CFE FINANCIAL

1- Which basis of accounting involves recording revenues when they are earned, regardless of when they are received? A. Cash basis C. Advance payment basis B. Accrual basis . !one of the above

"- When determining the relevance of certain fraud ris# factors within an entity, the auditor should consider$ A. %he si&e of the entity C. %he comple'ity of the entity B. %he ownership of the entity . All of the above

(- )reen, a payroll accountant, listed both his wife and his girlfriend on his employer*s payroll. %his caused fraudulent payche+ues to be issued to both women. %he wife and the girlfriend are$ A. ,ngaging in a conflict of interest C. )host employees B. Bogus vendors . !one of the above

-- %here is generally no benefit in committing a simple misclassification of assets into general ledger accounts. As long as the item is recorded into any asset, the miscoding will have no effect. A. %rue B. .alse

/- %he use of high pressure sales techni+ues to replace an e'isting insurance policy with a new one is #nown as$ A. .alse information C. .ictitious policies B. 0liding . Churning

1- 2f you were responsible for investigating an alleged fraud in the design and installation of a new software application at your company, which of the following internal control systems would you review to determine if the company*s internal controls appeared ade+uate at the time of the alleged offence? A. 0ystem maintenance controls C. 2mplementation controls B. 0ystem software controls . Computer operations controls

3- %he practice of buying and selling real estate very +uic#ly is called what? A. 0trawman loan C. 4ortgage-pulling B. ,+uity s#imming . 5roperty flip

6- Which of the following is the best preventive measure against computer hac#ing? A. ,limination of as many dial-in ports as possible B. ,nsuring that welcome screens do not contain the company name C. 0ecurity software pac#ages . Call-bac# modems 7- 85rotective8 and 8shadow8 bidding are names assigned to which of the following schemes? A. Bid rotation C. Bid suppression B. 5hantom bids . Complementary bids

19- ,'amples of fraud schemes perpetrated by health care institutions and their employees include all of the following ,:C,5%$ A. ;nnecessary testing C. 2mproper contractual relationships B. .ragmentation . ;nintentional misrepresentation of the diagnosis

11- 2n a large percentage of shell company schemes, the perpetrator must get a superior to approve payment on the invoices he is fraudulently submitting.

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A. %rue B. .alse 1"- %ypes of corrupt recipients include 8the big spender,8 8the gift giver,8 8the rule brea#er,8 and 8the complainer.8 A. %rue B. .alse

1(- An illegal gratuity does not re+uire proof of an intent to influence. A. %rue B. .alse

1-- Which type of scheme generally involves the submission of contracts that list inflated labour costs and inflated material costs? A. efective pricing schemes C. Bid-rigging schemes B. Bid submission schemes . 5roduct substitution

1/- %o conceal inventory shrin#age, a perpetrator might alter the perpetual inventory records so that they match the physical inventory count. A. %rue B. .alse

11- 5redication is defined as$ A. %he basis upon which a fraud e'amination is underta#en B. %he initial phase of the investigative process C. %he initial phase of the interview . !one of the above 13- Contract fraud occurs only in public sectors. A. %rue B. .alse

Contract fraud occurs in both the private and public sectors, although due to the disclosure processes in the public sector, there tends to be more publicity surrounding e'posed public sector frauds. %he mechanisms and schemes employed in contract fraud are common to both sectors. 16- A ban# or bro#erage account showing little or no activity, presumably with small and without increasing balances, in which the account holder cannot be contacted is defined as what type of account? A. .raudulent account C. efunct account B. iscontinued account . ormant account

2n one type of financial institution embe&&lement scheme, a person with apparent authority creates <ournal entries or transfer orders not initiated by customers to move money among accounts. %he accounts used are typically dormant or inactive accounts, which are defined as 8ban# or bro#erage accounts showing little or no activity, presumably with small and without increasing balances.8 =ften, contact with the account holder by confirmation, letter, or telephone contact is not possible. 0uch accounts are to be transferred to dual control and recorded in an inactive accounts ledger. 17- A large percentage of cash larceny schemes occur at the cash register. A. %rue B. .alse

A large percentage of cash larceny schemes occur at the cash register, and for good reason-the register is usually where the cash is. %he register >or similar cash collection points li#e cash drawers or cash bo'es? is usually the most common point of access to cash for employees, so it is understandable that this is where larceny schemes fre+uently occur. "9- %he insurance business is highly susceptible to fraud.

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A. %rue B. .alse %he insurance business, by its very nature, is susceptible to fraud. 2nsurance is a ris# distribution system that re+uires the accumulation of li+uid assets in the form of reserve funds, which are in turn available to pay loss claims. 2nsurance companies generate a large steady flow of cash through insurance premiums. "1- A victim of this scheme will find himself passed by two cars while driving. %he car in the lead will cut in front of the second, forcing it to stop abruptly. %he victim collides with the rear of the second car while the other driver speeds away. %his scheme is #nown as$ A. itching C. A staged accident B. 5ast posting . !one of the above

0taged accidents are schemes in which an accident is predetermined to occur on a vehicle. %he schemes are organised by rings and the culprits move from one area to another. %hey often use the same vehicle over and over, which sometimes causes their scheme to be uncovered. 2n one variation of this scheme, a target victim finds himself passed by two cars while driving. %he car in the lead cuts in front of the second, forcing it to stop abruptly. %he victim rear-ends the second car while the other driver speeds away. @ictims often accept responsibility for the accident, thin#ing it their fault for not paying attention. %he rear-ended vehicle usually contains the ma'imum amount of passengers, all with in<uries. ""- Aeal estate scams are easily recognised, as there is almost always an element of time pressure or a 8now-or-never8 pitch from the scam artist. A. %rue B. .alse

Aeal estate scams are easily recognised. %here is almost always an element of time pressure, with the victims being convinced they are participating in a 8once-in-a-lifetime, now-or-never8 deal. %he investors are led to believe there is no time to investigate the venture, and that if they hesitate, they will miss the opportunity to ma#e a fortune. 5romises of big profits for little or no involvement are the norm in real estate scams. %he investor is also misled into assuming he is being let in on a special offer or an e'clusive deal by the promoter "(- Which of the following is !=% a typical informed insider method of computer fraud? A. 4odifications to terminal identifiers C. Alteration of output B. Alteration of input . ata file manipulation

By far the greatest threat to information systems in terms of computer crime comes from employees inside an organisation. 2nsiders are typically aware of the holes in the system of internal controls and often e'ploit wea#nesses <ust to see if they can get away with it. %he most prevalent method of committing computer fraud is probably alteration or falsification of input transactions >andBor documents?, including$ C Alteration of input C Alteration of output C ata file manipulation C Communications systems C =perating systems C Computer operations "-- A biometric fingerprint identifier does which of the following? A. 2t allows the ban# to match the che+ue writer*s fingerprints with the account holder*s fingerprints, which are on file B. 2t can search through criminal records and identify wanted offenders C. 2t prevents the account holder from accessing his funds . All of the above A biometric fingerprint identifier allows the ban# to compare the che+ue writer*s fingerprints with the account holder*s, which are on file. Ban#s reported reductions in che+ue fraud of -9 percent after the machine was introduced in the mid-1779s. "/- All of the following are e'amples of bid submission schemes ,:C,5%$

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A. ;n<ustifiable e'tension of bid opening dates C. 4aterial mischarges B. 5remature opening of bids . Altering bids

Bid submission schemes can ta#e on many forms. %hey can involve anyone in the contracting cycle, such as a buyer or contracting official, engineer, technical representative, +uality or product assurance representative, or subcontractor liaison employee-anyone who can influence the awarding of a contract. ,'amples of bid submission schemes are$ C 5remature opening of bids C Altering bids C ;n<ustifiable e'tension of bid opening dates C Controlled bid opening C .alsifying bid logs and documents "1- Doan fraud schemes, including loans to none'istent borrowers, can be perpetrated by which of the following? A. Ban# customers C. =fficers of the ban# B. irectors of the ban# . All of the above

2n fraud schemes involving loans to non-e'istent borrowers, false applications, perhaps with inaccurate financial statements, are #nowingly or un#nowingly accepted by loan officers as the basis for loans. %hese types of loan fraud can be perpetrated by people either e'ternal to the lending institution >8e'ternal fraud8? or by officers, directors, or employees of the victim institution >8internal fraud8?. "3- 0mart cards differ from ordinary credit cards in that they do not contain a computer chip li#e credit cards do. A. %rue B. .alse

!ew developments in credit card technology may reduce the ris#s faced by merchants and still allow consumers to process their own cards at the point of sale. 2ncreasingly, financial institutions are issuing debit and credit cards-called smart cards or chip cards-that have replaced the traditional magnetic strip with a tiny computer chip. 2nstead of swiping the card, consumers insert these cards into a chip-reading terminal at the beginning of the sale transaction. %o complete the sale, customers must enter a personal identification number >52!? rather than signing a sales slip. By eliminating the need to turn the card over to a cashier, as well as re+uiring the card holder to type in a 52!, the new system addresses fraud ris#s faced by both parties to the transaction. Additionally, the inclusion of the computer chip will ma#e it more difficult for criminals to create counterfeit cards. "6- A lapping scheme can usually be detected by comparing the dates of the customer*s payments with the dates the payments are posted to the customer*s accounts. A. %rue B. .alse

Dapping can usually be detected by comparing the dates of the customer*s payments with the dates the customer*s accounts are posted. %his will re+uire an e'amination of the source documents, such as the composition of ban# deposits. iscrepancies should be investigated "7- Bob files a wor#ers* compensation claim stating that he was in<ured on his <ob as a mechanic in an automobile factory. %o investigate Bob*s claim, the investigator conducts an on-site audit of the payroll and related records for the insurance policy period and also determines Bob*s principal place of employment. %his type of investigation is common in which type of wor#ers* compensation fraud scheme? A. =rganised fraud C. Wor#ers* compensation premium fraud B. Agent fraud . !one of the above

2n wor#ers* compensation premium fraud schemes, employers misrepresent information to the insurer to lower the cost of wor#ers* compensation premiums. Wor#ers* compensation premium rates vary depending on the <ob classification of an employee. ,mployees that have a higher ris# for in<ury on the <ob will have a higher premium

CFE FINANCIAL
rate. Clerical employees have a lower probability for an in<ury than, for e'ample, drivers or construction wor#ers, and accordingly their premiums should be lower. %herefore, to lower their premium rate, employers might intentionally misclassify employees. %he premium for a specific <ob classification is based upon the total payroll for that classification. %he employer may understate the amount of the payroll for higher ris# classifications. 2nvestigation tips for premium fraud include$ C Aeview the application for coverage for completeness and accuracy. C 2f the business is claiming to be new, verify that it is indeed new and no mod factors have been established. C Aeview the underwriting of the application for suspicious activity. 2f the company is a large company and has a small payroll, verify the number of employees, as well as their classification. C Aeview claims to determine if they are consistent with the type of employment reported and the number of employees claimed. C Conduct an on-site audit of their payroll and related records for the policy period and determine where their principal place of employment is located. C =bserve if there are too many clerical employees or other low ris# occupations that ma#e up the calculation leading you to believe that the records are misstated. C Analyse the financial statements, when available, to determine what payroll e'penses actually are compared to what is reported. C Aeview accident and in<ury reports for suspicious activities. C Conduct surveillance as needed to observe and document various activities. C ocument findings and report the results of the activity as re+uired. (9- %he hypothesis formed at the beginning of an e'amination is usually a EEEEEEE scenario. A. Fypothetical C. 8Worst-case8 B. 5resumption of innocence . 8Best-case8

%he hypothesis is invariably a 8worst-case8 scenario. %hat is, based on the allegation, what is the worst possible outcome? A hypothesis can be created for any specific allegation, i.e., a bribery or #ic#bac# scheme, embe&&lement, conflict of interest, financial statement fraud, and so forth. 2n furtherance of the hypotheses, fraud e'aminers #now that each specific scheme has its own uni+ue characteristics that constitute the badges or 8red flags8 of fraud. (1- 5remium fraud, agent fraud, claimant fraud, and organised fraud are all types of what? A. Aeceivable fraud B. Credit card fraud C. Diability fraud . Wor#ers* compensation fraud

0ome countries have wor#ers* compensation laws that re+uire employers or their insurance plans to reimburse an employee >or on his behalf? for in<uries that occurred on the <ob regardless of who is at fault and without delay of legal proceedings to determine fault. %he in<ury may be physical, such as a bro#en limb, or mental, such as stress. %he schemes are generally bro#en into four categories$ premium fraud, agent fraud, claimant fraud, and organised fraud schemes. ("- 4el %urner, the runner for a small boo#store, had a bad habit of helping himself to cash from the deposit on the way to the ban#. Fe covered his trac#s by substituting a che+ue from the ne't day*s deposit for the amount he stole from the previous day. %his is an e'ample of what type of concealment? A. eposit lapping C. eposits in transit B. .orce balance depositing . !one of the above

=ne method that fraudsters sometimes use to conceal cash larceny from the deposit is lapping. Dapping occurs when an employee steals the deposit from day one, then replaces it with day two*s deposit. ay two*s deposit is then replaced with money received on day three, and so on. %he perpetrator is always one day behind, but as long as no one demands an up-to-the minute reconciliation of the deposits to the ban# statement-and if daily receipts do not drop precipitously-he may be able to avoid detection for a period of time. ((- 2n an alleged case of contract fraud, a fraud e'aminer conducted unannounced inspections and tests, reviewed a large sample of inspection reports, and interviewed personnel to verify contract compliance of materials. %he fraud e'aminer may be reacting to which of the following suspected schemes?

CFE FINANCIAL
A. 5roduct substitution B. Dabour mischarges C. Bid rigging . !one of the above

%o detect product substitution schemes, the fraud e'aminer should consider the following procedures$ C Conduct both routine and unannounced inspections and testing. C Carefully review the inspection and testing reports. C Ae+uest assistance from outside technical personnel to conduct after-the-fact tests. C 2nterview personnel and others for indications of non-compliance. C Aeview correspondence and contract files for indications of non-compliance. (-- With respect to corporate loans to developers, signs of wea#ness include$ A. Doan increases or e'tensions B. ,'cess cash flows C. Figh turnover in developer*s personnel . ;se of subcontractors =ne of the first signs to loo# for, particularly in construction lending, is whether or not the real estate developer is e'periencing a higher-than-normal employee turnover. %ypically, when a developer e'periences a high degree of turnover, something is wrong with the internal operation. %his is often a preamble for other problems to come. (/- .raudsters generally prefer to steal currency rather than che+ues both because currency is harder to trace and che+ues are harder to convert. A. %rue B. .alse

%he fraudster will generally prefer to steal currency rather than che+ues if given the opportunity, and the reasons why are obvious. Currency is harder to trace than a che+ue. A cashed che+ue eventually returns to the person who wrote it and may provide evidence of who cashed it or where it was spent. ,ndorsements, ban# stamps and so forth may indicate the identity of the thief. Currency, on the other hand, disappears into the economy once it is stolen. %he second reason that currency is preferable to a che+ue is the difficulty in converting the che+ue. When currency is stolen it can immediately be spent. A che+ue, on the other hand, must be endorsed and cashed or deposited before the thief can put his hands on the funds it represents. (1- 5ossibly the most widely broadcast offering in information scams is$ A. 2nformation on government <ob listings C. 0cholarship information B. 2nformation on wholesale crops or e+uipment . !one of the above

4aybe the most widely broadcast offering in the info rac#et is the university scholarship locator service. Whatever information these scholarship scam services do provide is available for little or no cost >at most, a G/ or G19 fee? from legitimate institutions. %he perpetrators imply that they have insider connections, or that they actually administer the dispersal of monies, when in reality they merely provide lists of scholarships offered by foundations and universities. (3- A ghost employee is always a fictitious person, created for the purpose of collecting fraudulent payche+ues. A. %rue B. .alse

%he term 8ghost employee8 refers to someone on the payroll who does not actually wor# for the victim company. %hrough the falsification of personnel or payroll records a fraudster causes payche+ues to be generated to a ghost. %he ghost employee may be a fictitious person or a real individual who simply does not wor# for the victim employer. When the ghost is a real person, it is often a friend or relative of the perpetrator. 2n some cases the ghost employee is an accomplice of the fraudster who cashes the fraudulent payche+ues and splits the money with the perpetrator. (6- EEEEEEEEEEE is a methodology for resolving fraud allegations from inception to disposition.

CFE FINANCIAL
A. .raud e'amination B. .orensic accounting C. .raud auditing . !one of the above .raud e'amination is a methodology for resolving fraud allegations from inception to disposition. 4ore specifically, fraud e'amination involves obtaining evidence and ta#ing statements, writing reports, testifying to findings, and assisting in the detection and prevention of fraud. (7- All of the following are classifications of financial statement fraud ,:C,5%$ A. Dapping accounts C. 2ncorrect or misleading disclosures B. 2ncorrect or misleading asset valuations . .ictitious revenues

%he five classifications of financial statement schemes are$ C .ictitious revenues C %iming differences C Concealed liabilities and e'penses C 2ncorrect or misleading disclosures C 2ncorrect or misleading asset valuations -9 - Which of the following should !=% be included as part of the 8fraud team8 assembled to investigate a possible fraud? A. 0uspect*s supervisor representative B. Auditors C. Degal counsel . 4anagement

.raud e'aminations usually re+uire a cooperative effort among different disciplines. A typical investigation team might include Certified .raud ,'aminers, auditors, security personnel, human resources staff, a management representative, outside consultants, and legal counsel. At least in the initial stages of the investigation, there would be no need to include the employee*s direct supervisor, especially when you do not #now if the supervisor may be involved. -1 - %he ris# of the auditor not detecting a material misstatement resulting from employee fraud is greater than the ris# of the auditor not detecting a material misstatement resulting from management fraud. A. %rue B. .alse

%he ris# of the auditor not detecting a material misstatement resulting from management fraud is greater than for employee fraud, because management is fre+uently in a position to directly or indirectly manipulate accounting records, present fraudulent financial information, or override control procedures designed to prevent similar frauds by other employees. -" - 2n an insurance fraud scheme, EEEEEEEEE might occur if a sales representative ma#es a false statement with the intent to deceive the prospective policyholder in order to #nowingly obtain an unlawful gain. A. 4isrepresentation B. .ictitious policies C. .alse information . !one of the above 4isrepresentation might occur if a sales representative ma#es a false statement with the intent to deceive the prospective policyholder in order to #nowingly obtain an unlawful gain. -( - ue to the difficulty of perpetrating a lapping scheme, the fraudster will often #eep a second set of boo#s to #eep trac# of his misdoings. A. %rue B. .alse

Because lapping schemes can become very intricate, fraudsters sometimes #eep a second set of boo#s on hand detailing the true nature of the payments received. 2n many s#imming cases, a search of the fraudster*s wor# area will reveal a set of records trac#ing the actual payments and how they have been misapplied to conceal the theft. 2t may seem odd that people would #eep records of their illegal activity on hand, but many lapping schemes become e'tremely complicated as more and more payments are misapplied. %he second set of records helps the perpetrator #eep trac# of the funds that were stolen and which accounts need to be credited to conceal the fraud. ;ncovering these records, if they e'ist, will greatly facilitate the investigation of a lapping scheme

CFE FINANCIAL
--85rotective8 and 8shadow8 bidding are names assigned to which of the following schemes? A. Bid rotation B. 5hantom bids C. Complementary bids . Bid suppression

Complementary bidding, also #nown as 8protective8 or 8shadow8 bidding, occurs when competitors submit to#en bids that are too high to be accepted >or if competitive in price, then they list special terms that will not be acceptable?. 0uch bids are not intended to be accepted, but designed merely to give the appearance of genuine competition. -/- 2n proving corrupt payments, the fraud e'amination often begins with which of the following? A. 5reparing the business profile C. 2nterviewing the target B. 2nterviewing of the co-conspirator . 5reparing the vertical analysis

2n proving corrupt payments, the business profile begins the e'amination process. 2t identifies prospective witnesses and targets, as well as relevant documents and transactions, and should provide leads as to whether an on-boo# or off-boo# scheme is being used. -1 - %here are several different classifications of confidence schemes. %he one designed to obtain illegal gains by falsely promising the future delivery of a product or service is called a>n?$ A. 5yramid scheme B. Bait and switch C. Advance fee swindle . !one of the above

Advance fee swindles are structured to obtain an illegal gain by falsely promising the delivery of a product or service. 2n some schemes, the product is mar#eted to a large number of customers and then the operation is shut down prior to the delivery stage. -3 - uring a review of AAA 0ervice*s payroll records, Hulia, an internal auditor, noticed that Bert Ban#s has no deductions ta#en from his payche+ues for ta'es or insurance. 0he then searched for Ban#s in the personnel records, but could not locate him. Based on this information, what type of scheme did Hulia most li#ely uncover? A. .ictitious vendor B. .alsified salary C. )host employee . !one of the above -

An analysis of the payroll withholdings may reveal either ghost employees or trust account abuses. )host employees often will have no withholding ta'es, insurance, or other normal deductions. %herefore, a listing of any employee without these items may reveal a ghost employee. Additionally, payche+ues to individuals who are not listed in the company*s personnel records are a red flag of a ghost employee scheme. -6 A. %rue 2dentity theft is an increasingly fre+uent type of fraud that is non-discriminatory in nature-anyone can be targeted. B. .alse

2dentity theft is an increasingly fre+uent type of fraud that is nondiscriminatory in nature. Anyone can be targetedI the victim might be a college student, a retiree, a schoolteacher, or a successful attorney. 2t is a fraud that rapidly spreads and that the victim might not find out about it until he applies for credit and is re<ected. %he identity thief runs up an average of G"9,999 to G(9,999 in bills before turning to the ne't victim. Aepairing a credit record is where the victim*s nightmare begins. 2t sometimes ta#es the victims years to clear their credit. -7 - Which of the following is the correct accounting model? A. Assets J liabilities K owners* e+uity C. Assets K liabilities J owners* e+uity B. Assets J liabilities - owners* e+uity . !one of the above

Accounting is based on the accounting model or accounting e+uation$ assets J liabilities K owners* e+uity. /1 - 0ome of the common fraud schemes involving transfers of money include all of the following ,:C,5%$ A. ;nauthorised electronic or wire transfers B. 4isrepresentation of identity

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C. 8Lnoc# and enter8 techni+ues . ishonest ban# employees 0ome of the common fraud schemes involving transfers of money include$ >1? dishonest ban# employees, >"? misrepresentation of identityI >(? system password security compromisedI >-? forged authorisationsI and >/? unauthorised entry and interception. /" According to 2nternal Auditing 0tandards, the internal auditor must have sufficient #nowledge about fraud to identify indicators that fraud might have been committed. %his includes having #nowledge about all of the following ,:C,5%$ A. %he characteristics of fraud B. %he types of frauds associated with the activities being audited C. %he techni+ues used to commit fraud . %he a'ioms of fraud %he internal auditor*s responsibilities for detecting fraud during audit assignments include having sufficient #nowledge of fraud to identify red flags indicating fraud may have been committed. %his #nowledge includes the characteristics of fraud, the techni+ues used to commit fraud, and the various fraud schemes and scenarios associated with the activities reviewed. /( - 4itchell is the head cashier for a clothing store that specialises in men*s sil# suits. After suffering some large gambling losses, he was struggling financially. %o cover his gambling debts, he started issuing numerous refund credits to his own credit card for amounts <ust below the store*s review limit. %his is an e'ample of a what type of scheme? A. Credit card s#imming B. Cash larceny C. ;nderstated reimbursements . .ictitious refunds When purchases are made with a credit card rather than cash, refunds for those purchases appear as credits to the customer*s credit card rather than as cash disbursements. 2n one type of fictitious refund scheme, dishonest employees process false refunds on credit card sales, often to their own credit card accounts, in lieu of processing a normal cash transaction. =ne benefit of the credit card method is that the perpetrator does not have to physically ta#e cash from the register and carry it out of the store. By processing the refunds to a credit card account, a perpetrator reaps a financial gain and avoids the potential embarrassment of being caught redhanded ta#ing cash. /- - Which of the following must be disclosed in an organisation*s financial statements? 2. Changes in estimates 22. Changes in accounting principles 222. Changes in reporting entities A. 2 and 222 B. 2 and 22 C. 22 and 222 . All of the above

%here are generally three types of accounting changes that must be disclosed to avoid misleading the user of financial statements$ accounting principles, estimates, and reporting entities. Although the re+uired treatment for these accounting changes varies among the types and across <urisdictions, they are all susceptible to manipulation by the determined fraudster. //0tolen credit card numbers are often sold over the 2nternet. A. %rue B. .alse

%he 2nternet has become a breeding ground for individuals to obtain stolen credit card information. %he thieves who steal this information find credit cards or lists of credit card holders and their corresponding account numbers. %hey then ma#e the numbers available to a larger group, which uses the information to obtain goods and services in the name of the cardholder. /10pies rarely have to brea# into file cabinets or des# drawers, because messy des#s often help them get the information they need. A. %rue B. .alse

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When spies do infiltrate a company*s premises, they rarely have to brea# into file cabinets or des# drawers to get the information they need. ue to la&iness, ignorance, or <ust poor organisational s#ills, employees often fail to loc# up sensitive documents each night. 4essy des#s are the rule, not the e'ception. 4essy des#s are easier for a spy to rifle through than neatly organised wor#stations. 2f documents are removed from a sloppy des#top, they may not be missed for +uite some time. /34ail order and telephone order sales are the easiest way to commit credit card fraud. A. %rue B. .alse

A great deal of credit card fraud is childishly simple to complete. 4any croo#s have great success by simply selecting a name from the phone boo#, calling, and pretending to be a credit card representative. %he victim is told that his card number may have been obtained and used illegally by criminals and is as#ed to provide the card number for verification. /6Bugging and wiretapping are e'amples of EEEEEEEEEEEEEE. A. 4isdirection B. Fac#ing C. %echnical surveillance . 5rete't calls

Corporate spies employ various forms of technological surveillance e+uipment, the tools varying according to the needs of the <ob at hand. Fidden microphones, wiretaps, and other forms of electronic surveillance e+uipment have become e'tremely common ways for intelligence professionals to #eep tabs on their competition. %he spy has two primary considerations in a wiretapping campaign$ where to insert the surveillance e+uipment and which of the various technologies to employ. 19Which of the following is a means of measuring the relationship between two different financial statement amounts? A. Aelational comparison C. 0tatement comparison B. %ransaction detail analysis . Aatio analysis

Aatio analysis is a means of measuring the relationship between two different financial statement amounts. %he relationship and comparison are the #eys to the analysis, which allows for internal evaluations using financial statement data. %raditionally, financial statement ratios are used in comparisons to an entity*s industry average. %hey can be very useful in detecting red flags for a fraud e'amination. 11 - %he +uic# ratio compares assets that can be immediately li+uidated with current liabilities. A. %rue B. .alse

%he +uic# ratio, often referred to as the acid test ratio, compares the most li+uid assets to current liabilities. %his calculation divides the total of cash, securities, and receivables by current liabilities to yield a measure of a company*s ability to meet sudden cash re+uirements. %he +uic# ratio is a conservative measure of li+uidity that is often used in turbulent economic times to provide an analyst with a worst-case scenario of a company*s wor#ing capital situation. 1"Bill is driving along in his car, when suddenly he is passed by two cars. %he driver in the car that is in the lead cuts in front of the second car, forcing it to stop abruptly. Bill rear-ends the second car, while the other driver speeds away. %he rear-ended car contains five passengers, all claim to have in<uries. What type of scheme might Bill have unwittingly been a victim of? A. A vehicle insurance scheme called 8swoop and s+uat8 B. Bad driving scheme C. A phantom vehicle scheme . Aoad rage A victim of the 8swoop and s+uat8 vehicle insurance scheme finds himself passed by two cars while driving. %he car in the lead cuts in front of the second, forcing it to stop abruptly. %he victim rear-ends the second car while the other driver speeds away. @ictims often accept responsibility for the accident, thin#ing it their fault for not paying attention. %he rear-ended vehicle usually contains the ma'imum amount of passengers, all with in<uries.

