CFBE flashcards

33 cards. Read the term and the definition here. The deck at the top of this page is optional.

Three lines of defense

A governance model in which operational management owns and manages risk, risk and compliance functions monitor and advise, and internal audit provides independent assurance to the board.

Fraud risk appetite

A board-approved statement defining how much fraud risk the organization accepts, often set to zero tolerance for bribery and defined thresholds for low-value misappropriation.

Tone at the top

Senior leadership's demonstrated commitment to integrity, evidenced by board oversight, an acknowledged code of conduct, and a whistleblower channel that reports outside management.

Whistleblower hotline metrics

Measures of program effectiveness including reports per hundred employees, substantiation rate, average days to closure, and percentage of cases with no retaliation finding.

Residual fraud risk

The risk remaining after existing controls are evaluated for design and operating effectiveness, used to prioritize remediation and monitoring effort.

Benford's Law

An expected distribution of leading digits in naturally occurring datasets, where digit one appears about 30.1 percent of the time and higher digits appear progressively less often.

Duplicate payment analytics

A test matching invoices on vendor, amount, and invoice number across a rolling window, flagging near-duplicate amounts and dates for review.

Threshold avoidance test

An analytics rule identifying transactions posted just below an approval limit, such as amounts of 9,999 when approval is required at 10,000.

Segregation of duties

The requirement to separate authorization, custody of assets, record keeping, and reconciliation among different individuals so no one person controls a transaction end to end.

Preventive versus detective controls

Preventive controls stop an error or fraud before it occurs, such as approval workflows; detective controls identify it afterward, such as reconciliations and exception reports.

Compensating control

An alternative control used when ideal segregation is impractical, such as owner review of bank statements or independent review of journal entries in a small entity.

Master data change control

Dual approval and audit trail requirements for changes to vendor, customer, and employee master files, preventing payment diversion through altered bank details.

Fraud triangle

A model explaining occupational fraud through three conditions: pressure or incentive, opportunity created by weak controls, and rationalization that justifies the act.

Channel stuffing

Shipping excess product to distributors near period end, often with side agreements or rights of return, to inflate reported revenue for the current period.

Cash flow quality test

A comparison of net income to operating cash flow across periods; income consistently exceeding cash flow suggests accrual manipulation and warrants reconciliation analysis.

Management override

A control failure in which senior executives use authority to circumvent controls, post unsupported journal entries, or direct improper accounting treatment.

Skimming versus larceny

Skimming is theft of cash before it is recorded on the books, making it hard to detect from the ledger; larceny is theft of cash already recorded.

Ghost employee scheme

A payroll fraud in which a fictitious or terminated person remains on the payroll, with pay diverted to the perpetrator; detected by matching payroll to human resources records.

Shell company billing scheme

A fraud in which an employee creates a fictitious vendor, often at an address linked to the employee, and approves invoices for nonexistent goods or services.

Register disbursement scheme

A cash theft using false voids, false refunds, or no-sale transactions to remove money from a register while making the transaction appear legitimate.

Bid rigging indicators

Signs of collusive bidding including identical bid errors, rotating winning bidders, narrow price spreads, and the same bidders appearing across unrelated tenders.

Three-way match

A control comparing the purchase order, receiving report, and vendor invoice before payment; a fourth match adds the approved contract or price list.

Vendor beneficial ownership

Identification of the natural persons who ultimately own or control a vendor, required to detect concealed related parties and sanctions exposure.

Third-party risk tiering

Assigning enhanced due diligence to higher-risk relationships such as agents, intermediaries, and vendors in high-corruption jurisdictions, with lighter review for low-risk categories.

UK Bribery Act adequate procedures

The defense for organizations based on proportionate procedures, top-level commitment, risk assessment, due diligence, communication and training, and monitoring and review.

FCPA books and records

A requirement that issuers keep accurate records reflecting the true nature of transactions and maintain adequate internal accounting controls.

Conflict of interest recusal

Removing an individual from a decision, such as vendor selection, where they have a disclosed personal or financial interest, with the recusal documented.

Kickback red flag

Indicators including vendor prices above market, inflated invoices with amounts returned to an employee, and a buyer whose lifestyle exceeds apparent income.

Business email compromise

A scheme impersonating an executive or vendor to redirect payments; control is callback verification using a known number, not one supplied in the request.

Positive pay

A bank service that matches presented checks against a file of issued checks, allowing the company to reject unauthorized or altered items before payment.

Synthetic identity

A fabricated identity combining real and invented data elements to create an account or credit profile with no true owner, often used in application fraud.

Chain of custody

Documentation recording who handled each piece of evidence, when, and where, preserving integrity and supporting the weight given to evidence in an investigation.

Subject interview timing

In a fraud investigation, witnesses are interviewed first and the subject is interviewed last, after all documentary evidence has been secured.