In order to hide serious financial problems, some
businesses have been known to use fraudulent bookkeeping to overstate
sales and income, inflate the worth of the company's assets or state
a profit when the company is operating at a loss. These tampered
records are then used to seek investment in the company's bond or
security issues or to make fraudulent loan applications in a final
attempt to obtain more money to delay the inevitable collapse of
an unprofitable or mismanaged firm.
Accounting fraud has also been used to conceal
other theft taking place within a company.
Theft of Identity I
Theft of identity has become an increasing problem;
the scam operates by obtaining information about a victim, then
using the information to apply for identity cards, accounts and
credit in that person's name. Often little more than name, parents'
name, date and place of birth are sufficient to obtain a birth certificate;
each document obtained then is used as identification in order to
obtain more identity documents. Government-issued standard identification
numbers such as passport or drivers licence numbers are also valuable
to the identity thief.
Theft of Identity II
Dishonest bank personnel have been known to disclose
depositors' personal information for use in theft of identity frauds.
The perpetrators then use the information to obtain identity cards
and ATM cards using the victim's name and personal information.
Falsification of Loan Applications
These take a number of forms varying from
individuals using false information to hide a credit history filled
with financial problems and unpaid loans to corporations using accounting
fraud to overstate profits in order to make a risky loan appear
to be a sound investment for the bank.
Some corporations have engaged in over-expansion,
using borrowed money to finance costly mergers and acquisitions
and overstating assets, sales or income to appear solvent even after
becoming seriously financially overextended. The resulting debt
load has ruined entire large companies, such as Italian dairy conglomerate
Parmalat, leaving banks exposed to massive losses from bad loans
One way to remove money from a bank is to take
out a loan, a practice bankers would be more than willing to encourage
if they know that the money will be repaid in full with interest.
A fraudulent loan, however, is one in which the borrower is a business
entity controlled by a dishonest bank officer or an accomplice;
the "borrower" then declares bankruptcy or vanishes and
the money is gone. The borrower may even be a non-existent entity
and the loan merely an artifice to conceal a theft of a large sum
of money from the bank.
Some fraudsters obtain access to facilities
handling large amounts of cheques, such as a mailroom or post office
or the offices of a tax authority (receiving many cheques) or a
corporate payroll (issuing many cheques). A few cheques go missing;
accounts are then opened under assumed names and the cheques (often
tampered or altered in some way) deposited so that the money can
then be withdrawn by thieves. Stolen blank chequebooks are also
of value to forgers who then sign as if they were the depositor.
Forgery and altered cheques
Thieves have altered cheques to change the name
(in order to deposit cheques intended for payment to someone else)
or the amount on the face of a cheque (a few strokes of a pen can
change MK 1,000.00 into MK1,000,000.00, although such a large figure
may raise some eyebrows).
Instead of tampering with a real cheque,
some fraudsters will attempt to forge a depositor's signature on
a blank cheque or even print their own cheques drawn on accounts
owned by others, non-existent accounts or even alleged accounts
owned by non-existent depositors. The cheque will then be deposited
to another bank and the money withdrawn before the cheque can be
returned as invalid or for non-sufficient funds.
Bill Discounting Fraud
This particular method of fraud is currently in
use in the banking sector. Essentially a confidence trick, a fraudster
uses a company at their disposal to gain confidence with a bank,
by appearing as a genuine, profitable customer. To give the illusion
of being a desired customer, the company regularly and repeatedly
uses the bank to get payment from one or more of its customers.
These payments are always made, as the customers in question are
part of the fraud, actively paying any and all bills raised by the
bank. After time, after the bank is happy with the company, the
company requests that the bank settles its balance with the company
before billing the customer. Again, business continues as normal
for the fraudulent company, its fraudulent customers, and the unwitting
bank. Only when the outstanding balance between the bank and the
company is sufficiently large, the company takes the payment from
the bank, and the company and its customers disappear, leaving no-one
to pay the bills issued by the bank.
Forged or fraudulent documents
Forged documents are often used to conceal other thefts; banks tend
to count their money meticulously so every penny must be accounted
for. A document claiming that a sum of money has been borrowed as
a loan, withdrawn by an individual depositor or transferred or invested
can therefore be valuable to a thief who wishes to conceal the minor
detail that the bank's money has in fact been stolen and is now
Wire transfer networks such as the international
SWIFT interbank fund transfer system are tempting as targets as
a transfer, once made, is difficult or impossible to reverse. As
these networks are used by banks to settle accounts with each other,
rapid or overnight wire transfer of large amounts of money are commonplace;
while banks have put checks and balances in place, there is the
risk that insiders may attempt to use fraudulent or forged documents
which claim to request a bank depositor's money be wired to another
bank, often an offshore account in some distant foreign country
A rogue trader is a highly placed insider nominally
authorised to invest sizeable funds on behalf of the bank; this
trader secretly makes progressively more aggressive and risky investments
using the bank's money, when one investment goes bad, the rogue
trader engages in further market speculation in the hope of a quick
profit which would hide or cover the loss.
Unfortunately, when one investment loss is piled
onto another, the costs to the bank can reach into the hundreds
of millions of dollars; there have even been cases in which a bank
goes out of business due to market investment losses.