CFCI Study Guide – Updated| [Latest 2026/2027 Update] Questions & Answers | Grade A | 100% Correct
Fraud ✔️"Any illegal acts characterized by deceit, concealment, or violation of trust. These acts are not dependent upon the perpetrated by
individuals and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business ad-
vantage."
Main types of fraud ✔️Internal Fraud and External Fraud
Internal Fraud ✔️Activities that may be criminal, committed within an organization, typically by the employee against the employer.
External Fraud ✔️Deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
Embezzlement ✔️The theft of money, property, or other assets of the employer.
Larceny ✔️The taking away of the property of another, with the intent to convert it to his/her own use.
Financial Fraud ✔️"Cooking the books." This type of fraud generally refers to falsely representing the financial condition of the company, so as to
inflate the value of stock, fraudulently boost executive bonuses, or otherwise mislead shareholders, lenders, employees, investment analysts,
or other users of the information.
Skimming (cash larceny) ✔️Accounts receivable fraud, this involves simply stealing cash before it enters the organization's accounting system.
Billing Schemes ✔️Using false documentation to cause a targeted organization to issue a payment for false services and/or purchases.
Check Tampering ✔️Common method (Taking advantage of employee access to blank company checks, using a password to
steal computer-generated checks or producing counterfeit checks).
Employee reimbursement scheme ✔️Making false claims for reimbursement or inflating or creating fictitious business expenses. (Travel /meal
reimbursement.
Corruption ✔️Bribery, illegal gratuities, and/or extortion.
Bribery ✔️When something of value is offered or given to influence a business decision.
Illegal Gratuities ✔️When something of value is given to an employee to reward a business decision.
Extortion ✔️When a person demands payment or seeks to influence a business decision by threat of harm through loss of business or personal
injury.
Kickback Schemes ✔️Forms of corruption involving employees and vendors, often using inflated billing or invoices for which the employee is
paid a portion of the inflated or fictitious invoice.
Credit Card Fraud ✔️The creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or debit card.
C.N.P ✔️Card not present transactions
Identity Theft ✔️The fraudulent acquisition or stealing of confidential personal information through social engineering.
Identity Fraud ✔️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.
Wildcat Banking ✔️An extreme form of what was called free banking. "A bank that issued notes without adequate security in the period before
the establishment of the national banking system in 1864".
2 categories that encompass Fraud ✔️Theft (stealing money, ID, or assets) and deception (cooking the books, lying to shareholders, employees
or partners)
Savings and Loan Crisis ✔️The failure of about 1000 savings and loan banks as a result of risky business practices. The roots of the S&L crisis lay
in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees.
Myth #1 of the Financial Services ✔️"We have very little fraud here" ex: subprime mortgage fraud
, Myth #2 of Financial Services ✔️"Ethics and training compliance has us covered" Fraud is not always covered in ethics policy or training.
Myth #3 of Financial Services ✔️"Fraud is an unavoidable cost of doing business" Fraud is usually not serious enough to destroy a financial
service firm, it is much more than necessary cost of doing business.
Chapter 1 review points ✔️• Statistical picture of fraud. The numbers do not lie: Fraud is a huge worldwide problem—for all organizations.
• Financial services fraud. Seventy-four percent of financial institutions experienced attempted payment fraud (check fraud, ACH fraud, or
credit card fraud in 2020).
• Definitions of fraud. The broad definition of fraud is illegal activity representing either theft or deception, or a combination of both.
• Myths about fraud. It is easy to become complacent about fraud but doing so can be very costly. Fraud does occur in every organization and is
potentially serious enough to cause major long-term damage.
• Main types of fraud. Countless varieties of fraud threaten financial institutions. Fraudsters are constantly thinking up new ways to target
financial services institutions.
