CIA Part 1, Unit 10: Fraud Risks
Free study notes for Section D: Fraud Risks, which is 15% of the CIA Part 1 exam. Topics: Fraud basics, Digital threats, Red flags, Prevention and detection, Who is responsible, Investigation.
Practice 169 free questionsOpen CIA Drill
Fraud basics
- Definition: Intentional deceit or violation of trust for unjust or illegal advantage.
- Fraud triangle: Pressure, opportunity, rationalization.
- Types: Asset misappropriation, skimming, financial statement fraud, corruption, bribery, conflict of interest, related-party fraud.
- Who: Line staff usually steal assets. Executives usually misstate financials.
Digital threats
- Phishing: Deceit to get confidential information.
- Spear phishing: Aimed at a specific person or group.
- Vishing, smishing, quishing: Social engineering by phone, text, and QR code.
- Email spoofing: Messages that look like they come from a real institution.
Red flags
- Document: Altered or missing records, two sets of books.
- Lifestyle: Unexplained spending.
- Behavior: Sudden changes, refusing vacations.
- Meaning: Red flags show opportunity, not proof.
Prevention and detection
- Prevent: Tone at the top, segregation, authority limits, access controls, supervision, lockbox, hiring checks.
- Detect: Hotlines, reconciliations, supervisory review, analytics.
- Override: Review unusual journal entries and keep an anonymous whistleblower program.
Who is responsible
- Management: Prevents fraud and owns the controls.
- Board: Sets the tone and oversees.
- Internal audit: Evaluates fraud risk and controls but does not design them.
- CAE: Reports on fraud. Management and the board resolve incidents.
Investigation
- Goal: Decide whether fraud occurred, the loss, who was involved, and how.
- Evidence: Log it in order and keep chain of custody.
- Interview: Two people, general to specific, never accuse, accused interviewed last.
- Tests: First-digit (Benford), discovery sampling, data analytics, pressure, ground truth, financial analysis.
- Report: To senior management and the board, or the audit committee if senior management is involved. Never opine on guilt.
Test yourself on this unit
Reading is only half of studying. CIA Drill has 169 free exam-style questions for this unit, each with an explanation, and spaced review that brings missed questions back. You can also take timed mock tests that follow the real exam weighting.