What opportunity does a Certificate of Deposit (CD) provide for fraudulent activity?

What opportunity does a Certificate of Deposit (CD) provide for fraudulent activity?

• A. Frequent withdrawals before maturity
• B. Deposits are recorded at the time of transaction
• C. It allows skimming or non-recording of deposits
• D. Immediate access to funds without penalties

Answer: (C)

A Certificate of Deposit (CD) primarily functions as a time deposit account, where an individual agrees to deposit a sum of money for a specific period to earn interest. The feature that enables the potential for fraudulent activity is the ability to skim or non-record deposits. This could occur in various fraudulent schemes where the true amount deposited may not be accurately recorded. For instance, in a fraudulent scenario, an individual could underreport the amount actually deposited into the CD to manipulate financial reporting or for personal gain. This kind of activity takes advantage of the structured nature of CDs, where accurate documentation and accountability are crucial. The other options represent features or behaviors associated with CDs that do not facilitate fraudulent activity as effectively. For example, frequent withdrawals before maturity are typically not permitted on CDs without incurring penalties, making them less prone to facilitating fraud in this manner. Deposits being recorded at the time of transaction serves to maintain an accurate trail of financial activity, discouraging fraud. Immediate access to funds without penalties contradicts the essence of a CD, which is designed to lock in funds for a specified period, thus not fostering an environment conducive to fraudulent practices.

A Certificate of Deposit (CD) primarily functions as a time deposit account, where an individual agrees to deposit a sum of money for a specific period to earn interest. The feature that enables the potential for fraudulent activity is the ability to skim or non-record deposits. This could occur in various fraudulent schemes where the true amount deposited may not be accurately recorded.

For instance, in a fraudulent scenario, an individual could underreport the amount actually deposited into the CD to manipulate financial reporting or for personal gain. This kind of activity takes advantage of the structured nature of CDs, where accurate documentation and accountability are crucial.

The other options represent features or behaviors associated with CDs that do not facilitate fraudulent activity as effectively. For example, frequent withdrawals before maturity are typically not permitted on CDs without incurring penalties, making them less prone to facilitating fraud in this manner. Deposits being recorded at the time of transaction serves to maintain an accurate trail of financial activity, discouraging fraud. Immediate access to funds without penalties contradicts the essence of a CD, which is designed to lock in funds for a specified period, thus not fostering an environment conducive to fraudulent practices.