CFE FINANCIAL
1(All countries have wor#ers* compensations laws that re+uire employees to prove employer fault and engage in long legal proceedings to determine fault, before an employer or insurance plan is re+uired to reimburse employees for physical in<uries on the <ob B. .alse

A. %rue

0ome countries have wor#ers* compensation laws that re+uire employers or their insurance plan to reimburse an employee >or on his behalf? for in<uries that occurred on the <ob regardless of who is at fault and without delay of legal proceedings to determine fault. %he in<ury may be physical, such as a bro#en limb, or mental, such as stress. 1- - Which of the following is a way for employees on commission to fraudulently increase their pay? A. Converting sales of others C. Altered sales B. .ictitious sales . All of the above

%here are three ways employees on commission can fraudulently increase their pay$ 1? falsify the amount of sales made, "? increase the rate of commission, or (? claim the sales of another employee. ,mployees can falsify the amount of sales they have made in three ways, the first being the creation of fictitious sales. %he second way for fraudsters to falsify the value of sales they have made is to alter the prices listed on sales documents. %he third way employees can overstate sales is by claiming the sales of another employee as their own. 1/ - What happens when an employee records a fictitious refund of goods at his cash register? A. %he register is out of balance B. %he victim company*s inventory is overstated C. %he victim company*s inventory is understated . !one of the above A refund shows a disbursement of money from the register as the customer gets his money bac#. 2n a fictitious refund scheme, a fraudster processes a transaction as if a customer were returning merchandise, even though there is no actual return. %wo things result from this fraudulent transaction. %he first is that the fraudster ta#es cash from the register in the amount of the false return. 0ince the till roll shows that a merchandise return has been made, it appears that the disbursement is legitimate. %he second thing that happens in a fictitious refund scheme is that a debit is made to the inventory system showing that the merchandise has been returned. 0ince the transaction is fictitious, no merchandise is actually returned. %he result is that the company*s inventory is overstated. 11 - ieter and Huan wor#ed together to steal nearly G/9,999 from @aldosta 4edical 0upply. ieter, an accounts payable cler#, deliberately overpaid a few of the company*s vendors. Fe then called the vendors, e'plained the 8mista#e,8 and as#ed for the e'cess to be refunded. Huan, a mailroom employee, intercepted the incoming refund che+ues and cashed them. %he two men split the proceeds. What type of scheme did ieter and Huan commit? A. 0hell company C. 5ass-through B. Darceny . 5ay-and-return

2nstead of using shell companies in their overbilling schemes, some employees generate fraudulent disbursements by using the invoices of legitimate, third-party vendors who are not a part of the fraud scheme. 2n pay-and-return schemes, employees intentionally mishandle payments that are owed to legitimate vendors. =ne way to do this is to purposely double-pay an invoice. .or instance, a cler# might intentionally pay an invoice twice, then call the vendor and re+uest that one of the che+ues be returned. %he cler# then intercepts the returned che+ue. 13 - 2f a company*s balance sheet indicates that it is adding to its fi'ed assets while industry competitors are reducing the amount of capital they have tied up in assets, this may be a red flag of which of the following types of financial statement fraud schemes? A. 2mproper asset valuation C. Concealed liabilities B. %iming differences . .ictitious revenues

CFE FINANCIAL
0ome red flags associated with improper asset valuation include$ CAecurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth. C0ignificant declines in customer demand and increasing business failures in either the industry or overall economy. CAssets, liabilities, revenues, or e'penses based on significant estimates that involve sub<ective <udgments or uncertainties that are difficult to corroborate. C!on-financial management*s e'cessive participation in or preoccupation with the selection of accounting principles or the determination of significant estimates. C;nusual increase in gross margin or margin in e'cess of that of industry peers. C;nusual growth in the number of days* sales in receivables. C;nusual growth in the number of days* purchases in inventory. CAllowances for bad debts, e'cess and obsolete inventory, etc., that are shrin#ing in percentage terms or are otherwise out of line with industry peers. C;nusual change in the relationship between fi'ed assets and depreciation. CAdding to assets while competitors are reducing capital tied up in assets. 16 - 5retending to find a wallet full of money, the fraudster convinces his mar# that they should divide the 8discovered8 money. As a show of good faith, the con man suggests that each individual should withdraw a sum of money from their ban# and turn it over to a lawyer or another third party for safe#eeping. When the designated time to spilt the money comes, the victim finds that the fraudster and his money are gone. %his scheme is #nown as a>n?$ A. Bloc# hustle C. 0cavenger scheme B. ,nvelope switch . 5igeon drop

A pigeon drop is often used on middle-aged or elderly women deemed li#ely to have a savings account. 5retending to find a wallet full of money, the con men convince their mar# that they should divide the 8discovered8 money. As a show of good faith, each should withdraw a sum of money from their ban# and turn it over to a lawyer or another third party for safe#eeping. %hey agree to place an ad in a newspaper for the lost wallet. 2f it is not claimed within a certain amount of time, they will split the money. !aturally, when the designated time e'pires, the victim will find that the lawyer was part of the scam and that her money has vanished. 17 - 2f a ban# loan is a nonperforming loan, it may be a red flag for fraud. Which of the following is !=% a fraud scheme that can be connected to a nonperforming loan? A. ouble-pledging collateral C. Dand flips B. ,+uity s#imming . Bribery

.raud schemes resulting in a non-performing loan include$ C .raudulent appraisals-%he cash flow cannot support an inflated loan and resulting debt amount. C .alse statements-%he loan was made on false or fraudulently presented assumptions. C ,+uity s#imming-%here was never any intention to ma#e the underlying loan payments. C Construction over-budget items-%he over-budget amount might be a concealment method for other schemes such as embe&&lement, misappropriation, or false statements. C Bribery-%he loan was made because an officer of the lender received a bribe or #ic#bac# from the borrower. C Dand flips-%he purpose of the loan was to finance the seller out of a property that has an artificially inflated value. C isguised transactions or sham transactions-%he loan transactions are sham transactions, without substance, made to conceal other ills. 39A scheme in which competitors agree to refrain from bidding or agree to withdraw a previously submitted bid is #nown as which of the following? B. Complementary bidding . Bid rotation

A. Bid suppression C. 5hantom bids

2n bid suppression, one or more competitors agrees with at least one other competitor to refrain from bidding or agrees to withdraw a previously submitted bid so that a contractor*s bid will be accepted. =ther forms of this

CFE FINANCIAL
activity involve agreements by competitors to fabricate bid protests or to coerce suppliers and subcontractors not to deal with non-conspirators who submit bids. A variation of bid suppression occurs when competitors ma#e arrangements to refrain from competing in a designated portion of a mar#et. %his might be accomplished based on customer or geographic area. %he result of such a division is that competing firms will not bid or will submit only complementary bids >discussed below? when re+uests for bids are issued in the competitor*s unassigned area. 31Blue sold G1999 worth of merchandise and collected payment from his customer in currency. Blue only recorded the sale of G699 worth of merchandise. Blue turned G699 over to his employer and poc#eted the remaining G"99. According to the Corporate .raud Fandboo#, Blue*s scheme is$ B. A false billing scheme . A lapping scheme

A. An understated sales >s#imming? scheme C. An unrecorded sales >s#imming? scheme

;nderstated sales wor# differently than unrecorded sales schemes. %he transaction is posted to the boo#s, but for a lower amount than the perpetrator collected from the customer. .or instance, a company might be owed G1,999, but the sale is recorded as G699. When the customer ma#es payment, the fraudster can s#im G"99 and post the G699. 3" Which of the following are considered intellectual property? B. 2deas . All of the above

A. 2nnovations C. esigns

2ntellectual property is a catch-all phrase used to denote #nowledge-based assets and capital, including information but e'tending to ideas, designs, and innovations, howsoever e'pressed or recorded. 3( Which of the following are indicators of insider computer fraud? B. Access logs are not reviewed . All of the above

A. 5roduction programs are run at unusual hours C. A lac# of separation of duties e'ists in the data centre

%he following are indicators of insider computer fraud$ C Access privileges e'ist beyond those re+uired to perform assigned <ob functions. C ,'ception reports are not reviewed and resolved. C Access logs are not reviewed. C 5roduction programs are run at unusual hours. C A lac# of separation of duties e'ists in the data centre. 3- - According to the Corporate .raud Fandboo#, which of the following occupational fraud schemes is not an 82mproper Asset @aluation8 scheme? A. 2mproper business combination C. Aecording e'penses in the wrong period B. Boo#ing of fictitious assets . 2nventory valuation scheme

4ost improper asset valuations involve the fraudulent overstatement of stoc# or debtors. =ther improper asset valuations include manipulation of the allocation of the purchase price of an ac+uired business in order to inflate future earnings, misclassification of fi'ed and other assets, or improper capitalisation of stoc# or start-up costs. 2mproper asset valuations usually ta#e the form of one of the following classifications$ inventory valuation, accounts receivable, business combinations, and fi'ed assets. 3/ - %he most common give-away scam, in which a postcard arrives in the mail telling the receiver he has won a pri&e such as cash or a lu'ury car, is #nown as$ A. %he fly and buy C. %he 1-in-/ B. %he bait and switch . !one of the above

%he most common give-away scam is #nown as the 81-in-/.8 A postcard arrives in the mail telling the receiver they have already won a pri&e. A new lu'ury vehicle tops the list, along with G/,999 in cash, a diamond nec#lace, a living room set, and G/99 in gift certificates for clothing and household furnishings. %he odds of

CFE FINANCIAL
winning any of the pri&es are astronomical. @ictims are given trin#ets or coupons redeemable only for the company*s own shoddy merchandise. 31 uring a telemar#eting scam, if other methods do not appease a caller, the fraudster often turns to intimidation and threats. A. %rue B. .alse

2f obfuscation and consolation pri&es fail to appease the caller, the con turns to threats and intimidation. %his is a favourite method for dealing with senior citi&ens, especially elderly women. %hreats are not used <ust to #eep customers from filing complaints, but to ca<ole more money out of them. 0ome telemar#eters have actually threatened callers* personal safety if they refused to pay. 33 - .air mar#et value is the value a willing seller and a willing buyer would e'change in an open mar#et. 0ales price, on the other hand, is the actual amount e'changed. A. %rue B. .alse

.air mar#et value is the estimated price the property would bring if freely offered on the open mar#et with both a willing seller and a willing buyer. 0ales price is the actual price paid for the property. 2t may be higher or lower than fair mar#et value. And, loan value is the percentage of a property*s value >fair mar#et value or sales price? a lender can or may loan a borrower. 36 - %he primary prevention of cash larceny is$ A. Aegister tape counts C. 0egregation of duties B. aily cash counts . !one of the above

%he primary prevention of cash larceny is segregation of duties. Whenever one individual has control over the entire accounting transaction >e.g., authorisation, recording, and custody?, there is an opportunity for theft. ,ach of the following duties and responsibilities should ideally be segregated$ C Cash receipts C Cash counts C Ban# deposits C eposit receipt reconciliation C Ban# reconciliations C 5osting of deposits C Cash disbursements 37 - 2n the fraud theory approach to fraud e'amination, it is necessary that the fraud e'aminer perform all of the following tas#s ,:C,5%$ A. Analy&e the available data C. Create a hypothesis B. Aefine and amend the hypothesis . Aeport hypothesis to management

%he fraud theory approach dictates that the fraud e'aminer$ >1? analy&e the available data, >"? create a hypothesis, >(? test the hypothesis, and >-? refine and amend the hypothesis. 2t is not necessary to record or report the hypothesis. 2ndeed, this hypothesis should not be shared with others. A hypothesis is necessary in comple' investigations. 2t is <ust that-a hypothesis. 69 - Cash receipts schemes fall into two categories$ s#imming and unrecorded sales. A. %rue B. .alse

Cash receipts schemes fall into two categories$ s#imming and larceny. %he difference in the two types of schemes depends completely on when the cash is stolen. Cash larceny is the theft of money that has already appeared on a victim organisation*s boo#s, while s#imming is the theft of cash that has not yet been recorded in the accounting system. %he way in which an employee e'tracts the cash may be e'actly the same for a cash larceny or s#imming scheme. 61 - Dapping customer payments is one of the most common methods of concealing receivables s#imming.

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A. %rue B. .alse

Dapping customer payments is one of the most common methods of concealing receivables s#imming. Dapping is the crediting of one account through the abstraction of money from another account. 2t is the fraudster*s version of 8robbing 5eter to pay 5aul.8 6" - 0uccess in identifying and tracing off-boo# payments largely depends on identifying the source of funds or accounts, turning an inside witness, or focusing on the point of receipt. A. %rue B. .alse

2dentifying and tracing off-boo# payments usually is more difficult than locating on-boo# schemes. 0uccess generally depends on identifying the source of the funds or accounts >from which payments can be traced?, using an inside witness, or focusing on the point of receipt. %he source of off-boo# funds may be located through indirect evidence of unrecorded sales on the suspect company*s boo#s and records, unbalanced ratios of cost of sales, and investigation in the mar#etplace. 6( - =rganised insurance schemes often involve which of the following parties? A. %he doctor B. %he lawyer C. %he claimant . All of the above

=rganised fraud schemes are composed of the united efforts of a lawyer, a capper, a doctor, and the claimant. %hese schemes are used not only in wor#ers* compensation cases, but also in other medical frauds such as automobile in<uries. 6.raud is much more li#ely to occur in new ban# accounts than in old, established ones. B. .alse

A. %rue

.raud is much more li#ely to occur in new ban# accounts than in established accounts. 0pecial efforts must be ta#en to properly identify potential new customers without offending them. 6/ - Which of the following is a category of schemes involving stolen inventory and other non-cash assets? B. .alse shipment schemes . All of the above

A. Asset re+uisition and transfer schemes C. 5urchasing and receiving schemes

While the misuse of company property might be a problem, the theft of company property is obviously of greater concern. Dosses resulting from larceny of company assets can run into the millions of dollars. 4ost schemes where inventory and other non-cash assets are stolen fall into one of four categories$ larceny schemes, asset re+uisition and transfer schemes, purchasing and receiving schemes, and false shipment schemes. 61 2llicit funds may be generated by$

A. 5honey salary payments to former employees B. ,'tra payments to presently salaried employees that are passed on to the recipient C. 5honey salary payments to fictitious employees . All of the above 2llicit funds can be generated by funnelling phony salary payments to fictitious or former employees, or by ma#ing e'tra payments to presently salaried employees who then either return them to the payer or pass them on to the recipient. %o trace such payments, payroll and employee lists, personnel files, employment applications, ta' withholding forms, and payroll chec#s should be obtained from the suspect payer company. 63 When a fraudster attempts to gain credibility by setting up a front operation and inviting investors for tours, this techni+ue is #nown as$

CFE FINANCIAL
A. Aeloading B. Bi& ops C. .ly and buy . !one of the above 0ome scams involve ventures such as vending machines, pay phones, and merchandise display rac#s. %hey often gain credibility by setting up a front operation and inviting investors for tours. %his part of the ruse is #nown as the 8fly and buy.8 66All but which of the following are anti-hac#er measures?

A. ,ncryption is used for sensitive data files. B. efault passwords on purchased software pac#ages are regularly changed. C. Communication software disconnects after no less than ten unsuccessful attempts. . 5asswords are of sufficient length to prevent guessing. %he following are some anti-hac#ing preventive measures$ C5asswords should be of sufficient length to deter guessing. 4ost purchased software comes with a vendorsupplied password that is used for installation and then deleted. All pac#ages should be audited to ensure that these default passwords >which are widely #nown? have been changed. C,ncryption should be considered for sensitive data files, password files, and sensitive computer programs. CCommunications software should terminate any connection >whether dial-in or direct connect? after a reasonable number of unsuccessful attempts to enter a valid password >usually no more than three?. 67All of the following are methods of computer manipulation ,:C,5%$ B. Dogic bombs C. Bumping . 0imulation and modelling

A. 0alami techni+ues

Fac#ers use several techni+ues to gain information and to avoid detection. %hese include %ro<an horses, trap doors, salami techni+ues, logic bombs, data diddling, scavenging, data lea#age, piggybac#ingBimpersonation, simulation and modelling, and wiretapping. 79%he typical inside computer fraudster tends to have all of the following characteristics ,:C,5%$ A. Bored with the <ob C. 0mall ego B. 0eldom ta#es time off . Fard wor#er

%he characteristics of the traditional inside computer fraudster are very similar to those of the hac#er or other computer criminal$ intelligent, hard wor#ing, seldom ta#es time off, bored with the routine of the <ob, and has a very large ego. 4any computer technicians have demonstrated a greater loyalty to the technology than to the organisation for which they wor#. %his technology loyalty can create an attitude that any behaviour is acceptable if it is in the name of technology. 715ersons who are e'pert at passing phoney che+ues are sometimes called$ A. Che+uesters C. 5aperhangers B. 5honies . Daunderers

5aperhangers are the e'perts of phoney che+ue passing. %hey fre+uently pic# a particular establishment or store and observe its security methods. Any store that scrutinises che+ue writers* identification is not a good target for paperhangers. Fowever, they will observe and select the least e'perienced or most lac#adaisical of store employees to whom to pass the che+ue. %he paperhanger will as# the cler# for cash bac# from the transaction and ma#e the che+ue out for an amount greater than the price of the purchase. 2n some cases, the che+ues being written are counterfeitI however, in other cases the che+ues are purposefully being written on a closed account. A variation of this scam is ma#ing a fraudulent deposit at a ban# and as#ing for cash bac#. 7" - %he two basic register disbursement schemes are$ A. %rue voids and true refunds C. .alse voids and true refunds B. .alse refunds and false voids . %rue voids and false refunds

%here are two basic register disbursements schemes$ false refunds and false voids.

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7( - When perpetrating a ghost employee scheme, the benefit of using a salaried employee, rather than an hourly employee, as the ghost is$ A. 2t is easier to add the employee to the payroll B. %he scheme is easier to conceal C. 2t is not necessary to collect time#eeping information . All of the above 2f the perpetrator creates ghosts who are salaried rather than hourly employees, it is not necessary to collect time#eeping information. 0alaried employees are paid a certain amount each pay period regardless of how many hours they wor#. Because the time#eeping function can be avoided, it may be easier for a perpetrator to create a ghost employee who wor#s on salary. Fowever, most businesses have fewer salaried employees, and the salaried employees are more li#ely to be members of management. %he salaried ghost may therefore be more difficult to conceal. 7-Which of the following are reasons why employees commit financial statement fraud?

A. %o obtain new financing or to obtain more favourable terms on e'isting financing B. %o demonstrate increased earnings per share, thereby encouraging increased dividend payments C. %o meet company goals and ob<ectives . All of the above %here are many reasons why individuals fraudulently manipulate their organisations* financial statements. 2t may be to ma#e the company*s earnings loo# better. 2t may also be used to cover up the embe&&lement of company money. 0ome of the most common reasons why employees commit financial statement fraud are$ C %o encourage investment in the company C %o demonstrate increased earnings per share, thereby encouraging increased dividendBdistribution payouts C %o cover up negative cash flows C %o manipulate mar#et perceptions C %o obtain financing, or to obtain more favourable terms on e'isting financing C %o obtain a higher purchase price in a ta#eover C %o demonstrate compliance with financing covenants C %o meet company goals and ob<ectives C %o receive performance-related bonuses 7/=ne way to detect cash larceny schemes is to review and analyse all <ournal entries posted to the cash accounts. A. %rue B. .alse

Cash larceny can be detected by reviewing and analysing all <ournal entries made to the cash accounts. %his review and analysis should be performed on a regular basis. 2f an employee is unable to conceal the fraud through altering the source documents, such as the cash register tape, then he may resort to ma#ing a <ournal entry directly to cash. 2n general >and e'cept in financial institutions?, there are very few instances in everyday business activity where an independent <ournal entry is necessary for cash. =ne of these e'ceptions is the recording of the ban# service charge. Fowever, this is an easy <ournal entry to trace to its source documentation, namely the ban# statement. %herefore, all other entries directly to cash are suspect and should be traced to their source documentation or e'planation. 0uspect entries will generally credit the cash account and correspondingly debit various other accounts such as a sales contra account or bad debt e'penses. 71 - 0mith, a Certified .raud ,'aminer for the A<a' Co., observes Hones, an accounts payable cler#, driving an e'pensive imported sports car to wor#. 0mith also has #nowledge that Hones recently had e'tensive remodelling done on her residence. 0mith has sufficient predication to$ A. Confront Hones with an allegation of fraud B. Conduct discreet in+uiries into Hones* responsibilities as an accounts payable cler# C. !otify management of the possibility that Hones has committed fraudulent acts . !one of the above

CFE FINANCIAL
5redication is the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, andBor will occur. 5redication is the basis upon which an e'amination is commenced. .raud e'aminations should not be conducted without proper predication. 0mith must ma#e his actions match the predication. %here is not sufficient predication to confront Hones or to ma#e any direct allegations about fraud. 2f 0mith ignored what he has seen, there is the possibility that he would let a fraud go undetected. 0mith does have ade+uate predication to ma#e discreet in+uiries. 0mith should design audit tests to carefully review Hones* <ob responsibilities. 0mith should be familiar with common schemes employed by accounts payable cler#s to commit fraudulent acts. 73 - Which of the following products or services have been sold through multi-level mar#eting companies? A. Cosmetics B. Dong distance phone service C. !utrition supplements . All of the above 76 - Di#e all types of fraud, financial statement fraud is always committed for the personal gain of the perpetrator. A. %rue B. .alse ;nli#e some other types of fraud >such as embe&&lement?, the motivation for financial fraud does not always involve personal gain. 0ometimes, the cause of fraudulent financial reporting is the combination of situational pressures on either the company or the manager and the opportunity to commit the fraud without the perception of being detected. 77 - ,ncryption technology should be used in which of the following instances$

A. %eleconferencing B. ,-mail C. .a'ing . All of the above A secure encryption device can be employed to protect confidential files, especially when transmitting them by modem. ,ncryption techni+ues found in popular software pac#ages available at the local computer store are probably not secure enough. %hese programs are in wide use and are usually no match for a sophisticated hac#er. 2f files are not encrypted, they may be vulnerable to anyone with access to your computer. ,ncryption technology can also be used to protect phone calls, fa'es, e-mail, and teleconferencing. 199 - 0ome of the more common red flags of new ban# account fraud schemes include all of the following ,:C,5%? A. Customer re+uests a large number of temporary che+ues B. !o order for printed che+ues C. Customer residence outside the financial institution*s trade area . Customer re+uests two A%4 cards 0ome of the more common red flags of potential new account schemes are$ C Customer residence outside the financial institution*s trade area C ress andBor actions inconsistent or inappropriate for the customer*s stated age, occupation or income level C !ew account re+uesting immediate cash withdrawal upon deposit

