CFCI Study Guide -
Updated
1. 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."
2. Main types of fraud: Internal Fraud and External Fraud
3. Internal Fraud: Activities that may be criminal, committed within an organization, typically by the employee against the
employer.
4. External Fraud: Deceptive conduct by non-employees that deprives the organization of value, and/or is undertaken for
financial gain.
5. Embezzlement: The theft of money, property, or other assets of the employer.
6. Larceny: The taking away of the property of another, with the intent to convert it to his/her own use.
7. 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.
8. Skimming (cash larceny): Accounts receivable fraud, this involves simply stealing cash before it enters the
organization's accounting system.
9. Billing Schemes: Using false documentation to cause a targeted organization to issue a payment for false services and/or
purchases.
10. 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).
11. Employee reimbursement scheme: Making false claims for reimbursement or inflating or creating fictitious business
expenses. (Travel /meal reimbursement.
12. Corruption: Bribery, illegal gratuities, and/or extortion.
13. Bribery: When something of value is offered or given to influence a business decision.
14. Illegal Gratuities: When something of value is given to an employee to reward a business decision.
15. Extortion: When a person demands payment or seeks to influence a business decision by threat of harm through loss of
business or personal injury.
16. 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.
17. Credit Card Fraud: The creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or debit card. 18.
C.N.P: Card not present transactions
19. Identity Theft: The fraudulent acquisition or stealing of confidential personal information through social engineering.
20. 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.
, CFCI Study Guide -
Updated
21. 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".
22. 2 categories that encompass Fraud: Theft (stealing money, ID, or assets) and deception (cooking the books, lying to
shareholders, employees or partners)
23. 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.
24. Myth #1 of the Financial Services: "We have very little fraud here" ex: subprime mortgage fraud
25. Myth #2 of Financial Services: "Ethics and training compliance has us covered" Fraud is not always covered in ethics
policy or training.
26. 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.
27. 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.
28. 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
29. 2 types of insider fraud threat: Employee level fraud and management level fraud
30. 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.
31. Fraud Triangle: Created by leading criminologist Donald Cressey. The three factors that contribute to fraudulent activity
by employees: opportunity, financial pressure, and rationalization.
32. 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.
33. 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.
34. 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
, CFCI Study Guide -
Updated
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." 35.
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.
36. 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.
37. 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.
• The Fraud Triangle (Pressure, Opportunity, and Rationalization) helps fraud fighters identify and stop potential fraudsters
from carrying out crimes that could result in financial losses to the organization.
• The elements of the Fraud Triangle have their own unique meaning in the context of the financial services industry.
• The Fraud Triangle can arguably be reinterpreted as a Fraud Diamond when the element of greed is included as a key
motivator for fraud in the financial services industry.
38. Loans to phantom borrowers: Internal fraud where an employee can submit a fictitious loan to a loan officer of the
same company. That loan officer can play as a co-conspirator or as an unknowing personal.
39. Loan Lapping: Oftentimes referred to as "Accounts receivable fraud" the fraudster will make loan payments from funds
received from subsequently closed or older fraudulent loans in a form of loan lapping scheme.
40. 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.
41. 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.
42. 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.
43. Linked financing: 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.
Updated
1. 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."
2. Main types of fraud: Internal Fraud and External Fraud
3. Internal Fraud: Activities that may be criminal, committed within an organization, typically by the employee against the
employer.
4. External Fraud: Deceptive conduct by non-employees that deprives the organization of value, and/or is undertaken for
financial gain.
5. Embezzlement: The theft of money, property, or other assets of the employer.
6. Larceny: The taking away of the property of another, with the intent to convert it to his/her own use.
7. 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.
8. Skimming (cash larceny): Accounts receivable fraud, this involves simply stealing cash before it enters the
organization's accounting system.
9. Billing Schemes: Using false documentation to cause a targeted organization to issue a payment for false services and/or
purchases.
10. 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).
11. Employee reimbursement scheme: Making false claims for reimbursement or inflating or creating fictitious business
expenses. (Travel /meal reimbursement.
12. Corruption: Bribery, illegal gratuities, and/or extortion.
13. Bribery: When something of value is offered or given to influence a business decision.
14. Illegal Gratuities: When something of value is given to an employee to reward a business decision.
15. Extortion: When a person demands payment or seeks to influence a business decision by threat of harm through loss of
business or personal injury.
16. 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.
17. Credit Card Fraud: The creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or debit card. 18.
C.N.P: Card not present transactions
19. Identity Theft: The fraudulent acquisition or stealing of confidential personal information through social engineering.
20. 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.
, CFCI Study Guide -
Updated
21. 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".
22. 2 categories that encompass Fraud: Theft (stealing money, ID, or assets) and deception (cooking the books, lying to
shareholders, employees or partners)
23. 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.
24. Myth #1 of the Financial Services: "We have very little fraud here" ex: subprime mortgage fraud
25. Myth #2 of Financial Services: "Ethics and training compliance has us covered" Fraud is not always covered in ethics
policy or training.
26. 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.
27. 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.
28. 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
29. 2 types of insider fraud threat: Employee level fraud and management level fraud
30. 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.
31. Fraud Triangle: Created by leading criminologist Donald Cressey. The three factors that contribute to fraudulent activity
by employees: opportunity, financial pressure, and rationalization.
32. 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.
33. 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.
34. 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
, CFCI Study Guide -
Updated
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." 35.
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.
36. 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.
37. 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.
• The Fraud Triangle (Pressure, Opportunity, and Rationalization) helps fraud fighters identify and stop potential fraudsters
from carrying out crimes that could result in financial losses to the organization.
• The elements of the Fraud Triangle have their own unique meaning in the context of the financial services industry.
• The Fraud Triangle can arguably be reinterpreted as a Fraud Diamond when the element of greed is included as a key
motivator for fraud in the financial services industry.
38. Loans to phantom borrowers: Internal fraud where an employee can submit a fictitious loan to a loan officer of the
same company. That loan officer can play as a co-conspirator or as an unknowing personal.
39. Loan Lapping: Oftentimes referred to as "Accounts receivable fraud" the fraudster will make loan payments from funds
received from subsequently closed or older fraudulent loans in a form of loan lapping scheme.
40. 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.
41. 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.
42. 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.
43. Linked financing: 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.
