Auditing Information Systems, Second Edition

8.6. WIRE TRANSFER FRAUD

The lack of segregation of duties and inadequate system security administration procedures in case study 8.12 should not be taken lightly, especially because of the potential risk that is associated with any wire transfer process. Many types of fraud, such as loan fraud, can be costly to financial institutions. Some loan fraud schemes take months or years to reach significant proportions, while others require the perpetrator to expend a great deal of effort in preparing false documents to prevent detection while trying to carry on their normal duties. Even when a fraudulent loan has been executed, the task of withdrawing the funds by cash or check is difficult to accomplish without being noticed. Losses from wire transfer fraud, on the other hand, can occur instantaneously. Sometimes wire fraud can occur with little or no advance planning. For example, a wire fraud can occur from an opportunistic wire transfer operator who notices that another operator has left his or her workstation without signing off. What makes wires so risky is that, to the delight of perpetrators, the funds are immediately available for withdrawal.

Numerous recent cases of wire transfer fraud have resulted in significant losses and embarrassment. This list illustrates the importance of the need for adequate internal controls in a wire transfer environment:

• A large bank in the Eastern United States incurred a $1.5 million loss to a former manager at a large international public accounting ...