CFE FINANCIAL
C Ae+uest for large +uantity of temporary che+ues C !o order for printed che+ues 191 - According to the 2nstitute of 2nternal Auditors >22A? 5ractice Advisory 1"19.A"-1-Auditors* Aesponsibilities Aelating to .raud Ais# Assessment, 5revention, and etection-the internal auditor*s responsibilities for detecting fraud include$ 2. Faving sufficient #nowledge of fraud to be able to identify indicators 22. Being alert to opportunities, such as control wea#nesses, that would allow fraud to occur 222. ,valuating the indicators that fraud may have been committed 2@. !otifying the appropriate authorities outside the organisation if there are sufficient indicators that fraud is being committed A. 2, 22, and 222 only B. 2, 22, and 2@ only C. 22, 222, and 2@ only 2n conducting engagements, the internal auditor*s responsibilities for detecting fraud are to$ CConsider fraud ris#s in the assessment of control design and determination of audit steps to perform. While internal auditors are not e'pected to detect fraud and irregularities, they are e'pected to obtain reasonable assurance that business ob<ectives for the process under review are being achieved and material control deficiencies-whether through simple error or intentional effort-are detected. CFave sufficient #nowledge of fraud to identify red flags indicating fraud may have been committed. %his #nowledge includes the characteristics of fraud, the techni+ues used to commit fraud, and the various fraud schemes and scenarios associated with the activities reviewed. CBe alert to opportunities that could allow fraud, such as control wea#nesses. 2f significant control wea#nesses are detected, additional tests conducted by internal auditors should be directed at identifying other fraud indicators. 0ome e'amples of indicators are unauthorised transactions, sudden fluctuations in the volume or value of transactions, control overrides, une'plained pricing e'ceptions, and unusually large product losses. 2nternal auditors should recognise that the presence of more than one indicator at any one time increases the probability that fraud has occurred. C,valuate the indicators of fraud and decide whether any further action is necessary or whether an investigation should be recommended. 19" - B.H., a Certified .raud ,'aminer, is evaluating a portfolio of loans for his client, ABC Ban#. ABC recently ac+uired a new portfolio of consumer loans. B.H. notices that the loan pac#age was sold without recourse to the bro#er, the bro#erage fee was high relative to other purchases, and the bro#er is no longer in business. %his particular loan portfolio is e'periencing a higher than normal default rate. What type of scheme might B.H. have uncovered? A. 0ecurities fraud C. Detter of credit fraud B. Bro#ered loan fraud . 4oney transfer fraud

Doan bro#ering applies to either pac#ages of individual residential >consumer? loans or single commercial loans. A variation of a bro#ered loan is the loan participation, where the purchaser participates in the loan but does not purchase the entire loan. %he fraud schemes associated with bro#ered or participated loans generally involve selling phoney loans >pac#ages? or selling participations in loans that have not been properly underwritten. )enerally, a large fee is charged for these bro#ered loans. With residential loan pac#ages, the bro#er sells the pac#age, ta#es the money and disappears. Bro#ered loans are generally not sold with any recourse to the bro#er. %herefore, the purchaser must loo# to the borrower and the underlying collateral for debt satisfaction. With loan participations, the lead ban# generally performs the underwriting. Fowever, this does not relieve the participating ban# from its obligation to perform its own due diligence. 19( - %he =,C 5rinciples of Corporate )overnance support establishing stronger protection for foreign shareholders than for domestic shareholders as a means to encourage more international investment. A. %rue B. .alse

CFE FINANCIAL
%he =,C 5rinciples of Corporate )overnance state 8%he corporate governance framewor# should ensure the e+uitable treatment of all shareholders, including minority and foreign shareholders.8 As such, the 5rinciples support e+ual treatment for foreign and domestic shareholders in corporate governance. %hey do not address government policies to regulate foreign direct investment. 19- 2f an employee sells an item and poc#ets the cash without recording the sale, this is #nown as$ A. 0#imming C. Bribery B. A register disbursement scheme . Liting

0#imming is the removal of cash from a victim entity prior to its entry in an accounting system. %he most basic s#imming scheme occurs when an employee sells goods or services to a customer, collects the customer*s payment, but ma#es no record of the sale. %he employee poc#ets the money received from the customer instead of turning it over to his employer. 19/ - Lristen iamond wor#ed in the mailroom at BMA 2ndustries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, L. . 0and. 0he intercepted these che+ues and carefully changed them to appear payable to L. iamond. 0he then endorsed the che+ues with her own name and deposited them in her personal ban# account. What type of scheme did Lristen commit? A. Concealed che+ue B. 5ayables s#imming C. 8%ac#ing on8 . .orged endorsement =ne method that can be used by perpetrators to alter che+ues prepared by others is 8tac#ing on8 additional letters or words to the end of the real payee designation. .or instance, che+ues payable to 8ABC8 company might be altered to read 8A.B. Collins.8 %he employee then cashes the che+ues in the name of A.B. Collins. 2n these cases, the simple inclusion of a filler line after the payee designation would prevent the loss. 191 Which of the following is an e'ample of an intangible asset?

A. Deaseholds B. )oodwill C. 5atents . All of the above are intangible assets According to 4arshall and 4c4anus, 8intangible assets8 are *long-lived* assets that differ from property, plant, and e+uipment that has been purchased outright or ac+uired under a capital lease-either because the asset is represented by a contractual right, or because the asset results from a purchase transaction but is not physically identifiable. ,'amples of the first type of intangible assets are leaseholds, patents, and trademar#sI the second type of asset is #nown as goodwill.8 193 - An insurance agent collects payment from a person for insurance, but doesn*t remit the che+ue to the insurance company, instead #eeping the payment for himself. %he insured un#nowingly has no coverage. %his is #nown as$ A. ,+uity fraud B. 5remium fraud C. Churning . !one of the above

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2n insurance premium fraud, an insurance agent collects the premium, but doesn*t remit the che+ue to the insurance carrier. %he insured un#nowingly has no coverage available upon a +ualifying event. 196 %he removal of cash from a victim organisation before the cash is entered in the organisation*s accounting system is$ A. A fraudulent disbursement B. 0#imming C. An illegal gratuity . Dapping 0#imming is the removal of cash from a victim entity prior to its entry in an accounting system. ,mployees who s#im from their companies steal sales or debtor payments before they are recorded in the company boo#s. Because of this aspect of their nature, s#imming schemes are #nown as 8off-boo#8 fraudsI they leave no direct audit trail. 197 fraud that$ According to 2nternational 0tandard on Auditing >20A? "-9, the auditor is only concerned with

A. 2nvolves the misappropriation of company assets B. Causes a material misstatement in the financial statements C. 2s perpetrated by one or more members of management . 2s determined to meet the legal definition of fraud Although fraud is a broad legal concept, for the purposes of 20A "-9, the auditor is concerned with fraud that causes a material misstatement in the financial statements. %wo types of intentional misstatements are relevant to the auditor-misstatements resulting from fraudulent financial reporting and misstatements resulting from misappropriation of assets. Although the auditor may suspect or, in rare cases, identify the occurrence of fraud, the auditor does not ma#e legal determinations of whether fraud has actually occurred. 119 predication. A. %rue B. .alse %he fraud theory approach consists of the following steps$ >1? analy&e the available data, >"? create a hypothesis, >(? test the hypothesis, and >-? refine and amend the hypothesis. 111 2f the cost of goods sold increases by a disproportionate amount relative to sales, and no changes occur in the purchase prices, +uantities purchased or +uality of products purchased, what does this indicate? A. 2nventory has been charged with embe&&lement B. ,ither ending inventory has been depleted by theft or inventory has been charged with embe&&lement C. ,nding inventory has been depleted by theft . !either ending inventory has been depleted by theft nor inventory has been charged with embe&&lement By using an analytical review, inventory fraud may be detected because certain trends become immediately clear. .or e'ample, if the cost of goods sold increases by a disproportionate amount relative to sales, and no changes occur in the purchase prices, +uantities purchased, or +uality of products purchased, the cause of the disproportionate increase in cost of goods sold might be one of two things$ the ending inventory has been depleted by theft, or inventory has been charged with embe&&lement. %he initial step in the fraud theory approach to fraud e'amination is the confirmation of the

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11" A health care provider*s practice of overbilling an insurance carrier by billing separately for subcomponents of a single procedure is #nown as$ A. ;pcoding B. ;nbundling C. Capping . !one of the above Coding fragmentation involves the separation of one medical procedure into separate components to increase charges. 2nstead of charging for a hysterectomy under one code, the provider would charge for a laparotomy >cutting the abdomen? as well as for the removal of the individual organ. %his is often referred to as 8unbundling.8 11( Categories of 5on&i schemes include$

A. 5roduct fronts B. Both pure cash and product fronts C. 5ure cash . !one of the above 5on&i schemes are classified according to the front used in their promotion. %he categories are pure cash >which includes endless chain schemes and fill-and-split games? and product fronts >which includes financial instruments, 4D4s, and speculations?. %he categories are set forth graphically in the following chart. 11%he best solution for financial institutions and merchants to reduce their losses from che+ue fraud is to do which of the following? A. !otify police as soon as a bad che+ue is received B. ,ducate employees to recognise forged or fraudulent che+ues C. 5rosecute che+ue offenders . .ingerprint customers %he best solution for financial institutions and merchants is to educate employees to recognise forged and fraudulent che+ues and the schemes behind them. 4erchants and financial institutions should have a strict che+ue acceptance policy with which all employees are familiar. When accepting che+ues, employees should always as# for identification and ma#e sure it is valid. 4any che+ue passers mollify store personnel by showing them a small laminated rectangular document with a picture. After loo#ing at several hundred of these, most employees tend not to scrutinise them. Che+ue passers count on this. 2t is important for employees to e'amine each piece of identification closely every time they are presented with one. 11/ %he EEEEEEEEEEEEEEEEEEE provide>s? specific guidance for policyma#ers, regulators, and mar#et participants in improving the legal, institutional, and regulatory framewor# that underpins corporate governance. A. =,C 5rinciples of Corporate )overnance B. 2=0C= 5rinciples for Auditor =versight C. 22A 0tandards for the 5rofessional 5ractice of 2nternal Auditing . 2!%=0A2 Code of ,thics

CFE FINANCIAL
%he =,C 5rinciples of Corporate )overnance provide specific guidance for policyma#ers, regulators, and mar#et participants in improving the legal, institutional, and regulatory framewor# that underpins corporate governance, with a focus on publicly traded companies. %hey also provide practical suggestions for stoc# e'changes, investors, corporations, and other parties that have a role in the process of developing good corporate governance. 111 According to the Corporate .raud Fandboo#, an e'pense reimbursement scheme falls under what larger category of =ccupational .raud? A. .raudulent statements B. Corruption C. Asset misappropriations . !one of the above %he Corporate .raud Fandboo# established three broad categories for occupational fraud$ Corruption, Asset 4isappropriations and .raudulent 0tatements. 2t then bro#e down each category into several distinct scheme types. %he subcategories of asset misappropriation schemes are listed below$ C 0#imming schemes C Cash theft schemes C Che+ue tampering schemes C Aegister disbursement schemes C Billing schemes C ,'pense reimbursement schemes C 5ayroll schemes C =ther fraudulent disbursements C 2nventory and other assets schemes 113 An overbilling scheme commonly involves illicit funds added to legitimate payments for goods or services provided by actual vendors with the additional amounts passed on by the supplier or returned, usually in cash, to the payer for distribution. A. %rue B. .alse 2n overbilling schemes, illicit funds might be added to legitimate payments for goods or services provided by actual suppliers, subcontractors, engineers, and agents, with the additional amounts being passed on by the supplier or returned to the payer >usually in cash? for distribution. 116 While the telephone, newspaper, and postal service remain the #ey tools of telemar#eting fraudsters, they are rapidly moving onto the 2nternet. A. %rue B. .alse While the telephone, newspaper, and postal service remain the #ey tools of telemar#eters, they are rapidly moving onto the 2nternet. Business opportunities and credit 8deals8 ran# in the top ten schemes on the World Wide Web. 117 ,:C,5%$ .avourite targets of corporations for intelligence gathering purposes include all of the following

A. Aesearch and development B. Degal C. 4ar#eting

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. 4anufacturing and production 0ome of the favourite targets of intelligence gatherers include research and development, mar#eting, manufacturing and production, and human resources. 1"9 %he ris# of an auditor not detecting a material misstatement resulting from fraud is higher than the ris# of an auditor not detecting a material misstatement resulting from error. A. %rue B. .alse %he ris# of an auditor not detecting a material misstatement resulting from fraud is higher than the ris# of an auditor not detecting one resulting from error. %his is because fraud may involve sophisticated and carefully organised schemes designed to conceal it, such as forgery, deliberate failure to record transactions, or intentional misrepresentations being made to the auditor. 1"1 A corporate spy can legally use which of the following open sources of information?

A. 5ublic records B. Aeference boo#s C. 2nternet . All of the above A corporate spy uses some or all of the following open sources of information$ C 5ublic records >regulatory, civil, criminal? C Annual reports C %elephone directories >internal and e'ternal? C Analyst reports C !ews accounts C 4aga&ine articles C Constructed balance sheets C Aeference boo#s C Biographical sources C @isual sightings and surveillance C ,lectronic databases and C -A=4s C 2nternetBWeb 1"" =pen source information is EEEEEEEEEE.

A. Confidential information B. 2nformation that is accessible to only the owner C. 5ublic domain information . 2nformation that is secretly ac+uired =pen source information is information in the public domain, or data that is legally available to anyone. 0pies do not have to penetrate corporate security measures to obtain this type of informationI it is available to anyone who wants to collect it. %he term 8public,8 however, does not necessarily mean free. 4any sources have access charges that may be simple low-cost copying fees or rather substantial database e'penses. 1"( A>n? EEEEEEEE is someone on the payroll who does not actually wor# for the victim company.

A. )host employee B. 0hell individual

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C. Absent payee . 2nvisible wor#er %he term ghost employee refers to someone on the payroll who does not actually wor# for the victim company. %hrough the falsification of personnel or payroll records a fraudster causes payche+ues to be generated for a ghost. %he fraudster or an accomplice then converts these payche+ues. %he ghost employee may be a fictitious person or a real individual who simply does not wor# for the victim employer. 1"0ales that are contingent on additional conditions should not be recorded as complete on the boo#s of the selling company. A. %rue B. .alse 0ales with conditions are those that have terms that have not been completed and the rights and ris#s of ownership have not passed to the purchaser. %hey do not +ualify for recording as revenue. %hese types of sales are similar to schemes involving the recognition of revenue in improper periods since the conditions for sale may become satisfied in the future, at which point revenue recognition would become appropriate. 1"/ %he 2!%=0A2 auditing standards for government audits include several standards with ethical significance. %hese standards include that the auditor and supreme audit institution must$ A. ,'ercise due care and concern in complying with auditing standards B. 5ossess the re+uired competence necessary for the effective discharge of the audit mandate C. Be independent . All of the above %he 2!%=0A2 general auditing standards with ethical significance include$ a. %he auditor and the 0A2 must be independent. %his standard comprises three levels$ independence from the legislature, from the e'ecutive, and from the audited entity. b. 0A2s should avoid conflict of interest between the auditor and the entity under audit. %he 0A2 performs its role by carrying out audits of the accountable entities and reporting the results. %o fulfil this role, the 0A2 needs to maintain its independence and ob<ectivity. %he application of appropriate general auditing standards assists the 0A2 to satisfy these re+uirements. c. %he auditor and the 0A2 must possess the re+uired competence. %he 0A2 needs to command the range of s#ills and e'perience necessary for effective discharge of the audit mandate. Whatever the nature of the audits to be underta#en under that mandate, the audit wor# should be carried out by persons whose education and e'perience is commensurate with the nature, scope, and comple'ities of the audit tas#. %he 0A2 should e+uip itself with the full range of up-to-date audit methodologies, including systems-based techni+ues, analytical review methods, statistical sampling, and audit of automated information systems. d. %he auditor and the 0A2 must e'ercise due care and concern in complying with the 2!%=0A2 auditing standards. %his embraces due care in planning, specifying, gathering, and evaluating evidence, and in reporting findings, conclusions, and recommendations. 5erformance and e'ercise of technical s#ill should be of a +uality appropriate to the comple'ities of a particular audit. Auditors need to be alert for situations, control wea#nesses, inade+uacies in record #eeping, errors and unusual transactions, or results that could be indicative of fraud, improper or unlawful e'penditure, unauthorised operations, waste, inefficiency, or lac# of probity. 1"1 2n investigating a bribery scheme involving on-boo# fictitious disbursements, a fraud e'aminer should review all of the following ,:C,5%$ A. ,ndorsement on the che+ue B. Cash receipt <ournals

CFE FINANCIAL
C. 0econd endorsements . Docation where the che+ue was negotiated After a preliminary e'amination, the fraud e'aminer should focus on the most suspect payments, noting in particular the following$ endorsement of the che+ue, location where the che+ue was negotiated, che+ues with a second endorsement, che+ues payable to a business which were cashed and not deposited, and che+ues that fall into an une'plained pattern. 1"3 EEEEEEEEEEEEE are structured to obtain an illegal gain by falsely promising the delivery of a product or service. A. 0weepsta#es, giveaways, and pri&es B. Advertising schemes C. 4erchandising schemes . Advance fee swindles Advance fee swindles are structured to obtain an illegal gain by falsely promising the delivery of a product or service. 2n some schemes, the product is mar#eted to a large number of customers and then the operation is shut down prior to the delivery stage. 1"6 A restaurant patron hands his credit card to the waiter who, out of sight, swipes the card through a device called a wedge. %he wedge stores the credit card number, which the waiter can later sell to a counterfeiter or use to produce his own fa#e cards. What #ind of scheme is this? A. Creditmaster B. 0#imming C. Ley-enter counterfeiting . Account ta#eover Credit card s#imming re+uires a device #nown as a wedge >also called a s#immer?, which stores up to "99 credit card numbers. Credit card s#imming is more common in businesses where an employee must leave the customer*s presence in order to run the transaction. A restaurant patron, for e'ample, hands his credit card to a waiter who swipes the card through a wedge while conducting the legitimate transaction. =nce the waiter has collected enough numbers, he can either sell them to a counterfeiter or produce his own fa#e cards using the stolen information. 1"7 A control techni+ue commonly used in computerised systems that chec#s each source document against a detailed list processed by the computer is referred to as$ A. Computer se+uence chec#ing B. Computer matching C. =ne-for-one chec#ing . !one of the above =ne-for-one chec#ing consists of chec#ing each source document against a detailed list processed by the computer. %his techni+ue is normally used for low-volume input because of the cost and time involved. 1(9 Which of the following che+ue tampering schemes is the most difficult to prevent?

A. .orged endorsement schemes B. Altered payee schemes

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C. .orged ma#er schemes . Authorised ma#er schemes %he authorised ma#er scheme may be the most difficult che+ue tampering scheme to defend against. An authorised ma#er scheme occurs when an employee with signature authority on a company account writes fraudulent che+ues for his own benefit and signs his own name as the ma#er. %he perpetrator in these schemes can write and sign fraudulent che+ues himself. Fe does not have to alter a preprepared instrument or forge the ma#er*s signature. 1(1 2n order to lower net income and income ta' liability, an accountant may misstate financial statements by e'pensing costs which should be capitalised to an asset account. A. %rue B. .alse Hust as capitalising e'penses is improper, so is e'pensing costs that should be capitalised. %he organisation may do this in order to minimise its net income due to ta' considerations. ,'pensing an item that should be depreciated over a period of time would help accomplish <ust that-net income is lower and so are ta'es. 1(" According to the Corporate .raud Fandboo#, cash theft schemes are much more common than s#imming schemes. A. %rue B. .alse .rauds involving the misappropriation of cash can be bro#en down into three groups$ s#imming schemes, cash theft >larceny? schemes, and fraudulent disbursements of cash. .raudulent disbursements made up the ma<ority of the cash schemes in our study >3-."N?, followed by s#imming >"1./N? and cash theftBlarceny >11."N?. 1(( Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemar#eting fraudsters. A. %rue B. .alse %he unemployed are another favourite target for sweepsta#es pitches and <ob search services. Whereas 8the system8 has left the <obless without hope, the telemar#eter offers a way around official channels. 5eople with bad credit pay telemar#eters to 8repair8 their credit records or get ma<or credit cards. 2nstead, they get a list of ban#s that offer credit cards, commonly published in newspapers, or an application for a card that re+uires a security deposit for activation, usually several hundred or a thousand dollars. %hese people are also targeted by advance-fee loan scams, which promise loans in e'change for a fee. 1(=ne of the most basic e'pense reimbursement schemes is perpetrated by simply re+uesting reimbursement for a personal e'pense by claiming that the e'pense is business related. A. %rue B. .alse 4ost companies only reimburse certain e'penses of their employees. Which e'penses a company will pay for depends to an e'tent upon policy, but in general, business-related travel, lodging, and meals are reimbursed. =ne of the most basic e'pense reimbursement schemes is perpetrated by simply re+uesting reimbursement for a personal e'pense by claiming that the e'pense is business related. ,'amples of mischaracterised e'penses include claiming personal travel as a business trip, listing dinner with a friend as 8business development,8 and so on.

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1(/ %here are three basic ways to prove illegal payments$ identify and trace them by audit steps, turn an inside witness, or secretly infiltrate or record ongoing transactions. A. %rue B. .alse %here are three basic ways to prove illegal payments$ identify and trace them by audit steps, turn an inside witness, or secretly infiltrate or record ongoing transactions. An audit might focus on the point of suspected payment or receipt, or both. As a very general proposition, suspected on-boo# schemes are best approached from the point of payment, and off-boo# schemes are most easily identified at the suspected point of receipt or through the use of an inside witness or surveillance. 1(1 5roperty flips are e'amples of what type of fraud?

A. 4oney transfer fraud B. !ew account fraud C. Automated teller machine fraud . Aeal estate fraud 5roperty flipping is the process by which an investor purchases a home and then resells it at a higher price shortly thereafter. 0ome property flips are legitimate business transactions, and there are numerous individuals and groups in the real estate mar#et who ma#e an honest living flipping properties. Fowever, property flipping becomes illegal and fraudulent when a home is purchased and resold within a short period of time at an artificially inflated value. %he #ey in determining whether a flip is illegal is to watch for a significant increase in value over a short period of time that cannot be <ustified. A property that sells twice in the same day at an increase of G199,999 is hard to <ustify. 1(3 A. %rue B. .alse %here are three basic methods for concealing on-boo# payments of bribes andBor #ic#bac#s. %hey are fictitious disbursements, ghost employees, and overbilling schemes. 1(6 %he internal auditor*s responsibilities for detecting fraud include$ .ictitious receivables are a common method used to conceal payments of bribes or #ic#bac#s.

A. Considering fraud ris#s when determining the audit steps to perform B. !otifying appropriate authorities within the organisation if it is determined that fraud is occurring C. Being alert to opportunities for fraud, such as control wea#nesses . All of the above 1(7 2n a financial misstatement scheme in which capital e'penditures are recorded as income statement items, the transactions will have the following effect on the organisation*s financial statements$ A. !et income will be understated B. 0ales revenue will be overstated C. !et income will be overstated . All of the above

CFE FINANCIAL
Hust as capitalising e'penses is improper, so is e'pensing costs that should be capitalised. %he organisation may want to minimise its net income due to ta' considerations, or to increase earnings in future periods. ,'pensing an item that should be depreciated over a period of time helps to accomplish <ust that-net income is lower and, therefore, so are ta'es. 1-9 According to the hierarchy of occupational fraud schemes in the Corporate .raud Fandboo#, payroll fraud falls under the larger classification of fraudulent disbursements. A. %rue B. .alse .raudulent disbursements as a group made up over -6N of all the cases in our study. %his group has been bro#en down into the following scheme types$ C Che+ue tampering schemes C Aegister disbursements schemes C Billing schemes C ,'pense schemes C 5ayroll schemes C =ther fraudulent disbursements 1-1 A. %rue B. .alse %he e'aminer*s attitude toward others affects their attitude toward him. A hostile attitude will create an'iety in the respondents, thereby causing them to become withdrawn and protective, even if there is no reason to do so. Contrary to lore, the successful investigator is rarely 8tough,8 e'cept when the need arises and toughness has been carefully planned and evaluated. 1-" Which of the following audit steps can be used in searching for a ghost employee? When interviewing a person during a fraud e'amination, the 8tough8 approach is usually best.

A. etermine whether all employees have e'ecuted ta' withholding forms B. etermine whether employees have not elected to receive health benefits C. Compare a listing of current and former employees to the payroll . All of the above 1-( %here are two basic schemes perpetrated during the performance phase of a contract. %hese two schemes are$ 2. 5roduct substitution 22. efective pricing 222. 4ischarges A. 2 and 22 B. 22 and 222 C. 2 and 222 . !one of the above Contract performance activities include change ordersI timely review of completed portions prior to sign-off and release of moniesI and assessment of deliverables for compliance with the terms of the contract, including +uality control. %here are two basic schemes perpetrated during the performance phase$ product substitution and mischarges >accounting, material, and labour?.

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1-According to the Corporate .raud Fandboo#, the type of event that occurs when a company official has an undisclosed financial interest in a transaction that causes economic harm to the company is classified as a$ A. 0ignificant event B. Diability omission C. Aelated-party transaction . Accounting change 1-/ 2f you are responsible for the bac#up computer system, which of the following general internal control categories should you loo# for in your company*s detailed procedures? A. Computer operations B. 2mplementation controls C. ata file controls

. 0ystem software controls 1-1 According to the 2nternal Auditing 0tandards, an internal auditor should consider performing a number of the following procedures with respect to fraud. Which is !=% one of those procedures? A. !otify senior management immediately once the incidence of significant fraud has been established B. iscuss the fraud and its impact with all levels of management C. 0ubmit a draft of the report to legal counsel for review . 2nform management if the results of the investigation indicate that the fraud has had a previously undiscovered materially adverse effect on the financial statements 1-3 Oou receive an e-mail from your ban# stating that your account could have been compromised. %he e-mail re+uests that you reply with your 52! and account number. What type of scheme might this be? A. Aecovering B. 5harming C. 5hishing . .ronting 1-6 Aesearchers can collect confidential information through which of the following sources$

A. ,'port licensing B. 0cientific publications C. Conferences . All of the above 1-7 According to futurist Alvin %offler, EEEEEEEEEEE is the most highly valued commodity for the new millennium. A. 2nformation

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B. Currency C. Aeal estate . !one of the above 1/9 -)reen is scheduled to ma#e a business trip to 5aris. Fe purchases an airline tic#et three months before the trip for G(99. %wo wee#s before the trip, when airline fares have increased, he purchases a second tic#et to 5aris for G399. )reen removes the passenger receipt from the second tic#et and returns it for a full refund, which he #eeps. Fe then flies using the first tic#et he purchased for G(99, but when he submits his e'pense report to his employer for the trip, he attaches the receipt from the G399 tic#et and re+uests that amount for reimbursement. %his type of scheme is called$ A. 5ay-and-return reimbursement B. 5ass-through e'pense re+uest C. =verpurchasing . Bill-and-hold purchasing 1/1 A diploma, professional certification, or licence can be the identifying information that a fraudster uses to obtain a false identity. A. %rue B. .alse 1/" Able is an internal auditor for a retail organisation. ,very month, she reviews the amount of refunds or discounts given by each cashier in her company. %his alone will tell her if a particular refund or group of refunds is inappropriate. A. %rue B. .alse 1/( A. %rue B. .alse 1/Which of the following is !=% a type of a corrupt recipient? Boiler room operations are generally very difficult to prosecute.

