12th Annual Fraud Conference & Trade Show Offers the Best in Fraud Examination Training

Attendees learn the latest principles and methods to use back home in the war against white-collar crime. 

Mickey and the Association greeted anti-fraud practitioners with open arms at the 12th Annual Fraud Conference & Trade Show on Aug. 5 - 10 at the Walt Disney Dolphin Hotel.

Attendees had their choice of 48 breakout sessions among 12 tracks. During a working lunch, Barry Melancon, CPA, the president and CEO of the American Institute of CPAs, spoke about that organization's efforts to evolve. During a general session, D. Brent Israelson, the founder and chairman of the board of iLumin Corporation, described technology that allows fully automated, legally binding online transactions, which are hedges against fraud. And during a working lunch, J. Steven Clark, described how his expense account transgressions led to his resignation as attorney general of Arkansas but also his personal rehabilitation.

Henry N. Pontell, Ph.D., chair of the Department of Criminology, Law and Society, School of Social Ecology, at the University of California, Irvine, received the Donald R. Cressey Award. And Board of Regent Member Dennis Dycus, CFE, CPA, CGFM, was honored as the newest Association Fellow, in recognition of his outstanding professional achievements and significant contributions to the field of fraud examination. The Association's first two Fellows, Regent Emeritus Martin T. Biegelman, CFE, CIA, and Joseph R. Dervaes, CFE, CIA, chair of the Board of Regents, also were honored.

Attendees visited a diverse group of fraud examination-related vendors during the accompanying trade show.

Prior to the Main Conference, anti-fraud practitioners learned about the identification, investigation, and prevention of off-book schemes during the Sunday Pre-Conference. (A full report of the Pre-Conference will appear in a future issue of The White Paper.) Some attendees stayed after the Main Conference for the two-day Post-Conference, which provided basic fraud examination techniques for auditors and investigators.

During the first general session of the Main Conference, Regents spoke on various fraud examination principles and practices. Dervaes, chairman of the Board of Regents and director of special investigations of the Washington State Auditor's Office, gave a report of the Regents' activities during the last year and implored Members to contribute to the Fraud Common Body of Knowledge. "The Association is always looking for Members who have valuable fraud information to share with their colleagues," he said. "I began a journey to document my life experiences in fraud investigation and to share them with others, and I encourage you to do the same."

Regent Mary Pat Panetti, CFE, assistant vice president/fraud investigation for the Firstar Corporation in Milwaukee, Wisc., spoke about employee theft in today's work environment. "The recent trend of mergers, acquisitions and downsizing has brought many changes in employer/employee relationships and not always positive ones," Panetti said. "In fact, some of these changes have become motivating factors for much of the employee theft that occurs on the job today. … Some of the negative changes have resulted in a lack of employee loyalty, job dissatisfaction, and resentment toward employers. … Along with these changes, reorganizations also have had a negative impact on internal controls, which often results in a greater opportunity for fraud."

Regent Dennis Dycus, CFE, CPA, CGFM, Association of Certified Fraud Examiners Fellow, spoke on organizational leadership and the "tone" established by leaders. "Effective leaders strive to surround themselves with competent people, instill an enterprise-wide attitude of integrity and control consciousness, and set a positive 'tone at the top,'" Dycus said. "They establish appropriate policies and procedures, often including a written code of conduct, which fosters shared values and teamwork in pursuit of the entity's objectives."

But, he said, the standard of behavior must go beyond mere compliance with laws, rules, and regulations. "Managers of well-run enterprises increasingly haveaccepted the view that 'ethics pays' - that ethical behavior is good business. … As CFEs, our actions must reflect a positive 'tone at the top.' Such actions are not only a reflection on us but also our profession and our Association. When it is all said and done, we are talking about one thing - integrity. For without our integrity, we have nothing."

Regent Joel Moskowitz, CFE, special investigator for the Major Fraud Unit of the Clark County District Attorney's Office in Las Vegas, Nev., spoke on identity fraud. "Identity theft is to the Information Age what rum running and gangland murders were to the Prohibition Era," said Moskowitz. "That's the way a reporter began an article concerning the plague of identity theft. The picture painted is both menacing and compelling. The growth of this type of crime is alarming to say the least. The statistics, which indicate there are 500,000 new victims a year, are conservative due to the lack of knowledge of many in law enforcement and the inability to classify this type of crime."

