CFCI Certification Study Guide

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Questions and Answers

What is a common method used by employees to test an organization's anti-fraud controls?

Submitting high-value receipts for personal expenses

Offering kickbacks to the expense auditors

Providing fake employee identification

Submitting receipts for expenses incurred during a personal trip (correct)

What type of fraud is characterized by corporate cardholders charging non-business expenses to their employer?

Credit Card Skimming Fraud

Identity Theft Fraud

Expense Account Fraud

Purchasing Card Fraud (correct)

Which activity is primarily associated with payments fraud conducted outside the legitimate card holder?

Submitting inaccurate expense reports

Creating false invoices

Writing unauthorized checks

Forged checks (correct)

What type of check fraud involves the alteration of the check to change the payee's name?

Check washing Signup and view all the answers

How does an insider commit electronic payee alteration?

By modifying the Vendor Master File Signup and view all the answers

What does check alteration by inserting letters refer to?

Changing the payee name by adding words Signup and view all the answers

When an employee steals blank checks to forge them, what type of offense are they committing?

Forgery and theft Signup and view all the answers

What is an Automated Clearing House (ACH)?

An electronic network for financial transactions Signup and view all the answers

What are common misconceptions regarding financial fraud?

Fraud is an unavoidable cost of doing business. Signup and view all the answers

What percentage of financial institutions experienced attempted payment fraud in 2020?

74% Signup and view all the answers

According to the 20-60-20 rule, what percentage of people are considered inherently dishonest?

20% Signup and view all the answers

What are the three factors that contribute to fraudulent activity according to the Fraud Triangle?

Opportunity, financial pressure, and rationalization Signup and view all the answers

Which statement about management level fraud is true?

Management level fraud is committed less frequently than employee level fraud. Signup and view all the answers

What is a broad definition of fraud?

Illegal activity that represents theft or deception. Signup and view all the answers

What type of fraud is referred to as employee level fraud?

Fraud committed by individuals within the organization. Signup and view all the answers

Why is complacency about fraud considered risky for organizations?

It can lead to financial losses and long-term damage. Signup and view all the answers

What is check kiting?

Depositing a legitimate check, writing a bad check for more, and withdrawing cash. Signup and view all the answers

What characterizes new account fraud?

Involves fraudulent transactions on newly opened accounts within 90 days. Signup and view all the answers

Which is the first step in the money laundering process?

Placement Signup and view all the answers

Which method is NOT part of the layering phase in money laundering?

Purchasing luxury items Signup and view all the answers

What is the main purpose of the Bank Secrecy Act (BSA)?

To track the movement of cash and monetary instruments. Signup and view all the answers

What significant event prompted the signing of the USA PATRIOT Act?

The September 11 attacks Signup and view all the answers

What typically happens during the integration phase of money laundering?

Funds are used in businesses that appear legitimate. Signup and view all the answers

How is layering typically achieved in the money laundering process?

By executing numerous transactions to obscure money's origin. Signup and view all the answers

What is the primary purpose of a Currency Transaction Report (CTR)?

To file reports for transactions over $10,000. Signup and view all the answers

Which of the following is NOT one of the four pillars of AML compliance?

External Financial Reviewing. Signup and view all the answers

What type of fraud is primarily committed by prospective homeowners?

Fraud for property. Signup and view all the answers

What is the percentage of construction expenditures lost to fraud each year?

10 percent. Signup and view all the answers

Which technique is NOT associated with AML investigation?

Public advertisement solutions. Signup and view all the answers

What is the definition of phishing?

A social engineering tactic using email. Signup and view all the answers

Which of the following describes bid-rigging schemes?

Schemes to inflate project costs through collusion. Signup and view all the answers

Social engineering is primarily aimed at:

Obtaining personal information. Signup and view all the answers

What is the first step in assessing potential fraud schemes within an organization?

Identify past incidents of fraud Signup and view all the answers

Which of the following best describes the risk level labeled as 'probable'?

Risk expected to occur frequently Signup and view all the answers

What category of materiality should be addressed, according to the FRA team?

More than inconsequential risks Signup and view all the answers

How is the likelihood of a fraud scheme categorized in the organization?

Based on internal controls and historical data Signup and view all the answers

What is the significance of identifying existing anti-fraud controls?

To evaluate the effectiveness of risk mitigation Signup and view all the answers

In fraud risk assessments, which level indicates that a risk is very unlikely to happen?

Remote Signup and view all the answers

What should be done for risks categorized as more than inconsequential?

They should be investigated and addressed Signup and view all the answers

Which of the following has the highest effective risk mitigation according to the control scale?

1 - Optimal control design Signup and view all the answers

Which entity was established under the Dodd-Frank Act to oversee insurance companies deemed risky?

Federal Insurance Office Signup and view all the answers

What major financial entity required a taxpayer-funded intervention during the 2008 crisis due to a liquidity issue?

AIG Signup and view all the answers

What was one of the major criticisms leading to the regulation of credit rating agencies under Dodd-Frank?