A. %he big spender B. %he gift giver C. %he rule brea#er . %he complainer 1// White boo#ed a flight for a business trip with his company*s travel agent. Fe filled out two e'pense reports for this trip, and on each report he re+uested reimbursement for the cost of the tic#et. =n one report, he attached his airline stub as support for the e'pense. =n the other report he attached the travel agency*s invoice as support. According to the Corporate .raud Fandboo#, White was attempting a multiple reimbursement scheme. A. %rue

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B. .alse 1/1 A type of fraud scheme whereby an employee of a financial institution cashes stolen or counterfeit items for outside accomplices is most properly called$ A. ;nauthorised withdrawals B. 4oving money from dormant accounts C. ;nauthorised disbursement of funds to outsiders . .alse accounting entries 1/3 ,mployees who are most li#ely to be recruited by spies are those who e'hibit some loyalty or devotion toward their employer. A. %rue B. .alse 1/6 %elephone company, health club, and school records contain information that an identity thief can use to steal someone*s identity. A. %rue B. .alse 1/7 Doan fraud represents a high ris# area for financial institutions because although the number of occurrences might be small, the dollar amount per occurrence tends to be large. A. %rue B. .alse 119 =ff-boo# schemes are most easily identified at the suspected point of receipt or through the use of an inside witness or surveillance. A. %rue B. .alse 111 White boo#ed a flight for a business trip with his company*s travel agent. Fe filled out two e'pense reports for this trip, and on each report he re+uested reimbursement for the cost of the tic#et. =n one report, he attached his airline stub as support for the e'pense. =n the other report he attached the travel agency*s invoice as support. According to the Corporate .raud Fandboo#, what #ind of scheme was White attempting? A. A mischaracterised e'pense scheme B. An overstated e'pense scheme C. A false billing scheme . !one of the above 11" =ne red flag associated with illegal pyramid schemes is that most of the financial return is built around things unrelated to product sales, such as recruiting other representatives. A. %rue

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B. .alse 11( payments. A. %rue B. .alse 11Which type of fraudulent disbursement scheme targets an organisation*s purchasing function? 2n tracing illicit funds, proving on-boo# payments usually is easier than proving off-boo#

A. Billing scheme B. Che+ue tampering scheme C. ,'pense reimbursement scheme . 5ayroll scheme 11/ 2f a security team adds a consistent amount of shredded, non-sensitive paper to sensitive document waste in order to greatly diminish the chance of traffic analysis, what #ind of counterattac# operation is it performing? A. 4isdirection operation B. Cloa#ing operation C. ecoy operation

. !one of the above 111 =ne of the most effective ways to protect a company*s trade secrets and confidential business information is to conduct an e'it interview with departing staff. A. %rue B. .alse 113 Able, a salesman, 8borrowed8 a stac# of blan# receipts from a friend who was a waiter at a local restaurant. Able filled in the blan# receipts to ma#e it appear that he had been entertaining clients at business lunches. Fe submitted the receipts to his manager and was reimbursed for the 8e'penses8 he had incurred. According to the Corporate .raud Fandboo#, this scheme can best be characterised as$ A. A fictitious e'pense scheme B. A #ic#bac# scheme C. A mischaracterised e'pense scheme . A false billing scheme 116 An employee within the claims operations of an insurance company is #nown to have a drin#ing problem, and irregularities start to appear. %his scenario is a common red flag for which type of insurance fraud? A. Collusion by insurer*s staff B. Agent fraud C. %heft . !one of the above

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117 inventory? 2n order to prevent inventory theft, who should conduct physical observations of a company*s

A. 5urchasing agents B. Warehouse personnel C. 5urchasing supervisor . !one of the above 139 Wor#ers* compensation premium rates can vary significantly based upon the <ob classification of the employee. A. %rue B. .alse 131 Boiler rooms, fronters, closers, and verifiers are all associated with which of the following?

A. Advance fee frauds B. %elemar#eting scams C. 2nternet fraud . Aeal estate scams 13" Which individual is generally in the best position to manipulate the financial statements and #eep it from being uncovered? A. %he general counsel B. %he vice president of operations C. %he chief financial officer . %he chief e'ecutive officer 13( ,'ercising due professional care means determining the amount of wor# needed to achieve the engagement ob<ectivesI the relative comple'ity, materiality, or significance of matters to which assurance procedures are appliedI and the ade+uacy and effectiveness of ris# management, control, and governance processes. A. %rue B. .alse 13According to 2nternational 0tandard on Auditing >20A? "-9, the primary responsibility for the prevention and detection of fraud rests with$ A. %hose charged with governance of the entity B. Auditors C. 4anagement . Both management and those charged with governance of the entity 13/ 2n which of the following loan fraud schemes is the purpose of the loan to finance a property which has an artificially inflated value?

CFE FINANCIAL
A. .alse statements B. isguised transactions C. .raudulent appraisals . Dand flips 131 2n a funds transformation fraud scheme, ban#ing personnel in collusion with the lender sometimes will engage in fraudulent behaviours to forego the re+uirement to record additional loan loss provisions. Which of the following is a method used to carry out this scheme? A. 5roperty is sold to an e'isting customer or a new customer in e'change for ma#ing a new loan on another unrelated pro<ect. B. %he transaction is conducted through nominees. C. %he transaction is conducted through shell companies. . All of the above 133 0etting achievable financial goals and removing operational obstacles bloc#ing effective financial performance are tactics management can implement to reduce which factor related to committing financial statement fraud? A. =pportunity B. Aationali&ation C. 5ressure . !one of the above 136 Din#ed financing typically has which, if any, of the following characteristics?

A. Figh returns are promised B. Darge deposits are offered to the financial institution on the condition that loans are made to particular persons affiliated to the deposit ban#er C. Bribes are paid to the bro#er or financial institution employee . All of the above 137 %he most common on-boo# schemes include all of the following$ fictitious disbursement schemes, ghost employees, overbilling, and s#imming. A. %rue B. .alse 169 A. %rue B. .alse 161 A EEEEEEEEEEEEEEEE is a fictitious entity created for the sole purpose of committing fraud. A shell company is a fictitious entity created for the sole purpose of committing fraud.

A. .raudulent invoice

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B. Charter company C. 0hell company . !onaccomplice vendor 16" %he hypothesis formed at the beginning of an e'amination is usually a EEEEEEE scenario. A. 5resumption of innocence B. 8Best-case8 C. Fypothetical . 8Worst-case8 16( Which of the following is !=% a type of s#imming scheme?

A. %heft of che+ues through the mail B. ;nderstated sales and receivables C. .alse refunds . ;nrecorded sales 16=ne confidence scheme involves diploma mills. %he characteristic warning sign of a possible diploma mill is$ A. %hat advanced standing for courses is granted B. A fancy-sounding university C. %he processing fee charged . !one of the above 16/ When a Certified .raud ,'aminer is investigating an information theft case, a critical first step is to find out how the sensitive information was compromised. A. %rue B. .alse 161 %he intelligent criminal will generally prefer to steal currency rather than che+ues if given the opportunity. A. %rue B. .alse 163 While the internal auditor should have sufficient #nowledge to identify the indicators of fraud, he is not e'pected to have the e'pertise of a person whose primary responsibility is detecting and investigating fraud. A. %rue B. .alse 166 A. %rue 2nternal controls are always the strongest deterrent to financial statement fraud.

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B. .alse 167 Which of the following is !=% a countermeasure that security officers can implement to thwart a spy*s attempt at infiltrating their company? A. ,nsure that vendors* credentials have been verified and that vendors are escorted by a company representative during their visits. B. ,stablish a procedure for trac#ing and loc#ing up sensitive data. C. ,nsure that proprietary data is stored in areas visible to the public. . Fave employees sign nondisclosure agreements. 179 A customer writes out a che+ue and as#s the store cler# if she may have cash bac# from the transaction. 0he ma#es the che+ue out for an amount greater than the price of the purchase. %he customer has purposefully written the che+ue on a closed account. What type of fraudster is this customer? A. %hird-party bill payer B. umpster diver C. 5aperhanger . !one of the above 171 )reen, an employee of ABC Corporation, formed a company called Acme Consulting. Fe opened a ban# account in Acme*s name and used his home computer to create invoices from Acme for 8consulting services.8 2n reality, Acme does not provide any services at all. 2t is a company in name only. )reen submitted the invoices from Acme Consulting to his employer, ABC Corporation. When ABC made payment on the false invoices, )reen collected and deposited them. According to the Corporate .raud Fandboo#, )reen has committed$ A. A shell company scheme B. A personal purchases scheme C. A pay-and-return scheme . A cash larceny scheme 17" Business warning signs of construction loan fraud include$

A. 0tage payment re+uests B. Aeplacement loans C. .unds transformation . All of the above 17( 2n a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though there is no actual return. A. %rue B. .alse 17When an employee records a fictitious refund at his cash register, the victim company*s stoc# is overstated and a disbursement from the register is recorded.

CFE FINANCIAL
A. %rue B. .alse 17/ According to the hierarchy of occupational fraud schemes in the Corporate .raud Fandboo#, payroll fraud falls under what larger classification? A. .raudulent disbursements B. Corruption C. .raudulent statements . 0#imming 171 Ba#er was a cash register employee for a large retail store. When Ba#er*s friend shopped at the store, he would ta#e his merchandise to Ba#er*s register. 2nstead of charging his friend, Ba#er would ring a 8no sale8 on the register and his friend would pretend to pay for the merchandise. Ba#er*s friend would ta#e the merchandise out of the store without paying for it, and the two would later split it. According to the Corporate .raud Fandboo#, what #ind of fraud scheme is this? A. %heft of inventory B. %his is not occupational fraud because Ba#er*s friend too# the merchandise and he was not an employee of the victim company C. A register disbursement scheme . 0#imming 173 A type of embe&&lement scheme whereby an employee of a financial institution debits the general ledger to credit his own account or cover up customer account thefts is most properly called$ A. 4oving money from dormant accounts B. ;nauthorised withdrawals C. ;nauthorised disbursement of funds to outsiders . .alse accounting entries 176 ;nscrupulous debt consolidation schemes include each of the following ,:C,5%$

A. %he debt consolidation company writes a letter to the debtor*s creditors and arranges a payment plan. B. %he debt consolidation company charges an upfront processing fee and then disappears. C. %he debt consolidation company collects payments but does not appropriately forward them. . All of the above are schemes. 177 uring an interview of an e'ecutive as part of an investigation into potential financial statement fraud, the e'ecutive should be as#ed specifically if he has committed fraud. A. %rue B. .alse "99 %o conceal a receivables s#imming scheme, the perpetrator may ma#e which of the following false entries in the victim organisation*s accounting system? A. A debit to a fictitious account receivable

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B. A debit to an e'pense account C. A debit to sales discounts . Any of the above "91 All of the following are classifications of billing schemes identified by the Corporate .raud Fandboo#$ shell company schemes, bid rigging, and personal purchases with company funds. A. %rue B. .alse "9" %he financial statements of an organisation are primarily the responsibility of$

A. 4anagement B. Auditors C. .raud e'aminers . 0toc#holders "9( 2f, during an audit of an entity*s financial statements, the auditor suspects fraud involving management, he should first communicate these suspicions to$ A. Docal law enforcement authorities B. %hose parties charged with governance of the entity C. All employees of the entity . All of the above "9)rey, a Certified .raud ,'aminer, has been hired to closely scrutinise the financial statements of the ABC Corporation, a public company. Which of the following should be included in ABC*s financial statements? A. 2ncome statement B. Balance sheet C. Cash flow statement . All of the above "9/ Which of the following is an e'ample of a ris# factor relating to the incentive or pressure to commit fraudulent financial reporting? A. eficient internal controls B. Dow morale among senior management C. ,'cessive pressure on management or operating personnel to meet financial targets . All of the above "91 Which of the following control procedures will !=% help prevent payroll fraud?

A. %he employee who prepares the payroll personally distributes payche+ues B. A time cloc# is used for office employees

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C. 5ayroll accounting is handled separately from the general ledger function . %he department head does not distribute payche+ues "93 .rauds involving determining needs and bid specifications are the most prominent schemes in which phase of the development of a contract? A. 5resolicitation phase B. 0olicitation and negotiation phase C. Contract performance and administration phase . !one of the above "96 !icolette wor#s part-time at an independent record store. Whenever her friend Hacob comes into the store during one of her shifts, he pic#s up a C and brings it to the register where !icolette is stationed. After ringing a 8no sale8 transaction on the cash register, !icolette pretends to swipe Hacob*s credit card for payment. 0he puts the C in a bag and gives it to Hacob, who wal#s out without actually paying for the merchandise. What #ind of scheme is being committed? A. .alse sale B. 0ales s#imming C. Cash larceny . .a#e refund "97 Beta, a Certified .raud ,'aminer, is interviewing %heta, a suspected recipient of illicit income. %heta claims it was a loan. Beta will probably try to determine all of the following ,:C,5%$ A. %he purpose of the loan B. Fow the loan was documented C. %he amount of the loan . %he identity of the borrower "19 According to 2nternational 0tandard on Auditing >20A? "-9, in responding to the assessed ris#s of material misstatement due to fraud, the auditor should incorporate an element of predictability into the selection of the nature, timing, and e'tent of the audit procedures to be performed. A. %rue B. .alse "11 Which of the following is the most common type of occupational fraud?

A. Bribery B. .raudulent statements C. Asset misappropriations . ,'tortion "1" EEEEEE. A spy that that has been planted in a company as a permanent employee is #nown as a

CFE FINANCIAL
A. Aat B. 4ole C. 0leeper . Bug "1( A. G"9 B. G/9 C. G199 . G19 "1;nli#e some fraudsters who steal as the result of a perceived need, most identity thieves ma#e a living stealing identities for profit. 2dentity thieves include which of the following? A. 2llegal telemar#eters B. College #ids C. Aental car agents . All of the above "1/ %he ob<ective of effective computer security is to ensure the availability of accurate data in time to meet an organisation*s needs at a cost that is commensurate with the ris#s involved. A. %rue B. .alse "11 predication. A. %rue B. .alse "13 %he 2=0C= 5rinciples for Auditor =versight state that auditor oversight should ta#e place$ %he initial step in the fraud theory approach to fraud e'amination is the confirmation of the %he most common denomination of forged travellers* che+ues is$

A. By professional associates B. Within the audit firm C. %hrough government regulation . All of the above "16 Which of the following are sources of information for the business profile?

A. Business reporting companies B. Customers and competitors

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C. Ban#s and lending institutions . All of the above "17 2n a home-based business scheme, swindlers mar#eting home-based businesses re+uire a person to buy materials for assembly-at-home products, but the materials are essentially worthless or cheap. A. %rue B. .alse ""9 Brown, a manager for a retail store, suspects his register employees of s#imming off-boo# sales. Brown will !=% be able to detect this #ind of scheme by comparing their till roll totals to the amount of money in their cash drawers. A. %rue B. .alse ""1 While the telephone, newspaper, and postal service remain the #ey tools of telemar#eting fraudsters, they are rapidly moving onto the 2nternet. A. %rue B. .alse """ According to the 2nternal Auditing 0tandards, who is responsible for resolving fraud incidents?

A. %he audit committee B. 4anagement C. %he fraud investigator . %he internal auditor ""(ABC, Dtd. and :OP, Dtd. are the only two companies in Cor# County that lay asphalt. An audit reveals that the state is paying more for asphalt wor# in Cor# County than in any other county in the state. A review of the records reveals that of the last ten asphalt contracts awarded, at the last minute, either ABC or :OP has withdrawn its bid. What scheme might ABC and :OP be involved in? A. 5hantom bidding C. Bid suppression B. Bid rotation . Altering bids

""%he wrongful ta#ing or conversion of another*s property for the benefit of someone else is most properly referred to as which of the following? A. 4isapplication B. )rand larceny C. Darceny . ,mbe&&lemen ""/ EEEEEEEEE play a critical role in enhancing the reliability of financial information by attesting as to whether the financial statements prepared by management fairly present the financial position and past performance of the public enterprise in compliance with accepted accounting standards. A. 2ndependent auditors

CFE FINANCIAL
B. 4embers of the Board of irectors C. 2nternal auditors . )overnment regulators ""1 EEEEEEEEE involves feeding information thieves false facts in order to neutralise their intelligence efforts. A. 0ocial engineering B. 4isdirection C. Cloa#ing . 0ecurity surveying ""3 Which of the following asset misappropriation schemes allows the perpetrator to misappropriate funds without ever actually handling cash or che+ues while at wor#? A. Aegister disbursement schemes B. 0#imming C. Billing schemes . All of the above ""6 %here are a number of fraud schemes that are being perpetrated with regard to automatic teller machines >A%4s?. %hese schemes include all of the following ,:C,5%$ A. ,mployee manipulation B. ;nauthorised access to 52! numbers and account codes C. 0tealing A%4 deposits . Counterfeit A%4 cards ""7 2n a>n? EEEEEEEEEEEEE scheme, the company or con men that initially conned a consumer contacts that consumer and offers to help retrieve the lost money. Fowever, the investigation re+uires an upfront fee and the consumer is swindled again. A. 0cavenger or revenge B. 4oney manager C. Advance fee . irectory

"(9 Aamon is the C,= of the rummond )roup, a consulting group. 0ales have increased at least five percent every year for the past seven years. ;nfortunately, the company has hit a slump this year, and revenue is far less than anticipated. Fowever, in order to receive his performance bonus, Aamon must show a sales increase of at least seven percent. When the financials are released, sales have increased by e'actly seven percent. Which of the following ratio analyses would be most helpful in revealing that Aamon included fictitious sales in the company*s financials? A. 2nventory turnover B. Aeceivable turnover

CFE FINANCIAL
C. ebt-to-e+uity ratio

. Quic# ratio "(1 Blue, a fiscal officer, had access to company che+ues but was not authorised to sign them. Blue*s company used an automated che+ue signer which was guarded by a custodian. Blue too# some blan# che+ues and made them payable to himself, then snuc# into the custodian*s office and signed them with the che+ue signer. According to the Corporate .raud Fandboo#, Blue committed a forged ma#er scheme. A. %rue B. .alse "(" A %0C4 survey is useful for performing what function?

A. Docating hidden assets B. 2dentifying e'isting and potential security wea#nesses C. ;ncovering ghost employees . etecting fraudulent disbursements

"(( Which of the following is !=% one of the fraud schemes perpetrated at the contract performance and administration phase? A. 4ischarging B. efective pricing C. 5roduct substitution . !one of the above "(Fandboo#? Which of the following is not a type of s#imming scheme according to the Corporate .raud

A. .orged che+ues B. 0hort term s#imming C. ;nderstated sales . ;nrecorded sales "(/ =ne way fraud is different from many other property crimes is EEEEEEEEEE.

A. .raud is often a crime of violence B. .raud doesn*t occur at night C. %he perpetrator*s identity is often #nown . .raud losses are never covered by insurance "(1 ;nli#e some fraudsters who steal as the result of a perceived need, most identity thieves ma#e a living stealing identities for profit. 2dentity thieves include which of the following? A. 2llegal telemar#eters

CFE FINANCIAL
B. College #ids C. Aental car agents . All of the above "(3 %he EEEEEEEEEEEEEEEEEEE provide>s? specific guidance for policyma#ers, regulators, and mar#et participants in improving the legal, institutional, and regulatory framewor# that underpins corporate governance. A. 2=0C= 5rinciples for Auditor =versight B. =,C 5rinciples of Corporate )overnance C. 2!%=0A2 Code of ,thics . 22A 0tandards for the 5rofessional 5ractice of 2nternal Auditing "(6 %he median cost of register disbursement schemes is among the lowest of all fraudulent disbursements. A. %rue B. .alse "(7 ;nder an effective document retention policy, when an organisation is faced with potential litigation or a legal document re+uest is pending or imminent, the destruction of documents should cease. A. %rue B. .alse 240 When establishing a document retention policy, companies should consider:

A. Applicable laws and regulations regarding record-#eeping re+uirements B. 0pecific concerns related to electronic documents and data C. Any trade-specific rules for documenting and retaining records . All of the above "-1 2n a well-designed internal control system for computer operations, the users of the system should have access to the production program code. A. %rue B. .alse "-" 5ersons who are e'pert at passing phoney che+ues are sometimes called$

A. 5aperhangers B. Che+uesters C. Daunderers . 5honies "-( Which of the following is a type of computer virus?

A. 5hrea#er

CFE FINANCIAL
B. Worm C. Fac#er . 5harmer "-%he Corporate .raud Fandboo# discussed several methods that fraudsters use to conceal che+ue tampering. %hese include preparing bogus support documentation, miscoding fraudulent che+ues, and forced reconciliations. A. %rue B. .alse "-/ A. %rue B. .alse "-1 According to the Corporate .raud Fandboo#, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation*s boo#s are #nown as$ A. Cash theft schemes B. 0#imming and bribery schemes C. Bribery schemes . 0#imming schemes "-3 ,spionage involves legitimate intelligence collection and analysis using legal means. A. %rue B. .alse "-6 detect? A. Cash theft B. Both cash larceny and s#imming are e+ually difficult to detect C. Cash distraction . 0#imming "-7 When a person buys precious stones from a telescammer, the stones arrive sealed in a plastic bag, not to preserve the stones* +uality, but to ensure that the buyer cannot inspect the gems. A. %rue B. .alse "/9 All countries have wor#ers* compensations laws that re+uire employees to prove employer fault and engage in long legal proceedings to determine fault, before an employer or insurance plan is re+uired to reimburse employees for physical in<uries on the <ob A. %rue "/1 B. .alse Which of the following is a type of property value used in the appraisal process? According to the Corporate .raud Fandboo#, which type of scheme is generally hardest to %he ma<ority of che+ue tampering schemes are committed by ownersBe'ecutives.

CFE FINANCIAL
A. Doan value B. .air mar#et value C. 0ales price . All of the above "/" 2n tracing illegal payments, the fraud e'aminer should focus on the suspected recipient if$

A. %he person ma#ing the payments is one person suspected of ta#ing from many B. %he payments are in cash or from off-boo# funds C. %he person ma#ing the payments is un#nown . All of the above "/( Which accounting principle re+uires corresponding e'penses and revenue to be recorded in the same accounting period? A. .ull disclosure B. 4atching principle C. Consistency . Conservatism "/0mith, a Certified .raud ,'aminer for the A<a' Co., observes Hones, an accounts payable cler#, driving an e'pensive imported sports car to wor#. 0mith also has #nowledge that Hones recently had e'tensive remodelling done on her residence. 0mith has sufficient predication to$ A. !otify management of the possibility that Hones has committed fraudulent acts B. Confront Hones with an allegation of fraud C. Conduct discreet in+uiries into Hones* responsibilities as an accounts payable cler# . !one of the above "// %he most common methods for concealing liabilities and e'penses include liabilityBe'pense omissions and capitalised e'penses. A. %rue B. .alse

"/1 Bob and 0teve wor# for competing companies. 0teve is in the airport waiting for a flight and notices Bob typing away on his laptop computer. 0teve ta#es a seat behind Bob and can clearly see what Bob is typing. 0teve +uic#ly ta#es notes about Bob*s new business plan. Bob may be held accountable for the theft of the intellectual property, even though he was unaware of 0teve*s presence. A. %rue B. .alse

"/3 5redication, as it relates to the e'amination of fraud, means the basis upon which the e'amination is underta#en. A. %rue B. .alse

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"/6 A EEEEEEEEE is a program that usually attaches itself to, overwrites, or otherwise replaces other legitimate programs and performs unsolicited, usually malicious, actions without the #nowledge of the user. A. Fac#er B. .irewall C. Computer virus . 52! "/7 When a Certified .raud ,'aminer begins a fraud e'amination, he or she must assume that$

A. %he suspect is guilty B. %he suspect is innocent C. %he case will end in litigation . !one of the above "19 Which of the following are computer hac#ing detection measures? 2. Aeview the file log for sign-on and sign-off activity 22. Aeview the file log for unsuccessful access attempts 222. 5rovide sufficient resources and staff to administer the data security function 2@. 5eriodically review telecommunications security A. 2, 22, 222, and 2@ B. 222 and 2@ only C. 222 only . 22 and 2@ only "11 Ba#er, an employee of ABC Corporation, had complete control of the purchasing function for his department. Ba#er authorised the purchase of several thousand dollars worth of supplies which were unnecessary to ABC. Ba#er used these supplies to ma#e improvements to his home. %his is an e'ample of what #ind of fraud? A. %heft of inventory B. Che+ue tampering C. 5ersonal purchases with company funds . !one of the above "1" Which of the following usually represents the highest ris# for fraud in financial institutions?