Moskowitz said the first identity fraudsters were methamphetamine "flaggers" - drug addicts who stole mail from street boxes that had the red flags in the upright position. They would copy information from checks, make duplicates with computers and check paper, and cash them with counterfeit driver's licenses. They also would steal credit card information from consumers' bills, report new addresses, and request additional cards. Now fraudsters, he said, find personal data through crooked Internet information brokers whose sources are voter registration rolls, tax records, public filings, and sometimes "credit header" information. Moskowitz said that fraudsters also steal information from discarded computer hard drives and hack business sites to steal credit card information.

Regent Ralph Summerford, CFE, CPA, CVA, president of Summerford Accountancy, P.C., in Birmingham, Ala., spoke on investment swindles and the computer. "The North American Securities Administrators Association includes Internet fraud in the No. 1 spot," Summerford said. "People most at risk are members of religious, political, or ethnic groups - affinity fraud. They are targeted by con artists of the same religious, ethnicity, or political affiliation. The cons seek to take advantage of our natural trust of people who are like us!" he said.

"Think you can spot an online investment scam? Don't be too sure. Accountants, attorneys, and stockbrokers are among the white-collar professionals who colluded to bilk investors out of millions of dollars," Summerford continued. "They typically use well-written e-mails, online newsletters and bulletin boards, and flashy Web sites complete with audio, video, and links to legitimate sites to perpetuate schemes."

Association Working to Educate Future Auditors in Ways of Fraud Examination 

The following are the comments of Joseph T. Wells, CFE, CPA, during a general session of the 12th Annual Fraud Examiners Conference & Trade Show. 

This is the 12th time I've looked out over the faces at the annual conference. This is the 12th time I have been astonished at how we've grown. It's also the 12th time I have counted my good luck. That's because, over the years, many of you out there have become my friends. We're more than that, though. We're compadres, we're fellow soldiers in a war, the war against white-collar crime.

According to the latest statistics, serious crime fell 15 percent last year, to a total of about $15 billion. But believe it or not, by the government's definition, fraud isn't even serious crime. And no federal, state, or local government agency keeps comprehensive statistics on what fraud costs. That's because much fraud goes undetected and unreported.

Let's take a look at some educated guesses about the cost of fraud. Insurance fraud by itself is estimated to cost $50 billion. Medicaid and Medicare fraud may be another $50 billion. Computer fraud alone might be $20 billion. Indeed, according to the most widely quoted figure, the Report to the Nation on Occupational Fraud and Abuse, the total cost of white-collar crime in the United States may exceed $400 billion. That is 27 times the cost of street crime. Now, let's talk about serious, serious crime.

Why is fraud, at this time in history, such a serious problem? There are several reasons. First, the education level of our society, in the last 50 years, has grown tremendously. In short, we're all a lot smarter than we used to be. We all get a lot of our education from the media reporting what goes on around us. In the area of crime, people now know that it's pretty stupid to stick up a bank. The take is small, the chances of getting caught are great, and the penalties are severe. By contrast, the public has seen enough of the kid-glove treatment of white-collar criminals to get a consistent message: If you want to commit crime, fraud is the only way to go.

The second reason that white-collar crime is such a serious problem today has to do with the age demographics of our population. Statistics show that fraud is committed by older citizens, while street crimes are committed by young males. As our society ages over the next 20 years, you should rightfully expect to see more white-collar crimes.

The third reason for the white-collar crime problem has to do with computers and technology. Yes, computers are used to embezzle money. But they also have spawned a new generation of "cyberthieves" who have been able to use the Internet not only to steal money, merchandise, and personal and corporate secrets, this new genre can destroy entire business systems and software.

