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9/1/24, 8:26 PMCFCI Study Guide
Jeremiah
Terms in this set (136)
"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
Fraud
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
deceptive conduct by non-employees that
External Fraud
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.
"cooking the books." This type of
fraud generally refers to falsely representing the financial condition of the company, so
financial fraud 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.
Accounts receivable fraud, this
Skimming (cash larceny)
involves simply stealing cash before it enters the organization's accounting system.
Perpetrated by employees who cause their employer to issue a payment to a false
Billing Schemes supplier by submitting invoices for fictitious goods or services, inflated invoices, or
invoices for personal purchases.
taking advantage of employee access to blank company checks, using a password to
check tampering
steal computer-generated checks, or producing counterfeit checks.
making false claims for reimbursement, or inflating or creating fictitious business
Employee reimbursement scheme
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.
when a person demands payment or seeks to influence a business decision by threat of
Extortion
harm through loss of business or personal injury.
CFCI Study Guide
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involving employees and vendors, often using inflated billing or invoices for which the
Kickback Schemes
employee is paid a portion of the inflated or fictitious invoice.
the creation, sale, or use of a counterfeit credit card, or the use of a stolen credit or
credit card fraud
debit card.
C.N.P Card not present transactions
involves the unauthorized use of another person's personal data for illegal financial
identity fraud 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.
Theft (stealing money, ID, or assests) and deception (cooking the books, lying to
2 categories that encompass Fraud
shareholders, employees or partners)
Myth #1 of the Financial Services "We have very little fraud here" ex: subprime mortgage fraud
"Ethics and training compliance has us covered" Fraud is not always covered in ethics
Myth #2 of Financial Services
policy or training.
"Fraud is an unavoidable cost of doing business" Fraud is usually not serious enough to
Myth #3 of Financial Services
destroy a financial service firm, it is much more than necessary cost of doing business.
• 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
Chapter 1 review points
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% of people will never commit fraud
20-60-20 rule of human component of 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 Management level fraud is committed less frequently than employee level fraud
organization at which fraud is committed however the financial loss is greater. (pg 30)
The three factors that contribute to fraudulent activity by employees: opportunity,
Fraud Triangle
financial pressure, and rationalization. pg 8 and 30
financial difficulties, such as large amounts of credit card debt, an overwhelming
Financial pressure burden of unpaid medical bills, large gambling debts, extended unemployment, or
similar financial difficulties.
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,
Opportunity
have fraudulent invoices approved, and have payment sent to an address that he or she
controls.
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