A. .alse statements B. ,mbe&&lement C. %eller fraud . Doan frau "1( 0omeone who is see#ing unauthorised access to a computer system and the information contained therein is #nown as a EEEEEEEEEEEE. A. Humper

CFE FINANCIAL
B. Fac#er C. 0aboteur . !one of the above "1=ne method of covering cash larceny at the cash register is to physically alter the register tape to ma#e the tape reflect the amount of cash in the drawer. A. %rue B. .alse "13 Which of the following is !=% an e'ample of a conflict of interest?

A. An employee who has an undisclosed economic or personal interest in a transaction that adversely affects his employer B. An employee who has an undisclosed interest in a transactionI however, the employee acts in a manner detrimental to his company in order to provide benefit to a relative, not himself C. An employee who buys supplies from a spouse*s company with the employer*s #nowledge . 0ubse+uent employment with former contractor "16 raw re+uests provide an opportunity for a real estate developer to commit fraud against the lender because the lender generally must rely upon the developer*s documentation. A. %rue B. .alse "17 Aside from a lac# of segregation of duties in the data centre, which of the following are considered red flags of insider computer fraud? 2. Access privileges e+ual to those re+uired to perform assigned tas#s 22. Access logs not reviewed 222. 5roduction reports run at usual hours 2@. ,'ception reports not reviewed and resolved A. 222 and 2@ only B. 2, 22, 222, and 2@ C. 22 and 2@ only "39 Blue 8borrowed8 his employer*s snowplough for his own snow removal business which he operated on the side. Blue only used the snowplough on the wee#ends or after hours, when his employer was not open for business. Blue falsified the mileage and usage logs for the snowplough so that no one would #now he had been using it. %he snowplough was returned unharmed. According to the Corporate .raud Fandboo#, how should Blue*s scheme be categorised? A. As a fraudulent statement scheme B. As theft of a non-cash asset C. As a payroll fraud . !one of the above "31 Able, a boo##eeper for a small company, typed out che+ues to a local vendor and her boss signed them. 0he then used the erase function on her typewriter to delete the vendor*s name and insert her

CFE FINANCIAL
own. 0he also changed the amounts of the che+ues in the same manner. %hen she cashed the che+ues. According to the Corporate .raud Fandboo#, what #ind of scheme did Able commit? A. A forged ma#er scheme B. An altered payee scheme C. A authorised ma#er scheme . A forged endorsement sche "3" Which of the following is !=% a type of che+ue tampering scheme?

A. .orged ma#er B. .orged endorsement C. .alse voids . Authorised ma#er "3( =wnership of an e+uity share in a publicly traded company provides an investor with a right to certain information about the corporation and a right to influence the corporation through participation in general shareholder meetings and elections. A. %rue B. .alse "3Ba#er used the company credit card to pay for a business dinner at which he was entertaining a client. %he credit card bill was paid by Ba#er*s employer. Ba#er saved the receipt, and later he filed an e'pense report see#ing reimbursement for the cost of the meal. Fe attached the receipt as support. According to the Corporate .raud Fandboo#, this is an e'ample of what #ind of fraud? A. 5ersonal purchases with company funds B. 4ischaracterised e'penses C. 4ultiple reimbursements . A false billing scheme "3/ precautions? A. ,ncryption B. 2nternal networ# security C. Customer validation . All of the above "31 following? Billing for a higher level of medical service than was actually rendered is called which of the Companies conducting business online combat 2nternet fraud by adopting which of the following

A. )lobal service period violation B. ;plin#ing C. .ragmenting

CFE FINANCIAL
. ;pcoding "33 !icolette wor#s part-time at an independent record store. Whenever her friend Hacob comes into the store during one of her shifts, he pic#s up a C and brings it to the register where !icolette is stationed. After ringing a 8no sale8 transaction on the cash register, !icolette pretends to swipe Hacob*s credit card for payment. 0he puts the C in a bag and gives it to Hacob, who wal#s out without actually paying for the merchandise. What #ind of scheme is being committed? A. 0ales s#imming B. .a#e refund C. Cash larceny . .alse sale "36 Which of the following financial instruments can be used as a front for a 5on&i scheme?

A. Currency e'changes B. 2nvestment pools C. 0toc#s . All of the above "37 )ood corporate governance practices enable$

A. Access to capital B. ,conomic efficiency C. Confidence in financial mar#ets . All of the above "69 Circumstantial evidence is defined as$

A. All proof other than direct proof of wrongdoing B. 5roof that is not verified by a direct witness C. ,vidence which offers proof of possible wrongdoing but is not admissible in court . !one of the above "61 )reen, a fiscal officer, had access to company che+ues but was not authorised to sign them. )reen*s company used an automated che+ue signer which was guarded by a custodian. )reen too# some blan# che+ues and made them payable to himself, then snuc# into the custodian*s office and signed them with the che+ue signer. According to the Corporate .raud Fandboo#, )reen committed$ A. A forged ma#er scheme B. A concealed che+ue scheme C. An authorised ma#er scheme . An altered payee scheme

CFE FINANCIAL
"6" %he accounting concept of conservatism leads to an asymmetrical accounting, where the revenues purposefully are overstated and the e'penses purposefully are understated. A. %rue B. .alse "6( 4ost forgery schemes are committed by accounts payable cler#s, office managers, boo##eepers, or other employees whose duties typically include the preparation of company che+ues. A. %rue B. .alse "6According to the Corporate .raud Fandboo#, which of the following is !=% one of the ma<or categories of fraudulent financial statement schemes? A. .ictitious revenues B. 2mproper disclosure C. )host employees . %iming differences "6/ =ne of the drawbac#s to computer history logs is wrapping. Which of the following is the correct definition of wrapping? A. .orcing the software to record at the beginning of the file if the file is full and not printed out B. .orcing the software to download the history before additional history can be recorded C. !ot having enough AA4 . !ot having enough memory in the hard drive "61 Which of the following is !=% a form of fraudulent disbursement?

A. Billing schemes B. 5ayroll schemes C. Che+ue tampering . 0#imming "63 %he predominant form of authenticating valid users on a computer system is to employ passwords. Which of the following are essential in maintaining effective password security? A. 5asswords of sufficient length >for e'ample, eight characters? B. 5rohibition of shared passwords C. 5asswords revo#ed if the employee is terminated . All of the above "66 ABC, Dtd. and :OP, Dtd. are the only two companies in Cor# County that lay asphalt. An audit reveals that the state is paying more for asphalt wor# in Cor# County than in any other county in the state. A

CFE FINANCIAL
review of the records reveals that of the last ten asphalt contracts awarded, at the last minute, either ABC or :OP has withdrawn its bid. What scheme might ABC and :OP be involved in? A. Bid suppression B. 5hantom bidding C. Bid rotation . Altering bids "67 According to the Corporate .raud Fandboo#, which of the following is !=% a method that is used to conceal inventory shrin#age? A. .orced reconciliation of the inventory records B. Writing off stolen inventory as scrap C. 5hysical padding . 0elling merchandise without recording the sale "79 Which of the following is !=% a recommended protection measure to prevent identity theft?

A. 4ail bills from a post office location B. =btain a copy of your credit report on a regular basis C. 0hred pre-approved credit applications . Leep financial documents in your des# drawer "71 %ypes of insurance agentBbro#er fraud include$

A. 5remium fraud B. .ictitious payees C. .ictitious death claims . All of the above "7" Which of the following methods might conceal a sham loan to a borrower, with the loan officer receiving part of the proceeds >#ic#bac#?? A. 5aying off the old loan with proceeds from a new loan B. 8 igging8 the loan on the boo#s C. 2ncreasing the amount of the loan . All of the above "7( 2n the prime rate credit card scam, telescammers offer customers ma<or credit cards for a small fee even if their credit report is poor, but send them an application for a credit card they could obtain in any department store. A. %rue B. .alse

CFE FINANCIAL
"7%he practice of recording the deposits of transfers between multiple ban# accounts before recording the disbursements is called which of the following? A. Liting B. %iming differences C. An error . Dapping "7/ EEEEEEEEEE involves ensuring that information is accessible only to those authorised to have access, and that they can only use it for specified purposes. A. Availability B. 2ntegrity C. Confidentiality . !one of the above "71 %he Corporate .raud Fandboo# defines a forged ma#er scheme as a che+ue tampering scheme in which an employee misappropriates a signed che+ue intended for a third-party and converts the che+ue by signing the third-party*s name on the bac#. A. %rue B. .alse "73 All of the following are detection methods for purchasing fraud schemes ,:C,5%$

A. 0tatistical sampling B. Analytical review C. Correspondent sample surveys . 0ite visit observation "76 ocument retention policies should cover which of the following types of documents?

A. Accounting records B. Client correspondence C. ,mployment records . All of the above "77 Which of the following were included in the %readway Commission*s recommendations to help reduce the probability of fraudulent financial reporting? A. Ade+uate resources and authority provided to the audit committee B. A written charter for the audit committee C. A mandatory, independent audit committee . All of the above

CFE FINANCIAL
(99 Which of the following is !=% a countermeasure that security officers can implement to thwart a spy*s attempt at infiltrating their company? A. ,nsure that vendors* credentials have been verified and that vendors are escorted by a company representative during their visits. B. Fave employees sign nondisclosure agreements. C. ,nsure that proprietary data is stored in areas visible to the public. . ,stablish a procedure for trac#ing and loc#ing up sensitive data. (91 All of the following are elements of a contract ,:C,5%$

A. Dawful sub<ect matter B. 4utual promises and mutual obligations C. 4ust be in writing . Competent parties (9" White made personal use of a company vehicle while on an out-of-town assignment. Fe provided false written and oral information regarding the nature of the use of the vehicle. %he vehicle was returned unharmed. According to the Corporate .raud Fandboo#, what type of fraud did White commit? A. A misappropriation of a non-cash asset B. An e'pense reimbursement scheme C. A fraudulent statement scheme . White did not commit occupational fraud (9( All of the following are types of fraud schemes perpetrated through the 2nternet ,:C,5%$

A. Control group identities B. 5yramid schemes C. 2nternet commerce . 2nvestment and securities fraud (9A. %rue B. .alse (9/ ABC, Dtd. submits a bid on a contract. At the same time, it submits bids from several none'istent companies. 2t appears to the contractor that there has been a vigorous bidding competition when in fact ABC has been merely bidding against itself. %his type of scheme is #nown as which of the following? A. Bid rotation B. Complementary bids C. Bid suppression . 5hantom bids %he most effective purchasing fraud prevention measure is proper documentation.

CFE FINANCIAL
(91 A. %rue B. .alse (93 Which of the following is a financial statement analysis techni+ue that involves computing the percentage change in individual income statement or balance sheet items from one year to the ne't? A. Fori&ontal analysis B. @ertical analysis C. 0tatistical sampling . Aatio analysis (96 5remium fraud, agent fraud, claimant fraud, and organised fraud are all types of what? Asset misappropriations are the most common type of occupational fraud.

A. Aeceivable fraud B. Credit card fraud C. Wor#ers* compensation fraud . Diability fraud (97 Contract and procurement fraud is generally committed by$

A. ishonest employees B. ishonest contractors C. ishonest companies

. !one of the above (19 )rey, a controller for a small company, was responsible for preparing and ma#ing the daily deposits, recording the deposits in the company*s boo#s, and reconciling the ban# statement. )rey too# several thousand dollars from the company deposits and concealed the theft by ma#ing false accounting entries. %he money )rey stole had already been recorded in his company*s accounting system as sales and receivables. According to the Corporate .raud Fandboo#, )rey*s scheme is$ A. A cash theft scheme B. A fraudulent financial statement scheme C. An illegal gratuities scheme . A s#imming scheme (11 %o prevent financial statement fraud, management must wor# to reduce$

A. %he opportunity to commit fraud B. 5ossible rationalisations for fraudulent conduct C. %he situational pressures to commit fraud

CFE FINANCIAL
. All of the above (1" ,:C,5%$ %o safeguard a company against cash theft, each of the following duties should be segregated

A. Cash receipts B. Ban# deposits C. Ban# reconciliations . All of the above should be segregated (1( A. %rue B. .alse (12n developing an effective corporate governance framewor#, countries should consider$ =ff-boo# sales of goods always cause shrin#age.

A. %he framewor#*s impact on mar#et integrity and economic performance B. %he need for effective international dialogue and cooperation C. %he applicable legal and regulatory re+uirements . All of the above (1/ their victims? Which of the following are commons ways identity thieves obtain personal information about

A. 0houlder surfing B. ;sing prete't calls C. 0orting through trash . All of the above (11 2nternal controls that govern the day-to-day operation of the computer system are referred to as$

A. ata file controls B. Computer operations controls C. 0ystem software controls . 2mplementation controls (13 is called$ A. Acid wash B. .rying C. Che+ue washing . 0canning %he process whereby chemicals are used to erase amount and payee information on a che+ue

CFE FINANCIAL
(16 2mproperly capitalising e'penses results in which of the following effects on the current period*s financial statements? 2. 2ncreased assets 22. 2ncreased liabilities 222. 2ncreased e'penses 2@. 2ncreased net income A. 2 and 2@ B. 22 and 222 C. 2 only . 2 and 222 (17 %he five classifications of financial statement schemes are fictitious revenues, timing differences, concealed liabilities and e'penses, incorrect or misleading disclosures, and incorrect or misleading asset valuations. A. %rue B. .alse ("9 Aesponsibilities of a Certified .raud ,'aminer include which of the following?

A. %estify to findings B. 2nitially detecting the fraud C. Aeporting to management on the guiltBinnocence of suspects . All of the above ("1 Which of the following control procedures will !=% help prevent payroll fraud?

A. %he same employee or group of employees distributes payche+ues every pay period B. 5ayroll che+ues are written out of a separate payroll account C. Actual payroll amounts are reviewed and compared to budgeted amounts . 5ersonnel records are maintained independently of time#eeping ("" .raud in financial statements usually ta#es the form of overstated assets or revenue and understated liabilities or e'penses. A. %rue B. .alse ("( %he ris# of the auditor not detecting a material misstatement resulting from employee fraud is greater than the ris# of the auditor not detecting a material misstatement resulting from management fraud. A. %rue B. .alse ("Blue, a cash register teller, signed onto her register, rang a 8no sale8 to open the drawer, and then removed several hundred dollars. According to the Corporate .raud Fandboo#, what #ind of scheme is this?

CFE FINANCIAL
A. A s#imming scheme B. A register disbursement scheme C. A cash theft scheme . !one of the above ("/ schemes? Which of the following is often present in housing and commercial property sales fraud

A. Attorneys filing false documents B. A phoney or fraudulent appraisal report C. !o e'pert assistance at closing . !one of the above ("1 0#imming is both the theft of cash that has already appeared on a victim organisation*s boo#s and the theft of cash that has not yet been recorded on the boo#s. A. %rue B. .alse ("3 =wners* e+uity usually represents amounts from two sources$ owner contributions and undistributed earnings. A. %rue B. .alse ("6 Which of the following financial statements shows a 8snapshot8 of the company*s financial position at a specific point in time? A. Balance sheet B. 0tatement of cash flows C. 2ncome statement . All of the above ("7 Able was in charge of purchasing computer e+uipment for ABC Corporation. Able set up a shell company, used the shell company to purchase used computer e+uipment, then re-sold that e+uipment to ABC Corporation at an inflated price. %his is an e'ample of$ A. A pay-and-return scheme B. A pass-through scheme C. A fictitious cost scheme . !one of the above ((9 A. %rue Cash, accounts receivable, and inventory are all e'amples of current assets.

CFE FINANCIAL
B. .alse ((1 A computer program that attaches itself to other legitimate programs and performs unsolicited and malicious actions without the #nowledge of the user is commonly referred to as a$ A. Fac#er B. 0poof C. @irus . 0murf ((" #nown as the$ A. @erifier B. Closer C. .ronter . !one of the above ((( ;sers of financial statements may include$ 2n a telemar#eting scam, the person who calls the potential victim and ma#es the initial pitch is

A. Customers B. Company owners C. Aegulating bodies . All of the above (()enerally, e'pense account review uses one of two methods$ historical comparisons or comparisons with budgeted amounts. A. %rue B. .alse ((/ %he worth of a business, if it is any good, will always be higher than the value of its hard assets. %his is reflected in the accounting concept of$ A. Cost B. )oing concern C. 4ateriality . =b<ective evidence ((1 A. %rue B. .alse ((3 Which of the following is a financial statement analysis techni+ue that involves computing the percentage change in individual income statement or balance sheet items from one year to the ne't? Cash theft is the removal of cash from a victim entity prior to its entry in an accounting system.

CFE FINANCIAL
A. Aatio analysis B. 0tatistical sampling C. @ertical analysis . Fori&ontal analysis ((6 of$ ,'penditures incurred for advertising, repairs and maintenance, rent, and utilities are e'amples

A. )ross margin e'penses B. =perating e'penses C. Cost of goods sold . !on-deductible costs ((7 A. %rue B. .alse (-9 %he cash flows from operations section on a statement of cash flows prepared using the indirect method begins with accrual-basis net income and ad<usts for non-cash revenues and e'penses to arrive at net cash flows from operations. A. %rue B. .alse (-1 Which of the following often occurs in a credit card refund scheme? %elemar#eting schemes target individuals, not businesses.

A. %he employee rings up a refund and credits the customer*s account B. %he customer uses a phoney credit card to obtain the refund C. %he employee rings up a refund, but credits his card, not the customer*s . All of the above (-" 2n most instances where an employee creates fraudulent invoices to overbill his employer, he uses an e'isting vendor. A. %rue B. .alse (-( A. %rue B. .alse (-=ne type of credit card fraud involves a person setting up a computer program to run stolen numbers through various financial institutions in the hope that one will honour the number. !umbers that clear are then sold to counterfeiters. %his type of scheme is called which of the following? A. 0#imming Complementary bidding is also #nown as 8protective8 or 8shadow8 bidding.

CFE FINANCIAL
B. )rabbing C. 5robing . 0wiping (-/ Cash-basis accounting involves recording revenues and e'penses based on when the company pays or receives cash. A. %rue B. .alse (-1 A cash larceny from a ban# deposit scheme can be hard to detect because the receipted deposit slip matches the company*s copy of the deposit slip and the company*s boo#s remain in balance. A. %rue B. .alse (-3 All of the following terms describe characteristics of a corrupt payer ,:C,5%$

A. %he one-person operation B. %he gift bearer C. %he big spender . %he too-successful bidder (-6 Both historical comparisons and comparisons with budgeted amounts may be used to review e'pense accounts. A. %rue B. .alse (-7 Which of the following internal control procedures can help prevent cash larceny schemes?

A. 0egregation of the responsibilities for cash receipts and ban# deposits B. 4andatory <ob rotation C. 0urprise cash counts . All of the abov (/9 0ue, a Certified .raud ,'aminer and internal auditor for an insurance company, has been as#ed to review the company*s system of internal controls in the claims processing area. 0ue has decided to present the management of the unit with a list of general indicators for fraud that are applicable to many insurance fraud schemes. All of the following would be included on 0ue*s list ,:C,5%$ A. %elephone in+uires as#ing hypothetical +uestions about coverage in the event of a loss similar to the actual claim B. As#ing that the claim be paid as soon as possible C. 5ressure for speed of handling . A claim made a short time after the inception of the policy (/1 Able wor#ed in the shipping department of a computer chip manufacturer. =ne day Able placed several thousand dollars worth of chips in a container and mailed them to his wife at her place of business. According to the Corporate .raud Fandboo#, Able*s scheme should be classified as a theft of a non-cash asset.

CFE FINANCIAL
A. %rue B. .alse (/" %esting a hypothesis involves creating a>n? EEEEEEEEEE scenario.

A. 8Where-am-28 B. 8What-if8 C. ;n#nown . 8Who*s-guilty8 (/( 2n an alleged case of contract fraud, a fraud e'aminer conducted unannounced inspections and tests, reviewed a large sample of inspection reports, and interviewed personnel to verify contract compliance of materials. %he fraud e'aminer may be reacting to which of the following suspected schemes? A. 5roduct substitution B. Bid rigging C. Dabour mischarges . !one of the above (/,:C,5%$ All of the following schemes are typically perpetrated during the performance stage of a contract

A. 5roduct substitution B. Bid rigging C. Dabour mischarges . Accounting mischarges (// A. %rue B. .alse (/1 Ace ,lectronics is a company that sells computers, televisions, home entertainment centres, and other consumer electronic e+uipment. A downturn in the mar#et has caused severe financial problems in the company. 2n order to fool the auditors as they begin their inventory count, several of Ace*s managers have begun stac#ing empty bo'es in the warehouse to create the illusion of e'tra inventory. %his scheme is #nown as$ A. 2nventory shuffling B. .orced reconciliation C. 5hysical padding . !one of the above (/3 procedure? All but which of the following activities are included in the presolicitation phase of the contracting 0#imming is an e'ample of an 8off-boo#8 fraud.

A. Bid submission

CFE FINANCIAL
B. Award criteria C. eveloping the specifications

. !eed recognition (/6 5rogram or system changes should be moved to a test library from the production library before the changes are made. %he movement from one library to another can be made by the programmer as long as it is done before changes are made and the authorisation for the changes is in writing. A. %rue B. .alse (/7 %he detection and proving of contract and procurement fraud re+uires e'pertise in which of the following areas? A. Company or governmental authority policies and procedures B. Awareness of industry standards and practices C. Contract law . All of the above (19 2mproper disclosures relating to financial statement fraud may involve$

A. Accounting changes B. 4anagement fraud C. 0ubse+uent events . All of the above (11 .orgery can include both the signing of another person*s name on a document with fraudulent intent and any fraudulent alteration of a document. A. %rue B. .alse (1" Which of the following is not designated as one of the five ma<or categories of che+ue tampering in the Corporate .raud Fandboo#? A. Counterfeit che+ue schemes B. .orged ma#er schemes C. .orged endorsement schemes . Altered payee schemes (1( 5roof of corrupt influence often involves demonstrating that the person acted in a manner that was not in the interest of the organisation. A. %rue B. .alse

CFE FINANCIAL
(12n computer se+uence chec#ing, the computer verifies the preassigned serial numbers of input transactions and reports missing or duplicate numbers. A. %rue B. .alse (1/ 2n countries in which government health care plans are provided, the ma<ority of health care fraud is perpetrated by health care providers. A. %rue B. .alse (11 2dentity theft is an increasingly fre+uent type of fraud that is non-discriminatory in nature-anyone can be targeted. A. %rue B. .alse (13 When evaluating controls to prevent or reduce fraud ris#s to an organisation, internal auditors should consider$ A. Whether fraud could be committed by an individual or whether it would re+uire collusion B. %he negative effects of giving the appearance that employees are not trusted C. %he balance between cost and benefit . All of the above (16 functions? 2n a computerised system, maintenance controls perform all but which of the following

A. ,nsure that stored data has not been changed e'cept through normal processing channels B. Leep data up-to-date C. 2dentify unusual data re+uiring further action . @erify password compliance (17 .reeware and shareware are two common ways a computer may become infected by a virus.

A. %rue B. .alse (39 2nstitute of 2nternal Auditors >22A? 5ractice Advisory 1"19.A"-1-Auditors* Aesponsibilities Aelating to .raud Ais# Assessment, 5revention, and etection-states that the internal auditor has the responsibility to establish and maintain internal control at a reasonable cost. A. %rue B. .alse (31 2n a EEEEEEEEEE scheme, multiple ban# accounts are opened and money is deposited from account to account, although the actual funds never e'ist. A. 5ayroll che+ue fraud

CFE FINANCIAL
B. emand drafts C. Che+ue #iting . 0top payment orders (3" All of the following are methods that might be employed to prevent computer viruses, ,:C,5%$

A. ;sing a dis#ette to boot your system B. %esting computer software on an isolated system before loading it into the production machines C. ;se of anti-virus software pac#ages . Bac#ing up files (3( Accounting mischarges are defined as #nowingly charging unallowable costs to the buyer, concealing or misrepresenting them as allowable costs, or hiding them in accounts that are not usually audited closely. A. %rue B. .alse (3As a very general proposition, suspected on-boo# schemes are best approached from the point of payment. =ff-boo# or other cash schemes are easier to detect at the suspected point of receipt. A. %rue B. .als (3/ An automobile owner abandons his vehicle and falsely reports it as stolen in order to cash in on an insurance policy. %his type of scam is called$ A. %wisting B. 0liding C. Churning . itching

(31 .rederic# was a property manager for a large apartment comple' while he was attending university. =ne of his duties was to collect rent from the tenants. 2f rent was paid after the third of the month, a late fee was tac#ed on to the amount due. When a tenant paid his rent late, .rederic# would bac#date the payment, record and remit only the rent portion to his employers, and poc#et the late fee. %his is an e'ample of what type of fraud? A. .raudulent write-offs B. 0#imming C. Darceny . 5lugging (33 %elemar#eting companies who push secured credit cards, re+uiring a cash deposit >usually G"/9-G(99 minimum? in the issuer*s ban# to activate the card, are committing a$ A. )old card scam

CFE FINANCIAL
B. Credit services scam C. Credit repair scam . 5rime-rate credit card scam (36 When a hac#er calls up someone at the target company and ca<oles or tric#s the person into providing valuable information, that techni+ue is referred to as which of the following? A. 0pamming B. Aeplicating C. 0ocial engineering . !one of the above (37 be$ 2n a properly run payroll system, timecards that have been authorised by management should

A. 0ent directly to payroll B. )iven bac# to the employees for review C. estroyed

. Any of the above (69 .raudulent disbursement schemes can be bro#en down into several smaller categories, including che+ue tampering schemes, billing schemes, payroll schemes, and e'pense schemes. A. %rue B. .alse (61 A. %rue B. .alse (6" 2nstead of creating completely fictitious sales, some dishonest employees understate legitimate sales so that an accomplice is billed for less than delivered. A. %rue B. .alse (6( %he items on telescammers* best-seller lists that are sold as valuable but are essentially worthless include$ A. World War 22 memorabilia B. Coins C. .igurines . All of the above Companies may inadvertently divulge confidential information in sales proposals.

