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CFE-Financial Trans.

CFE-Financial Transactions

What is accounting equation? Assets= Liabilities + Owners' Equity
What is accounting? The measurement of recording of economic data about an enterprise for decision makers
What is an asset A resource owned by an entity that has economic value and will provide a future benefit
What are some typical asset accounts Cash, Accounts receivable, inventory Property, equipment, intangible items(e.g. Patents, licenses, and trademarks)
What are liabilities The obligations of an entity or outsiders claims against an entity's assets
What are some typical liability accounts Accounts payable, Notes payable, Interest payable, Long-term debt
What is owners' equity The investment if a company's owners (common stock) plus accumulated profits not given to shareholders (retained earnings)
What type of entry goes on the left side of an account Debits
What type of entity goes on the right side of an account Credits
What types of accounts are increased by debits and decreased by credits? Assets; Expenses
What type of accounts are increased by credits and decreased by debits Liabilities,Owners' credits, Revenue
What is a journal entry An accounting record consisting of a debit side and a credit side that shows the detailed components of a particular transaction
2 primary methods of accounts Cash basis; Accrual basis
What are financial statements Presentations of financial data and accompanying notes prepared in conformity with generally accepted accounting principles
What is a balance sheet A financial statement that shows a "snapshot" of a company's financial position at a specific point in time
What accounts are typically found on a balance sheet Assets, Liabilities, Owners' equity (common stock and retained earnings)
What is an income statement A financial statement that shows how much profit (or loss) a company earned over a period of time
What is gross margin (also called gross profit) Net sales less cost of goods sold
What items are typically found in an income statement Revenue, costs of good sold, Gross margin (or gross profit), Operating expenses (depreciations, interest, rent, utilities, salaries, etc.), Net income or net loss
What is the statement of owners' equity (or statement if retained earnings)? A financial statement that acts as the connecting link between the income statement and the balance sheet by detailing the change in owners equity over a period of time
What is the statement of cash flows A financial statement that reports a company's sources and uses of cash during the accounting period
3 categories on a statement of cash flows Cash flows from operating activities , Cash flows from investing activities, Cash flows from financial activities
What is GAAP Generally accepted accounting principles, which are the rules by which a company's financial transactions are recorded into their appropriate account classifications
What is the historical cost principle under GAAP An asset's acquisition cost (its historical cost) is the proper basis for recording it on the balance sheet
What is matching principle under GAAP Expenses are recorded in the same accounting period as the revenues they helped generate
What is the revenue recognition principle under GAAP Revenue is recognized or recorded when it becomes realized or realizable and earned
4 revenue recognition criteria under GAAP Persuasive evidence of an arrangement exists Delivery has occurred or services have been rendered The seller's price is fixed or determinable Collect ability is reasonably assured
What is consistency principle under GAAP Entities should employ consistent accounting procedures from period to period; any variation or change must be justifiable
What is the going concern principle under GAAP The assumption that the life of the entity will be long enough to fulfill its financial and legal obligations; any evidence to the contrary must be reported in the entity's financial statements
What is the full disclosure principle under GAAP An entity's financial statements must include all information necessary for the formation of valid decisions by its users
When is a departure from GAAP acceptable? Industry common practice, substance of transaction better reflected in a different way; is immaterial to the fin. Stmts concern assets/income overstated, strict adherence to GAAP will produce unreasonable results and the departure is properly disclosed
What is depreciation An expense taken for wear-and-tear on the company's physical property; It is recorded on the income statement as an operating expense
What is amortization expense An expense taken for a decline in value of the intangible property; it is recorded on the income statement as an operating expense
What is accumulated depreciation An amount that represents the cumulative wear– and- tear on the company's physical property; is recorded on the balance sheet as an offset to the company's fixed assets
What is accumulated amortization An amount that represents the cumulative in value of the company's intangible property; it is recorded on the balance sheet as an offset to the company's intangible assets
What is financial statement fraud The deliberate misrepresentation of the financial condition of an enterprise through the intentional misstatement or omission of amounts or disclosures in the financial statements in order to deceive users
Where is the typical effect of fraud on the financial statements Overstated assets in revenues, understated liabilities and expenses
