CFE Exam Quiz 47

When a depositor opens an account, the bank requires signing (by hand or electronically) a signature card or similar record. By signing the bank’s card or similar document, the depositor becomes a party to an agreement with the bank under which he acknowledges all the bank’s rules and regulations. The signature card is a source of valuable information. The card must contain person’s identification-related information for e.g, name, national identification number, Social insurance number, etc). A fraud investigator could also track the opening deposit through the records of the bank to identify a source of income. A copy of the account holder’s driver’s license or other documentation is given to the bank may be in the account opening folder for a personal account.

In addition to the documents required to open a personal account, the account opening party must provide documentation to open a business account. The opening party shall provide a signature card or equivalent document and copies of the board of directors ‘ corporate resolutions authorizing the opening of the bank account and the individual authorizing the payment of the account. A copy of the company’s organizational or business records (such as incorporation articles) may also be requested by the bank. These documents should indicate who the company’s corporate officers are and its date of incorporation.

Negotiated (canceled) checks are checks that a bank or other financial institution has approved and can be used as proof of payment. Once it is done, an application will be terminated and all associated accounts credited. A check is no longer negotiable once it has been canceled.
Canceled checks written by a subject or received from others can provide valuable information.

Fraud investigators can use signs of bank identification to track negotiated checks. Fraud examiners do not need to understand banks’ internal bookkeeping procedures for recording transactions, but they should be familiar with the concept of bank identification numbers.
The bank code allows a check to be forwarded to the origin bank and it is necessary for payment to be distributed through the clearing process.
Bank codes and the rules governing them vary from country to country.

MICR technology is to make checks drafts and similar items easier to process and transparent. This consists of numerical data written with magnetic ink at the bottom of the tests. This coding is performed electronically by machines that translate the notations of magnetic ink into electronic impulses that MICR readers can scan and interpret.
Checks and drafts cannot be processed through the clearing system without the use of MICR.
MICR information is printed in groupings called fields.

These are written records of money deposited into accounts. Financial institutions, however, will only accept cash items (e.g., currency, checks, and bond coupons) and cash equivalents. When working with deposit tickets, the fraud examiner must remember that sometimes the depositor splits the deposit, meaning only part of the money is actually deposited.
Cash deposits can identify patterns of the subject’s activities.

Sometimes, fraudsters move illicit funds abroad through wire transfers to break the audit trail and secure funds with relaxed standards in jurisdictions.
Wire transfers may also be used by them to move assets abroad. Wire transfer records could, therefore, contain evidence of moving money abroad.

This type of payment occurs when a customer pays a bill from his checking account via a regularly scheduled direct debit or an automatic charge to his credit card.

Bank-to-seller payments occur when bank customers make payments directly to vendor accounts through electronic check from their bank accounts or from their credit cards and debit cards. Online bill payment is an electronic method of payment from bank to seller.

In tracing investigations, electronic payment records can be valuable. They can be used as proof of payment and, among other things, they can reveal:
1. Assets acquired by the subject.
2. The location of the assets of the subject.
3. Loans obtained by the subject.
4. Payments made to non-existent workers through direct deposit.
5. The cities and countries where the subject has business.
6. The property’s true owner.

Electronic payment records can be obtained from different sources. Financial institutions keep records of electronic payments. Companies must also record all electronic payments. Sellers will have records of one-time customer-to-seller payments, repeated customer-to-seller payments, and automatic bank-to-seller payments. Customer might also have the record. When a customer makes an online payment, he receives confirmation of payment.

Savings accounts are financial institutions maintained accounts that pay interest but can not be used directly as money. Savings accounts are referred to as time deposits that are deposits of cash that can not be withdrawn for a certain period of time. Savings accounts may not be accessible to the consumer as readily as checking account deposits.

CD’s are interest-bearing investment products that offer limited access to the invested money and a modest interest rate. CDs are meant to be retained until maturity, at which point, together with the accrued interest, the money can be withdrawn. Banks impose penalties on non-maturity cash withdrawn from a CD. The financial institution that issues a CD will keep records of the CD.

Fraud examiner should:
1. Note whether there are monthly balances that are unusually high. If so, this may include circumstantial evidence of illegal funds.
2. Identify deposits in equal numbers, regular deposits or deposits that can not be linked to legitimate sources of income.
3. Identify transactions with significant or irregular currency or credit memo entries. Memo entries could include wire transfers, loans, deposit
certificates, investments, or other hidden assets.
4. Get copies from the financial institution of any suspicious deposit items, if possible.

When reviewing the account statements of the subject, any checks written on the account should be checked by fraud examiners in order to identify:
1. Other bank accounts
2. Credit cards
3. The purchase of major assets
4. The location of major assets
5. The absence of a check for a recurring transaction, as this may mean that the payment was made in cash, which may imply an undisclosed cash income.