CFE FINANCIAL
(6Ba#er, the managing partner in a small law firm, is the authorised signer on all company che+ues. When his phone bill arrived last month, Ba#er prepared and signed a company che+ue to pay the bill. Fe did not disclose this payment to his partners. According to the Corporate .raud Fandboo#, Ba#er committed an authorised ma#er scheme. A. %rue B. .alse (6/ %he Corporate .raud Fandboo# identified all of the following as types of s#imming schemes$ unrecorded sales, understated sales, short-term s#imming, and forged che+ues. A. %rue B. .alse (61 legitimate? Which of the following is a sign that a proposed entrepreneurial program might not be

A. Aeferences specified by the company B. 5romises of e'clusive territories C. %he lac# of a complete disclosure document . All of the above (63 legitimate? Which of the following is a sign that a proposed entrepreneurial program might not be

A. Aeferences specified by the company B. 5romises of e'clusive territories C. %he lac# of a complete disclosure document . All of the above (66 When perpetrating a ghost employee scheme, the benefit of using a salaried employee, rather than an hourly employee, as the ghost is$ A. %he scheme is easier to conceal B. 2t is easier to add the employee to the payroll C. 2t is not necessary to collect time#eeping information . All of the above (67 victims. A. %rue B. .alse .raudulent telemar#eters often intentionally select elderly and unemployed individuals as

CFE FINANCIAL
(79 inventory. A. %rue B. .alse (71 %he Corporate .raud Fandboo# discussed several methods that fraudsters use to conceal che+ue tampering. %hese include$ A. .orced reconciliations B. 5reparing bogus support documentation C. 4iscoding fraudulent che+ues . All of the above (7" Which of the following are common real estate loan fraud schemes? A running tabulation of how much inventory should be on hand is #nown as the hypothetical

A. ,+uity s#imming B. Appraisal fraud C. 0hort-sale schemes . All of the above (7( Able, an employee of ABC Company, was in charge of collecting the timecards of all the employees in his division >including his own? and delivering them to the division supervisor. After the supervisor reviewed and approved the timecards, Able delivered them to the payroll accounting department, where payche+ues were issued. Able would fill out his timecard in erasable in#, wait until his supervisor had signed off on it, then change the number of hours on the timecard before he too# it to payroll accounting. %his increased the si&e of his payche+ues. According to the Corporate .raud Fandboo#, this is an e'ample of$ A. Che+ue tampering B. .orgery C. A ghost employee scheme . A falsified hours and salary scheme (7%he =,C 5rinciples of Corporate )overnance are non-binding, and the responsibility for enforcing the standards rests with individual governments. A. %rue B. .alse (7/ ,ffective computer security ensures the availability of accurate data in time to meet an organisation*s needs at a cost that is commensurate with ris#s involved. =ne of the #ey elements in an effective computer security system is the maintenance of which of the following? 2. Confidentiality 22. 4ateriality 222. 2ntegrity 2@. Availability

CFE FINANCIAL
A. 22 and 222 only B. 2, 22, 222, and 2@ C. 2, 222, and 2@ only . 2, 22, and 222 only

(71 %he type of fraud that targets groups of people who have some social connection, such as neighbourhoods of racial minorities or immigrant groups, is #nown as$ A. Consolation B. Affinity fraud C. Aeloading . !one of the above (73 %he primary foundation of the 2!%=0A2 professional framewor# for auditing in the public sector is the call for legislated independence of government auditing institutions. A. %rue B. .alse (76 %he primary foundation of the professional framewor# for auditing in the public sector is the call for legislated independence of government auditing institutions. A. %rue B. .alse (77 %he ris# that management will override internal controls is present in all entities.

A. %rue B. .alse -99 2n a telemar#eting scam, the person who reads vague words about the deal and records the victim*s agreement is #nown as the$ A. Closer B. .ronter C. @erifier . !one of the above -91 EEEEEEEEE is the term used to represent amounts received from the sale of goods or services during an accounting period. A. ,'penses B. Assets

CFE FINANCIAL
C. ,+uity . Aevenues -9" Which of the following ratios compares assets that can be immediately li+uidated with liabilities that are e'pected to come due during the ne't operating cycle? A. Quic# ratio B. Asset turnover C. 5rofit margin . Collection ratio -9( All of the following red flags are indicators of bid rigging schemes ,:C,5%$

A. Hoint ventures by firms who could have proposed individually B. 0uccessful bidder consulting with buyer in need recognition stage C. =ther +ualified vendors fail to submit proposals . Wide disparity in bid prices -9All pyramids schemes are illegal. A. %rue B. .alse -9/ Which of the following is a common recruiting method that a spy can use on e'isting employees of a targeted company? A. %rapping B. Aecruiting by <ustification C. .alse flag recruitment . All of the above -91 2n a>n? EEEEEEEEEEEEE scheme, the company or con men that initially conned a consumer contacts that consumer and offers to help retrieve the lost money. Fowever, the investigation re+uires an upfront fee and the consumer is swindled again. A. Advance fee B. 4oney manager C. 0cavenger or revenge . irectory

-93 =ne pressure tactic that fraudsters use in a pyramid scheme is to ma#e the potential investor believe that time is of the essence$ 8)et in now, or regret it forever.8 A. %rue

CFE FINANCIAL
B. .alse

-96 s#imming. A. %rue B. .alse -97 A. %rue B. .alse -19 A. %rue B. .alse -

2f an employee sells an item and poc#ets the cash without recording the sale, this is #nown as

Fealth insurance fraud accounts for five to 19 percent of all health care dollars paid out.

%he ma<ority of che+ue tampering schemes are committed by ownersBe'ecutives.

-11 2n order to detect insurance fraud, an e'aminer should be alert for which of the following red flags? 2. 5ressuring for rapid processing of claims 22. ,'hibiting more than the usual #nowledge about insurance coverage and claims procedures 222. 0imilar handwriting or signatures on different receipts, valuations, or invoices 2@. %he signature on the proposal does not appear to be the same signature as shown on the claim form A. 2 and 22 only B. 2, 22, 222, and 2@ C. 22 and 222 only . 222 and 2@ only -1" ,mployees who are most li#ely to be recruited by spies are those who e'hibit some loyalty or devotion toward their employer. A. %rue B. .alse -1( 5ersons who are e'pert at passing phoney che+ues are sometimes called$

A. Che+uesters B. 5aperhangers C. Daunderers . 5honies -1An employee awareness program should be instituted to protect proprietary information. An important component of such a program is to ma#e employees aware of 8shoulder surfing.8

CFE FINANCIAL
A. %rue B. .alse -1/ =ne recent innovation has significantly reduced the incidence of che+ue fraud among ban#s. %his techni+ue is which of the following? A. ,lectrostatic detection apparatus B. 2n#less fingerprints C. 0ignature analysis . @ideo spectral comparator -11 =ne techni+ue to prevent che+ue and credit card fraud is the use of a micro-line. %his techni+ue is useful because$ A. %he line contains a magnetic stripe that is read by a computer. B. An authentic line will change colour when held up to a light. C. %he line is actually a small hologram that is hard to recreate by counterfeiters. . %he line is made up of very small words or letters that are difficult to recreate by normal printing methods. -13 %he cash outflow from which of the following activities should be reported as part of the cash flows from investing activities on a statement of cash flows? A. %he purchase of a fi'ed asset B. %he purchase of raw materials with which to manufacture inventory C. %he payment of employee salaries . %he payment of dividends to company shareholders

-16 A. %rue

0hoddy merchandise is a familiar element of the bi& op scam.

B. .alse -17 All of the following are basic methods by which companies conceal payments of bribes andBor #ic#bac#s, ,:C,5%$ A. .ictitious receivables B. .ictitious payables C. )host employees . =verbilling

CFE FINANCIAL
-"9 Able, a Certified .raud ,'aminer, is loo#ing at a che+ue that he suspects is forged. 2t appears the forger may have used correction fluid to white out the name of the payee. Able decides he needs to call in a forensic document specialist. %he tool the specialist will most li#ely use to reveal the use of correction fluid is a>n?$ A. @ideo spectral comparator B. Correction fluid analy&er C. ,lectrostatic detection apparatus . Biometric fingerprint identifier -"1 %raditional methods of ma#ing illegal payments include which of the following?

A. 5ayment of credit card bills B. )ifts, travel, and entertainment C. Che+ues and other financial instruments . All of the above -"" Which of the following is !=% an estimate that is commonly manipulated as part of construction loan fraud scheme? A. eveloper overhead B. Costs to complete C. 0elling price . raw re+uests

-"( %he Corporate .raud Fandboo# identified all of the following as types of s#imming schemes$ unrecorded sales, understated sales, short-term s#imming, and forged che+ues. A. %rue B. .alse -"-All of the following are detection methods for purchasing fraud schemes ,:C,5%$

A. 0ite visit observation B. Analytical review C. 0tatistical sampling . Correspondent sample surveys -"/ A scheme whereby a ban# buys, sells, and swaps its bad loans for the bad loans of another ban#, creating new documentation in the process, is called what? A. Din#ed financing B. !one'istent borrower scheme C. aisy chain

. !one of the above

CFE FINANCIAL
-"1 %elemar#eting schemes target individuals, not businesses. A. %rue B. .alse -"3 %he five classifications of financial statement schemes are fictitious revenues, timing differences, concealed liabilities and e'penses, incorrect or misleading disclosures, and incorrect or misleading asset valuations. A. %rue B. .alse -"6 EEEEEEEEEEEEE is a techni+ue for analysing the relationships between the items on an income statement, balance sheet, or statement of cash flows by e'pressing components as percentages. A. @ertical analysis B. Fori&ontal analysis C. Aatio analysis . !one of the abov -"7 Billing schemes are a popular form of employee fraud mainly because they offer the prospect of large rewards. A. %rue B. .alse -(9 ,:C,5%$ %o safeguard a company against cash theft, each of the following duties should be segregated

A. Ban# deposits B. Ban# reconciliations C. Cash receipts . All of the above should be segregated -(1 Dogical access to a computer system refers to which of the following?

A. Access to a computer system through the use of a mainframe B. 5hysical security over the e+uipment and information C. Access to a computer system from any location where someone can sign on . Application security over the software and libraries -(" employees. EEEEEEEEEE indemnifies against economic loss to the insured caused by the dishonesty of

A. .idelity insurance

CFE FINANCIAL
B. 5roperty insurance C. isability insurance

. Dife assurance -(( %his hac#ing techni+ue involves using unsuspecting and gullible users to provide information.

A. !etwor# weaving B. 0ocial engineering C. 2mpersonation . 0cavenging -(5redication, as it relates to the e'amination of fraud, means the basis upon which the e'amination is underta#en. A. %rue B. .alse -(/ =ne confidence scheme involves diploma mills. %he characteristic warning sign of a possible diploma mill is$ A. %he processing fee charged B. A fancy-sounding university C. %hat advanced standing for courses is granted . !one of the above -(1 Which of the following is a reason that pyramid schemes continue to flourish? A. 5yramids use ingenuity and false logic in their pitches. B. 5yramids operate mainly through pre-e'isting affiliations. C. 5yramids initially pay off, providing e'cellent word of mouth. . All of the above -(3 According to C=0=*s 2nternal Control-2ntegrated .ramewor#, internal control is defined as a process designed to provide reasonable assurance regarding the achievement of ob<ectives related to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations. A. %rue B. .alse -(6 0haron, a Certified .raud ,'aminer and internal auditor for an insurance company, has been as#ed to review the company*s system of internal controls in the claims processing area. 0haron has decided to present the management of the unit with a list of general indicators for fraud that are applicable to many insurance fraud schemes. All of the following should be included on 0haron*s list ,:C,5%$ A. 5ressure by the claimant to pay a claim +uic#ly B. 2ndividuals who mail their claim and as# for their claim che+ue to be mailed bac# to them

CFE FINANCIAL
C. %hreats of legal action when a claim is not paid +uic#ly . Anonymous telephone in+uiries regarding the status of a pending claim -(7 Bob wor#s as a cashier in a busy restaurant. Bob has a small device hidden under the counter. When no one is loo#ing, Bob sometimes swipes a customer*s credit card through this device before he swipes the card through the actual credit card authorisation machine. %his device is designed to record all of the information contained on the magnetic strip on the bac# of the card and is called which of the following? A. 0wiper B. 0tealer C. )rabber . Wedge --9 According to the Corporate .raud Fandboo#, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation*s boo#s are #nown as s#imming schemes. A. %rue B. .alse --1 Which of the following internal auditor responsibilities pertaining to fraud re+uires the e'amination and evaluation of the ade+uacy and effectiveness of internal controls commensurate with the e'tent of the potential e'posure within the organisation? A. etection B. 5revention C. Aeporting . 2nvestigation --" EEEEEEEE provide telemar#eting scammers with the autodialers, phone lists, credit card receipts, and merchandise they re+uire to operate. A. .ronters B. Closers C. %urn#eys . .actoring companies --( %he two basic register disbursement schemes are$ A. %rue voids and false refunds B. .alse voids and true refunds C. .alse refunds and false voids . %rue voids and true refunds --All pyramid schemes can also be classified as 5on&i schemes.

CFE FINANCIAL
A. %rue B. .alse --/ A form of credit card fraud in which the perpetrator intercepts credit cards that are in transit between the credit issuer and the authorised account holder is called which of the following? A. %rue name fraud B. Credit doctor fraud C. !on-receipt fraud . !one of the above --1 According to 2nternational 0tandard on Auditing >20A? "-9, EEEEEEEE involves intentional misstatements in the financial statements to deceive financial statement users. A. 4aterial misrepresentation B. .raudulent financial reporting C. A reporting error . 2tem ad<ustment --3 When an employee records a fictitious refund at his cash register, the victim company*s stoc# is overstated and a disbursement from the register is recorded. A. %rue B. .alse --6 Contingent liabilities are obligations a firm may be re+uired to honour in certain cases. A pending lawsuit is a representative e'ample of a contingent liability. %he company*s potential liability, if material, must be discussed in the notes to the financial statements. A. %rue B. .alse --7 2f the fraud e'aminer tests her hypothesis and finds that all the facts do not fit a particular scenario, the e'aminer should then EEEEEEE. A. Bring in a consultant B. Assume no fraud was committed C. Aevise and retest the hypothesis . Doo# for a different suspect -/9 %he wrongful ta#ing or conversion of another*s property for the benefit of someone else is most properly referred to as which of the following? A. 4isapplication B. ,mbe&&lement

CFE FINANCIAL
C. )rand larceny . Darceny -/1 4ost mainframe security systems allow for three levels of security. %he three levels are$

A. Dog, warn, and fail B. Access code, passwords, and user 2 C. efined passwords, warn, and system alert

. 0ign-on, access password, and log-off -/" trash. A. %rue B. .alse -/( %he Corporate .raud Fandboo# discussed several methods that fraudsters use to conceal che+ue tampering. %hese include preparing bogus support documentation, miscoding fraudulent che+ues, and forced reconciliations. A. %rue B. .alse -/A. %rue B. .alse -// A credit card EEEEEEEEEEEE scheme involves the fraudster swiping a credit card through a device #nown as a wedge. %his device records the credit card information, which is later used to conduct unauthorised transactions. A. 5robing B. 0wiping C. )rabbing . 0#imming -/1 C=0=? A. 4onitoring B. ,nterprise ris# management C. Control environment . Ais# assessment Which of the following is !=% one of the five components of internal control, as identified by 4ost shell company schemes involve the purchase of an employee. 0olicitations for pre-approved credit cards should be shredded before being discarded in the

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-/3 procedure?

All but which of the following activities are included in the presolicitation phase of the contracting

A. Bid submission B. Award criteria C. eveloping the specifications

. !eed recognition -/6 %he e+uipment that is necessary for a successful che+ue fraud ring to function is often e'pensive and hard to obtain. A. %rue B. .alse -/7 EEEEEEEE is defined as the wrongful ta#ing or conversion of the property of another for the wrongdoer*s benefit. A. Bribery B. Dand flipping C. 4isapplication . ,mbe&&lement -19 A counterfeit travellers* che+ue can often be detected by feeling the che+ue surface. %he surface of a phoney che+ue will feel slic# and flat. A. %rue B. .alse -11 %he hypothesis formed at the beginning of an e'amination is usually a EEEEEEE scenario.

A. 5resumption of innocence B. 8Best-case8 C. 8Worst-case8 . Fypothetical -1" When the ban# statement is reconciled, che+ues that have dual endorsements should always raise suspicions, particularly when the second signer is an employee of the company. A. %rue B. .alse -1( When reviewing ban# reconciliations, which of the following tests should a company perform? A. Confirm the mathematical accuracy of the reconciliation B. .oot the balance to the company*s ledger C. ,'amine the ban# statement for possible alterations

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. All of the above -1%he authorised ma#er scheme is generally the most difficult che+ue tampering scheme to defend against. A. %rue B. .alse -1/ According to the Corporate .raud Fandboo#, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation*s boo#s are #nown as s#imming schemes. A. %rue B. .alse -11 According to the Corporate .raud Fandboo#, most shell company schemes involve the purchase of fictitious goods. A. %rue B. .alse -13 uring an audit of the financial statements, the e'ternal auditor should obtain written representations from management stating$ A. %hat management has disclosed to the auditor its #nowledge of any allegations of fraud, or suspected fraud, affecting the entity*s financial statements communicated by employees, former employees, analysts, regulators, or others B. %hat management ac#nowledges its responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud C. %hat management has disclosed to the auditor its #nowledge of fraud or suspected fraud affecting the entity involving any members of management . All of the above -16 involves$ As defined by 2nternational 0tandard on Auditing >20A? "-9, fraudulent financial reporting

A. %he manipulation, falsification, or alteration of accounting records or supporting documentation from which the financial statements are prepared B. %he misrepresentation in, or intentional omission from, the financial statements of events, transactions, or other significant information C. %he intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure . Any of the above -17 Able, an accounting supervisor for ABC Company, bought supplies for a company she owned on the side. Able entered vouchers in ABC Company*s creditors system for the cost of the supplies. Che+ues

CFE FINANCIAL
were cut to pay for these unauthorised e'penses during normal daily che+ue runs. %he goods were ordered drop shipped to a location where Able could collect them. %his type of occupational fraud is #nown as a billing scheme. A. %rue B. .alse -39 A. %rue B. .alse -31 %he purpose of 2nternational 0tandard on Auditing "-9 is to$ %he ris# that management will override internal controls is present in all entities.

A. 5lace the primary responsibility for preventing fraud on auditors B. ,stablish standards and provide guidance on the auditor*s responsibility to consider fraud in an audit of financial statements C. ,stablish re+uirements for auditors related to designing and implementing fraud-related internal controls . All of the above -3" detect? A. 0#imming B. Cash theft C. Cash distraction . Both cash larceny and s#imming are e+ually difficult to detect -3( Billing schemes are the most common and second most costly >slightly behind che+ue tampering? of the fraudulent disbursement schemes. 5ayroll and e'pense reimbursement schemes, on the other hand, are among the least costly of the fraudulent disbursements. A. %rue B. .alse -32n a well-designed internal control system for computer operations, the users of the system should have access to the production program code. A. %rue B. .alse According to the Corporate .raud Fandboo#, which type of scheme is generally hardest to

-3/ 2t is perfectly safe to conduct a sensitive or confidential conversation on a cellular telephone device. %hese transmissions are generally secure and protected.

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A. %rue B. .alse -31 2n most instances where an employee creates fraudulent invoices to overbill his employer, he uses an e'isting vendor. A. %rue B. .alse -33 Which of the following is !=% a red flag of fraudulent register disbursements?

A. 5ersonal che+ues from cashier found in register B. 4ultiple refunds or voids for amounts <ust under the review limit C. )aps in the se+uence of transactions on till roll . 4ultiple cashiers operate from a single cash drawer with separate access codes -36 According to 2nternational 0tandard on Auditing >20A? "-9, in responding to the assessed ris#s of material misstatement due to fraud, the auditor should incorporate an element of predictability into the selection of the nature, timing, and e'tent of the audit procedures to be performed. A. %rue B. .alse -37 %he most direct way of gaining access to a computer is to EEEEEEE.

A. ;se an authorised person*s password B. ;se a %ro<an horse C. ;se a logic bomb . ;se a trap door -69 A. 5atsy B. 5ulley C. 5on&i . 5ercy -61 =ne illegal type of investment scam is called a$

Fow can travel agents and airline reservation personnel be helpful to corporate spies?

A. %hey can act as regular spies. B. %hey can serve as informants. C. %hey can act alone and analyse information for the spy. . !one of the above -6" 2n order for a ghost employee scheme to be successful, the perpetrator must add the name of a fictitious person to his employer*s payroll records.

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A. %rue B. .alse -6( ,'pense reports should re+uire all of the following$ C Aeceipts or other support documentation C ,'planation of the e'pense including specific business purpose C %ime period e'pense occurred C 5lace of e'penditure C Amount A. %rue B. .alse -62n proving income from illicit sources, a behavioural profile may lead the e'aminer to understand the motive behind the fraud. A. %rue B. .alse -6/ 2llicit funds can be generated by funnelling phony salary payments to fictitious or former employees, or by ma#ing e'tra payments to presently salaried employees who then either return them to the payer or pass them on to the recipient. A. %rue B. .alse -61 Which of the following is not designated as one of the five ma<or categories of che+ue tampering in the Corporate .raud Fandboo#? A. Counterfeit che+ue schemes B. Altered payee schemes C. .orged endorsement schemes . .orged ma#er schemes -63 2n order to e'amine on-boo# payments of fictitious disbursements, the fraud e'aminer would e'amine a suspected company*s ban# account information and records regarding its payments for services. A. %rue B. .alse -66 EEEEEEEEEEE is the analytical process that transforms disaggregated competitor data into relevant, accurate, and usable #nowledge about competitors* positions, performance, capabilities, and intentions. A. 2nformation B. ,spionage C. Competitive intelligence

CFE FINANCIAL
. 2ntellectual property -67 =ne pressure tactic that fraudsters use in a pyramid scheme is to ma#e the potential investor believe that time is of the essence$ 8)et in now, or regret it forever.8 A. %rue B. .alse -79 A person responsible for collecting cash should !=% have authority to prepare ban# deposits.

A. %rue B. .alse -71 As part of an effective 5rogramme for 0afeguarding 5roprietary 2nformation, an entity should assemble an 2ntellectual 5roperty 5rotection Committee or tas# force, the purpose of which is to$ A. evelop an employee awareness program B. 0hred sensitive documents C. 2nstitute an encryption policy . etermine what information should be protected

-7" 0hell company schemes in which actual goods or services are sold to the victim company are #nown as pass-through schemes. A. %rue B. .alse -7( Which of the following is a techni+ue that fraudulent che+ue passers try to use on ban# tellers?

A. %he customer tries to flatter, hurry, or confuse the teller to draw attention away from the transaction B. %he customer delays endorsing the che+ue or producing identification during pea# hours to frustrate the teller and hurry the transaction C. %he customer offers altered or damaged identification to open an account or cash a che+ue . All of the above -72n a financial misstatement scheme in which capital e'penditures are recorded as income statement items, the transactions will have the following effect on the organisation*s financial statements$ A. 0ales revenue will be overstated B. !et income will be understated C. !et income will be overstated . All of the above -7/ Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemar#eting fraudsters. A. %rue B. .alse

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-71 All of the following are types of fraud schemes perpetrated through the 2nternet ,:C,5%$

A. 2nternet commerce B. Control group identities C. 5yramid schemes . 2nvestment and securities fraud -73 %he owners* e+uity in a firm generally represents amounts from which two sources?

A. Bonds sold and owner contributions B. ;ndistributed earnings and ban# loans C. =wner contributions and ban# loans . ;ndistributed earnings and owner contributions -76 EEEEEEEEE provide telemar#eting scammers with the autodialers, phone lists, credit card receipts, and merchandise they re+uire to operate. A. %urn#eys B. .actoring companies C. Closers . .ronters -77 A type of embe&&lement scheme whereby an employee of a financial institution debits the general ledger to credit his own account or cover up customer account thefts is most properly called$ A. .alse accounting entries B. ;nauthorised withdrawals C. 4oving money from dormant accounts . ;nauthorised disbursement of funds to outsiders /99 %he purpose of notes to financial statements is to provide all information re+uired to avoid misleading potential investors, creditors, or any other users of the financial statements. A. %rue B. .alse /91 Which of the following is !=% part of the fraud e'amination process?

A. =btaining evidence B. Writing reports C. %estifying to findings

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. 5unishing the offender /9" Which of the following is an e'ample of a conflict of interest?