Five classifications of financial statement fraud schemes Fictitious revenues, timing differences improper asset valuations concealed liabilities and expenses, Improper disclosure
What is fictitious revenue scheme Recording revenues from the sale of goods or services that did not occur, involving either phantom customers or legitimate customers
What is timing difference scheme Recording of revenues or expenses in improper periods
What is income smoothing Shifting revenues or expenses between 1 period and the next to increase or decrease earnings as desired and give the illusion of a more stable enterprise
4 classifications of improper asset valuation schemes Inventory valuation, Accounts receivable, Business combinations, Fixed assets
According to GAAP, how should inventory be valued Lower of cost or market value
2 way accounts receivable are commonly manipulated Creating fictitious receivables, Failing to write off uncollectible accounts
What is a bad debt expense The amount of accounts receivable that the entity expects to never collect
What does it mean to improperly capitalize an expenditure To add the cost of the expenditure to an asset account rather than properly recording it as an expense
What is the effect of improperly capitalizing an expenditures An increase in assets (and therefore a stronger balance sheet) and a decrease in expenses (and therefore a higher net income) for the perood
5 common types of improper financial statement disclosure Liability omissions, subsequent events, Management fraud, Related-party transactions, accounting changes
What is contingent liability A potential obligation that will materialize only if certain events occur in the future
3 types of accounting changes that must be disclosed Changes in accounting principles, Changing in accounting estimates, Changing in reporting entities
What is vertical analysis A technique for analyzing the relationships among the items on the financial statements by expressing components as a percentage of a specified base value
What item on the income statement is assigned 100% when conducting vertical analysis Net sales
What items on the balance sheet are assigned 100% when conducting vertical analysis Total assets, Total liabilities + owners' equity
What is horizontal analysis A technique for analyzing the percentage change in individual financial statement line items from 1 period to the next
What is ratio analysis A means of measuring the relationship between 2 different financial statement amounts
What is the calculation of the current ratio Current assets/ current liabilities
What does the current ratio measure A company's ability to meet present obligations from its liquid assets
What is the calculation of the quick ratio (cash + marketable securities + receivables)/ current liabilities
What does quick ratio measure The company's ability to meet sudden cash requirements
What is the calculation of the asset turnover ratio Net sales/average assets
What does the asset turnover ratio measure The efficiency with which asset resources are used
What is the calculation of the debt-to-equity ratio Total liabilities/total equities
What is the calculation of the accounts receivable turnover ratio Net sales on account/average net receivables
What does the asset turnover ratio measure The number of times accounts receivable is turned over during the accounting period (i.e. The time between on-account sales and collection of funds)
2 types of cash receipts schemes Skimming, Cash larceny
What is skimming An off-book fraud that involves the removal of cash from a victim entity prior to its entry into an accounting system
What is an unrecorded sales skimming scheme When an employee pockets the cash received from a customer in a sales transaction and makes no record of the sale
What is an understated sales skimming scheme When a legitimate sales transaction is recorded, but the employee records the sale for a lower amount and pockets the remainder
What is receivables skimming scheme Instead of applying a customer' payment to his account, the employee steals the payment so that the customer's account appears delinquent
What is receivables lapping A method used to conceal receivables skimming by taking an incoming customer payment and applying it to an account that was stolen from, then taking the next incoming payment and applying it to the precious account, and so on
What types of journal entries should be examined when looking for a skimming scheme False credits to inventory, Write-offs of lost, stolen or obsolete inventory, Write-offs of accounts receivable, Irregular entries to cash
What is cash larceny scheme An on-book fraud scheme in which an employee physically misappropriated cash that has already appeared on the victim organizations books
What is deposit lapping A method used to conceal a cash larceny scheme by stealing the cash from a deposit, replacing it with the next day's deposit, repeating the same procedure the next day, and so on
What is fraudulent disbursement scheme I distribution of company funds for a dishonest purpose
What is a registered disbursements game Stealing cash from the register while recording it's removal as a legitimate transaction
Two types of register disbursements schemes Post refunds, false voids
What is fictitious refund scheme A scheme in which the cashier processes a transaction as if a customer or returning merchandise, even though there is no actual return, and then takes cash from the register in the amount of the falls return
