CFE – FINANCIAL1- Which basis of accounting involves recording revenues when they are earned, regardless of when they are

received?

A. Cash basis B. Accrual basisC. Advance payment basis D. None of the above

2- When determining the relevance of certain fraud risk factors within an entity, the auditor should consider:

A. The size of the entity B. The ownership of the entityC. The complexity of the entity D. All of the above

3- Green, a payroll accountant, listed both his wife and his girlfriend on his employer's payroll. This caused fraudulent paycheques to be issued to both women. The wife and the girlfriend are:

A. Engaging in a conflict of interest B. Bogus vendorsC. Ghost employees D. None of the above

4- There 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. True B. False

5- The use of high pressure sales techniques to replace an existing insurance policy with a new one is known as:

A. False information B. SlidingC. Fictitious policies D. Churning

6- If 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 adequate at the time of the alleged offence?

A. System maintenance controls B. System software controlsC. Implementation controls D. Computer operations controls

7- The practice of buying and selling real estate very quickly is called what?

A. Strawman loan B. Equity skimmingC. Mortgage-pulling D. Property flip

8- Which of the following is the best preventive measure against computer hacking?

A. Elimination of as many dial-in ports as possibleB. Ensuring that welcome screens do not contain the company nameC. Security software packages D. Call-back modems

9- "Protective" and "shadow" bidding are names assigned to which of the following schemes?

A. Bid rotation B. Phantom bidsC. Bid suppression D. Complementary bids

10- Examples of fraud schemes perpetrated by health care institutions and their employees include all of the following EXCEPT:

A. Unnecessary testing B. FragmentationC. Improper contractual relationships D. Unintentional misrepresentation of the diagnosis

CFE – FINANCIAL11- In a large percentage of shell company schemes, the perpetrator must get a superior to approve payment on the

invoices he is fraudulently submitting.

A. True B. False

12- Types of corrupt recipients include "the big spender," "the gift giver," "the rule breaker," and "the complainer."

A. True B. False

13- An illegal gratuity does not require proof of an intent to influence.

A. True B. False

14- Which type of scheme generally involves the submission of contracts that list inflated labour costs and inflated material costs?

A. Defective pricing schemes B. Bid submission schemesC. Bid-rigging schemes D. Product substitution

15- To conceal inventory shrinkage, a perpetrator might alter the perpetual inventory records so that they match the physical inventory count.

A. True B. False

16- Predication is defined as:

A. The basis upon which a fraud examination is undertakenB. The initial phase of the investigative process C. The initial phase of the interviewD. None of the above

17- Contract fraud occurs only in public sectors.

A. True B. False

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 exposed public sector frauds. The mechanisms and schemes employed in contract fraud are common to both sectors.

18- A bank or brokerage 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. Fraudulent account B. Discontinued accountC. Defunct account D. Dormant account

In one type of financial institution embezzlement scheme, a person with apparent authority creates journal entries or transfer orders not initiated by customers to move money among accounts. The accounts used are typically dormant or inactive accounts, which are defined as "bank or brokerage accounts showing little or no activity, presumably with small and without increasing balances." Often, contact with the account holder by confirmation, letter, or telephone contact is not possible. Such accounts are to be transferred to dual control and recorded in an inactive accounts ledger.

19- A large percentage of cash larceny schemes occur at the cash register.

A. True B. False

CFE – FINANCIALA large percentage of cash larceny schemes occur at the cash register, and for good reason-the register is usually where the cash is. The register (or similar cash collection points like cash drawers or cash boxes) is usually the most common point of access to cash for employees, so it is understandable that this is where larceny schemes frequently occur.

20- The insurance business is highly susceptible to fraud.

A. True B. False

The insurance business, by its very nature, is susceptible to fraud. Insurance is a risk distribution system that requires the accumulation of liquid assets in the form of reserve funds, which are in turn available to pay loss claims. Insurance companies generate a large steady flow of cash through insurance premiums.

21- A victim of this scheme will find himself passed by two cars while driving. The car in the lead will cut in front of the second, forcing it to stop abruptly. The victim collides with the rear of the second car while the other driver speeds away. This scheme is known as:

A. Ditching B. Past postingC. A staged accident D. None of the above

Staged accidents are schemes in which an accident is predetermined to occur on a vehicle. The schemes are organised by rings and the culprits move from one area to another. They often use the same vehicle over and over, which sometimes causes their scheme to be uncovered.

In one variation of this scheme, a target victim finds himself passed by two cars while driving. The car in the lead cuts in front of the second, forcing it to stop abruptly. The victim rear-ends the second car while the other driver speeds away. Victims often accept responsibility for the accident, thinking it their fault for not paying attention. The rear-ended vehicle usually contains the maximum amount of passengers, all with injuries.

