In a sham loan scheme, the loan officer may be paid part of the proceeds; which concealment method is described as charging the loan off as a bad loan?

• A. Turning the loan over to a collections agency
• B. Letting the loan go into arrears
• C. 'Digging' the loan on the books
• D. Charging off the loan as a bad loan

Answer: (D)

In a sham loan scheme, concealment often hinges on how the loan is recorded on the books. Charging a loan off as a bad loan directly hides the illicit transaction by removing it from the balance sheet and recognizing it as a loss. This makes it look like there’s no recoverable asset, effectively masking the fact that funds were disbursed under a fake loan and possibly paid out to someone involved. By moving the loan off as a bad debt, the true nature of the transaction—the illicit payout—is hidden in accounting, which is why this method is described as concealment.

The other options describe actions that would involve pursuing payment (to collections) or letting the loan lapse into delinquency, which would still surface in the borrower’s status or collections processes and do not accomplish hiding the payout. Digging the loan on the books would imply a different kind of manipulation; the specific concealment described here is the write-off as a bad loan.