What is effect on inventory in a fictitious refund scheme Inventory is overstated by the amount of the fictitious refund
What is an overstated refund scheme A scheme in which an employee over states the amount of a legitimate refund and pockets the excess
Five major categories of check tampering schemes Forged maker schemes, forged endorsements, altered payees, concealed check schemes, authorized maker schemes
What is a forged maker scheme A checked tampering scheme in which an employee misappropriates a check and fraudulently a fixes the signature of an authorized maker (check signer) thereon
What is a forged endorsement scheme A check tampering scheme in which an employee intercepts a company check intended to pay a third party and converts the check by endorsing it in the third-party's name
What is an altered payee scheme A checked tampering scheme in which a check is intercepted and the payee designation is altered so that the fraudster can convert the check
What is authorized maker scheme A check tampering scheme in which an employee with signature authority on a company account writes fraudulent checks for his own benefit and signed his own name as the maker
Three types of billing schemes Both invoicing via shell companies, False invoicing by a non-accomplice vendors, personal purchases with company funds
What is a shell company A business entity with no physical presence and no employees that generates little (of any) independent economic value
What is a pass-through scheme When an employee in the purchasing department sets a shell company, buys merchandise through the shell company, and sells it back to his employer at an inflated price
What is a pay-and-return scheme? When an employee intentionally sends an incorrect payment to a legitimate vendor, requests that the vendor return the payment, and pockets the money
What constitutes personal purchases with company funds When an employee orders goods that are unnecessary to his employer and keeps for himself
3 categories of payroll fraud Ghost employee schemes, Falsified hours and salary schemes, Commission schemes
What is a ghost employee A real or fictitious person on the payroll who does not actually work for the victim company
4 requirements for a ghost employee scheme to work The ghost must be added to the payroll, Timekeeping and wage rate information must be collected, A paycheck must be issued to the ghost, The check must be delivered to the perpetrated
2 ways an hourly employee can fraudulently inflate his pay Falsify the number of hours worked, Increase his rate of pay
2 ways a commissioned employee can fraudulently inflate his commissions Falsify the amount of sales made, Increase his commission rate
4 categories of expense reimbursement schemes Mischaracterized expenses, Overstated expenses, Fictitious expenses, Multiple reimbursements
What is mischaracterized expense reimbursement scheme Requesting reimbursement for a personal expense by claiming that the expense is business-related
What is an overstated expense reimbursement scheme Overstating the cost of actual business expenses to generate expense reimbursements
What is a fictitious expense reimbursement scheme When an employee simply invents an expense that never occurred and requests that it be reimbursed
What is multiple reimbursement scheme Submitting a reimbursement request for the same expense more than once
What information should a detailed expense report include Original receipts or other support documentation, Explanation of the specific business purpose of the expense, Time period of the expense, Place of expenditure amount
2 ways to misappropriate non-cash assets Misuse (borrowing), Theft
What is a noncompetition agreement An agreement whereby an individual agrees not to work for competing agrees not to work for competing companies within a set period of time after leaving his current employer
On-book fraud schemes A scheme In which an employer simply takes the asset from the company without attempting to correct the theft in the books and records
What is false sale inventory theft scheme A scheme in which an accomplice of an employee pretends to buy merchandise, but the employee does not ring up the sale, allowing the accomplice to take the merchandise without paying
What is purchasing and receiving scheme When a person charged with receiving goods on behalf of a victim company falsified the records of incoming shipments so that he can steal excess
What is a false inventory scheme When employees create false shipping documents and sales sales documents to make it appear that misappropriated inventory was sold rather than stolen
What is inventory shrinkage The unaccounted-for reduction in a company's inventory that results from error or theft
4 methods to conceal inventory shrinkage Altering inventory records, Recording fictitious sales and accounts receivables, Writing off inventory and other assets, Physical padding
Types of intangible assets subject to misappropriation Proprietary information such as customer lists, marketing strategies, trade secrets, new products, and research and development findings
What are kickbacks Improper, undisclosed payments made to obtain favorable treatment
What is economic extortion The obtaining of property from another, with the other party's consent induced by wrongful use of actual or threatened force of fear