22- Real estate scams are easily recognised, as there is almost always an element of time pressure or a "now-or-never" pitch from the scam artist.

A. True B. False

Real estate scams are easily recognised. There is almost always an element of time pressure, with the victims being convinced they are participating in a "once-in-a-lifetime, now-or-never" deal. The investors are led to believe there is no time to investigate the venture, and that if they hesitate, they will miss the opportunity to make a fortune. Promises of big profits for little or no involvement are the norm in real estate scams. The investor is also misled into assuming he is being let in on a special offer or an exclusive deal by the promoter

23- Which of the following is NOT a typical informed insider method of computer fraud?

A. Modifications to terminal identifiers B. Alteration of inputC. Alteration of output D. Data file manipulation

By far the greatest threat to information systems in terms of computer crime comes from employees inside an organisation. Insiders are typically aware of the holes in the system of internal controls and often exploit weaknesses just to see if they can get away with it. The most prevalent method of committing computer fraud is probably alteration or falsification of input transactions (and/or documents), including:* Alteration of input* Alteration of output* Data file manipulation* Communications systems* Operating systems* Computer operations

24- A biometric fingerprint identifier does which of the following?

CFE – FINANCIALA. It allows the bank to match the cheque writer's fingerprints with the account holder's fingerprints, which are on fileB. It can search through criminal records and identify wanted offendersC. It prevents the account holder from accessing his funds D. All of the above

A biometric fingerprint identifier allows the bank to compare the cheque writer's fingerprints with the account holder's, which are on file. Banks reported reductions in cheque fraud of 40 percent after the machine was introduced in the mid-1990s.

25- All of the following are examples of bid submission schemes EXCEPT:

A. Unjustifiable extension of bid opening dates B. Premature opening of bidsC. Material mischarges D. Altering bids

Bid submission schemes can take on many forms. They can involve anyone in the contracting cycle, such as a buyer or contracting official, engineer, technical representative, quality or product assurance representative, or subcontractor liaison employee-anyone who can influence the awarding of a contract.

Examples of bid submission schemes are:* Premature opening of bids* Altering bids* Unjustifiable extension of bid opening dates* Controlled bid opening* Falsifying bid logs and documents

26- Loan fraud schemes, including loans to nonexistent borrowers, can be perpetrated by which of the following?

A. Bank customers B. Directors of the bankC. Officers of the bank D. All of the above

In fraud schemes involving loans to non-existent borrowers, false applications, perhaps with inaccurate financial statements, are knowingly or unknowingly accepted by loan officers as the basis for loans. These types of loan fraud can be perpetrated by people either external to the lending institution ("external fraud") or by officers, directors, or employees of the victim institution ("internal fraud").

27- Smart cards differ from ordinary credit cards in that they do not contain a computer chip like credit cards do.

A. True B. False

New developments in credit card technology may reduce the risks faced by merchants and still allow consumers to process their own cards at the point of sale. Increasingly, 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. Instead of swiping the card, consumers insert these cards into a chip-reading terminal at the beginning of the sale transaction. To complete the sale, customers must enter a personal identification number (PIN) rather than signing a sales slip. By eliminating the need to turn the card over to a cashier, as well as requiring the card holder to type in a PIN, the new system addresses fraud risks faced by both parties to the transaction. Additionally, the inclusion of the computer chip will make it more difficult for criminals to create counterfeit cards.

28- 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. True B. False

Lapping can usually be detected by comparing the dates of the customer's payments with the dates the customer's accounts are posted. This will require an examination of the source documents, such as the composition of bank deposits. Discrepancies should be investigated

CFE – FINANCIAL29- Bob files a workers' compensation claim stating that he was injured on his job as a mechanic in an automobile

factory. To 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. This type of investigation is common in which type of workers' compensation fraud scheme?

A. Organised fraud B. Agent fraudC. Workers' compensation premium fraud D. None of the above

In workers' compensation premium fraud schemes, employers misrepresent information to the insurer to lower the cost of workers' compensation premiums. Workers' compensation premium rates vary depending on the job classification of an employee. Employees that have a higher risk for injury on the job will have a higher premium rate. Clerical employees have a lower probability for an injury than, for example, drivers or construction workers, and accordingly their premiums should be lower. Therefore, to lower their premium rate, employers might intentionally misclassify employees.