Misleading investors by overrating securities Signup and view all the answers

Which bureau was created by Dodd-Frank to protect consumers from financial malpractice?

Consumer Financial Protection Bureau Signup and view all the answers

What incentive does the Dodd-Frank whistleblower provision provide?

Financial rewards for reporting violations Signup and view all the answers

What regulatory body was created to oversee credit rating agencies following the Dodd-Frank Act?

Office of Credit Rating Signup and view all the answers

Which of the following is true about the financial services industry in relation to Dodd-Frank?

It is the most heavily regulated sector. Signup and view all the answers

How did the Dodd-Frank Act primarily affect the operations of credit rating agencies?

By subjecting them to federal regulation Signup and view all the answers

Study Notes

CFCI Study Guide - Updated with Certified Solutions

This document is a 51-page study guide for the Certified Financial Services Institute (CFCI) certification.
It covers financial management topics.
The guide is updated with certified solutions.
It was shared on docsity.com.

Fraud

Fraud is any illegal act characterized by deceit, concealment, or violation of trust, done to obtain money, property, or services or to avoid payment.
Main Types of Fraud:
- Internal Fraud: Criminal activities within an organization, typically by an employee against the employer.
- External Fraud: Deceptive conduct by non-employees to deprive the organization of value for financial gain.
Examples of Fraud:
- Larceny: The taking of another's property with intent to keep it.
- Financial Fraud: "Cooking the books," falsely representing a company's financial condition to inflate stock value or boost bonuses.
- Skimming (cash larceny): Stealing cash before it enters the accounting system.
- Billing Schemes: Using false documents to get payment for non-existent services or purchases.
- Check Tampering: Using blank checks to create counterfeit or computer-generated checks.
- Employee reimbursement scheme: Making false claims for reimbursement.
- Corruption: Bribery, extortion, and illegal gratuities.
- Kickback Schemes: Employees and vendors inflate invoices in return for a portion of the inflated cost.
- Credit Card Fraud: Creating, selling, or using stolen credit/debit cards.
- Identity Theft/Fraud: Unauthorized use of another person's information for illegal financial gain.
- Wildcat Banking: Banks issuing notes without sufficient security.

Additional Topics

Savings and Loan Crisis: The failure of many savings and loan institutions due to risky policies.
Myths about Fraud:
- Myth 1: "We have very little fraud here"
- Myth 2: "Ethics and training compliance has us covered"
- Myth 3: "Fraud is an unavoidable cost of doing business".
Fraud Triangle: The three factors contributing to fraudulent activity: opportunity, financial pressure, and rationalization.
Fraud Diamond: This expanded approach adds greed as a core motivator.
Types of Mortgage Fraud: Application fraud, tax returns, appraisals, verification of deposits, employment verification, escrow/closing documents, and credit documents.
Soft/Hard indicators of fraud:
- Soft indicators are intangible behavioral signs a person might exhibit (emotional changes, stress, etc.)
- Hard indicators are tangible (for example, numbers such as sales figures).
Segregation of Duties (SoD): Separating job functions to prevent one person from committing fraud.
Delegation of Authority (DoA): Clearly defined levels and limits of authority within an organization.
Employee Level Embezzlement: Looting customer accounts, control weakness exploitation, looting with false records, dormant account fraud, fictitious deposits, and theft of consignment items.
Collusion with Vendors: Pre-solicitation, solicitation, and submission stages. Pre-solicitation is when dishonest people receive bribes to recognize the need for the specific vendor or their services. During solicitation, vendors can pay corrupt employees to write contract specifications that favor the contract vendor. During submission, vendors are given the details of already-submitted bids. Bid-pooling is another issue, whereby bidders conspire to split contracts to ensure that they get some of the work done without extensive collusion.
Fraudulent Fee Reversal.
Theft/Forgery of Stolen/Blank Checks.
Check Interception and Forgery of Endorsement.
Electronic Payee Alteration.
Types of Payroll Fraud:
- Creation of ghost employees
- Altering hourly rate
- Altering employee status, etc.
Fraudulent Reporting regarding Loans & Financial Reporting:
- Loans to Phantom Borrowers
- Loan Lapping
- Nominee or Straw Borrowers
- Kickbacks
- Reciprocal Loans
- Linked Financing
- Asset-based or working capital loan fraud.
- External Mortgage Fraud
Mortgage Fraud Modus Operandi
Builder Bailout Scheme
Equity Skimming
Identity fraud to obtain mortgage
Overstating Appraisal Values etc.
Social Engineering.
Phishing Scams.
Business Email Compromise (BEC)
Credit Card Fraud.
Carding.
EMV chip technology.
Forged On-us Checks.
Cashier's Check Fraud.
Check Kiting.
New Account Fraud
Money Laundering

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Description

This study guide provides comprehensive insights into the topics necessary for passing the Certified Financial Services Institute (CFCI) certification. It covers essential financial management concepts and includes certified solutions to aid your preparation. Perfect for anyone looking to enhance their knowledge in financial services.