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CFCI EXAM AND STUDY GUIDE 2025 | ALL
QUESTIONS AND CORRECT ANSWERS |
ALREADY GRADED A+ | VERIFIED
ANSWERS | LATEST VERSION
Management level fraud is committed less frequently than employee level fraud however the financial loss is greater. (pg 30) -------------------------------- -----Inverse ratio between the level of organization at which fraud is committed The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. pg 8 and 30 --------------- ----------------------Fraud Triangle financial difficulties, such as large amounts of credit card debt, an overwhelming burden of unpaid medical bills, large gambling debts, extended unemployment, or similar financial difficulties. -------------------------- -----------Financial pressure employee identifies a weakness in the organization's anti-fraud controls. Such a weakness might exist, for example, if an employee is able to set up a phony vendor, have fraudulent invoices approved, and have payment sent to an address that he or she controls. ------------------------------------- Opportunity persons who have committed fraud convince themselves that the act is either not wrong or that even though it may be wrong, it will be corrected because they will eventually return the money. Another, often more damaging form of rationalization occurs when employees justify the fraud
by taking the attitude that they deserve the stolen money—because the company unfairly denied them a raise or promotion, or because some other form of mistreatment made them "victims." ------------------------------------- Rationalization Helps explain the ways in which many frauds are committed by employees, middle managers, and executives of financial services organizations. (pg34) -------------------------------------Opportunity Element of the triangle Personal Greed, was considered the 4th side of the diamond. (pg 36) ------- ------------------------------What caused the Fraud Triangle to morph into the Fraud Diamond Internal fraud where an employee can submit a fictitious loan to a loan officer of the same company. -------------------------------------Loans to phantom borrowers Start of chpt 4 the fraudster will make loan payments from funds received from subsequently closed or older fraudulent loans in a form of loan lapping scheme. pg 36 -------------------------------------Loan Lapping (aka accounts payable fraud) "A third-party"or "nominee" loan is a loan in the name of one party that is intended for use by another. In other words, a persons PII is used with permission to secure a loan for someone who would not qualify, thus circumventing the system. -------------------------------------Nominee or straw borrowers
investment analysts, or other users of the information. ---------------------------- ---------financial fraud Accounts receivable fraud, this involves simply stealing cash before it enters the organization's accounting system. -------------------------------------Skimming (cash larceny) Perpetrated by employees who cause their employer to issue a payment to a false supplier by submitting invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases. ----------------------------- --------Billing Schemes taking advantage of employee access to blank company checks, using a password to steal computer-generated checks, or producing counterfeit checks. ---------- ---------------------------check tampering making false claims for reimbursement, or inflating or creating fictitious business expenses. (Travel /meal reimbursement. --------------------------------- ----Employee reimbursement scheme Bribery, illegal gratuities, and/or extortion. ------------------------------------- corruption when something of value is offered or given to influence a business decision -------------------------------------bribery
when something of value is given to an employee to reward a business decision. -------------------------------------Illegal Gratuities when a person demands payment or seeks to influence a business decision by threat of harm through loss of business or personal injury. ------- ------------------------------Extortion involving employees and vendors, often using inflated billing or invoices for which the employee is paid a portion of the inflated or fictitious invoice. ----- --------------------------------Kickback Schemes the creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or debit card. -------------------------------------credit card fraud Card not present transactions -------------------------------------C.N.P involves the unauthorized use of another person's personal data for illegal financial benefit. Involves abusing the stolen information to transact personal business in the victim's name. -------------------------------------identity fraud the fraudulent acquisition or stealing of confidential personal information. --- ----------------------------------identity theft
20% of people will never commit fraud 60% are fence sitters and may commit fraud if given the opportunity 20% of people inherently dishonest (pg 29) ------------------------------------- 20 - 60 - 20 rule of human component of fraud Employee level fraud and management level fraud -------------------------------- -----2 types of insider fraud threat a dishonest loan officer or bank manager agrees to authorize loans to one or more crooked bank colleagues or to dishonest counterparts in other financial institutions made with the understanding that a comparable, reciprocal loan or favor would be made in return. (pg 39) ------------------------ -------------Reciprocal loans a form of loan fraud in which a large depositor or a deposit broker agrees to give a bank its business in exchange for a loan that it might otherwise not qualify for or that is used to perpetrate a real estate fraud. ----------------------- --------------Linked financing typically are made by committing the borrower's receivables, inventory, or other assets as collateral. Also referred to a "Floor-plan" lending as merchandise is used as collateral for the loan. ------------------------------------- Working Capital or Asset-based Loan Fraud bank employees with authority to credit and debit these accounts would and to move funds held in suspense accounts the fraudster controls, such as a personal checking account. -------------------------------------Suspense Account fraud
