Understanding Financial Crime

Why people and organizations commit financial crime: opportunity, the Fraud Triangle, organizational versus occupational crime and fraud research.

5 minutes 5 Questions

Understanding financial crime is a foundational competency for a Certified Fraud Examiner (CFE), as it frames how fraud is detected, investigated, and prevented. Financial crime refers to illegal acts committed to obtain money, property, or an economic advantage through deception, abuse of trust, o…

Concepts covered
Opportunity and Contributing FactorsThe Fraud TriangleOrganizational versus Occupational CrimeOccupational Fraud Research and TrendsEffects of Financial Crime
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CFE - Understanding Financial Crime Example Questions

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Question 1

Because a fraud loss reduces net income directly, an organization operating on a low profit margin needs to generate additional revenue many times the amount stolen to recover the loss.

Correct Answer: True

A fraud loss comes straight off the bottom line. Only the profit portion of each sale can replace it, so the revenue needed to recover the loss is the loss divided by the profit margin. For an organization with a low margin, that is many times the amount stolen, which is one of the most significant ways financial crime harms organizations.

Question 2

Among the three elements of the Fraud Triangle, pressure is the element over which an organization can exert the most direct influence through its system of internal controls.

Correct Answer: False

The statement is false. Opportunity, not pressure, is the Fraud Triangle element that an organization can most directly influence, because internal controls, segregation of duties and the perception of detection shape the circumstances that let a perpetrator commit and conceal fraud. Pressure usually comes from an individual's personal circumstances, such as financial difficulties, which the organization has limited ability to control.

Question 3

Of the three elements of the Fraud Triangle, pressure is the element an organization can most directly reduce through the design of its internal controls.

Correct Answer: False

The statement is false because opportunity, not pressure, is the element an organization can most directly influence. It does so through internal controls such as separation of duties, authorization and independent reconciliation. Pressure (for example, financial difficulty or performance targets) and rationalization arise largely within the individual and are much harder for the organization to control.

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