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The Office of the Comptroller of the Currency (OCC) requires national banks to submit a Suspicious Activity Report (SAR) under certain circumstances (12 C.F.R. §21.11, as amended). Reports are required if there is a known or suspected criminal violation committed against the bank or involving a transaction conducted through the bank and (1) the bank has a substantial basis for identifying responsible bank personnel; or (2) the amount involved is $5,000 or more and the bank has a substantial basis for identifying a possible suspect; or (3) the amount involved is $25,000 or more (if the amount involved is $25,000 or more, the bank is required to report even if the bank does not have a substantial basis for identifying a suspect); or (4) the amount involved is $5,000 or more and the potential for money laundering exists; or (5) the amount involved is $5,000 or more and the violation of the Bank Secrecy Act exists; or (6) the amount involved is $5,000 or more and the transaction has no business or apparent lawful purpose or is not the sort in which the particular customer would normally be expected to engage, and the institution knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.
Correct Answer: (C)
Loan brokering applies to either packages of individual residential (consumer) loans or single commercial loans. A variation of a brokered loan is the loan participation, where the purchaser participates in the loan but does not purchase the entire loan. The fraud schemes associated with brokered or participated loans generally involve selling phony loans (packages) or selling participations in loans that have not been properly underwritten. Generally, a large fee is charged for these brokered loans. With residential loan packages, the broker sells the package, takes the money, and disappears. Brokered loans are generally not sold with any recourse to the broker. Therefore, the purchaser must look to the borrower and the underlying collateral for debt satisfaction. With loan participations, the lead bank generally performs the underwriting. However, this does not relieve the participating bank from its obligation to perform its own due diligence.
Correct Answer: (A)
Understating liabilities and expenses is one of the ways financial statements can be manipulated to make a company appear more profitable. Because pre-tax income will increase by the full amount of the expense or liability not recorded, this financial statement fraud method can significantly affect reported earnings with relatively little effort by the fraudster. There are three common methods for concealing liabilities and expenses:
Omitting liabilities and/or expenses
Improperly capitalizing costs rather than expensing them
Failing to disclose warranty costs and liabilities
Correct Answer: (B)
The term corporate governance, in its essence, refers to a corporation’s government; the term is broadly used to describe the oversight responsibilities of different parties for an organization’s direction, operations, and performance. More specifically, the Organization for Economic Co-operation and Development (OECD) defines corporate governance as: “[The] procedures and processes according to which an organization is directed and controlled. The corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization—such as the board, managers, shareholders and other stakeholders—and lays down the rules and procedures for decision-making.”
Though there is no consensus within the scholarly community, one current definition of white-collar crime is that proposed by Albert J. Reiss, Jr., and Albert Biderman: "White-collar crime violations are those violations of law to which penalties are attached that involve the use of a violator’s position of economic power, influence, or trust in the legitimate economic or political institutional order for the purpose of illegal gain, or to commit an illegal act for personal or organizational gain."
Correct Answer: (C)
Monitoring is the process that assesses the effectiveness of a control system over time. This component of COSO’s Internal Control—Integrated Framework should include both ongoing evaluations and periodic, separate evaluations, the findings of which should be evaluated against pre-defined criteria. The following are the Framework principles supporting this component:
The organization selects, develops, and performs ongoing and separate evaluations to ascertain whether the components of internal control are present and functioning.
The organization evaluates and communicates internal control deficiencies in a timely manner to those parties responsible for taking corrective action, including senior management and the board of directors, as appropriate.
Correct Answer: (A)
Regulatory and legal misconduct includes a wide range of risks, such as conflicts of interest, insider trading, theft of competitor trade secrets, anti-competitive practices, environmental violations, and trade and customs regulations in areas of import and export. Depending on the particular organization and the nature of its business, some or all of these risks may be applicable and should be considered in the fraud risk assessment process.
COSO envisions that upper management will be responsible for the control environment of organizations. Employees look to management for guidance in most business affairs, and organizational ethics are no different. It is important for upper management to operate in an ethical manner, and it is equally important for employees to view management in a positive light.
Correct Answer: (D)
Considering all white-collar crime offenders, the higher an individual’s status, the more likely the person was to be imprisoned. According to Crimes of the Middle Classes, "all else being equal, doctors will have about a 30 percent greater likelihood of being imprisoned for a white-collar crime than truck drivers and almost a 13 percent greater likelihood than managers." Judges seem to find persons of higher prestige more at fault or, in other words, more blameworthy in the commission of their crimes.
Computer forensic examiners generally agree that investigations typically involve four phases: the seizure phase, the image-acquisition phase, the analysis phase, and the reporting and testifying phase.
Correct Answer: (D)
User-created files are files created under the user’s direction, and include text-based documents, spreadsheets, databases, email, address books, presentation slides, audio/video files, image files, Internet bookmarks, and so on.
An issue faced in most examinations is that multiple copies of various files will be collected as part of the investigative process. Because reviewing such duplicative materials is expensive and time consuming, the fraud examiner should identify and eliminate duplicates in the collected data. This process is referred to as deduplication filtering, and it is critical in helping to reduce the vast amounts of information collected during a fraud examination. That is, deduplication filtering is a data-processing technique that fraud examiners can use to identify and eliminate identical materials in digital data.
Accounting is based on the model or accounting equation: Assets = Liabilities + Owners' Equity.
One type of bank employee fraud is referred to as unauthorized disbursement of funds to outsiders. This type of scheme involves employees cashing stolen/counterfeit items for outside accomplices.
Correct Answer: (B)
Fraud in financial statements takes the form of overstated assets or revenue and understated liabilities and expenses. Overstating assets and revenues falsely reflects a financially stronger company by inclusion of fictitious asset costs or artificial revenues. Understated liabilities and expenses are shown through exclusion of costs or financial obligations. Both methods result in increased equity and net worth for the company. This overstatement and/or understatement results in increased earnings per share or partnership profit interests or a more stable picture of the company's true situation.
Per IRS Code Section 6663: A penalty of 75 percent of the underpayment is imposed if any part of the underpayment is due to fraud. If the taxpayer is successful in proving that a portion of the underpayment is not the result of fraud, then that portion of the underpayment may be subject to the negligence penalty.
There are three basic ways to prove illegal payments: identify and trace them by audit steps, turn an inside witness, or secretly infiltrate or record ongoing transactions. When identifying and tracing illegal funds through audit steps, the examiner might focus on the point of suspected payment (i.e., from where the funds are generated, earned, stolen, or otherwise begin their journey), point of receipt (i.e., from where the illicit funds are deposited, spent, or invested), or both.
The U.S. courts have determined evasion to be unlawful, while avoidance has been deemed lawful.
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