Although the anti-fraud industry has used computer technology in ingenious ways to detect fraud, there is a more fundamental problem: what do we do with these criminals if we can identify them? For the first time in the criminal history of our nation, the crooks are largely beyond our reach. The global nature of cybercrime means that the victims in the United States may well have been defrauded by a citizen of Nigeria, or North Korea, or the new Russia. As anyone in law enforcement well knows, prosecuting crimes outside one's own jurisdiction and borders creates almost insurmountable problems. Prosecuting a citizen of another nation is so difficult as to be a practical impossibility, except in the most exceptional circumstances. As a result, law enforcement has to give up the chase and go on to something more productive. Unfortunately, the cybercriminals are well aware of this fact.

Nothing short of a global treaty can resolve this seemingly intractable problem. That means over 160 nations would have to agree to one international cybercrime law. If you believe that will happen in our lifetime, you probably also believe that pork really is the other white meat.

I do not wish to be the bearer of bad news, but the trend seems clear and unmistakable: The problems in cyberspace are going to get a lot worse before they get better. Law enforcement agencies can't possibly provide the solutions; it's going to be up to us, the largest anti-fraud organization in the world, to lead the way. There's a clear message here to both veteran and budding fraud examiners: learn everything you can about cybercrime.

If there is a hope for actually deterring fraud, it has to come from two distinct but interrelated groups: fraud examiners and auditors. The fact that many CFEs are intertwined with the accounting community should come as no surprise: about 60% of us come from an accounting background. As many of you have heard me say in the past, the CFE marries the auditor to the investigator, regardless of how hideous the offspring from that marriage may be.

So we as CFEs play an important role in the detection and deterrence of fraud. First, to have the skills to resolve fraud cases. And second, to educate our fellow accountants who have inadequate anti-fraud training. In the United States alone, there are 350,000 CPAs. They historically have been the financial watchdogs of corporate America. Because of their large numbers and historical role, they - more than anyone else - must be on the front lines.

But as hundreds of CPAs out there in the audience know, we are sending our auditors into battle without the armor of education protecting them, and they are getting slaughtered by the enemy. I graduated more than three decades ago with an accounting degree, and to say the anti-fraud education was inadequate is a vast understatement; it was non-existent. Thirty-two years later, with some notable exceptions, anti-fraud education for accounting students is still non-existent.

Just imagine the current situation: 2,000 colleges and universities are graduating accountants sending them into the workforce with no preparation to match wits with smart and sophisticated criminals. With the exception of three universities, not one institution of higher learning requires its accounting majors to take a single course on fraud. In 21st century America, can you imagine anything more ridiculous?

Your Association is committed to changing that. There are three things we are doing now. First, we are working with a broad cross-section of accounting educators to plant the seeds for anti-fraud education. Second, on a personal level, I have agreed to author at least 24 columns for the Journal of Accountancy on fraud-related topics. For those of you who are not familiar with this publication, it is received by every member of the American Institute of CPAs, which includes educators, policy makers, and researchers. The column is a good way to start getting the profession to take a whole new look at fraud.

The third thing we are doing to change the state of anti-fraud education is occurring as we speak. In collaboration with the Graduate School of Business at the University of Texas, we are teaching the first formal, three-hour class in fraud examination principles in the nation. When the course is completed in another two weeks, we will evaluate it, make any necessary adjustments to the curriculum, then furnish the complete syllabus to any college or university that requests it, without charge.

One of the main reasons that anti-fraud training is not taught in college is because the real experts are in industry, not usually in academia. So professors have not known what to teach. Fraud Examination 101 will change that. In addition to providing the written curriculum at the University of Texas, we have brought in a host of expert CFEs to address the class and share real-world experiences. I understand this session has been the most popular graduate accounting class in recent memory.

From this beginning, it is our goal to see that at least half of the colleges and universities will be teaching Fraud Examination 101 within the next five years. This will have enormous beneficial impact on not only the rate of fraud but also on an equally important issue: the future education of the fraud examination professional. All of us old fossils, within the next decade, will fade from view, replaced by someone better trained, better equipped, and better suited for the coming times. In my view, there is no more important mission for the Association than to see that our collective experience is transferred to a new generation.

