CFCI STUDY GUIDE – UPDATED
(NOTES) 179 QUESTIONS WITH
ANSWERS
Fraud - ANSWER-"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 - ANSWER-Internal Fraud and External Fraud
Internal Fraud - ANSWER-Activities that may be criminal, committed within an
organization, typically by the employee against the employer.
External Fraud - ANSWER-Deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
Embezzlement - ANSWER-The theft of money, property, or other assets of the
employer.
Larceny - ANSWER-The taking away of the property of another, with the intent to
convert it to his/her own use.
Financial Fraud - ANSWER-"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) - ANSWER-Accounts receivable fraud, this involves simply
stealing cash before it enters the organization's accounting system.
Billing Schemes - ANSWER-Using false documentation to cause a targeted
organization to issue a payment for false services and/or purchases.
Check Tampering - ANSWER-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 - ANSWER-Making false claims for reimbursement
or inflating or creating fictitious business expenses. (Travel /meal reimbursement.
Corruption - ANSWER-Bribery, illegal gratuities, and/or extortion.
,Bribery - ANSWER-When something of value is offered or given to influence a business
decision.
Illegal Gratuities - ANSWER-When something of value is given to an employee to
reward a business decision.
Extortion - ANSWER-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 - ANSWER-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 - ANSWER-The creation, sale, or use of a counterfeit credit card, or
the use of a stolen credit or debit card.
C.N.P - ANSWER-Card not present transactions
Identity Theft - ANSWER-The fraudulent acquisition or stealing of confidential personal
information through social engineering.
Identity Fraud - ANSWER-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 - ANSWER-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 - ANSWER-Theft (stealing money, ID, or assets)
and deception (cooking the books, lying to shareholders, employees or partners)
Savings and Loan Crisis - ANSWER-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 - ANSWER-"We have very little fraud here" ex:
subprime mortgage fraud
Myth #2 of Financial Services - ANSWER-"Ethics and training compliance has us
covered" Fraud is not always covered in ethics policy or training.
, Myth #3 of Financial Services - ANSWER-"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 - ANSWER-• 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 - ANSWER-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 - ANSWER-Employee level fraud and management level
fraud
True or False: Managment Level Fraud is committed less frequently than employee
level fraud? - ANSWER-True: Management level fraud is committed less frequently than
employee level fraud however the financial loss is almost always greater.
Fraud Triangle - ANSWER-Created by leading criminologist Donald Cressey. The three
factors that contribute to fraudulent activity by employees: opportunity, financial
pressure, and rationalization.
Financial pressure - ANSWER-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 - ANSWER-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 - ANSWER-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."
(NOTES) 179 QUESTIONS WITH
ANSWERS
Fraud - ANSWER-"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 - ANSWER-Internal Fraud and External Fraud
Internal Fraud - ANSWER-Activities that may be criminal, committed within an
organization, typically by the employee against the employer.
External Fraud - ANSWER-Deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
Embezzlement - ANSWER-The theft of money, property, or other assets of the
employer.
Larceny - ANSWER-The taking away of the property of another, with the intent to
convert it to his/her own use.
Financial Fraud - ANSWER-"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) - ANSWER-Accounts receivable fraud, this involves simply
stealing cash before it enters the organization's accounting system.
Billing Schemes - ANSWER-Using false documentation to cause a targeted
organization to issue a payment for false services and/or purchases.
Check Tampering - ANSWER-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 - ANSWER-Making false claims for reimbursement
or inflating or creating fictitious business expenses. (Travel /meal reimbursement.
Corruption - ANSWER-Bribery, illegal gratuities, and/or extortion.
,Bribery - ANSWER-When something of value is offered or given to influence a business
decision.
Illegal Gratuities - ANSWER-When something of value is given to an employee to
reward a business decision.
Extortion - ANSWER-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 - ANSWER-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 - ANSWER-The creation, sale, or use of a counterfeit credit card, or
the use of a stolen credit or debit card.
C.N.P - ANSWER-Card not present transactions
Identity Theft - ANSWER-The fraudulent acquisition or stealing of confidential personal
information through social engineering.
Identity Fraud - ANSWER-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 - ANSWER-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 - ANSWER-Theft (stealing money, ID, or assets)
and deception (cooking the books, lying to shareholders, employees or partners)
Savings and Loan Crisis - ANSWER-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 - ANSWER-"We have very little fraud here" ex:
subprime mortgage fraud
Myth #2 of Financial Services - ANSWER-"Ethics and training compliance has us
covered" Fraud is not always covered in ethics policy or training.
, Myth #3 of Financial Services - ANSWER-"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 - ANSWER-• 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 - ANSWER-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 - ANSWER-Employee level fraud and management level
fraud
True or False: Managment Level Fraud is committed less frequently than employee
level fraud? - ANSWER-True: Management level fraud is committed less frequently than
employee level fraud however the financial loss is almost always greater.
Fraud Triangle - ANSWER-Created by leading criminologist Donald Cressey. The three
factors that contribute to fraudulent activity by employees: opportunity, financial
pressure, and rationalization.
Financial pressure - ANSWER-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 - ANSWER-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 - ANSWER-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."
