CFCI STUDY GUIDE |2026|2027 UPDATE |ACTUAL EXAM QUESTIONS AND VERIFIED ANSWERS/ACCURATE SOLUTIONS |GET IT 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 ✔️which involves the employees of the company against which the fraud is perpetrated
External Fraud ✔️deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
embezzlement ✔️theft or misappropriation of funds placed in one's trust or belonging to one's employer.
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 ✔️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.
check tampering ✔️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 ✔️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 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.
identity theft ✔️the fraudulent acquisition or stealing of confidential personal information.
2 categories that encompass Fraud ✔️Theft (stealing money, ID, or assests) and deception (cooking the books, lying to shareholders, employees
or partners)
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 ✔️• The numbers do not lie: Fraud is a huge worldwide problem—for all organizations.
• Financial services fraud. Seventy-one percent of financial institutions experienced attempted payment fraud (check fraud, ACH fraud, or credit
card fraud in 2017).
• 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 con-
stantly 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 inherently dishonest (pg 29)
2 types of insider fraud threat ✔️Employee level fraud and management level fraud
Inverse ratio between the level of organization at which fraud is committed ✔️Management level fraud is committed less frequently than
employee level fraud however the financial loss is greater. (pg 30)
Fraud Triangle ✔️The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. pg 8
and 30
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. 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.
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."
Opportunity Element of the triangle ✔️Helps explain the ways in which many frauds are committed by employees, middle managers, and
executives of financial services organizations. (pg34)
What caused the Fraud Triangle to morph into the Fraud Diamond ✔️Personal Greed, was considered the 4th side of the diamond. (pg 36)
Loans to phantom borrowers Start of chpt 4 ✔️Internal fraud where an employee can submit a fictitious loan to a loan officer of the same
company.
Loan Lapping (aka accounts payable fraud) ✔️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
Nominee or straw borrowers ✔️"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.
Kickback on Illegal loans ✔️A bank insider is induced to approve a loan to a non-credit worthy borrower, where the borrowers agrees to give
something of value to the banker to approve the loan.
Reciprocal loans ✔️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)
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 ✔️which involves the employees of the company against which the fraud is perpetrated
External Fraud ✔️deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
embezzlement ✔️theft or misappropriation of funds placed in one's trust or belonging to one's employer.
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 ✔️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.
check tampering ✔️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 ✔️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 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.
identity theft ✔️the fraudulent acquisition or stealing of confidential personal information.
2 categories that encompass Fraud ✔️Theft (stealing money, ID, or assests) and deception (cooking the books, lying to shareholders, employees
or partners)
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 ✔️• The numbers do not lie: Fraud is a huge worldwide problem—for all organizations.
• Financial services fraud. Seventy-one percent of financial institutions experienced attempted payment fraud (check fraud, ACH fraud, or credit
card fraud in 2017).
• 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 con-
stantly 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 inherently dishonest (pg 29)
2 types of insider fraud threat ✔️Employee level fraud and management level fraud
Inverse ratio between the level of organization at which fraud is committed ✔️Management level fraud is committed less frequently than
employee level fraud however the financial loss is greater. (pg 30)
Fraud Triangle ✔️The three factors that contribute to fraudulent activity by employees: opportunity, financial pressure, and rationalization. pg 8
and 30
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. 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.
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."
Opportunity Element of the triangle ✔️Helps explain the ways in which many frauds are committed by employees, middle managers, and
executives of financial services organizations. (pg34)
What caused the Fraud Triangle to morph into the Fraud Diamond ✔️Personal Greed, was considered the 4th side of the diamond. (pg 36)
Loans to phantom borrowers Start of chpt 4 ✔️Internal fraud where an employee can submit a fictitious loan to a loan officer of the same
company.
Loan Lapping (aka accounts payable fraud) ✔️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
Nominee or straw borrowers ✔️"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.
Kickback on Illegal loans ✔️A bank insider is induced to approve a loan to a non-credit worthy borrower, where the borrowers agrees to give
something of value to the banker to approve the loan.
Reciprocal loans ✔️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)
