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Posted on August 31st, 2012 in Cybercrime by Simply Security | Be the first to comment | Tags: cybercrime

A company can pride itself on accuracy and the quality of the products and services it delivers, but when those systems are exploited for personal gain, it leaves the company in a bad situation financially and publicly.

A company can pride itself on accuracy and the quality of the products and services it delivers, but when those systems are exploited for personal gain, it leaves the company in a bad situation financially and publicly. Individuals will no longer give the company the same respect or put faith in it the way they once might have, and more hackers may look to make use of loopholes in the system for personal gain.

This is the situation currently facing the Internal Revenue Service (IRS) after a massive volume of fraudulent returns were discovered, prompting five-year projections on federal loss to skyrocket. According to reports, it could be a harsh blow for the current filing processing system, as well as those within the agency.

A taxing issue

Every year individuals and businesses file taxes, receive refunds and either receive checks or withdraw direct deposits from the IRS. These are funds they are rightly entitled to due to payments they have made into the system during the previous fiscal year. However, not everyone respects the system or uses it honestly, and the advent of online filing has made this fraud ring even easier to maintain.

Computerworld wrote that the IRS isolated a number of returns all filed from the same five addresses in the past year, totaling more than $8 million in incorrect tax refund checks. This has prompted additional investigations and projections on fraud loss, which is estimated to add up to more than $20 billion before 2017.

The reason for such dismal numbers is that internal protocols, as well as cross-checking guidelines and other methods for ensuring accuracy, on annual returns are inadequate. The Treasury Inspector General for Tax Administration deemed these systems unfit to moderate incoming returns due to the volume and complexity of submissions at this point. As the federal government moves toward more cloud implementation, data in terms of personal ID could become harder to protect, with tax ID numbers getting stolen and returns being filed simultaneously.

What's more, the source reported that many of the returns filed were either for people ineligible for filing that year due to incarceration or death. Somehow the IRS systems missed these returns and automatically issued refunds anyway.

Not an isolated issue

This isn't the first time that the IRS has had a problem with its filing systems, and not just from outside fraudsters. IRS workers are in a unique position where they have access to millions of unique taxpayer identification numbers, as well as an in-depth knowledge of how the system works, making it more tempting and possibly easier for them to get away with fraud and violate internal data protection policies.

A report from the Accounting Today stated that one former worker was sentenced to two years in prison and a $10,000 fine, plus the loss of his personal computer, after it was discovered that he had filed a number of fraudulent returns. The source reported that he used his work privileges to gain access to taxpayer identification numbers and other information that allowed him to file the returns and receive checks for refunds he was not entitled to.

"Anyone filing a fraudulent tax return…should take note of the prison sentence they risk if they engage in this sort of criminal conduct, even if they have no criminal record," said Jerry Martin, an attorney involved in the case. "They should also be reminded that there is no parole in the federal system."