CFF flashcards
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32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Fraud triangle
- Three conditions that generally must be present for occupational fraud: pressure or incentive, opportunity, and rationalization. Removing any one element reduces the likelihood of fraud occurring.
- Occupational fraud definition
- The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets. It includes asset misappropriation, corruption, and financial statement fraud.
- Asset misappropriation
- Theft or misuse of an organization's assets, such as cash skimming, inventory theft, or fraudulent disbursements. It is the most common occupational fraud category but typically the least costly per case.
- Financial statement fraud
- Intentional misstatement or omission of amounts or disclosures in financial statements to deceive users. It is the least common occupational fraud category but the most costly per case on average.
- Corruption schemes
- Fraud schemes in which an employee wrongfully uses influence in a business transaction to obtain a benefit, including bribery, kickbacks, illegal gratuities, conflicts of interest, and economic extortion.
- Skimming
- Theft of cash before it is recorded in the accounting system. Because the receipt never enters the books, skimming is hard to detect from the records alone and often surfaces through tips or reconciliations.
- Larceny (cash)
- Theft of cash after it has been recorded on the books. Detection often relies on reconciliation differences, deposits in transit analysis, or customer complaints about unpaid balances.
- Lapping
- A concealment scheme in which an employee steals a customer payment and covers it with a later customer's payment, continually rolling the shortage forward. It requires access to receivables records.
- Check kiting
- Writing checks against insufficient funds across multiple bank accounts to exploit float, creating artificially inflated balances. Detection uses bank clearing records and deposit timing analysis.
- Shell company scheme
- A billing fraud in which an employee creates a fictitious vendor, submits invoices, approves them, and receives payments. Red flags include P.O. boxes, no physical address, and no verifiable business activity.
- Ghost employee
- A fictitious person on the payroll, or a real person not actually employed, whose pay is diverted by the perpetrator. Indicators include no tax withholdings, no benefits elections, and undeliverable pay.
- Kickback
- A bribe paid by a vendor to an employee in return for favorable treatment, such as inflated invoices or contract awards. Indicators include above-market prices and single-source purchasing.
- Benford's Law
- A distribution in which the leading digit 1 occurs about 30.1% of the time, 2 about 17.6%, and so on decreasing to 9 at about 4.6%. Significant deviation may indicate fabricated numbers.
- Net worth analysis
- A source-and-use method that estimates a subject's income by measuring changes in net worth plus known expenditures, then comparing that to reported income to identify unexplained funds.
- Vertical analysis
- A technique expressing each financial statement line item as a percentage of a base amount, such as revenue on the income statement or total assets on the balance sheet, to spot anomalies.
- Horizontal analysis
- A technique comparing the same line item across multiple periods to identify trends, unusual fluctuations, or changes inconsistent with expectations, which may signal manipulation.
- CAATs
- Computer-assisted audit techniques, such as data extraction, duplicate payment testing, gap detection, and Benford analysis, used to examine large populations of transactions for anomalies.
- Chain of custody
- A documented record of every person who handled evidence and when, from seizure through presentation. Breaks in the chain can undermine admissibility or the weight of the evidence.
- Forensic engagement letter
- A written agreement defining the objective, scope, standards, fee basis, and limitations of a forensic engagement. It clarifies that the work is not an audit and no audit opinion is expressed.
- Daubert standard
- A federal evidentiary standard under which a trial judge acts as gatekeeper, admitting expert testimony only if it rests on sufficient facts, reliable methods, and proper application to the case.
- Frye standard
- An evidentiary standard applied in some state courts holding that expert testimony based on a novel scientific method is admissible only if the method is generally accepted in the relevant field.
- Expert witness
- A witness permitted to offer opinions based on specialized knowledge, training, or experience, as opposed to a fact witness who testifies only about what was observed or done.
- Lost profits damages
- A damages measure comparing actual results to a but-for scenario in which the wrongful act did not occur. It requires a defensible causal link and reasonable certainty in the projection.
- Professional skepticism
- An attitude of questioning and corroboration in which the forensic examiner does not accept management representations at face value and independently verifies assertions with evidence.
- Fraud risk assessment
- The process of identifying fraud risk factors at the financial statement and assertion levels, evaluating incentive, opportunity, and rationalization, and designing procedures responsive to those risks.
- Top-side journal entry
- A manual adjusting entry made at the consolidated or management level rather than in a subsidiary ledger. Unusual top-side entries are a common vehicle for financial statement fraud.
- Round-trip transaction
- A sale to a related or complicit party accompanied by a corresponding purchase or return of the same asset, creating illusory revenue. It is a red flag for fictitious revenue schemes.
- Bill-and-hold arrangement
- A sale recorded before the goods are delivered, with the goods held for the buyer. It is permissible only under strict criteria and is otherwise a timing scheme to inflate revenue.
- Concealed liabilities
- A financial statement fraud scheme in which obligations or expenses are omitted, understated, or recorded in improper periods to improve reported financial position or results.
- Interview technique
- A structured approach to questioning witnesses and suspects, moving from general to specific questions, using open-ended prompts first, and documenting admissions and inconsistencies carefully.
- Work product privilege
- Protection for materials prepared by or for an attorney in anticipation of litigation. Forensic reports prepared at counsel's direction may be protected, but underlying facts are generally discoverable.
- Data analytics red flags
- Indicators found through transaction testing, such as duplicate payments, sequence gaps, weekend postings, round-dollar amounts, and shared addresses between employees and vendors.