What is a conflict of interest A situation in which an employee or agent has an undisclosed personal or economic interest in a matter that could influence his professional role
What is corruption The wrongful use of influence to procure a benefit for the actor or another person, contrary to the duty or the rights of others
What is an illegal gratuity The giving of an item of value to reward a decision after it has been made
What is bribery The offering, giving, receiving, or soliciting of anything of value to influence an official act or business decision
What is collusion An agreeement between 2 or more individuals to commit an act designed to deceive or gain an unfair advantage
What is an agent (in the context of conflicts of interests) Any person who, under the law, owes a duty of loyalty to a principal or employer
What is a principal (in the context of conflicts of interest) An entity that authorizes an agent to act on its behalf
3 basic ways to prove corrupt payments Turn an inside witness Secretly infiltrate or record ongoing transactions Identify and trade the corrupt payments through audit steps
What are the open sources of information Information in the public domain that is legally available to anyone
What is an SPI program A program for safegoing proprietary information (SPI program) that is designed to protect trade secrets and prevent the disclosure of proprietary information
Elements of an SPI program Task force, Employee awareness, Nondisclosure agreements, Noncompetition agreements
What is a nondisclosure agreement An agreement providing all proprietary and confidential information that an individual learns during his employment or contract term with an organization must be kept confidential and must not be disclosed to anyone
What is a quiet room An area that is acoustically and radio-frequency shielded so that conversions that occur within the room cannot be monitored
What are cipher locks Combination locks containing buttons that open the lock when a particular code is punched
What is a TSCM A technician surveillance countermeasures survey also known as debugging that is conducted to help an organization detect the presence of technical surveillance equipment and identify potential security weaknesses
What is competitive intelligence The analytical process that transforms disaggregated competitor data into relevant, accurate, and usable knowledge about competitors' positions, performance, capabilities and intentions
What is espionage Intelligence activity directed toward the acquisition of information through clandestine means
What is actionable intelligence Information that has the depth character and quality of which an individual can base sound decisions
What is misdirection (in the context of information theft) The providing of false facts to information thieves in an effort to neutralize their intelligence efforts
What is technical surveillance The use of technological surveillance equipment to gather intelligence
What is intellectual property Knowledge based assets and capital including information ideas and designs and innovations howsoever expressed or recorded
What are external fraud schemes Schemes committed by outside parties, typically by individuals or groups of individuals, against the organizations
What is embezzlement The theft of property of anther by a person to whom the property has been lawfully entrusted
What is an air loan A loan for a nonexistent property
Fraudulent disbursements False accounting entries, Unauthorized disbursement of funds to outsiders Unauthorized withdrawals, Moving money from customers inactive accounts Unauthorized, unrecorded cash payments
How are sham loans often concealed by perpetrators Charged off as bad debt Paid off which the proceeds of new fraudulent loans
What is a daisy chain scheme A scheme in which a bank buys, sells, and swaps it's bad loans for the bad loans of another bank, creating new documentation in the process, in order to mask or hide and they are present and good
What is a double-pledging collateral scheme A scheme in which borrowers pledge the same collateral with different lenders before liens are recorded and without telling the lenders
What is a sham loan scheme A scheme in which a loan officer makes a loan officer makes a loan to an accomplice, who then shares all or part of the proceeds with the lending officer
What is draw request Documentation for a construction loan advance substantiating that a developer has incurred the appropriate construction expenses and is now seeking reimbursements or direct payment
What is a non-performing loan A loan that is a default or close to being in default that the creditor has reason to believe will not be collected in full
Key characteristic of loan fraud Missing of abnormal loan documentation
What is a property flipping Process by which an investor purchases a home and then resells it at a higher price shortly thereafter
Common types of external real estate fraud schemes Appraisal fraud Mortgage-backed security fraud Equity skimming, loan falsifications Forged documents, foreclosure rescue scams
Types of ATM schemes Theft of ATM card and/or unauthorized access to PINS and account codes, Employee manipulation, counterfeit ATM cards, Counterfeit ATM machines
What is a suspicious activity report (SAR) A report that financial institutions must file with the Financial Crime Enforcement Network (FinCEN) for certain transactions that have a heightened risk for criminal activity
Which type of fraud represents the highest risk area for financial institutions Loan fraud
