photowalk)
An arrest staged for the benefit of news photographers, reporters, and other bystanders. This controversial law enforcement tradition parades perpetrators in front of the public in handcuffs. There are three strategy goals of a perp walk. The first is to generate headlines that discourage other people from committing similar crimes. The second goal is to give credit to law enforcement for taking tough action against crime. The third goal is to embarrass the suspect in front of his family, coworkers, investors, and the public. It is easier for jurors and the public to understand the prosecution of one or two suspects for white-collar crimes, instead of a huge faceless corporation. Perp walks were used for “poster boy” executives from Enron, WorldCom, Arthur Andersen, and Adelphia Communications. On television, they were hauled from their luxurious offices and homes and quickly booked before a judge. The media has used the term perp walk since 1981.
Anne Gearan, Associated Press, “Exec Perp Walks Mark Change in Strategy”, Arizona Republic, August 02, 2002, page A6.
 

ã Copyright 2002 Larry C. Adams. All rights reserved.

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