A. An employee who has an undisclosed interest in a transactionI however, the employee acts in a manner detrimental to his company in order to provide benefit to a relative, not himself B. An employee who has an undisclosed economic or personal interest in a transaction that adversely affects his employer C. %he employee*s interest in the transaction is undisclosed and the employer does not #now of the employee*s interest in the business deal . All of the above /9( Chitry, a sales e'ecutive for C2% 4anufacturing, fre+uently too# clients out for dinner and shows when they came to town to tour the plant. Fe generally paid for these e'penses himself and submitted the receipts to his supervisor for approval and reimbursement. =ccasionally, however, he also too# his family out to restaurants and concerts and included these e'penses in his reimbursement re+uests by indicating that he was entertaining a client. %his type of fraud is #nown as a>n?$ A. 4ischaracterised e'pense reimbursement B. Altered receipt reimbursement C. =verstated e'pense reimbursement . .ictitious e'pense reimbursement /9A person is involved in an auto accident but doesn*t have insurance. %o be reimbursed for the damages, he gets insurance, waits a short time, and then reports the vehicle as having been in an accident. %his person has committed an insurance scam #nown as EEEEEEEEEEEEE. A. 5ast posting B. Churning C. itching

. !one of the above /9/ As a rule of thumb, any multi-level mar#eting organi&ation that recruits distributors into a pyramid-style compensation plan, offers big payoffs for recruiting, and spends more time trumpeting its distributor levels than its product lines, is probably illegal. A. %rue B. .alse /91 %he most difficult part of a shell company scheme, from the fraudster*s perspective, is EEEEEEEEEEEEEEEEEEE. A. 5roducing invoices for fictitious goods or services B. )etting the victim company to pay the invoices C. iscovering the correct person within the victim company to send invoices to

CFE FINANCIAL
. !one of the above /93 %he most common give-away scam, in which a postcard arrives in the mail telling the receiver he has won a pri&e such as cash or a lu'ury car, is #nown as$ A. %he 1-in-/ B. %he bait and switch C. %he fly and buy . !one of the above /96 5retending to find a wallet full of money, the fraudster convinces his mar# that they should divide the 8discovered8 money. As a show of good faith, the con man suggests that each individual should withdraw a sum of money from their ban# and turn it over to a lawyer or another third party for safe#eeping. When the designated time to spilt the money comes, the victim finds that the fraudster and his money are gone. %his scheme is #nown as a>n?$ A. Bloc# hustle B. 0cavenger scheme C. 5igeon drop . ,nvelope switch /97 %he median cost of register disbursement schemes is among the highest of all fraudulent disbursements. A. %rue B. .alse /19 A bribe or illicit payment made in the form of a hidden interest may be hard to detect for all of the following reasons ,:C,5%$ A. %he recipient*s interest may be concealed through a straw or nominee B. %he recipient*s interest may be paid directly from the payer*s normal business account C. %he recipient*s interest may be undocumented or may be a verbal agreement . %he recipient*s interest may be hidden in a trust or other business interest /11 2n a well-designed internal control system for computer operations, the users of the system should have access to the production program code. A. %rue B. .alse /1" Lic#bac#s are classified as asset misappropriations rather than corruption schemes because they involve collusion between employees and vendors. A. %rue B. .alse

CFE FINANCIAL
/1( According to the 2nstitute of 2nternal Auditors >22A? 5ractice Advisory 1"19.A"-1-Auditors* Aesponsibilities Aelating to .raud Ais# Assessment, 5revention, and etection-the internal auditor*s responsibilities for detecting fraud include$ 2. Faving sufficient #nowledge of fraud to be able to identify indicators 22. Being alert to opportunities, such as control wea#nesses, that would allow fraud to occur 222. ,valuating the indicators that fraud may have been committed 2@. !otifying the appropriate authorities outside the organisation if there are sufficient indicators that fraud is being committed A. 2, 22, 222, and 2@ B. 22, 222, and 2@ only C. 2, 22, and 2@ only . 2, 22, and 222 only /1Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemar#eting fraudsters. A. %rue B. .alse /1/ According to the Corporate .raud Fandboo#, which of the following is not a fraudulent financial statement scheme? A. .orged ma#er schemes B. .ictitious revenues schemes C. %iming differences schemes . Concealed liabilities and e'penses schemes /11 Because phoney death certificates are usually not difficult to obtain, false death claims on life insurance policies are often paid relatively easily. A. %rue B. .alse /13 Which of the following ratio calculations is used to determine a company*s ability to meet sudden cash re+uirements? A. Collection ratio B. ebt to e+uity C. Current ratio . Quic# ratio /16 ,ncryption technology should be used in which of the following instances$

CFE FINANCIAL
A. .a'ing B. ,-mail C. %eleconferencing . All of the above /17 According to the Corporate .raud Fandboo#, which of the following scheme types is most common? A. Conflicts of interest B. Bribery C. ,conomic e'tortion . 2llegal gratuities /"9 According to the Corporate .raud Fandboo#, the type of event that occurs when a company official has an undisclosed financial interest in a transaction that causes economic harm to the company is classified as a$ A. Diability omission B. Accounting change C. Aelated-party transaction . 0ignificant even /"1 %here is nothing inherently wrong with related party transactions, as long as they are fully disclosed and are at arm*s-length. A. %rue B. .alse /"" ,mployees who are most li#ely to be recruited by spies are those who e'hibit some loyalty or devotion toward their employer. A. %rue B. .alse /"( 2nternet scams have become very prevalent due, in part, to the fact that many online transactions are poorly regulated and policed. A. %rue B. .alse /".alsifying incoming deliveries of inventory can best be classified as what type of scheme?

A. Darceny scheme B. Asset transfer scheme C. 5urchasing and receiving scheme . !one of the above

CFE FINANCIAL
/"/ Che+ue fraud rings cannot organise without a significant amount of capital because the e+uipment necessary to operate a che+ue fraud ring is e'tremely e'pensive. A. %rue B. .alse /"1 5erpetrators of che+ue tampering schemes generally prefer to ma#e the che+ue payable to 8cash8 so that it does not re+uire an endorsement to be converted. A. %rue B. .alse /"3 Which of the following is !=% a type of purported or actual loan that fre+uently turns up in corruption and fraud cases? A. A legitimate loan from a third-party ban#, the payments on which are made or guaranteed by the payer B. A prior outright payment described as an innocent loan C. An actual loan made on favourable terms, such as interest-free . An interest sold or given at below-mar#et terms /"6 2f the cost of goods sold has increased due to theft >closing inventory has declined but not through sales?, then the inventory turnover ratio will be abnormally low. A. %rue B. .alse /"7 A. %rue B. .alse /(9 Bob, a Certified .raud ,'aminer, has been called in to investigate a potential contract and procurement fraud case. Fe begins to suspect that the company is engaging in a bid specification scheme. %o confirm his hypothesis, which of the following wea#nesses would Bob !=% e'pect to find in relation to contract specifications? A. Writing specifications not consistent with previous similar contracts B. Changes in bids after other bidder prices are #nown C. ;sing specifications, conditions, schedules, or single source <ustifications developed by, or in consultation with, a contractor who is also a bidder . 0plitting costs into separate categories in order to avoid review /(1 %he ban# e'aminer swindle is generally perpetrated against EEEEEEEEEEEEEEE. %he terms 85on&i scheme8 and 8pyramid8 are identical and should be used interchangeably.

A. Oounger women

CFE FINANCIAL
B. =lder men C. =lder women . !one of the above /(" Acceptance of a late bid, falsification of documents or receipts to get a late bid accepted, changes in the bid after other bidders* prices are #nown, and awarding the contract to the last bidder are typical red flags of which type of contract and procurement fraud? A. 5resolicitation schemes B. Bid submission schemes C. 5erformance schemes . Bid-rigging schemes /(( violated. A. ,'-ante B. ,'-hoc C. ,'-post . !one of the above /(5eter is the contracts manager for a city government. 2n order for contractors to do business with the municipality, they must pay 5eter 19 percent of the total amount of the contract. %his type of corruption is #nown as$ A. ,conomic e'tortion B. Bribery C. A conflict of interest . Bid-rigging /(/ All of the following statements are true, ,:C,5%$ EEEEEEEEshareholder rights allow investors to see# redress once their rights have been

A. Aevenue accounts are decreased with debits. B. Asset accounts are increased with debits. C. ,'pense accounts are decreased with debits. . Diability accounts are increased with credits. /(1 EEEEEEEEE is the term used to represent amounts received from the sale of goods or services during an accounting period. A. Assets

CFE FINANCIAL
B. ,+uity C. Aevenues . ,'penses /(3 Which of the following calculations of receivable turnover is correct?

A. ays in the year divided by average net receivables B. !et sales on account divided by average net receivables C. Cost of sales divided by average net receivables . !one of the above /(6 A. %rue B. .alse /(7 Which of the following is the definition of the computer manipulation techni+ue #nown as a salami techni+ue? A. ;sing several networ#s in a series in order to avoid detection B. 0tealing a small amount of assets from a large number of sources without noticeably reducing the whole C. 0earching for valid access codes or trap doors . %oggling bac# and forth between benign activity and hac#ing @oided che+ues may indicate che+ue tampering.

/-9

Which of the following is a red flag of insurance fraud?

A. %he claim is made a short time after the inception of the policy B. %he insured has a history of many insurance claims C. %he insured is very pushy and insistent about a fast settlement . All of the above are red flags /-1 All of the following are common control techni+ues in a computerised system ,:C,5%$

A. ,dit chec#s B. 5assword encryption matching C. =ne-for-one chec#ing . Computer se+uence chec#ing

CFE FINANCIAL
/-" Which of the following methods is !=% suggested in the Corporate .raud Fandboo# as a way to detect a ghost employee scheme? A. Compare the disbursement date of trust account ta'es with the deposit date B. Aeview payroll records for duplicate addresses or deposit accounts C. Doo# for employees who have no withholding ta'es, insurance or other normal payroll deductions . Aeview payroll records for duplicate social insurance numbers /-( 5ay5al is an e'ample of what type of payment system?

A. Business-to-business B. 5erson-to-business C. 5erson-to-person . 5roprietor-to-proprietor /-5ure cash and product fronts are categories of EEEEEEEEEEEE.

A. 5hishing B. 5on&i schemes C. 0#imming schemes . 5harming /-/ Which of the following is an e'ample of an 8off-boo#8 fraud?

A. 0#imming B. )host employee schemes C. Billing schemes . Cash larceny /-1 )enerally, to conceal an asset misappropriation in the company*s boo#s, a fraudster will enter$

A. A false credit to a liabilities account B. A false credit to another asset account C. A false debit to another asset account . !one of the above /-3 Accounting mischarges could include all of the following ,:C,5%$

A. .ailing to produce an inspection certificate B. Fiding items in accounts that are not closely audited

CFE FINANCIAL
C. Lnowingly charging unallowable items to the buyer . Concealing or misrepresenting unallowable items as allowable /-6 2n order to detect insurance fraud, an e'aminer should be alert for which of the following red flags? 2. 5ressuring for rapid processing of claims 22. ,'hibiting more than the usual #nowledge about insurance coverage and claims procedures 222. 0imilar handwriting or signatures on different receipts, valuations, or invoices 2@. %he signature on the proposal does not appear to be the same signature as shown on the claim form A. 2, 22, 222, and 2@ B. 22 and 222 only C. 222 and 2@ only . 2 and 22 only //9 EEEEEEEEEEEEEEE is perpetrated by a physician, clinic, hospital, medical supplies vendor, or other provider to create illegitimate income. A. Beneficiary fraud B. 5rovider fraud C. 2nsured fraud . !one of the above //1 2neffective monitoring of management, a comple' organisational structure, and deficient internal control components are all e'amples of which type of fraud ris# factor relating to fraudulent financial reporting? A. =pportunities B. AttitudesBrationali&ations C. 5ressuresBincentives . !one of the above //" %ro<an horse? Which of the following is the definition of the computer manipulation techni+ue #nown as a

A. 0earching for valid access codes or trap doors B. Covert placement of instructions that cause the computer to perform unauthorised functions but allow other programs to wor# normally C. )aining information about a system using deception, such as someone else*s password . ;sing several networ#s in a series in order to avoid detection //( When attempting to prove illegal payments, off-boo# payments are best detected at the point of payment of funds. A. %rue

CFE FINANCIAL
B. .alse //Which of the following is !=% a red flag of che+ue tampering?

A. Cancelled che+ues B. 4issing che+ues C. Questionable payee addresses . @oided che+ues /// %o fraudulently increase the amount of commission to be paid, an employee can$

A. Create fictitious sales B. 2ncrease the rate of commission C. Alter the prices charged to customers on legitimate sales . Any of the above //1 %here are traditionally two methods of percentage analysis of financial statement %hey are$ 2. irectional analysis 22. Fori&ontal analysis 222. @ertical analysis 2@. iagonal analysis A. 22 and 222 B. 222 and 2@ C. 2 and 22 . 2 and 2@ //3 %o establish a trade secret, a company has to show$

A. %hat the information gives the company some sort of competitive edge B. %hat the company has made efforts to #eep the information confidential C. %hat the information is not #nown in the industry . All of the above //6 Consumer fraud is a fairly recent phenomenon that is typically committed against organisations. A. %rue B. .alse //7 %o detect bid-rigging schemes, the fraud e'aminer must be alert for$

A. ;nsuccessful bidders who later become subcontractors B. A rotational pattern to winning bidders

CFE FINANCIAL
C. 0ame contractors who bid on all pro<ects with rotating low bidders . All of the above /19 0ignificant une'plained discrepancies highlighted by any of the three financial statement analyses >ratio analysis, vertical analysis, or hori&ontal analysis? usually are sure indicators that fraud e'ists. A. %rue B. .alse /11 A. %rue B. .alse /1" %he degree to which an organisation is e'posed to the ris# of fraud relates to$ A false statement must be made in writing and signed in order to be considered an offence.

A. %he honesty and integrity of those involved in the process B. %he fraud ris#s inherent in the business C. %he e'tent to which effective internal controls are present either to prevent or detect fraud . All of the above /1( 2n conducting a fraud investigation, internal auditors may use non-audit employees of the organisation to assist in the investigation. A. %rue B. .alse /1Which of the following is an e'ample of the computer manipulation techni+ue #nown as piggybac#ing? A. %oggling bac# and forth between benign activity and hac#ing B. 0earching for valid access codes or trap doors C. )aining access to a computer using deception, such as someone else*s password or identity . ;sing several networ#s in a series in order to avoid detection /1/ .raud in financial statements usually ta#es the form of$ 2. =verstated assets or revenue 22. ;nderstated liabilities and e'penses A. 22 only B. Both 2 and 22 C. 2 only . !either 2 nor 22

CFE FINANCIAL
/11 Lristen iamond wor#ed in the mailroom at BMA 2ndustries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, L. . 0and. 0he intercepted these che+ues and carefully changed them to appear payable to L. iamond. 0he then endorsed the che+ues with her own name and deposited them in her personal ban# account. What type of scheme did Lristen commit? A. 8%ac#ing on8 B. .orged endorsement C. Concealed che+ue . 5ayables s#imming /13 %his hac#ing techni+ue involves using unsuspecting and gullible users to provide information.

A. 0cavenging B. !etwor# weaving C. 2mpersonation . 0ocial engineering /16 Computer biological access verification includes all but which of the following?

A. Aetina scans B. @oice prints C. !A sampling

. .ingerprints /17 %he users of financial statements include company ownership and management, lending organisations, and investors. A. %rue B. .alse /39 collar crime? Which of the following is !=% a common element used to prove the intent element of a white-

A. %he accused acted to impede the investigation of the offence. B. %he accused repeatedly engaged in the same or similar activity. C. %he accused made statements heBshe clearly #new to be false. . %he accused made consistent statements. /31 When an employee writes a fraudulent che+ue to himself but conceals the scheme by listing a different payee on the boo#s, the fa#e payee is usually a fictitious vendor. A. %rue B. .alse

CFE FINANCIAL
/3" programmer? %o ensure proper segregation of duties, which of the following should !=% be done by a single

A. =perate the computer, have unsupervised access to production programs, or have access to production data B. Fave supervised access to both production programs and data C. =perate the computer and have access to production programs, whether supervised or not . !one of the above /3( tampering? Which of the following is !=% a che+ue disbursement control that will help prevent che+ue

A. Ban# reconciliations are only made by signatories on the account B. Ban# statements should be reconciled and reviewed by more than one person C. Changes in vendor information should be verified . Che+ue 8cutting8 and preparation is not done by a signatory on the account /3-2n order to prevent fraudulent register disbursements, an employee other than the register wor#er should be responsible for preparing register count sheets and agreeing them to till rolls. A. %rue /3/B. .alse

4ost telemar#eting and other consumer frauds are committed against young people. A. %rue B. .alse

/31-

Which of the following is !=% a common type of credit card fraud? A. 5rofiling C. Advance payments B. e-embossBre-emboss . 0having and pasting

/33-

Beta, a fraud perpetrator, re+uested that funds be wired from his account. %he wire transfer will show up on the ban# statement as a credit memo. A. %rue B. .alse

/36EEEEEEEEEEEEEEEE is the crediting of one account through the abstraction of money from another account. A. 0#imming /37B. 5adding C. Aigging . Dapping

%he terms 85on&i scheme8 and 8pyramid8 are identical and should be used interchangeably. A. %rue B. .alse

/69-

5eople who give and ta#e bribes usually have distinct characteristics. A person who is #nown to fre+uently bend or ignore standard operating procedures or rules, insert himself into areas he is not normally involved, or assert authority or ma#e decisions that are normally made by others, is called the 8rule brea#er.8 A. %rue B. .alse

/61All of the following are classifications of billing schemes identified by the Corporate .raud Fandboo# ,:C,5%$

CFE FINANCIAL
A. 0hell company schemes C. Bid rigging /6"B. 2nvoicing via non-accomplice vendo . 5ersonal purchases with company funds

2n attempting to detect a s#imming scheme, which of the following procedures should be used? A. Fori&ontal analysis C. Aatio analysis B. @ertical analysis . All of the above

/6(-

According to the =,C 5rinciples of Corporate )overnance, companies should disclose all financial information to investors, regardless of the cost burden of the disclosure or the disclosure*s possible negative effects on the company*s competitive position A. %rue B. .alse

/6--

Dabour costs are more susceptible to mischarging than accounting or material costs. A. %rue B. .alse

/6/2f an employee sells an item and poc#ets the cash without recording the sale, this is #nown as s#imming. A. %rue /61B. .alse

%ro<an horses, trap doors, salami techni+ues, data diddling, and piggybac#ing are all e'amples of what? A. Fac#er detection measures C. Fac#er computer manipulation B. Anti-hac#er measures . Fac#ing insurance

/63-

When tracing illegal payments, if the suspected payer is un#nown, then the e'aminer should focus on the suspected recipient. A. %rue B. .alse

/66-

2n general, the sub<ect of an investigation should be interviewed first. A. %rue B. .alse

/67-

=lder people are the favourite prey of telescammers. A. %rue B. .alse

/79-

According to the 2=0C= 5rinciples for Auditor =versight, effective oversight of the auditing profession generally includes$ A. A mechanism to re+uire that auditors have proper +ualifications and competency B. A mechanism to re+uire auditors to be sub<ect to the discipline of an auditor oversight body that is independent of the audit profession C. A mechanism to re+uire that auditors are independent of the enterprises that they audit . All of the above

/71-

Basic methods of concealing on-boo# payments of bribes include which of the following? A. )host employees C. .ictitious payables B. =verbilling . All of the above

/7" diddling?

Which of the following is the definition of the computer manipulation techni+ue #nown as data

A. %oggling bac# and forth between benign activity and hac#ing

CFE FINANCIAL
B. Changing data before or during entry into the computer system C. )aining information about a system using deception, such as someone else*s password . 0earching for valid access codes or trap doors /7(uring a fraud e'amination, all of the following methods might uncover an employee who had an undisclosed financial interest with an outside vendor ,:C,5%$ A. %ips and complaints from employees or vendors B. Comparison of vendor addresses with employee addresses C. Comparison of customer account balance to the billing file /7--

. Aeview of e'it interviews

An 052 program is a good way for corporations to protect sensitive information. 052 stands for which of the following$ A. 0ecretive proprietary investments B. 0ecuring privileged information C. 0afeguarding proprietary information . !one of the above

/7/-

4ethods companies use to conceal on-boo# payments of bribes andBor #ic#bac#s include all of the following ,:C,5%$ A. 2nventory shrin#age C. .ictitious disbursements B. )host employees . =verbilling schemes

/71-

Which of the following defences against unauthorised access to confidential information should a company institute? A. @oice mail B. Automatic log-offs and password changes C. Cordless telephones . All of the above

/73-

Claim fraud may well represent an insurance company*s largest fraud ris#. 4ost claims are legitimateI however, some are not. All of the following are red flags for claim fraud ,:C,5%$ A. 2n a fire loss, the claim includes a lot of recently purchased e'pensive property B. A claim is made shortly after the policy*s inception C. %he insured is calm about delays in settling the claim . 2n a burglary loss, the claim includes large, bul#y property

/76-

Which of the following is !=% a countermeasure that security officers can implement to thwart a spy*s attempt at infiltrating their company? A. ,stablish a procedure for trac#ing and loc#ing up sensitive data. B. ,nsure that vendors* credentials have been verified and that vendors are escorted by a company representative during their visits. C. ,nsure that proprietary data is stored in areas visible to the public. . Fave employees sign nondisclosure agreements.

/77-

5ass-through schemes are usually underta#en by employees in charge of purchasing on behalf of the victim company. A. %rue B. .alse

199-

%he ability of a telemar#eting fraudster to sound convincing while e'aggerating the value of a business opportunity or gift is #nown as$ A. 5uffing B. !ailing C. Banging . !one of the above

191-

Hoint ventures may give a competitor valuable information about a company*s product secrets.

CFE FINANCIAL
A. %rue 19"B. .alse Ba#er, a debtors cler#, stole incoming customer payments before they were posted to the customers* accounts. Ba#er placed the stolen funds in a short term security. Dater, Ba#er withdrew the stolen funds and posted them to the customers* accounts, but he #ept the interest that had been earned. According to the Corporate .raud Fandboo#, Ba#er is guilty of$ A. An understated sales and receivables >s#imming? scheme B. A short-term s#imming scheme . !one of the above because the payments were returned 19(fraud. C. A write-off scheme

A high level of inventory shrin#age should serve as a warning to a company of potential occupational A. %rue B. .alse

19--

2f a contractor delivers >1? substandard material, >"? untested materials, or >(? counterfeit products, then the contractor may be involved in which of the following schemes? A. 5roduct substitution C. Dabour mischarges B. 4aterial mischarges . !one of the above

19/-

8.raud e'amination8 is best described as which of the following? A. A method for proving the culpability of a suspect B. A methodology for resolving fraud allegations from inception to disposition C. %he science of detecting fraud . A method for finding evidence of guilt

191-

Che+ue tampering is uni+ue among the fraudulent disbursement schemes because it is the one type of scheme in which the perpetrator physically prepares the fraudulent che+ue. A. %rue B. .alse

193-

A customer buys a big screen television. Although the store offers free delivery and can deliver the %@ that afternoon, the customer insists on ta#ing the television with him. 2n fact, he has a trailer in the par#ing lot, ready to go. %he customer is paying by credit card. As the security manager of the store, which of the following do you thin# is the most li#ely scenario? A. %he customer is laundering money. B. %he customer wants to watch a big game right away on television. C. %he customer is probably paying for the item with a counterfeit or stolen credit card. . %he customer does not want his wife to #now about his purchase.

196-

EEEEEEEEEEEE is any defalcation or embe&&lement accomplished by tampering with computer programs, data files, operations, e+uipment, or media, and resulting in losses sustained by the organisation whose computer system was manipulated. A. 4edia fraud C. Consumer fraud B. Computer fraud . !one of the above

197-

=ne does not need to own property to arrange insurance on it. A. %rue B. .alse

119-

Cash inflows from activities such as the sale of the company*s own stoc#, the issuance of company bonds, or the obtainment of a loan should appear in which section of the statement of cash flows? B. Cash flows from operations . !one of the above

A. Cash flows from investing activities C. Cash flows from financing activities

CFE FINANCIAL
111EEEEEEEEEE is the term used for including additional coverages in the insurance policy without the #nowledge of the insured. A. 0liding 11"B. %wisting C. Churning . !one of the above

A fraud scheme in which an accountant fails to write down obsolete inventory to its current mar#et value has a EEEEEEEEEEEEEEEE effect on the current ratio of the balance sheet. A. 5ositive B. !egative

11(-

Doan fraud represents a high ris# area for financial institutions because although the loss amounts are usually lower than for other types of fraud, the number of instances is usually greater. A. %rue B. .alse

11-5redication, as it relates to the e'amination of fraud, means the basis upon which the e'amination is underta#en. A. %rue 11/B. .alse

Aed flags that a che+ue may be counterfeit include which of the following? A. %he transit number in the top right corner doesn*t match the electronically encoded number at the bottom of the che+ue B. %he printing of the che+ue is not uniform in te'ture and colour C. %he printing on the che+ue slants up or down . All of the above

111user.

0mart cards >also called chip cards? contain a EEEEEEEEE that uses encrypted information to identify the A. 4icroprocessor chip C. Fologram B. 4agnetic stripe . !one of the above

113-

Although credit scams promise to secure a loan for the applicant regardless of credit history, they often do supply information that can be helpful for the applicant to secure a loan. A. %rue B. .alse

116-

4ost telemar#eting fraud calls are placed during the evening. A. %rue B. .alse

117-

4ost telemar#eting and other consumer frauds are committed against young people. A. %rue B. .alse

1"9-

2n credit repair scams, the fraudster promises to 8erase8 or 8doctor8 an applicant*s credit history, but in reality there is no way to erase bad credit. A. %rue B. .alse

1"(-

Communication activity logs maintain what information? A. ata files accessed C. ate, time, and duration of access B. 4odifications to password access capability . 5rograms e'ecuted

1"--

Oour phone rings and nobody is on the other end of the line, but you hear a very faint tone, or a highpitched s+ueal and beep. %his may be a warning sign of EEEEEEEE. A. Aerial photography B. @ideo surveillance

CFE FINANCIAL
C. 0atellite trac#ing devices 1"/. Bugging Which of the following are indicators of a need recognition >determining needs? scheme?