20-60-20 rule of human component of fraud ✔️20% of people will never commit fraud
60% are fence sitters and may commit fraud if given the opportunity
20% of people are inherently dishonest
2 types of insider fraud threat ✔️Employee level fraud and management level fraud
True or False: Managment Level Fraud is committed less frequently than employee level fraud? ✔️True: Management level fraud is committed
less frequently than employee level fraud however the financial loss is almost always greater.
Fraud Triangle ✔️Created by leading criminologist Donald Cressey. The three factors that contribute to fraudulent activity by employees:
opportunity, financial pressure, and rationalization.
Financial pressure ✔️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.
Opportunity ✔️Employee identifies a weakness in the organization's anti-fraud controls. 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.
Rationalization ✔️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."
Remember: ✔️The opportunity element of the Fraud Triangle helps to explain the ways in which many frauds are committed by employees,
middle managers, and executives of financial services organizations.
What caused the Fraud Triangle to morph into the Fraud Diamond? ✔️A reevaluation for peoples unadorned lust for money caused personal
Greed to become the 4th side, morphing the triangle into the diamond.
Chapter 2 Review points ✔️• External fraudsters are a varied and demographically diverse group, which makes it difficult for fraud fighters to
profile these criminals. The best approach to detecting and preventing external fraud against financial institutions is to understand the red flags
of these crimes.
• Internal fraudsters do have common behavioral and personality traits, which helps to detect suspicious activity before it is too late.
• Up to 80 percent of employees are either totally honest or honest to the point that they will not steal except in situations in which the
opportunity to do so presents itself. And even then, these "fence sitters" may err on the side of honesty. The remaining 20 percent of your
organization's employees are fundamentally dishonest and will go out of their way to commit fraud.
• Internal fraud can be divided into two categories: employee level and management level. There is an inverse ratio between the level of the
organization at which fraud is committed and the amount of financial loss resulting from frauds committed at each level. Thus, while
management-level frauds are committed less frequently than employee-level frauds, the financial loss resulting from the former is almost
always significantly greater than the amount lost from the latter.
Fraud ✔️"Any illegal acts characterized by deceit, concealment, or violation of trust. These acts are not dependent upon the perpetrated by
individuals and organizations to obtain money, property, or services; to avoid payment or loss of services; or to secure personal or business ad-
vantage."
Main types of fraud ✔️Internal Fraud and External Fraud
Internal Fraud ✔️Activities that may be criminal, committed within an organization, typically by the employee against the employer.
External Fraud ✔️Deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
Embezzlement ✔️The theft of money, property, or other assets of the employer.
Larceny ✔️The taking away of the property of another, with the intent to convert it to his/her own use.
Financial Fraud ✔️"Cooking the books." This type of fraud generally refers to falsely representing the financial condition of the company, so as to
inflate the value of stock, fraudulently boost executive bonuses, or otherwise mislead shareholders, lenders, employees, investment analysts,
or other users of the information.
Skimming (cash larceny) ✔️Accounts receivable fraud, this involves simply stealing cash before it enters the organization's accounting system.
Billing Schemes ✔️Using false documentation to cause a targeted organization to issue a payment for false services and/or purchases.
Check Tampering ✔️Common method (Taking advantage of employee access to blank company checks, using a password to
steal computer-generated checks or producing counterfeit checks).
Employee reimbursement scheme ✔️Making false claims for reimbursement or inflating or creating fictitious business expenses. (Travel /meal
reimbursement.
Corruption ✔️Bribery, illegal gratuities, and/or extortion.
Bribery ✔️When something of value is offered or given to influence a business decision.
Illegal Gratuities ✔️When something of value is given to an employee to reward a business decision.
Extortion ✔️When a person demands payment or seeks to influence a business decision by threat of harm through loss of business or personal
injury.
Kickback Schemes ✔️Forms of corruption involving employees and vendors, often using inflated billing or invoices for which the employee is
paid a portion of the inflated or fictitious invoice.
Credit Card Fraud ✔️The creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or debit card.
