November 2006 Fraud Terminology Topics
Puffery, Avoision, Chaffing and Winnowing,
Drill Down, Fungible Asset, 2D Barcode, and Cammer
 

2D barcodes reduce fraud at sporting events, hospitals, pharmacies, stores, bars, and on the highways.
 

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

 

2D Barcode
A two-dimensional barcode can store data horizontally and vertically. A 2D barcode can store more information than a one-dimensional (1D) horizontal barcode used on food products or a magnetic stripe used on credit cards. A 2D barcode can store 1,800 characters or a compressed image file, in contrast to a 1D barcode that stores 15 characters. The rectangular 2D barcode looks like a random array of tiny checkerboard squares. The squares represent binary codes for data or a small computer program. A 2D barcode has enough redundancy in the squares so it can be 100 percent accurate even when one-third of the 2D barcode is destroyed. A 2D barcode is printed on international driver’s documents and driver’s licenses for 39 states. The barcode includes the driver’s name, address, date of birth, physical attributes, medical impairments, and organ donor information. In some states the barcode includes aliases, a compressed image of the driver’s photo and signature, a Social Security number, a face recognition template, or a digital fingerprint. Police officers swipe the barcode during traffic stops. Bars and convenience stores swipe the barcode for age verification and fraud detection. In most states it is legal for businesses to swipe the code and store the information in a customer database. Airports, hospitals, and federal buildings also swipe the barcode. Hospitals print 2D barcodes on employee badges, prescriptions, dispensed drug containers, and patient bracelets to reduce fraud, identification mistakes, and data entry errors on patient records. Organizers of concerts and sporting events lose up to 20 percent of the gate money because of fraud and illegal tickets. Ticket agencies now print 2D barcodes on tickets to prevent entry by patrons with duplicate tickets and counterfeits, reduce the bribery of the security staff at the gates, and prevent used tickets from being passed to friends waiting outside.
Arthur Gingrade, “The Wonder of 2D Barcodes,” docume.nt magazine, June 2006.

 

Puffery
An exaggerated claim or opinion that is used intentionally to sell a product or service, but it isn’t a misrepresentation of facts. In advertising, puffery is used to create a strong emotional impression, but it isn’t intended to be taken literally by a reasonable consumer. Puffery is a statement of pride, bluster, boast, praise, or humor that stops just short of deception. Puffery is subjective and not likely to be tested for truth and accuracy. A reasonable consumer wouldn’t expect to see documented verifiable proof of the claim. Puffery often uses superlative adjectives like excellent, best, and greatest. These are some examples of puffery: “You won’t be disappointed.” “The best invention since sliced bread.”  “Disneyland: The happiest place on earth.” “The Ultimate Driving Machine.” Papa John’s advertised “Better ingredients. Better pizza.” Pizza Hut sued Papa John’s in a federal court in 2000 for financial damages because the claim can’t be scientifically substantiated and taste tests don’t exist to prove a statistically significant preference for the Papa John’s product. The 5^th U.S. Circuit Court of Appeals ruled in favor of Papa John’s because the ad claim was a generalized statement of opinion, which is puffery. Pizza Hut failed to present evidence that a reasonable consumer was influenced by the ad claim in her purchasing decision. In U.S. court, the burden is on the challenger to prove that a claim is more than puffery. A contrary standard is used by the advertising industry’s self-regulatory body, the National Advertising Division (NAD) of the Better Business Bureau (BBB). When a competitor or consumer files a complaint or “challenge” with the organization, the NAD expects the accused advertiser to support their claims with competent evidence, such as sales information and consumer surveys. Advertising is considered deceptive when a claim is objective and misleading and it relates to tangible qualities and performance values of a product or service that can be measured. False statements about the actual quality, condition, or facts of a product or service might result in an express warranty. In Canada, a claim that implies superiority over other brands may have legal consequences. A statement like “The strongest drive shaft in Canada” would be judged misleading unless the advertiser has obvious proof that the drive shaft is stronger than any other drive shaft sold in Canada. Each country has different rules to distinguish puffery from deceptive advertising.
James C. Miller III, Chairman, Federal Trade Commission (FTC), “FTC Policy Statement on Deception,” October 14, 1983, www.ftc.gov/bcp/policystmt/ad-decept.htm.

 

Avoision 
The practice of borderline acts that fall between legal avoidance and illegal evasion of laws, especially tax laws. Enron and other businesses used extra aggressive interpretations of ambiguous tax laws to skirt the intent of the laws. Less than ethical accountants failed to counsel their clients against avoision, and did not report the problems to the authorities. Businesses run the risk of penalties and continue acts of avoision until official rulings declare the specific acts illegal. Sometimes a government takes years to close the loopholes. Andrew Robinson described avoision in limerick form: “Evasion of tax is a crime, / While avoidance is fine anytime. / When we’re not really sure / If we’re guilty or pure / That’s avoision, with odours of slime.” The inheritance tax in the United Kingdom has created a whole avoision industry of attorneys, accountants, and insurance brokers. The term first appeared in a booklet titled “Tax Avoision” published in 1979 by the Institute of Economic Affairs (IEA), a free-market think-tank based in London.
Leonard J. Brooks, Business and Professional Ethics for Directors, Executives, and Accountants, 4^th edition, Thomson Southwestern, Mason, Ohio, 2007, pages 259 and 260.

