CBA Fraud Examination and Prevention 2 — Questions and Answers
Question 1: What is 'lapping' in the context of bank employee fraud?
- Overlapping audit periods to ensure no coverage gaps exist
- Stealing cash receipts from one account and covering the shortage with subsequent customer payments (Correct answer)
- Duplicating loan applications across multiple financial institutions simultaneously
- Layering transactions through multiple accounts to obscure money laundering
Correct answer: Stealing cash receipts from one account and covering the shortage with subsequent customer payments
Lapping involves stealing cash or checks from one customer's payment, then covering that shortage with a later customer's payment, creating an ongoing cycle that is difficult to detect without physical reconciliation.
Question 2: Which analytical technique is most useful for detecting fraudulent or manipulated transaction amounts in bank records?
- Ratio analysis of the bank's return on equity over multiple periods
- Benford's Law analysis of the leading digits in transaction data (Correct answer)
- Customer satisfaction survey correlation with transaction volume
- Peer bank interest rate comparison across competing institutions
Correct answer: Benford's Law analysis of the leading digits in transaction data
Benford's Law analysis detects unusual patterns in the first digits of numbers in large datasets; fraudulent amounts often deviate significantly from the expected natural distribution.
Question 3: Under the Bank Secrecy Act, within how many days of detecting a suspicious transaction must a bank file a Suspicious Activity Report (SAR)?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
Banks must file a SAR within 30 days of the date of initial detection of a suspicious transaction, extendable to 60 days only when no suspect can be identified at the time of detection.
Question 4: According to ACFE Occupational Fraud studies, what is the most common category of fraud committed against financial institutions?
- Financial statement fraud
- Asset misappropriation (Correct answer)
- Corruption and bribery schemes
- Cyber-enabled fraud
Correct answer: Asset misappropriation
Asset misappropriation — which includes theft of cash, checks, inventory, and other assets — is consistently the most common category of occupational fraud, accounting for the vast majority of reported cases.
Question 5: Which control most effectively detects ghost employee schemes in a bank's payroll system?
- Requiring all employees to receive pay via direct deposit only
- Comparing payroll records against HR personnel files and conducting surprise physical headcounts (Correct answer)
- Implementing mandatory annual performance reviews for all staff
- Outsourcing payroll processing entirely to a third-party administrator
Correct answer: Comparing payroll records against HR personnel files and conducting surprise physical headcounts
Comparing payroll records to active HR personnel files and performing unannounced physical headcounts effectively identifies ghost employees — fictitious workers added to payroll to divert paychecks.
Question 6: What does the term 'skimming' mean in the context of bank employee fraud?
- Electronically reading customer card data without physical contact
- Stealing cash or payments before they are recorded in the accounting system (Correct answer)
- Transferring small amounts from many customer accounts to a fraudster's account
- Falsifying information on a loan application to obtain approval
Correct answer: Stealing cash or payments before they are recorded in the accounting system
Skimming is an 'off-books' fraud scheme where an employee steals cash or payments before any accounting entry is made, making it especially difficult to detect through traditional reconciliation.
Question 7: Which organizational structure best reduces fraud risk in a bank's lending department?
- Centralizing all lending authority with a single senior credit officer
- Separating loan origination, credit approval, and loan servicing into distinct functions (Correct answer)
- Requiring external auditors to approve all individual loan decisions
- Limiting lending authority to a small group of long-tenured officers
Correct answer: Separating loan origination, credit approval, and loan servicing into distinct functions
Separating loan origination, credit approval, and loan servicing functions creates segregation of duties, ensuring that no single employee controls the entire lending transaction from application through disbursement.
CBA Fraud Examination and Prevention 2
What is 'lapping' in the context of bank employee fraud?