For you in the audience who represent the academic community, I urge you to make anti-fraud education a reality. For those of you who represent large corporations with deep pockets, I urge you to part with some of your largess to seek better solutions to the problem of fraud by underwriting university research. For those of you in government, I urge you to adopt policies and procedures that favor anti-fraud education. For the rest of us, we should support anti-fraud education by writing to our alma maters, urging them to adopt Fraud Examination 101 for all accounting majors. For me personally, the education of our future accountants and fraud examiners is among my most important goals. As long as I am physically and mentally able, I will not rest until anti-fraud education at the university level is a reality.

Following is the acceptance speech that Henry Pontell, Ph.D., the recipient of the Association's Cressey Award, was unable to present because of time limitations.  

I am doubly honored today. First, I'm truly honored to accept the Cressey Award. To be recognized by such an outstanding organization as the Association is not only personally gratifying but a significant professional achievement. Second, being introduced for this award by my esteemed colleague, and true giant in the field of white-collar crime and criminology, Gil Geis, is something I'll always look back on and cherish.

When my friends, family and colleagues learned I'd won a lifetime achievement award, they were not only polite in masking their disbelief, but immediately asked what I would now do with myself. I told them I was going to Disney World. And they thought I was kidding.

This award is especially meaningful to me, as I came to know Donald Cressey quite well in his last years. He reviewed my first research project on white-collar crime, a Department of Justice report on physician fraud in government medical programs. I had not met Don Cressey at that time but was familiar with both his work and stellar reputation in the field of criminology. His review was quite positive and offered incredibly insightful comments for further improvement. I must have read it a hundred times, not only for the sheer joy of seeing his praise over and over again, but to make sure that I absorbed every detail of his sage advice. That single review eventually led to numerous articles and a book on medical fraud, which was, since Sutherland's mention of the subject in the 1930s, an untouched area in criminological research. In the interim, we met and talked on numerous occasions at professional meetings. In later work on financial institution fraud during the savings and loan scandal (and titled after his famous 1953 book, "Other People's Money"), Kitty Calavita and I used Cressey's classic statements regarding the traditional embezzler to coin a companion term we called "collective embezzlement," which refers to the looting of an organization by its own management; a crime by the organization against the organization itself which arose from the perverse criminogenic environment created by the concurrent increase in deposit insurance and deregulation of the thrift industry in the 1980s.

Above all else, however, the one thing I will never forget about Don Cressey is how much consideration, kindness and respect he showed to a much younger colleague. Besides being a brilliant scholar, he was a decent and caring person. For me to be standing here accepting an award in his name is an incredible honor.

In the few minutes that remain, I'd like to say a little about a phenomenon I've been studying that has yet to be taken seriously by criminologists and others, despite the fact that it already has had a profound influence on society. Professor Stephen Rosoff at the University of Houston and I have labeled this term - that could barely be imagined just a short time ago - "white-collar delinquency," and it refers to the commission of economic crimes and deviance by adolescents. Curiously, neither traditional theories of white-collar crime nor juvenile delinquency alone adequately account for this phenomenon. The Information Age has not only greatly increased the potential for white-collar crime, but for adolescents it has opened a new door previously shut by requirements of age, education, class status, and employment - the unprecedented opportunity to commit economic crimes.

One growing example of such crime involves "WAREZ," which refers generally to commercial software that has been pirated and made available to the public via the Internet or on an electronic bulletin board. "Crackers" (those who "crack" the embedded codes designed to prevent the software from being copied) strip the software of its copy protection and then share illegal copies of the software. Warez sites (and the cracker subculture) provide copyrighted programs for downloading. With a little bit of expertise and a couple of quick clicks of a mouse, one can download thousands of dollars worth of commercial software, copyrighted computer games, and even the latest movies. This can occur so quickly, that at times companies have not yet released the product before it is available for free on the Internet. It is estimated that this one form of software piracy alone costs American companies billions of dollars annually and is increasingly international in scope.

