CFE flashcards

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

Fraud triangle

A model describing three conditions usually present for occupational fraud: a pressure or incentive, an opportunity to commit the act, and a rationalization that allows the person to justify it.

Opportunity in fraud triangle

The element of the fraud triangle that internal controls most directly reduce; it exists when a person can commit and conceal fraud without being detected or punished.

Residual fraud risk

The level of fraud risk remaining after existing controls are evaluated; it is used to prioritize remediation and monitoring where inherent risk and control weakness overlap.

Segregation of duties

A control that separates authorization, custody of assets, and recordkeeping so that no single person can both commit and conceal an error or fraud.

Tone at the top

The ethical tone set by senior management and the board; it shapes whether employees perceive fraud as acceptable and whether controls are taken seriously.

Three lines model

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

Fraud deterrence

Reducing fraud by increasing the perceived certainty of detection and the perceived severity of consequences, often through hotlines, monitoring, surprise audits, and visible enforcement.

Fraud risk assessment

A systematic process to identify fraud risks, assess their likelihood and impact, evaluate controls, and determine residual risk so that prevention resources target the highest exposures.

Skimming

Theft of cash before it is recorded in the accounting system; because the receipt never enters the books, it can be harder to detect than cash larceny.

Cash larceny

Theft of cash after it has been recorded in the accounting system; the receipt is on the books, so the theft creates a visible shortage or reconciling item.

Check kiting

A scheme that exploits the float between bank accounts by depositing checks from one account into another and withdrawing funds before the checks clear.

Ghost employee

A fictitious or nonworking person placed on the payroll so that a perpetrator can collect wages; common indicators include no withholding, duplicate addresses, or no time records.

Conflict of interest

An undisclosed economic or personal interest that interferes with an employee's ability to act in the employer's best interest, even without a bribe being paid.

Commercial bribery

Offering, giving, receiving, or soliciting something of value to influence a business decision without the knowledge or consent of the principal.

Fictitious revenue scheme

Financial statement fraud that records sales to customers who do not exist or for goods never delivered; it overstates revenue and receivables.

Cookie jar reserve

An improper reserve created in a strong period and released in a weak period to smooth earnings; it conceals volatility and misstates financial results.

Predication

The reason to conduct a fraud examination, such as an allegation, anomaly, or red flag; it provides the basis for initiating an investigation and focusing its scope.

Chain of custody

A documented record of who collected, handled, and transferred evidence, and when; breaks can reduce the evidence's reliability or admissibility.

Documentary evidence

Evidence in written or electronic form, such as invoices, emails, ledgers, and contracts; authenticity and relevance must be established before it is relied upon.

Testimonial evidence

Evidence supplied by witnesses through interviews or testimony; its value depends on the witness's knowledge, credibility, and consistency with other evidence.

Admission-seeking interview

The final interview stage with a suspected perpetrator, conducted after evidence is gathered, to obtain an admission and a written statement.

Benford's law

A data analysis technique based on the expected frequency of leading digits in many natural data sets; large deviations may indicate manipulated or fabricated numbers.

Fraud examination report

A written communication of the investigation's scope, methods, evidence, findings, and conclusion, prepared for the intended audience and supported by the working papers.

Attorney work product

Materials prepared in anticipation of litigation, often at counsel's direction; the doctrine can protect investigation notes from disclosure in some civil proceedings.

Common law fraud

A civil wrong requiring a false representation of material fact, knowledge of falsity, intent to deceive, justifiable reliance, and resulting damages.

Mens rea

The guilty mind or criminal intent required for many fraud offenses; it distinguishes intentional deception from an accidental error or mistake.

Preponderance of evidence

The civil burden of proof requiring that a fact be more likely true than not; it is lower than the criminal standard of beyond a reasonable doubt.

Beyond reasonable doubt

The criminal burden of proof requiring proof so convincing that no reasonable doubt remains about the defendant's guilt.

Business records exception

A hearsay exception allowing routine records made in the ordinary course of business to be admitted if foundation testimony shows they were made contemporaneously and regularly.

Attorney-client privilege

A legal protection for confidential communications between a client and attorney made for the purpose of obtaining legal advice; it can be waived by disclosure.

Foreign Corrupt Practices Act

A U.S. law prohibiting bribery of foreign officials and requiring issuers to maintain accurate books and records and effective internal accounting controls.

Bankruptcy discharge exception

A debt may be excluded from discharge when it arose from fraud or false representation; the creditor must prove the fraud element in bankruptcy court.