CFCI UPDATED SCRIPTED QUESTIONS AND
ANSWERS SET A+
✔✔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.
• 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.
✔✔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.
✔✔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.
✔✔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
ANSWERS SET A+
✔✔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.
• 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.
✔✔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.
✔✔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.
✔✔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