Other examples of white-collar delinquency abound. Consider the case last year in which a New Jersey teenager became the youngest person ever charged with securities fraud and the only minor ever sanctioned by the Securities and Exchange Commission. He allegedly perpetrated a sophisticated "pump and dump" scam, buying large blocks of cheap microcap stocks (using his father's account), and then hyping them in Internet financial chat rooms utilizing hundreds of fictitious aliases. After quickly selling off his grossly inflated shares, he reportedly netted an illicit profit of $800,000. His father declared in an interview: "I'm proud of my son.". . . . "(He) didn't sit behind a garage smoking pot or stealing wheels off a car." Whatever his intent, this proud parent is yet another illustrator of the theoretical schism between traditional perceptions of delinquency and the nascent recognition of white-collar delinquency.

Other prominent examples include two cyberattacks that brought the Internet to its knees. One - the infamous "Love Bug" e-mail virus - damaged an estimated 45 million PCs at a staggering cost of $10 billion. The other crippled most of the major e-commerce sites causing more than $1 billion in damages. The Love Bug virus was created and loosed by a hacker calling himself Spyder. The assault, which shut down Yahoo.com, Ebay, Amazon.com, E-Trade, CNN.com, and a host of other popular sites, was launched by a hacker calling himself Mafiaboy. Spyder and Mafiaboy were both 15 years old. It is also worth noting that Mafiaboy, as a juvenile, was charged by Canadian authorities with the offense of mischief. Mischief may seem like a peculiar way to characterize a billion- dollar crime but it well illustrates the uncomfortable fit between traditional notions of delinquency and massive economic crimes committed by computer-savvy teenagers.

Returning to the case of software piracy and the Warez subculture, there are also major legal issues involving copyright and intellectual property that loom large on the horizon. While the mass media, lawyers, and most scholars have firmly focused the politics of the Web around the proliferation and potential control of "cyberporn" and related issues of free speech and state censorship, they have largely missed the boat on intellectual property as the legal form of the Information Age. That is, what should and should not be protected, and by what mechanisms, has received but scant attention by comparison. The proliferation of WAREZ is but one indication of this inattention to
the increased value of information issues in the age of the Internet.

The white-collar delinquents who comprise the cracker subculture have seemed to confuse the free flow of information with the free use of that information. With recent changes in federal law, some crackers are starting to pay a heavy price for their misunderstanding and skewed idealism. As Mark Twain once observed: "It ain't what we don't know; it's what we know that ain't so." And the "Information wants to be free" credo of these white-collar delinquents simply "ain't so."

So who carez about warez or, for that matter, white-collar delinquency? Everyone who seeks to profit fairly from their own intellectual property should. At least one adult observer had a sudden change of heart regarding his teenage cracker friend, Jake:

Still I don't see Jake as a criminal; he's a smart kid who'll probably make a darned fine 3-D animator. As he starts closing windows of Jake's Infinite Online Software Emporium, I'm smiling indulgently at his harmless little hobby. I thank him for giving me a glimpse into the cybergangs who ask for CD-ROM burners for their birthday and don't tell their parents what they're doing up there in their rooms all night. At least they're not pushing drugs and getting into trouble with their loud music and long hair. It's all in good fun, I'm thinking, a chance for shy teenage boys to be somebody - such as SKuLLZ, BlooDMaSTeR, and CYBeRDeViL. The SPA should get off its high horse, I'm thinking; you can't really blame the poor kids for wanting to…"Hey, wait a minute" I yelp as Jake's about to sign off. "What's that?" I'm stabbing my finger at the screen. Jake grins. "Hey, you're famous." There, in the list of warez, is my own book - the 16MB electronic edition of Macworld Mac Secrets, which took seven months of blood, sweat, and tears to write. One of these little creeps copied it off the CD that comes with the book and posted it for anyone to download. Something must be done. Call the SPA. Somebody stop these kids. (Source: Pogue, David. "Some Warez Over the Rainbow." Macworld, Oct. 1997, 14 (10): p. 1)

In closing, I'd like to again thank the Association for this award and for the opportunity to speak to you today. Thank you very much.

General Session Speakers Cover Diverse Areas 

The future of the AICPA. A repentant former state attorney general fraudster. The safety of virtual electronic transactions. The general session and working lunch speakers covered disparate but equally interesting areas. 

