Jerry Schneider One of the more famous cases of computer abuse involves a young man named Jerry Schneider. Schneider had a flair for electronics. By the time he left high school, he had already formed his own firm to market his inventions. His firm also sold refurbished Western Electric telephone equipment. In 1970, he devised a scheme whereby Pacific Telephone in Los Angeles would supply him with good equipment-free!

Pacific Telephone used a computerized equipment ordering system. Equipment sites placed orders using a touch-tone card dialer. The orders were subsequently keypunched onto cards. The computer then updated the inventory master file and printed the orders. The orders were supplied to a transportation office that shipped the supplies.

Schneider intended to gain access to the ordering system. He sought to have Pacific Telephone deliver supplies to him as if he were one of its legitimate sites. He used a variety of techniques to find out how the system worked and to breach security: He sifted through trash cans and found discarded documents that provided him with information on the ordering system. He posed as a magazine writer and gathered information directly from Pacific Telephone. To support his activities, he bought a Pacific Telephone delivery van at an auction, "acquired" the master key for supply delivery locations in the Los Angeles area, and bought a touch-tone telephone card dialer with a set of cards similar to those used by the equipment sites to submit orders.

Schneider took advantage of the budgeting system used for ordering sites. Typically, these sites had a budget allocated larger than they needed. Providing this budget was not exceeded, no investigation of equipment ordering took place. Schneider managed to gain access to the online computer system containing information on budgets. He then determined the size of orders that would be tolerated. For seven months Pacific Telephone delivered him equipment that he resold to his customers and to Pacific Telephone. He kept track of the reorder levels for various Pacific Telephone inventories, depleted these inventories with his ordering, and then resold the equipment back to Pacific Telephone.

Schneider's downfall occurred when he revealed his activities to an employee. He was unable to keep up with the pace of his activities. As a result, he confided in an employee to obtain assistance. When the employee asked for a pay raise, Schneider fired him. The employee then went back to Pacific Telephone and told them of the fraud.

There are varying reports on how much Schneider took from Pacific Telephone. Parker (1976) estimates it was possible equipment worth a few million dollars was taken. For the fraud Schneider received a two-month jail sentence followed by three years probation. Interestingly, upon completing the jail term, he set up a consulting firm specializing in computer security.

Required. Write a brief report outlining some basic internal control procedures that, if they had been applied, should have prevented or detected Schneider's activities. Be sure to explain why the application of the internal control procedures you recommend would have been successful.