C.N.P ✔️Card not present transactions
Identity Theft ✔️The fraudulent acquisition or stealing of confidential personal information through social engineering.
Identity Fraud ✔️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.
Wildcat Banking ✔️An extreme form of what was called free banking. "A bank that issued notes without adequate security in the period before
the establishment of the national banking system in 1864".
2 categories that encompass Fraud ✔️Theft (stealing money, ID, or assets) and deception (cooking the books, lying to shareholders, employees
or partners)
Savings and Loan Crisis ✔️The failure of about 1000 savings and loan banks as a result of risky business practices. The roots of the S&L crisis lay
in excessive lending, speculation, and risk-taking driven by the moral hazard created by deregulation and taxpayer bailout guarantees.
Myth #1 of the Financial Services ✔️"We have very little fraud here" ex: subprime mortgage fraud
, Myth #2 of Financial Services ✔️"Ethics and training compliance has us covered" Fraud is not always covered in ethics policy or training.
Myth #3 of Financial Services ✔️"Fraud is an unavoidable cost of doing business" Fraud is usually not serious enough to destroy a financial
service firm, it is much more than necessary cost of doing business.
Chapter 1 review points ✔️• Statistical picture of fraud. The numbers do not lie: Fraud is a huge worldwide problem—for all organizations.
• Financial services fraud. Seventy-four percent of financial institutions experienced attempted payment fraud (check fraud, ACH fraud, or
credit card fraud in 2020).
• Definitions of fraud. The broad definition of fraud is illegal activity representing either theft or deception, or a combination of both.
• Myths about fraud. It is easy to become complacent about fraud but doing so can be very costly. Fraud does occur in every organization and is
potentially serious enough to cause major long-term damage.
• Main types of fraud. Countless varieties of fraud threaten financial institutions. Fraudsters are constantly thinking up new ways to target
financial services institutions.
20-60-20 rule of human component of fraud ✔️20% of people will never commit fraud
60% are fence sitters and may commit fraud if given the opportunity
20% of people are inherently dishonest
2 types of insider fraud threat ✔️Employee level fraud and management level fraud
True or False: Managment Level Fraud is committed less frequently than employee level fraud? ✔️True: Management level fraud is committed
less frequently than employee level fraud however the financial loss is almost always greater.
Fraud Triangle ✔️Created by leading criminologist Donald Cressey. The three factors that contribute to fraudulent activity by employees:
opportunity, financial pressure, and rationalization.
Financial pressure ✔️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.
Opportunity ✔️Employee identifies a weakness in the organization's anti-fraud controls. 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.
Rationalization ✔️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."
Remember: ✔️The opportunity element of the Fraud Triangle helps to explain the ways in which many frauds are committed by employees,
middle managers, and executives of financial services organizations.
What caused the Fraud Triangle to morph into the Fraud Diamond? ✔️A reevaluation for peoples unadorned lust for money caused personal
Greed to become the 4th side, morphing the triangle into the diamond.
Chapter 2 Review points ✔️• External fraudsters are a varied and demographically diverse group, which makes it difficult for fraud fighters to
profile these criminals. The best approach to detecting and preventing external fraud against financial institutions is to understand the red flags
of these crimes.
• Internal fraudsters do have common behavioral and personality traits, which helps to detect suspicious activity before it is too late.
• Up to 80 percent of employees are either totally honest or honest to the point that they will not steal except in situations in which the
opportunity to do so presents itself. And even then, these "fence sitters" may err on the side of honesty. The remaining 20 percent of your
organization's employees are fundamentally dishonest and will go out of their way to commit fraud.
• Internal fraud can be divided into two categories: employee level and management level. There is an inverse ratio between the level of the
organization at which fraud is committed and the amount of financial loss resulting from frauds committed at each level. Thus, while
management-level frauds are committed less frequently than employee-level frauds, the financial loss resulting from the former is almost
always significantly greater than the amount lost from the latter.