AICPA Head Says Group Needs 'Reinvigoration' 

Barry Melancon, CPA, the president and CEO of the American Institute of CPAs (AICPA), said that the auditing profession has to learn from fraud examiners and integrate what they do into the CPA profession. "It's not something that we've done a very good job at," he said. "Until 1996, we (AICPA) refused to even use the word 'fraud' in our standards. And finally we were able to cross that bridge and now we're in the midst of trying to update some of those items again."

He said there are many opportunities for the Association and the AICPA to work "hand in glove" and learn from the fraud examination field. Joseph T. Wells, CFE, CPA, founder and Chairman of the Association, is now a member of the AICPA's strategic planning committee. "The (auditing) profession has to step up in the areas of fraud detection and reporting. We've been very hesitant to do that and we need to learn," Melancon said.

The CPA exam format and the way it's administered have to be modernized. Currently, CPA exam takers, armed with pens and $1.99 calculators, sit in a large room for two days, he said. By the end of 2003, the AICPA hopes to offer computerized exams with video simulations of audit environments and access to online research.

Melancon said the AICPA is saddled by the Securities and Exchange Commission's (SEC) outdated rules from 1933 and 1934. However, he anticipates the AICPA will be able to cooperate with the new SEC administration.

He said, however, that the public still can expect continued news reports on " 'so-called' failed audits and missed fraud. We want 100 percent accuracy but that's not possible. This profession has a 99.7 percent success rate in the audits that are done from a public company perspective. Unfortunately, the .3 percent are the ones you read about in the newspaper and have a negative impact on the profession. We must strive continually to improve that."

Another challenge for AICPA, Melancon said, is to attract more high school and college students to the profession. He said that high school teachers aren't giving students an accurate and modern picture of accounting and auditing. "Our research shows that if a bright student goes to a high school that has an accounting program he or she is less likely to major in accounting than if that student goes to a high school that doesn't have an accounting program," he said. "The correlation is that the more they know about it the less likely they are to major in accounting." The AICPA is in the midst of a five-year, $25 million student recruitment program.

Melancon described the AICPA's controversial "XYZ" designation. He said that the proposed international business credential, to be voted on by the AICPA membership in November and December, would be for new professionals who don't necessarily need or want a CPA designation. "The services mix of (accounting) firms has broadened significantly," he said. "More and more firms are not branding themselves CPAs and aren't hiring people who will even be eligible to take the exam much less pass it," he said. The AICPA doesn't want to miss a whole generation of new business professionals, Melancon said. "We firmly believe that the statistics show that we have a one-decade opportunity to create something that reinvigorates" and protect the CPA profession while offering a new designation for those who will never be CPAs, he said.

Every profession, product, or service has a life cycle," he said. "And those that are the most successful are those that find at their apex the opportunity to tweak certain things in order to create a new product life cycle."

A Humbled 'Big Dog,' Former Attorney General Rebuilds Life 

Steve Clark said he descended from a family of distinguished farmers, preachers, teachers, and politicians. "Let me tell you what I used to think I was," he said. Clark said he completed college in three years and graduated from law school at 24. Before the age of 30, he said he was a private practitioner and then a municipal judge, elected president of the Young Lawyers of Arkansas, was the assistant dean of a law school, and then was hired as the governor's chief of staff.

At age 31, he became the youngest elected attorney general, he said. "I had a dream and that was to be governor of Arkansas," he said. "I was going to accomplish this goal without a doubt." Clark said that he was the first attorney general to be elected president of the National Association of Attorneys General, the only Arkansas attorney to ever argue eight cases before the U.S. Supreme Court, and the only attorney general ever re-elected five times. "I was on my way. I would have my dream. I would be governor," said Clark who admitted he wanted to join the league of "big dogs."

As he was mounting his bid for the governor, Clark was accused of using a state-owned credit card as attorney general to entertain family, friends, and girlfriends at the state's expense. After an investigation, he was indicted for a Class C felony, theft by deception, which carried a minimum fine of $10,000 and could be coupled with a penitentiary sentence of up to 20 years. He was convicted and fined $10,000. Clark quit his job and was stripped of his law license.