What is property flopping A rapid transfer of real property where the first transaction is artificially deflated and the value of the second transaction is increased
In a construction loan contract, what is retainage The amount withheld from each draw request until the construction is complete and the lien period has expired
What is check washing A type of check fraud that involves using acid-based chemicals to erase particular information from a check
What is credit card skimming A scheme in which a device is used to scan customers' credit card numbers in the midst of performing legitimate transactions
What is a paperhanger Someone who is an expert in passing phony checks
What is a demand draft A check created by a seller that has a buyer's checking account number but no signature
What is an electrostatic detection apparatus A tool that allows fraud examiners to detect indented writing in the top few pages of a pad of paper
What is an electronic funds transfer Any transfer of funds, other than one originated by a check or similar paper instrument that is initiated through an electronic-telephonic-computer or magnetic tape that orders or purports to authorizes financial institution to debit or credit an acct
What is premium theft A scheme in which insurance premiums are collected by an agent but not remitted to the insurance company, this resulting in an absence of coverage for the supposedly insured customer
What is check kiting The fraudulent practice of floating worthless checks from one bank account to another to take advantage of the delayed deposit process
What is "white plastic" in the context of credit card fraud Credit card-sized plastic embossed with account numbers and names often used in collusion with corrupt merchants
What is a fictitious payer insurance fraud scheme A scheme In which an agent or a clerk changed the beneficiary on record to a fictitious person and subsequently submits the necessary papers to authorize the issuance of a check
What is a fictitious death claim scheme An insurance fraud scheme in which an agent or employee obtains a fictitious death certificate, requests that a death claim check be issued and then received the check and cashes it
What are tombstone policies Fictitious insurance policies based on bogus information for the purpose of improving the sales record or commissions of insurance salespeople
What is sliding (in the context of insurance fraud) The inclusion of supplementary coverage in an insurance policy without the knowledge of the insured
What is twisting (in the context of insurance fraud? The replacements usually by high-pressure sales techniques, of existing policies for bee ones in order to generate commissions for the agent
What is churning (in the context if insurance fraud) A scheme in which agents falsely tell customers that they can buy additional insurance for nothing by using built-up value in their current policies
What is past posting (in the context if insurance fraud)? A scheme in which an uninsured motorist is involved in an automobile accident, purchased insurance after the fact, and fraudulently reposts the accident at a later time
What is ditching (in the context of insurance fraud) A scheme in which a vehicle owner creates a situation intended to result in the theft or loss of his vehicle in an effort to collect on an insurance policy or resolve an outstanding auto loan
What is a paper accident (in the context of insurance fraud)? A scheme involving the fabrication of an auto accident that only occurs on paper, made possible by the unlikelihood that an insurance company will investigate a small dollar-value claim
What is a capper (in the context of worker's compensation or health care fraud)? Someone who steers a patient toward a corrupt attorney or doctor with the intent of recruiting the patient as an accomplice in the scheme
What is an orphan contract holder A policyholder whose whereabouts are unknown or to whom a servicing agent has not been assigned
What is an indemnity bond A type of insurance policy that provides restitution against loss to a third party when the insured fails to fulfill a specific undertaking for the third party's benefit
What is a fidelity insurance A type of insurance policy that indemnified against economic loss to the insured caused by the dishonest or fraudulent acts of its employees
What is casualty insurance A type of insurance policy that indemnified against legal liability to others for injury or damage to persons, property, or other interests because of specified risk of conduct
What occurs during a phantom billing health care fraud scheme Providers bill for services that were not rendered at all
What occurs during a rolling lab health fraud scheme A mobile laboratory solicits insured individuals to participate in unnecessary health screening tests at no cost to insured, bills the individual's ins. provider, moves to another location prior to pt receiving the test results to avoid detection
What occurs during a fictitious business health care fraud scheme An individual sets up a fictitious provider & fraudulently uses a provider billing identifier and lists of pt identifying info to bill Medicaid/Medicare or other health ins. for fictitious services
What parties are considered medical "providers"? Medical practitioners, Suppliers, Institutions
What is a durable medical equipment (DME) Reusable equipment for a medical purpose, such as crutches, wheelchairs, and specialized patient beds
Created by: Monatlo