Cashier’s Checks are checks issued and certified as the drawer by a bank. When issued by a trust company, these items are called treasurer’s checks. Cashier checks can be held indefinitely, subjects sometimes buy cashier checks rather than keeping large amounts of currency at their disposal.

Certified checks are the checks of the customer stamped with the guarantee of the paying bank that the signature of the maker is genuine and that sufficient money is available in the account of the holder to cover the amount payable. Certified checks are the bank’s liabilities and are maintained by the bank when they are paid.

A bank credit department generally maintains the following basic records:
The credit or loan file: This file includes the application for the loan, financial statements, and overall economic history of the customer.
Liability ledger: This includes the bank’s past and present liability to the customer. These sheets also include information such as the date of the loan, note number, loan amount, interest rate, due date, and payments.
The collateral file: This contains a full description of the loan security items pledged. Such collateral records can provide valuable information on the assets of a subject.

A line of credit is a contract between a bank and a customer whereby the bank extends the total credit balance on which the customer can draw if necessary, provided that the customer does not exceed the maximum amount set out in the agreement. And with most credit lines, the customer just pays on the credit that he actually used. Generally, on the customer’s checking account, line of credit privileges are recorded and the statement of loan and check is one and the same.

The mortgage loan report will describe the entity that handled the closing (e.g., title company or lawyer), the homeowner’s insurance agent, the closing solicitor (if applicable), and probably the real estate broker.

Prepaid cards are similar to debit and credit cards, but unlike debit and credit cards, prepaid cards do not require a check or savings account or credit extension. Instead, users pay in advance on an account with prepaid access cards and can use the funds anywhere they accept credit and debit cards.
The requirements for setting up a prepaid access card account are less stringent than those at traditional banks.

Safe deposit boxes are private storage spaces that consumers are leased by banks. The relationship’s existence can differ between banks and their owners of safe deposit boxes.
Since the bank records will not show the box’s contents, the fraud investigator can request permission to store the box with the presence of someone allowed to access it. If the fraud examiner does this, the exact contents of the box should be carefully noted and described.

Banks do not keep records of the contents of the safe deposit box and seldom know what is contained in them. Banks generally maintain related records as follows:
1. Records of contracts for rent
2. Records of entry logs and information of the person who accessed it.

Financial Intelligence Units (FIUs) are national centers for receiving and analyzing information on suspicious or unusual financial activity to combat international financial crimes. FIUs are also designed to enhance global cooperation and foster mutual exchange of information on financial intelligence.
FIUs might contain valuable information that can be useful in tracing hidden assets.

This statement is usually issued monthly and provides information on all transactions conducted during the reporting period. It lists all purchases and sales, the name of the product, the number of units, the cost per unit, the total transaction amount, the account balance, payments received from the customer, disbursements to the customer and the securities kept for the customer by the brokerage firm.

The fraud examiner should look at the subject’s brokerage account records when attempting to trace illicit transactions. The fraud investigator will be particularly interested in the source of the funds used to buy securities or deposited into a cash account while looking at stock brokerage records.
The fraud investigator will be particularly interested in the source of the funds used to buy securities or deposited into a cash account while looking at stock brokerage records.
If payment was made by check, the fraud examiner should make a note of the bank code on which the check was drawn.

Tax records reveal deductions and expenses that can lead to previously unknown funds or assets. Personal tax records, if available, might provide indirect evidence of illicit payments.
Tax-related documents can provide information like where the subject works, his source of income and the royalties he receives.

In general, fraud examiners should use indirect methods of evidence in the following situations:
-The books and documents of the subject are not made available to the fraud examiner, and therefore an indirect approach should be used to assess the income of the subject.
-The fraud examiner suspects that all income is not reflected in the books of the subject.
-There was a significant increase in net worth in the subject.
-The gross profit percentage of the issue, which reflects how much sales revenue is expended on selling the goods and services, is dramatically increasing.
– The expenditures of the subject surpass his unreasonably reported income.
– The subject has large amounts of undisclosed sources of income.

If fraud is suspected, then using net-worth methods might help in establishing evidence of fraud. The net-worth method (or comparative net-worth analysis) is used to prove circumstantially illicit income by showing that the assets or expenses of an individual for a given period exceed those that can be accounted for from valid sources of income recognized or accepted. The net-worth method is a reliable method for estimating a person’s ill-gotten gains.
The net-worth method relies on the balance sheet format readily recognizable in the business world, and using the net-worth method will present a complete financial picture of a subject.

The method of expenditure works best when the subject spends illicit income on consumables (e.g., travel and entertainment), because when the subject spends the illicit income it will not result in an increase in net value.