"Now let me tell you who I am," he said. "I'm twice divorced. I'm bankrupt. I'm alcoholic. I'm a felon and a fraud. Yet I stand before you today to tell you that I'm probably the most blessed and the most fortunate of any of the persons you've ever met."

Disgraced and discredited, and hounded by a huge federal tax debit, Clark found himself in Austin, Texas, working for a friend's healthcare business that eventually went bankrupt. He then applied for 70 jobs, got two interviews, and no offers. He finally found a job at Half-Price Books where he stocked books, worked the cash register, and cleaned the bathrooms.

In the meantime, he remarried. His new wife suggested he appeal to the state to retake the bar exam and become an attorney again. Texas is one of the few states that allow disbarred lawyers to apply for possible reinstatement. The state granted him permission and Clark passed the Texas bar on the third try. After a hearing, the state finally allowed him to practice law. Clark now has a small general civil practice in Austin.
Drawing from his lessons, Clark counsels public and private officials to keep meticulous expense records, something he didn't do. But he also has more personal recommendations. "I learned I'm not the center of the universe," said Clark. "I'm neither a fixture nor a necessity in this world. I'm just part of the story line." He said that many people "practice war and not life. … Life is about faith, family, and friends. I decided I want to practice life."

E-visionary says Electronic Transactions will Reduce Fraud 

With the advent of personal computers, the high-tech gurus told us we were hurtling toward the paperless office. The problem was that we had a printer connected to that PC and now we find that we have even more piles of paper. D. Brent Israelson, founder and chairman of the board of iLumin Corporation, is convinced that soon we won't need much of that paper, at least for official, legally binding documents.

He said the U.S. and many countries are moving toward "enforceable online transactions" using "digital signatures" to cut costs, ensure quality, and greatly reduce fraud risks.

The 1998 federal Government Paper Elimination Act, Israelson said, requires all U.S. federal agencies by the year 2003 to actually put all their forms in an electronic format, make them available electronically, and provide for electronic signatures and electronic filing of those forms.

In March 1999, the governor of Utah signed into law the first digital state act in an online signing room approving digital signatures and fully electronic transactions, Israelson said. On June 30, 2000, President Clinton signed similar legislation approving the same processes federally. Since then 48 states have enacted some type of digital or electronic signature legislation, Israelson said. Most of the countries in the European Union, Asia, South America, and Latin America have similar legislation.

Israelson's company, he said, has facilitated fully electronic mortgage transactions, company investments, and car purchases on the Internet without any paper exchanges.

He said that current traditional online transactions use the Internet as a starting point. On one online mortgage Web site, the company prints up the form that was completed by an Internet user and "hands it to three different parties who key it into three different systems to be able to continue the processing of the transaction. It's a nice front but it doesn't have the back-end substance that we're really looking for."

The same applies to buying a computer online through a popular company. "Many think I can just put in my credit card number and I get my computer," Israelson said. "Is that right? It's not. They require you to make a copy of your driver's license and credit card, sign the form (printed from the Web site) and fax that to them before they release the product for shipment. … We do a little bit of data exchange back and forth between parties but the real foundation of these transactions is on paper."

Enforceable online transactions use an application called Extensible Markup Language (XML) to manipulate "tag pieces" of information - name, date, the amount of a loan, the grantor of the deed, loan property description, etc. - into a document that can be read by a computer. Humans no longer need to extract information from online forms. Combine the XML-generated document with the electronic signature, Israelson said, and we have a secure, accurate document that's admissible in a court of law.

"Many people are concerned about moving from paper-based transactions to electronic transactions," he said. "I always ask this: What gives you so much assurance that the paper transaction is valid and hasn't been fraudulently executed? … By moving to an electronic world with digital signatures we actually create a tamper-proof seal around the whole document so that if somebody makes a change to that document, even if it's one number or one space, then that signature will not validate. And you know that from the moment it was signed to the moment you received it, if it validates then it wasn't changed."