A. efining of a 8need8 that can only be met by a certain supplier or contractor B. Writing off large numbers of items to scrap C. ;nusually high re+uirements for stoc# and inventory levels . All of the above 1"14aterial costs are more susceptible to mischarges than are labour costs. A. %rue 1"3B. .alse

;sing suppliers other than the one proposed, failing to disclose residual material stoc#, and withholding information on bul# or batch purchasing advantages are all red flags of$ A. 5roduct substitution C. 4ischarges B. efective pricing schemes . !one of the above

1"6-

Beta, an apartment manager, discovers that Able, a tenant at the apartment comple', pays his rent every month in cash. Beta decides to poc#et the monthly payments, and to cover up the theft, reports the apartment Able lives in as unoccupied. Beta is committing what type of fraud? A. =n-boo# scheme C. Darceny scheme B. 0#imming scheme . !one of the above

1"7-

%he most common payroll frauds are ghost employee schemes, falsified hours and salary schemes, and commission schemes. A. %rue B. .alse

1(9A. %rue 1(1-

2n conducting a fraud investigation, internal auditors may use non-audit employees of the organisation to assist in the investigation. B. .alse Computer bac#up files can be a ma<or liability in the protection of trade secrets. A. %rue B. .alse

1("-

A biometric fingerprint identifier does which of the following?

A. 2t can search through criminal records and identify wanted offenders B. 2t allows the ban# to match the che+ue writer*s fingerprints with the account holder*s fingerprints, which are on file C. 2t prevents the account holder from accessing his funds . All of the above 1((At the beginning of the case, the fraud e'aminer should decide whether or not the suspect is guilty or innocent and attempt to prove that theory. A. %rue 1(-B. .alse

2nternal controls are always the strongest deterrent to financial statement fraud. A. %rue B. .alse

1(/A. %rue

@ictims of confidence games are more li#ely to be organisations or businesses than individuals. B. .alse

1(12n a directory advertising scheme, the con man sells advertising space in a non-e'istent maga&ine or directory.

CFE FINANCIAL
A. %rue 1(3B. .alse

Hones is attempting to establish the flow of illegal funds from ABC Dtd. When e'amining the cash disbursements <ournal, she should begin by loo#ing at payments that fall into which of the following categories$

A. 5ayments for services where little documentation is re+uired to initiate payment B. 5ayments for design fees for goods or services that are regularly purchased C. 5ayments for supplies from out-of-state vendors . All of the above 1(6A special room that is acoustically shielded and radio-fre+uency shielded so that conversations within the room cannot be monitored outside the room is called$ A. 0hield room 1(7B. ead room C. Quiet room . !one of the above

A sales person*s most effective s#ill is the ability to sound convincing while e'aggerating the value of a business opportunity or gift. 2n telemar#eting terminology, this is called EEEEEEEE. A. 0inging B. Feat calling C. Crying . 5uffing

1-9-

@ertical analysis is a techni+ue for analysing the relationships between items on an income statement or balance sheet by e'pressing all components as percentages. When using vertical analysis of an income statement, which of the following components is assigned 199N? A. !et assets C. !et sales B. )ross sales . %otal assets

1-1-

A s#imming scheme involving the theft of incoming che+ues is generally more difficult to conceal than other forms of s#imming. A. %rue B. .alse

1-"-

A forged ma#er scheme is a che+ue tampering scheme in which an employee intercepts a company che+ue intended for a third-party and converts the che+ue by signing the third-party*s name on the endorsement line of the che+ue. A. %rue B. .alse

1-(-

Cash receipts schemes fall into which of the following two categories? A. 0#imming and theft B. 0#imming and unrecorded sales

C. ;nrecorded sales and false discounts . Aegister manipulation and understated sales 1--Which of the following is !=% a basic element of computer fraud? A. 2nput 1-/B. 4anipulation C. =utput . ata clustering

Bid rotation occurs when contractors ta#e turns submitting the lowest bid. A. %rue B. .alse

1-1-

All of the following are types of billing schemes ,:C,5%$ A. Bid-rigging B. .alse invoicing via shell companies C. .alse invoicing via nonaccomplice vendors . 5ersonal purchases made with company funds

1-3-

All of the following are considered drawbac#s to an encryption system for computer voice and data transmission, ,:C,5%$

CFE FINANCIAL
A. Cost of the hardware and software B. Cost of administration C. 2nherent delays caused by e'tra steps re+uired for processing . .re+uency of inaccurate responses 1-62n tracing and proving illegal funds, which of the following +uestions should be addressed in developing the business profile? 2. Fow is the business organised, legally and structurally? 22. What is the money flow pattern in the suspect transaction? 222. What is the financial condition of the business? 2@. Where are the company*s ban# accounts? A. 2, 22, 222, and 2@ 1-7B. 22 and 222 only C. 2 and 222 only . 22 and 2@ only

Which of the following is !=% a type of purported or actual loan that fre+uently turns up in corruption and fraud cases? A. An actual loan made on favourable terms, such as interest-free B. An interest sold or given at below-mar#et terms C. A legitimate loan from a third-party ban#, the payments on which are made or guaranteed by the

payer . A prior outright payment described as an innocent loan 1/9=ne of the best ways to detect che+ue tampering is to carefully reconcile all company ban# accounts. Which of the following tests should be performed as part of this reconciliation?

A. .ooting the balance to the organisation*s ledger B. ,'amining cancelled che+ues and comparing them to a list of outstanding che+ues C. Confirming the mathematical accuracy of the reconciliation . All of the above 1/12n what order should the following be interviewed$ 2. Co-conspirators 22. Corroborative witnesses 222. !eutral third-party witnesses 2@. 0ub<ect A. 2, 222, 2@, 22 C. 222, 22, 2, 2@ 1/"B. 2, 22, 222, 2@ . 22, 2@, 222, 2

Which of the following +uestions generally is as#ed when preparing a business profile? B. 2s there a system of internal

A. 2s there a fraud policy in place? control? C. oes most of the decision-ma#ing authority rest at the top? . Who are the #ey personnel associated with the enterprise? 1/(-

2n some cases, spies gather corporate information from employees of a target company by tric#ing employees into revealing confidential information. %ypical scams include which of the following? A. 4ar#et research scams C. Feadhunter scams B. ,mployment advertisements . All of the above

1/--

EEEEEEEEEEEEEEEEEE is the use of professional accounting s#ills in matters involving potential or actual civil or criminal litigation. A. Accounting pathology C. .raud e'amination B. .orensic accounting . !one of the above

1//-

%he person who engages in a purchases scheme is often the very person in the company whose duties include authorising purchases. A. %rue B. .alse

CFE FINANCIAL
1/1Blue, a manager for a retail store, suspects his register employees of s#imming off-boo# sales. Blue will be able to detect this #ind of scheme by comparing their till roll totals to the amount of money in their cash drawers. A. %rue 1/3B. .alse

%he distinguishing feature of a 5on&i scheme is$ A. 2t lasts a long time B. 2t always involves either cash or che+ues C. 2nitial investors are paid with subse+uent investors* money . !one of the above

1/6-

%he removal of cash from a victim organisation before the cash is entered in the organisation*s accounting system is s#imming. A. %rue B. .alse

1/7-

=nce an e-mail message leaves a company*s system, it travels straight to the intended party without ma#ing any stops before reaching its destination. A. %rue B. .alse

119-

%he mar# receives a call from a person who says he*s from an oil and gas service that is sponsoring a lottery on mineral rights. 2f the consumer invests a certain ta' deductible sum, they can receive a percentage of the income in royalty payments. %his scheme is #nown as a$ A. )oat pasture scam C. 4urphy game B. Badger game . )old mine swindle

111-

Blac#, an accounts receivable cler#, stole customer A*s monthly payment instead of posting it to A*s account. When customer B*s payment arrived a few days later, Blac# posted that payment to A*s account so that it would not become delin+uent. When C*s payment arrived a few days after that, Blac# posted the payment to B*s account, which was in danger of becoming past due. Blac#*s method of crediting one account with money ta#en from another account is #nown as padding. A. %rue B. .alse

11"-

Which of the following financial functions are considered activities of a ban#? 2. 2nvesting money or claims to money 22. Dending money or claims to money 222. 2nsuring against ris# of loss of money @. Collecting money or claims to money A. 2 and 22 only B. 2, 22, and 2@ only C. 22 and 2@ only . All of the above

11(-

An effective internal computer security system includes which of the following components? A. ,mployee education C. Aeporting facilities B. @igorous disciplinary action for offenders . All of the above

11--

Able was a manager of a retail store that was supposed to open at 19$99 am every morning. Able would actually open the store at 6$99 each morning and poc#et all the sales made in the two hours between 6$99 and 19$99. Able did not record any of the sales transactions for these two hours. According to the Corporate .raud Fandboo#, this type of scheme is a s#imming scheme. A. %rue B. .alse

11/-

2n a telemar#eting scam, the employees of the telemar#eting company are often e'ploited as badly as the fraud victims. A. %rue B. .alse

CFE FINANCIAL
111Which of the following controls will help prevent s#imming? A. %he person who processes debtor payments has access to collections from customers. B. %he person who processes debtor payments is also responsible for preparing the ban# deposit. C. %he person who processes debtor payments ma#es all entries in the cash receipts boo#. . !one of the above 1132n tracing and proving illegal funds, which of the following are sources of information for the business profile? 2. 5rincipals and employees 22. Customers 222. Competitors 2@. Ban#s and lending institutions A. 2, 22, and 2@ 116B. 2 only C. 2, 22, and 222 . 2, 22, 222, and 2@

5roof in a fraud case usually proceeds through three basic stages. %hese stages are listed below. 2n what order does the e'aminer proceed through these stages? 2. 0ealing the case through e'amination of the sub<ect 22. =btaining direct evidence 222. Building circumstantial evidence A. 22, 222, 2 B. 2, 22, 222 C. 2, 222, 22 . 222, 22, 2

117-

%he first step in an e'amination of suspected corrupt payments should be the payment profile. A. %rue B. .alse

139-

Aecording e'penses in the wrong period and early revenue recognition are classified as what type of financial fraud scheme? A. 2mproper asset valuations C. %iming differences B. .ictitious revenues . 2mproper disclosures

131-

Blue, an insurance agent, was paid a percentage of the sales he generated on behalf of his company. Blue wrote policies to fictitious customers in order to increase his sales totals for the month. According to the Corporate .raud Fandboo# this is an e'ample of$ A. A false billing scheme C. A falsified hours and salary scheme B. An e'pense reimbursement scheme . !one of the above

13"-

,ach fraud e'amination begins with the proposition that all cases will end with litigation. A. %rue B. .alse

13(-

%he concealment of a s#imming scheme whereby one account is credited by removing funds from another account is called which of the following? A. Dapping C. Currency substitution B. Altered payee designation . 2nventory padding

13--

)reen was a salesman whose <ob re+uired fre+uent travel. When )reen too# a vacation, he saved the receipts from his flight, hotel and restaurant e'penses. Fe turned in these receipts to his manager along with an e'pense report that described the e'penses as business-related. )reen*s company reimbursed him for the e'penses. According to the Corporate .raud Fandboo#, this is an e'ample of what type of e'pense reimbursement scheme? A. An overstated e'pense scheme C. A fictitious e'pense scheme B. A mischaracterised e'pense scheme . A multiple reimbursement

13/-

Deaseholds, goodwill, and patents are all e'amples of EEEEEEEEEEEEEEEEE.

CFE FINANCIAL
A. 2ntangible assets C. Asset misappropriation schemes 131B. %angible assets . 0hort-term assets

Which of the following types of occupational fraud causes the highest median monetary loss? A. A billing scheme C. A payroll scheme B. An e'pense reimbursement scheme . All of these schemes cost about the same, on average

133-

2n concealing a cash register scheme, when an employee resorts to destroying records, he usually has already conceded that management will discover the theft. A. %rue B. .alse

136-

Which of the following are e'amples of how thieves obtain an organisation*s business information? A. Computer system penetrations C. 5oor information security procedures B. Accident . All of the above

137-

2n telemar#eting schemes, a EEEEEEEE ma#es the initial pitch to the mar#. A. Closer B. .ronter C. @erifier . !one of the above

169-

2n proving corrupt payments, the fraud e'amination often begins with interviewing the co-conspirator. A. %rue B. .alse

161-

Which accounting principle re+uires corresponding e'penses and revenue to be recorded in the same accounting period? A. .ull disclosure B. Consistency C. 4atching principle . Conservatism

16"-

.raudulent surveys and fa#e pri&es are not commonly used as social engineering schemes to gather information from competitors. A. %rue B. .alse

16(-

2n order to prevent inventory theft, the personnel who re+uisition inventory should be in charge of receiving and verifying inventory shipments. A. %rue B. .alse

16--

,'amples of fraud schemes perpetrated by employees of insurers include all of the following ,:C,5%$ A. 2mproper payee C. Billing for e'perimental procedures B. ;se of another*s contract . 5ayment of cancelled contracts

16/-

When creating the hypothesis re+uired in the fraud theory approach, the fraud e'aminer should$ A. !=% form the hypothesis until all witnesses have been interviewed B. .orm the hypothesis late in the investigation C. !=% form the hypothesis until all documents have been e'amined . .orm the hypothesis early in the investigation

161-

Which of the following schemes refers to the falsification of personnel or payroll records, causing payche+ues to be generated to someone who does not actually wor# for the victim company? A. .alse wor#ers compensation claims C. )host employees B. .alsified hours and salary . Commission schemes

CFE FINANCIAL
163.orensic accounting differs from fraud e'amination in that forensic accounting is the use of professional accounting s#ills in matters involving potential or actual civil or criminal litigation and may or may not involve fraud. A. %rue 166B. .alse

White boo#ed a flight for a business trip with his company*s travel agent. Fe filled out two e'pense reports for this trip, and on each report he re+uested reimbursement for the cost of the tic#et. =n one report, he attached his airline stub as support for the e'pense. =n the other report he attached the travel agency*s invoice as support. According to the Corporate .raud Fandboo#, what #ind of scheme was White attempting? A. An overstated e'pense scheme C. A mischaracterised e'pense scheme B. A false billing scheme . !one of the above

167-

2n order to properly safeguard cash, every register wor#er should be re+uired to prepare register count sheets and match them to his or her till roll totals at the end of each shift. A. %rue B. .alse

179-

Which of the following is a fraud scheme associated with bro#er fraud? A. 5remium fraud C. 0ettlement che+ues B. .ictitious death claims . All of the above

171-

2f an employee intercepts a company che+ue intended for a third-party and converts that che+ue for his own benefit, he has committed$ A. 0#imming C. Che+ue tampering B. ,conomic e'tortion . Billing fraud

17"-

Which of the following are elements of computer fraud? 2. A defalcation or embe&&lement 22. %ampering with computer programs, data files, operations, or media 222. Access with the intent to defraud 2@. Dosses to the owner of the manipulated computer A. 2, 22, and 2@ only C. 22 and 222 only B. 22, 222, and 2@ only . 2, 22, 222, and 2@

17(-

%he cash schemes discussed in the Corporate .raud Fandboo# fall into two broad categories$ fraudulent disbursements and false billings. A. %rue B. .alse

17--

%he Corporate .raud Fandboo# describes all of the following payroll scheme types ,:C,5%$ A. )host employees C. Commission schemes B. 0tolen payche+ues . .alsified hours and salary

17/-

ABC, Dtd. and :OP, Dtd. are the only two companies in Cor# County that lay asphalt. An audit reveals that the state is paying more for asphalt wor# in Cor# County than in other county in the state. A review of the records reveals that of the last ten asphalt contracts awarded, five have gone to ABC and five have gone to :OP. What scheme might ABC and :OP be involved in? A. Bid suppression C. 5hantom bidding B. Altering bids . Bid rotation

171-

Figh percentages of material returns, missing compliance documents, and materials testing done by a supplier with no +uality assurance are all red flags of which type of fraud scheme?

CFE FINANCIAL
A. Accounting mischarges C. Dabour mischarges 173B. Compliance fraud . 5roduct substitution scheme

A large percentage of those who perpetrate che+ue tampering frauds are involved in reconciling the company*s ban# statement. A. %rue B. .alse

176-

Ba#er, a cash register attendant at a department store, regularly inflates the amount of customer refunds. .or instance, if a customer returns an item for N199, Ba#er records a N1/9 refund. %hen Ba#er gives the customer N199 and #eeps N/9 for himself. According to the Corporate .raud Fandboo#, this scheme is #nown as$ A. An overstated refund scheme C. A fictitious refund scheme B. Dapping . 0#imming

177-

When preparing a business profile, the important +uestion is 8Who are the #ey personnel associated with the enterprise?8 A. %rue B. .alse

399-

2n a EEEEEEEEEE scheme, the information thief manipulates individuals into handing over secret information through the use of tric#ery, persuasion, threats, or ca<olery. A. 0#imming B. %elling good lies C. 0ocial engineering . Cloa#ing and misdirection

391-

Whether due to embarrassment or the belief that nothing can be done, only about one in 199 victims of telemar#eting fraud ever files a complaint. A. %rue B. .alse

39"-

,mployees who steal inventory are often highly trusted within their organisations. A. %rue B. .alse

39(-

%he term 8asset misappropriation,8 as used in the Corporate .raud Fandboo#, includes the unauthorised borrowing of company assets, even if those assets are not stolen. A. %rue B. .alse

39--

Ba#er was an accountant with control over his company*s payroll records. Able was an employee who resigned his <ob with Ba#er*s company. ,ven though Able was no longer wor#ing for the company, Ba#er left his name on the payroll records. %hus, payche+ues continued to be issued to Able. Ba#er collected the che+ues and deposited them in his own ban# account. %his payroll scheme is #nown as a ghost employee scheme. A. %rue B. .alse

39/-

)reen was a salesman whose <ob re+uired fre+uent travel. When )reen too# a vacation, he saved the receipts from his flight, hotel and restaurant e'penses. Fe turned in these receipts to his manager along with an e'pense report that described the e'penses as business-related. )reen*s company reimbursed him for the e'penses. According to the Corporate .raud Fandboo#, this is an e'ample of a fictitious e'pense scheme. A. %rue B. .alse

391-

%elemar#eting frauds often employ the use of$ A. 5late rooms B. Boiler rooms C. Feat rooms . !one of the above

CFE FINANCIAL
393Which of the following is !=% a type of e'pense reimbursement scheme identified by the Corporate .raud Fandboo#? A. 4ultiple reimbursements C. 4ischaracterised e'penses 396B. 0#immed reimbursements . =verstated e'penses

2n order for an hourly employee to commit a falsified hours and salary scheme, he must overstate the number of hours he wor#ed or overstate his rate of pay. A. %rue B. .alse

397-

2n general, corporate spies only resort to using high-tech e+uipment when simpler means are not available to accomplish the tas#. A. %rue B. .alse

319-

%he debt to e+uity ratio is computed by dividing current liabilities by total e+uity. A. %rue B. .alse

311-

.raudulent disbursement schemes include which of the following? A. .orging company che+ues C. 0ubmitting false invoices B. octoring timecards . All of the above

31"-

According to the Corporate .raud Fandboo#, fraudsters generally prefer to steal$ A. .i'tures B. Currency C. 2nventory . Che+ues

31(theft.

EEEEEEEEEEEEEEEEEEE is the unaccounted for reduction in a company*s inventory that results from B. 0hrin#age C. 5adding . 0#imming

A. efalcation

31Which of the following characteristics is tested by profiling software programmes to search for authorised access? A. %yping speed B. 0ignatures C. 5alm prints . .ingerprints

31/Which of the following is a fraud scheme that has been #nown to occur during the bid specification process? A. Contractor ta#ing advantage of badly written specifications B. ,mployees distorting the re+uirements of the contract C. %ailoring of the specifications to a particular supplier for no obvious technical reason . All of the above 311Which of the following is a common element of a white-collar crime? A. Concealment of the crime B. 4isrepresentation necessary to accomplish the scheme C. 2ntent to commit a wrongful act . All of the above are elements of white-collar crime 313Current assets divided by current liabilities is the e+uation to calculate which financial ratio$ A. Aeceivable turnover C. 5rofit margin 316B. Quic# ratio . Current ratio

Accounting records are designed to be #ept on ob<ective, rather than sub<ective, evidence.

CFE FINANCIAL
A. %rue 317B. .alse

2n order for a ghost employee scheme to be successful, all of the following must happen ,:C,5%$ A. %ime#eeping information must be collected for the ghost. B. %he ghost employee must be a fictitious person. C. A fictitious person or a real person who does not wor# for the victim must be added to the payroll. . A payche+ue must be issued and delivered to the perpetrator or an accomplice.

3"9-

Blac#, an accounting cler#, stole customer A*s monthly payment instead of posting it to A*s account. When customer B*s payment arrived a few days later, Blac# posted that payment to A*s account so that it would not become delin+uent. When C*s payment arrived a few days after that, Blac# posted the payment to B*s account, which was in danger of becoming past due. Blac#*s method of crediting one account with money ta#en from another account is #nown as$ B. 5adding C. Che+ue tampering . Account rigging

A. Dapping 3"1-

White, an employee of ABC Corporation, intentionally issued two payments for the same invoice. After the disbursements had been mailed, White called the vendor and e'plained that a double payment had been made by mista#e. 0he as#ed the vendor to return one of the che+ues to her attention. When the vendor returned the che+ue, White too# it and cashed it. According to the Corporate .raud Fandboo#, this is an e'ample of$ A. A pay-and-return scheme C. A shell company scheme B. A receivables s#imming scheme . A pass-through scheme

3""-

2n order to conceal the misappropriation of an asset, the accounting e+uation can be balanced by all of the following ,:C,5%$ B. Aeducing a liability . Aeducing owners* e+uity

A. Creating an e'pense C. ecreasing another asset

3"(2n order to prevent inventory theft, the personnel who re+uisition inventory should be in charge of receiving and verifying inventory shipments. A. %rue 3"-B. .alse %he most common method of misappropriating funds from the payroll is through$ B. A ghost employee scheme . !one of the above

A. %he theft of legitimate payroll che+ues C. %he overpayment of wages 3"/A. %rue 3"1A. %rue 3"3-

Che+ue tampering occurs when an employee either prepares a fraudulent che+ue for his own benefit or intercepts a che+ue intended for a third-party and converts it. B. .alse Billing for mutually e'clusive procedures, which encompasses procedures that are impossible to perform together, is a form of unbundling. B. .alse %he cash schemes discussed in the Corporate .raud Fandboo# fall into two broad categories$ EEEEEEEEEEEEEEEEEE and EEEEEEEEEEEEEEEEEE. B. .raudulent disbursementsI false billings . .alse billingsI payroll schemes

A. .raudulent disbursementsI cash receipts C. Cash theftsI s#imming 3"6 -

Which of the following is a method for fraudsters to cover cash larceny at the cash register$

CFE FINANCIAL
A. estroying the register tape B. Aeversing transactions on the cash register tape C. 0tealing from a cowor#er*s register . All of the above 3"7)eneral internal controls over a computer data centre are relevant for all applications. Which of the following is !=% considered a general internal control category? B. 5assword security applications . Computer operations

A. 2mplementation of new systems C. 0ystem maintenance 3(9-

A fraud scheme in which an accountant fails to write down obsolete inventory to its current mar#et value has a EEEEEEEEEEEEEEEE effect on the current ratio of the balance sheet. B. !egative

A. 5ositive 3(1-

Cain, the authorised signer on his company*s accounts, prepared and signed a che+ue payable to the company*s plumber. Fe gave the che+ue to Ba#er, his secretary, and as#ed her to mail the che+ue to the plumber. 2nstead, Ba#er too# the che+ue home, signed the plumber*s name on the bac# and had her husband cash the che+ue at their grocery store. According to the Corporate .raud Fandboo#, Ba#er committed which of the following schemes? A. An authorised ma#er scheme C. A forged ma#er scheme B. An altered payee scheme . A forged endorsement scheme

3("-

fforts of those below them. B. Bait and switch . !one of the above

A. 5ure cash scheme C. Aound robin 3((A. %rue 3(--

0#imming schemes generally are easier to detect than most other types of occupational fraud. B. .alse %o detect bid rigging schemes, the auditor must be alert for$ B. Bid protests from losing bidders . All of the above

A. Qualified vendors who fail to submit bids C. A wide disparity in bid prices 3(/-

)reen, an insurance salesman, sold insurance policies but did not file those policies with the carrier. When his customers made payments on their policies, )reen simply #ept the money. %he carrier did not #now the policies e'isted, and the customers did not #now that they were not really insured. According to the Corporate .raud Fandboo#, )reen*s scheme can be classified as$ B. A forged endorsement scheme . A lapping scheme

A. A s#imming scheme C. A commission scheme 3(1-

2n identifying and tracing off-boo# payments, the source of off-boo# funds may be located through$

A. ;nbalanced ratios of cost of sales B. 2ndirect evidence of unrecorded sales on the suspect company*s boo#s and records C. 2nvestigation in the mar#etplace . All of the above 3(3A. %rue Con artists who deal in art ob<ects often pawn off lithograph copies to art buyers as limited editions guaranteed to increase in value. B. .alse

CFE FINANCIAL
3(6A. %rue 3(7According to the Corporate .raud Fandboo#, the types of schemes which occur most fre+uently are misappropriations of cash. B. .alse A EEEEEEEEE is a form of fraud that operates on the assumption that individuals at the top of an organisation will earn money from the efforts of those below them. B. 5ure cash scheme C. Bait and switch . !one of the above

A. Aound robin 3-9 reasons?

.raudsters generally prefer to steal currency rather than che+ues for which of the following

A. .raudsters = !=% prefer to steal currency rather than che+ues B. Currency is harder to trace C. Che+ues are harder to convert . Currency is harder to trace and che+ues are harder to convert 3-1A. %rue 3-"4ost shell company schemes involve the purchase of services rather than goods. B. .alse Which of the following control procedures will !=% help prevent payroll fraud?

A. %he payroll accounting function is independent of the general ledger function B. 5ersonnel records are maintained independently of payroll and time#eeping functions C. %hose who prepare the payroll, also review and sign all payroll che+ues . 5ayroll che+ues are prenumbered and issued in numerical se+uence 3-(A nonperforming loan may be an indicator of which of the following fraud schemes? B. Dand flips . All of the above

A. .raudulent appraisals C. Bribery