- Application
- Tax return/financial statement
- Appraisal
- Verification of deposit
- Verification of employment
- Escrow/closing documents
- Credit documents -------------------------------------Types of mortgage fraud Soft indicators and hard indicators. -------------------------------------Two key categories of indicators of potential or actual employee fraud. Are intangible, behavioral signs displayed by dishonest employees or employees with an intention to commit fraud. -------------------------------------Soft indicators Are pieces of evidence that are tangible. Often they are signs represented by numerical oddities or by physical evidence. ------------------------------------- Hard indicators refers to separating job functions in a way that no single employee is in a position with sufficient authority to perpetrate a fraud, either single- handedly or with a collusive vendor, customer, or ex-employee. The responsibility for record-keeping for an asset should be separate from the physical custody of that asset. -------------------------------------Segregation of Duties (SoD)
Employees use dormant accounts to transfer money. An account is considered dormant after more than 12 months of inactivity and/or statements are returned as undeliverable. ------------------------------------- Dormant account fraud Since the CD is usually not touched by the account holder until maturity it gives the employee opportunity to not record deposits or skim. ---------------- ---------------------Certificate of Deposit (CD) fraud Bank employees or call center reps would say they returned or credited a bank fee to a customer when it was really credited to their own or coworkers accounts. -------------------------------------Fraudulent fee reversal Simply put, stealing cash from the teller drawer. ------------------------------------
- Teller Theft of Skimming Theft of cashier's checks, money orders, and traveler's checks ---------------- ---------------------Theft of consignment items Fraud committed by a person responsible for paying company invoices, thus giving them ample opportunity to send checks to fake invoices or shell companies. -------------------------------------Accounts Payable (AP) or Billing Fraud Setting up shell companies and submitting invoices to be paid, usually a high person who approves third-party payments. The company appears
real and legit. -------------------------------------Shell company and/or phony invoice fraud Employees with access to VMF can generate phony invoices, enter bogus vendors, and obtain approval of fraudulent transactions. ------------------------- ------------Vendor Master File (VMF) manipulation dishonest vendors typically involves a bribery or kickback scheme jointly perpetrated by a bank employee and a crooked supplier. ------------------------ -------------Collusion with Vendors pre-solicitation, solicitation, and submission. (pg 62) ------------------------------ -------Three-stages of collusion with vedors Dishonest insiders accept bribes or kickbacks from a specific vendor in exchange for recognizing the need for the vendor's product or services by his or her organization. (Pre-solicitation phase) ------------------------------------- Purchasing of unnecessary goods. Vendors pay corrupt bank employees to write contract specifications that favor their particular goods or services. (Pre-solicitation phase) ---------------- ---------------------Specification schemes. when competitive bidding is required only for contracts or purchases over a minimum amount., a corrupt procurement employee may accept a bribe from a vendor to split the contracts so that each of the two amounts falls
Employees using traveling and entertainment expenses as a way to defraud the company. -------------------------------------Travel and Entertainment fraud (T&E) When two or more employees dine together while on the road, each may submit a forged claim for reimbursement for his or her own meal even though a single member of the group paid the entire bill. Similar practices often occur with shared taxis, airport shuttle services, and other expenses. (T&E Fraud) --------------- ----------------------Making multiple reimbursement claim submissions. Receipts for transportation, hotel, restaurant, and other business travel expenses are easily obtained and "recycled" by employees either by forgery or by alteration. It is all too easy, for example, to alter the date or amount on a receipt before it is submitted. (T&E Fraud). ------------------------- ------------Falsifying receipts. If receipts are required for all expenses over $25 for meals, an employee may fraudulently submit undocumented claims for amounts of $24.99 or $24.95. (T&E Fraud) -------------------------------------Claiming expenses just below the minimum documentation requirement. A dishonest employee may test your organization's anti-fraud controls by submitting a receipt for a personal expense incurred during a business trip. If the form is complicated the processor may just approve payment (T&E Fraud) -------------------------------------Claiming for "out-of-policy" expenses.
