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CFCI Study Guide – Updated Exam- 179 Questions with Answers
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CFCI Study Guide – UpdatedExam- 179 Questions with
Answers
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."
-Main types of fraud - -Internal Fraud and External Fraud
-Internal Fraud - -Activities that may be criminal, committed within an
organization, typically by the employee against the employer.
-External Fraud - -Deceptive conduct by non-employees that
deprives the organization of value, and/or is undertaken for financial gain.
-Embezzlement - -The theft of money, property, or other assets of the
employer.
-Larceny - -The taking away of the property of another, with the intent to
convert it to his/her own use.
-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.
-Skimming (cash larceny) - -Accounts receivable fraud, this involves simply
stealing cash before it enters the organization's accounting system.
-Billing Schemes - -Using false documentation to cause a targeted
organization to issue a payment for false services and/or purchases.
-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).
-Employee reimbursement scheme - -Making false claims for
reimbursement or inflating or creating fictitious business 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.
-Extortion - -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 - -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 - -The creation, sale, or use of a counterfeit credit card,
or the use of a stolen credit or debit card.
-C.N.P - -Card not present transactions
-Identity Theft - -The fraudulent acquisition or stealing of confidential
personal information through social engineering.
-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.
-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.
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