Fraud Examination and Prevention Flashcards

What is 'lapping' in the context of bank employee fraud?

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.

Which analytical technique is most useful for detecting fraudulent or manipulated transaction amounts in bank records?

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.

Under the Bank Secrecy Act, within how many days of detecting a suspicious transaction must a bank file a Suspicious Activity Report (SAR)?

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.

According to ACFE Occupational Fraud studies, what is the most common category of fraud committed against financial institutions?

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.

Which control most effectively detects ghost employee schemes in a bank's payroll system?

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.

What does the term 'skimming' mean in the context of bank employee fraud?

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.

Which organizational structure best reduces fraud risk in a bank's lending department?

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.