Corporate card used by legitimate holders who charge non-business expenses to the employer and falsely document them as legitimate job- related purchases. (pg 64) -------------------------------------Purchasing Card Fraud (P-Card) An electronic network for financial transactions in the U.S. The network processes batches of debits and credits to various financial institutions allowing for fast, safe and efficient transfer of funds. ------------------------------ -------Automated Clearing House (ACH) a check signed by someone else other than who is specified on the check without that person's permission -------------------------------------Forged Check An employee stealing blank checks ad making them out to him or herself or cash, and forges the name of the authorized person to sign checks. ---------- ---------------------------Theft and Forgery of stolen check Perpetrator steals checks made out to legitimate payee and are signed. The perpetrator white outs the payee, alters or changes the payee information to themselves or others. -------------------------------------Check interception and forgery of endorsement Where an insider in AP, modifies the Vendor Master File changes the name of a legitimate business to a name that is similar enough that it wont be noticed. The perpetrator simply changes the information back after the execution of the fraud. -------------------------------------Electronic Payee Alteration
perpetrators (possible employees) steal PII of customers and use the information to commit identity frauds such as unauthorized loans, credit accounts (pg 71) -------------------------------------Theft of confidential information insiders pose a substantial threat by virtue of their knowledge of and access to their employers' systems and/or databases, and their ability to bypass existing physical and electronic security measures through legitimate means. -------------------------------------Insider abuse of Computer Systems Pg 72- 76 -------------------------------------Red Flags of all the above employee level embezzelment 76 - 83 -------------------------------------Checklist of all the above employee level embezzelment Pg 83 -------------------------------------Chapter 4 Review points (Employee Level Embezzlement) Self dealing is approving loans to ones self (pg 87) -------------------------------- -----Management-Level self dealing a law that prohibits U.S. corporations from making illegal payments to public officials of foreign governments to obtain business rights or to enhance their business dealings in those countries -------------------------------- -----Foreign Corrupt Practices Act (FCPA)
misrepresenting financial performance involves recording nonexistent revenue or misrepresenting the period in which the revenue was received. - ------------------------------------Recording false revenues involves recording revenue—typically loan interest income and interest from investments and related revenue—from a future reporting period in the current period, or understating amounts set aside for loan losses. -------- -----------------------------Fraudulent revenue recognition Neglecting to record expenses and burying vendor invoices, management can make it appear as if expenses for a particular reporting period are lower than they actually are, thereby making earnings appear greater than they are. -------------------------------------Manipulating liabilities failure to mark investments to market when the securities markets decline, overstating the amount of cash, or recording the value of an outstanding loan as being greater than its estimated market value.(pg93) ------------------- ------------------Overstating Assets Libor (London Inter-Bank Offered Rate) is an average interest rate calculated through submissions of interest rates by major banks across the world. The scandal arose when it was discovered that banks were falsely inflating or deflating their rates so as to profit from trades, or to give the impression that they were more creditworthy than they were -------------------- -----------------Manipulating interest rates
Basically time card fraud, where employees clock in for other employees or create a fictitious employee and collect their pay. ---------------------------------- ---Employee ghosting fraudster agrees to send construction company-owned or leased vehicles to a service provider for what is described as regular maintenance. However, either the pricing for the actual services rendered is greater than the market price, or the services documented are not actually rendered. In either case, the service provider gives a kickback to the company employee. -------------------------------------Vehicle maintenance scheme collusive fraud wherein an employee helps a vendor illegally obtain a contract that was supposed to involve competitive bidding, by the employee getting a kickback. -------------------------------------Bid-Rigging Schemes or collusion business borrowers create false invoices to document bogus receivables, or otherwise cook the books to appear financially sound to a lending institution. -------------------------------------Asset-based or working capital loan fraud Hiding critical information about the loan, or falsifying employment history, and indicating the property would be a primary residence when it was purchase for investment. -------------------------------------External mortgage fraud
Fraud for profit-dishonest outsiders falsifying mortgage applications so a normally unapproved loan would be approved. Fraud for property-defraud borrowers through the real estate system. -------- -----------------------------Mortgage Fraud Modus Operandi Straw buyers or legitimate buyers who are led to believe that they are getting a good deal in buying a new home such as incentives or loan for down payments. -------------------------------------builder bailout scheme Fraudster recruits a gullible investor into purchasing either a rundown over valued home, or no home at all and the investor finances the home, with the promise of tenants or rent payment that never get paid. --------------------- ----------------Chunking buying a property to collect rent while mortgage payments are never paid. - ------------------------------------Equity Skimming Fraudster files a bogus deed or title or steals a legitimate title, then obtains a loan on the property and takes the money and defaults on the loan leaving the victim of identity fraud with the outstanding debt. -------------------- -----------------Identity fraud to obtain mortgage A home is purchased on an original loan then an unscrupulous appraiser fraudulently appraises the property at a much higher price. The owner then quickly resells the home. -------------------------------------Overstating Appraisal Values to sell a property multiple times
