CFE key terms

A model holding that occupational fraud occurs when a perceived unshareable financial pressure, an opportunity to commit and hide the act, and a rationalization that justifies the conduct converge in one person.

An extension of the fraud triangle that adds capability, meaning the position, skills, and temperament needed to execute and conceal a fraud, to pressure, opportunity, and rationalization.

Controls and processes designed to stop fraudulent acts from occurring, such as approvals, physical safeguards, segregation of duties, and pre-employment screening.

The psychological effect of credible controls, monitoring, and consistent discipline that makes a would-be offender believe fraud will be detected and punished, so the person refrains.

A structured process to identify, evaluate, and prioritize the ways an organization could be defrauded, then design controls and monitoring to reduce those exposures.

Policies, procedures, and monitoring activities an organization uses to safeguard assets, produce reliable records, and prevent or detect fraud and error.

Dividing authorization, custody of assets, and recordkeeping among different people so that no single employee can both commit and conceal a fraudulent transaction.

The ethical climate set by senior leaders through their words, decisions, and example; it shapes whether employees view fraud as acceptable or too risky.

A confidential reporting channel that lets employees, customers, and others report suspected fraud; tips received through such channels are the most common way occupational frauds are detected.

Theft or misuse of an organization's resources by an employee or insider, including cash schemes and theft of inventory or other property; the most common category of occupational fraud.

Stealing cash before it is recorded in the accounting system, so the receipt never appears in the books and the theft is difficult to detect through reconciliations.

Stealing cash that has already been recorded on the books, such as taking currency from a register or deposit after the sale or receipt is entered.

A fraud in which an employee submits fictitious or inflated invoices, often through a shell company or a colluding vendor, and diverts the resulting payment.

A business entity with no real operations or assets, created or used to receive fraudulent payments while appearing to be a legitimate vendor or supplier.

An illicit payment made to an employee by a vendor or contractor in exchange for favorable treatment, such as awarding contracts or approving inflated invoices.

Offering, giving, receiving, or soliciting something of value to influence an official act or business decision dishonestly, in violation of a legal or fiduciary duty.

The misuse of entrusted power for private gain, covering bribery, extortion, and conflicts of interest in business and government transactions.

Intentional misstatement or omission of amounts in financial reports to deceive users, often by inflating revenue or assets and understating liabilities or expenses.

Recording sales that never occurred, often by creating fake customers or fabricated invoices, to inflate reported income and meet expectations.

The process of making proceeds of crime appear to come from legitimate sources, typically through placement, layering, and integration of the funds.

A warning sign or anomaly suggesting possible fraud, such as unusual transactions, lifestyle changes, or control exceptions, that warrants follow-up inquiry.

A systematic process of resolving fraud allegations from inception to disposition, including case evaluation, investigation, and reporting of findings.

An investigative method that forms a hypothesis about how a fraud could have occurred, then gathers evidence to test, refine, or discard that hypothesis.

A structured conversation to gather information from witnesses and suspects, using open-ended questions early and increasingly specific questions later.

A later-stage interview designed to obtain a confession, using evidence presentation, theme development, and careful handling of denials and alibis.

A conversational technique that draws out information from a person without asking direct questions, often used in preliminary or covert inquiries.

A statistical expectation that in many naturally occurring data sets the leading digit 1 appears far more often than 9; deviations can signal fabricated numbers.

Using software to search, sort, and test large data sets for anomalies, duplicates, gaps, and patterns that may indicate fraud.

A documented record of who handled evidence, when, and where, from seizure through trial, used to show the evidence has not been altered.

An indirect method that estimates a suspect's income by comparing increases in net worth and spending with known legitimate income.

A written summary of an investigation's findings, evidence, and recommendations, prepared so it can withstand scrutiny by management, counsel, and courts.

The facts a plaintiff typically must prove: a false statement of material fact, knowledge of falsity, intent to induce reliance, justifiable reliance, and resulting damages.

A legal term for a guilty mind or knowing intent to deceive; fraud generally requires proof that the defendant knew the statement was false or acted recklessly.

The quality of information that would influence a reasonable person's decision; a false statement generally must be material to support fraud liability.

The victim's reasonable dependence on a false statement; if reliance was not justified, a fraud claim may fail even when the statement was false.

The obligation to persuade the fact-finder; criminal fraud requires proof beyond a reasonable doubt, while civil fraud usually requires a preponderance of the evidence.

An out-of-court statement offered to prove the truth of the matter asserted, generally inadmissible in court unless a recognized exception applies.

A rule protecting confidential communications between a client and an attorney for legal advice from compelled disclosure, subject to exceptions such as the crime-fraud exception.

The fraudulent conversion of property entrusted to a person's care; unlike larceny, the wrongdoer had lawful possession of the property before converting it.

Civil fraud seeks compensation for losses and requires a lower burden of proof; criminal fraud seeks punishment and requires proof beyond a reasonable doubt.