 

Chaffing and Winnowing
A cryptographic technique for sending confidential messages or computer data over an insecure channel without using encryption. Chaffing and winnowing is a form of steganography. Steganography is the art of hiding a secret message within a larger one, so an adversary won’t recognize the presence of a hidden message or its complete content. For chaffing and winnowing, the sender and the intended receiver share a “message authentication code” (MAC), which is unknown to law enforcement or anyone else who might tap into the communications channel. The sender transmits the real message in several small parts (packets) and each part includes the authentication code number. The sender also does some chaffing by sending out several bogus parts (chaff) that include bogus code numbers. The extra parts make the whole message seem bigger than it really is. The intended receiver gets all the real parts mixed in with the bogus parts. The intended receiver begins the winnowing task by looking for the message parts that contain the authentication code number. He keeps the real parts, discards the bogus parts, and then reassembles the confidential message. An outsider, who doesn’t know the MAC, wouldn’t detect the real message. Sometimes the sender transmits the parts to multiple receivers to make it difficult for an outsider to determine who is the intended receiver. Unintended receivers ignore the parts like spam. Winnowing was developed for agricultural purposes by ancient cultures. A woman with a basket of cereal grain tosses the contents into the air. The wind blows the lightweight chaff (husks) away, and the valuable heavyweight seeds fall back into the basket.
Ronald Rivest, “Chaffing and Winnowing: Confidentiality Without Encryption,” Massachusetts Institute of Technology (MIT) Lab for Computer Science, April 24, 1998, http://theory.lcs.mit.edu/~rivest/chaffing.txt.
Photo: tv.oneworld.net/article/view/104508/1/7344

 

Fungible Asset
An asset that is identical in quality and interchangeable in trade for satisfying an obligation. In criminal activities, currency is a popular fungible asset because a 100-dollar bill looks like any other 100-dollar bill and it loses its identity when entering the economic stream. A 100-dollar bill can be substituted for another and it’s not linked directly to the original owner. Some money launderers convert their ill-gotten gains into other fungible assets like bearer bonds, common shares of stock of the same company, and stock options. An investor’s shares of Xerox left in the custody of a brokerage firm are freely mixed (commingled) with other investors’ Xerox shares because one share has the same rights and value as another share. Fungible is derived from the Latin verb “fungi” that means to perform or to act as.
David L. Scott, Wall Street Words: An A to Z Guide to Investment Terms for Today’s Investor, Houghton Mifflin Company, 2003.

 

Drill Down
To use a computer application to progressively search downward through the hierarchy or layers of information for more details. A forensic search for financial information starts at the top level that contains general or summarized information. The search progresses to lower levels with line item totals, then deeper to specific information about the transactions and data records comprising the totals. A Web surfer starts at a home page on the Internet and then clicks on hyperlinks to “drill through” or drill down deeper into the site for information worth digging for. If an auditor doesn’t find what he is looking for on the first attempt, he goes back up a few layers and drills down from a different starting place or drills down at an angle. This technique is referred to as “drill around” or “slice and dice.” Originally, the term was used by settlers and exploration companies that drilled down through layers of soil, sand, gravel, and rock to search for valuable natural resources like water, oil or gas.
Data Jargon, www.angelfire.com/anime3/internet/data.htm, August 19, 2006.

 

Cammer
An individual who sits in the audience of a movie theater and uses a small video recording device, such as a camcorder or video camera, to create an unauthorized copy of the motion picture. A skilled cammer can sell the master copy of an illegally recorded movie for US$2,000 to a distributor who mass-produces counterfeit digital video discs (DVDs) for immediate sale to consumers within hours. Pirated movies also are posted on the Internet for downloading. A cammer attended the premiere of “The DaVinci Code” in Guam and illegal copies were available at the street markets of London two days later. In 2005 the movie industry lost US$18 billion worldwide to movie piracy.
Mike Hughlett, Chicago Tribune, “Piracy of New-Release Movies Rises, but the Industry Fights Back,” Arizona Republic, August 27, 2006, page E7.

 

Larry C. Adams, CFE, CPA, CIA, CISA, teaches fraud examination, criminology and ethics at the Keller Graduate School of Management of DeVry University in Arizona. He publishes the book and online editions of “Fraud In Other Words.” His Web site is www.larry-adams.com. His e-mail address is fraudwritr@aol.com.

 

ã Copyright 2006 Larry C. Adams. All rights reserved.
“Fraud In Other Words” is a trademark of Larry C. Adams.
 

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