CFCI STUDY GUIDE (QUESTIONS + ANSWERS) SOLVED 100% CORRECT!!

CFCI STUDY GUIDE (QUESTIONS + ANSWERS) SOLVED 100% CORRECT!! Vendor Master File (VMF) manipulation -Answer- Employees with access to VMF can generate phony invoices, enter bogus vendors, and obtain approval of fraudulent transactions. Collusion with Vendors -Answer- dishonest vendors typically involves a bribery or kickback scheme jointly perpetrated by a bank employee and a crooked supplier. Three-stages of collusion with vedors -Answer- pre-solicitation, solicitation, and submission. (pg 62) Purchasing of unnecessary goods. -Answer- 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) Specification schemes. -Answer- Vendors pay corrupt bank employees to write contract specifications that favor their particular goods or services. (Pre-solicitation phase) Bid splitting. -Answer- 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 below the competitive bidding threshold. (Pre-solicitation phase) Creating phony suppliers. -Answer- a dishonest procurement employee may be paid off to permit a collusive vendor to create nonexistent "competitors" and submit phony bids in their names, with pricing that ensures that the actual vendor wins the business. (Solicitation phase). Pay-per-view schemes. -Answer- A dishonest purchasing employee may accept a corrupt vendor's offer for payment in exchange for advance access to the contract specifications. The crooked vendor obtains a competitive (and illegal) advantage over rival bidders and essentially is guaranteed to win the business.(Solicitation phase). Early-start schemes. -Answer- A dishonest buyer accepts something of value from a crooked vendor in exchange for receiving advance access to the contract specifications. The preferred vendor gains extra time to prepare its bid, thereby putting the competition at a disadvantage. (Solicitation phase) Submission Phase -Answer- providing a preferred (i.e.,bribe-paying) vendor with the details of already-submitted bids, in order to give the corrupt vendor a leg up in tailoring a bid in a way that ensures he or she will win the business. Bid pooling. -Answer- A process by which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, which does not require collusion with an insider (Submission phase). Travel and Entertainment fraud (T&E) -Answer- Employees using traveling and entertainment expenses as a way to defraud the company. Making multiple reimbursement claim submissions. -Answer- 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) Falsifying receipts. -Answer- 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). Claiming expenses just below the minimum documentation requirement. -Answer- 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 for "out-of-policy" expenses. -Answer- 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) Purchasing Card Fraud (P-Card) -Answer- 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) Automated Clearing House (ACH) -Answer- 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. Forged Check -Answer- a check signed by someone else other than who is specified on the check without that person's permission Theft and Forgery of stolen check -Answer- 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. Check interception and forgery of endorsement -Answer- 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. Electronic Payee Alteration -Answer- 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. Check alteration by inserting numbers -Answer- Changing the amount of the check by changing one or more number. Check alteration by inserting letters -Answer- Changing or washing the check to change the name of the payee by adding letters or words. Hidden check fraud -Answer- A dishonest employee puts an unauthorized check in a pile of authorized checks, betting on the odds that the signer will not check each check and just sign the unauthorized one. Check fraud intimiation -Answer- A bank employee using fear or intimidation on a person responsible for issuing the checks (such as AP) to write a check without proper invoices, documentation or signatures etc. ACH fraud -Answer- A perpetrator provides the routing number and the account number of the victim's account to the receiving company (utility, car loans, etc) to make the required payments. Types of Payroll Fraud -Answer- -creation of ghost-employees (most common) -altering hourly rate of pay or commission details -altering employee status so the company does not have to pay taxes and/or benefits. -time card alterations, claiming time not really worked, forged supervisor signatures Theft of confidential information -Answer- perpetrators (possible employees) steal PII of customers and use the information to commit identity frauds such as unauthorized loans, credit accounts (pg 71) Insider abuse of Computer Systems -Answer- 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. Red Flags of all the above employee level embezzelment -Answer- Pg 72- 76 Checklist of all the above employee level embezzelment -Answer- 76-83 Chapter 4 Review points (Employee Level Embezzlement) -Answer- Pg 83 Management-Level self dealing -Answer- Self dealing is approving loans to ones self (pg 87) Foreign Corrupt Practices Act (FCPA) -Answer- 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 Recording false revenues -Answer- misrepresenting financial performance involves recording nonexistent revenue or misrepresenting the period in which the revenue was received. Fraudulent revenue recognition -Answer- 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. Manipulating liabilities -Answer- 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. Overstating Assets -Answer- 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) Manipulating interest rates -Answer- 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