CFFE Module I

Fraud and Corruption Schemes flashcards

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Complete Flashcard Reference

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What are the three main branches of the ACFE Fraud Tree?

Asset misappropriation: theft or misuse of the organisation's resources. Corruption: abuse of position for private gain. Financial statement fraud: intentional misstatement of financial results.

What is the difference between skimming and cash larceny?

Skimming: cash is stolen before it is ever recorded, so it leaves no direct accounting trail. Cash larceny: cash is stolen after it has been recorded, leaving a discoverable shortage between recorded and actual cash.

What are the five types of financial statement fraud scheme?

Fictitious revenues: sales that did not occur. Timing differences: revenue or expenses in the wrong period. Concealed liabilities and expenses, including off-balance-sheet arrangements. Improper asset valuation: inventory, receivables or fixed assets overstated. Improper disclosures in the notes.

How do bribery, illegal gratuities, economic extortion and conflicts of interest differ?

Bribery comes before the decision and is meant to influence it. An illegal gratuity rewards a decision already made, with no prior intent to influence it. Economic extortion reverses the pressure: the official demands payment to do (or not obstruct) their duty. A conflict of interest needs no payment at all, only an undisclosed personal interest that compromises the employee's duty.

Why are insiders the most significant risk to proprietary information?

Their access is authorised, so misuse looks like normal activity. Detection therefore depends on deliberately monitoring authorised activity for anomalies, not on perimeter security alone.

What is synthetic identity theft, and how does it differ from ordinary identity theft?

It combines real and fabricated information to create a new, fictitious identity. Ordinary identity theft steals one existing person's identity outright; synthetic identity theft builds a person who does not exist.

At which stage of procurement does each type of procurement fraud usually happen?

Early, at needs identification and specification: need recognition schemes and bid tailoring. At solicitation and evaluation: bid rigging. After award: change order abuse and cost mischarging.

How does business email compromise work, and which control prevents it?

A fraudster impersonates an executive or vendor to redirect a legitimate payment. No system is hacked: a human approver is deceived. The control is a verification procedure: confirm any changed bank detail by phone on a known number before paying.

How does SIM-swap fraud against a mobile money user work?

The fraudster fraudulently obtains a replacement SIM for the victim's number, often through social engineering or an insider at the network operator. The victim's original SIM stops working, the one-time passwords go to the fraudster, and the mobile money account is taken over and drained. Controls: SIM-swap and device-change alerts, and authentication that does not rely only on SMS one-time passwords.

What is the test for telling a Ponzi scheme from a pyramid scheme?

Ask where the 'profit' comes from. Ponzi: claims a genuine (but fictitious) underlying investment, while earlier investors are really paid from new investors' capital. Pyramid: is explicit that participants earn mainly from recruiting others, not from a real product or service.

How is fraud defined, and what separates it from an honest error?