The premium for a specific job classification is based upon the total payroll for that classification. The employer may understate the amount of the payroll for higher risk classifications. Investigation tips for premium fraud include:* Review the application for coverage for completeness and accuracy.* If the business is claiming to be new, verify that it is indeed new and no mod factors have been established.* Review the underwriting of the application for suspicious activity. If the company is a large company and has a small payroll, verify the number of employees, as well as their classification.* Review claims to determine if they are consistent with the type of employment reported and the number of employees claimed.* 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.* Observe if there are too many clerical employees or other low risk occupations that make up the calculation leading you to believe that the records are misstated.* Analyse the financial statements, when available, to determine what payroll expenses actually are compared to what is reported.* Review accident and injury reports for suspicious activities.* Conduct surveillance as needed to observe and document various activities.* Document findings and report the results of the activity as required.

30- The hypothesis formed at the beginning of an examination is usually a _______ scenario.

A. Hypothetical B. Presumption of innocenceC. "Worst-case" D. "Best-case"

The hypothesis is invariably a "worst-case" scenario. That 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 kickback scheme, embezzlement, conflict of interest, financial statement fraud, and so forth. In furtherance of the hypotheses, fraud examiners know that each specific scheme has its own unique characteristics that constitute the badges or "red flags" of fraud.

31- Premium fraud, agent fraud, claimant fraud, and organised fraud are all types of what?

A. Receivable fraud B. Credit card fraud C. Liability fraud D. Workers' compensation fraud

Some countries have workers' compensation laws that require employers or their insurance plans to reimburse an employee (or on his behalf) for injuries that occurred on the job regardless of who is at fault and without delay of legal proceedings to determine fault. The injury may be physical, such as a broken limb, or mental, such as stress. The schemes are generally broken into four categories: premium fraud, agent fraud, claimant fraud, and organised fraud schemes.

32- Mel Turner, the runner for a small bookstore, had a bad habit of helping himself to cash from the deposit on the way to the bank. He covered his tracks by substituting a cheque from the next day's deposit for the amount he stole from the previous day. This is an example of what type of concealment?

A. Deposit lapping B. Force balance depositing

CFE – FINANCIALC. Deposits in transit D. None of the above

One method that fraudsters sometimes use to conceal cash larceny from the deposit is lapping. Lapping occurs when an employee steals the deposit from day one, then replaces it with day two's deposit. Day two's deposit is then replaced with money received on day three, and so on. The perpetrator is always one day behind, but as long as no one demands an up-to-the minute reconciliation of the deposits to the bank statement-and if daily receipts do not drop precipitously-he may be able to avoid detection for a period of time.

33- In an alleged case of contract fraud, a fraud examiner conducted unannounced inspections and tests, reviewed a large sample of inspection reports, and interviewed personnel to verify contract compliance of materials. The fraud examiner may be reacting to which of the following suspected schemes?

A. Product substitution B. Labour mischarges C. Bid rigging D. None of the above

To detect product substitution schemes, the fraud examiner should consider the following procedures: * Conduct both routine and unannounced inspections and testing.* Carefully review the inspection and testing reports.* Request assistance from outside technical personnel to conduct after-the-fact tests.* Interview personnel and others for indications of non-compliance.* Review correspondence and contract files for indications of non-compliance.

34- With respect to corporate loans to developers, signs of weakness include:

A. Loan increases or extensions B. Excess cash flowsC. High turnover in developer's personnel D. Use of subcontractors

One of the first signs to look for, particularly in construction lending, is whether or not the real estate developer is experiencing a higher-than-normal employee turnover. Typically, when a developer experiences a high degree of turnover, something is wrong with the internal operation. This is often a preamble for other problems to come.

35- Fraudsters generally prefer to steal currency rather than cheques both because currency is harder to trace and cheques are harder to convert.

A. True B. False

The fraudster will generally prefer to steal currency rather than cheques if given the opportunity, and the reasons why are obvious. Currency is harder to trace than a cheque. A cashed cheque eventually returns to the person who wrote it and may provide evidence of who cashed it or where it was spent. Endorsements, bank stamps and so forth may indicate the identity of the thief. Currency, on the other hand, disappears into the economy once it is stolen.

The second reason that currency is preferable to a cheque is the difficulty in converting the cheque. When currency is stolen it can immediately be spent. A cheque, on the other hand, must be endorsed and cashed or deposited before the thief can put his hands on the funds it represents.

36- Possibly the most widely broadcast offering in information scams is:

A. Information on government job listings B. Information on wholesale crops or equipmentC. Scholarship information D. None of the above

Maybe the most widely broadcast offering in the info racket is the university scholarship locator service. Whatever information these scholarship scam services do provide is available for little or no cost (at most, a $5 or $10 fee) from legitimate institutions. The 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.

37- A ghost employee is always a fictitious person, created for the purpose of collecting fraudulent paycheques.

CFE – FINANCIALA. True B. False

The term "ghost employee" refers to someone on the payroll who does not actually work for the victim company. Through the falsification of personnel or payroll records a fraudster causes paycheques to be generated to a ghost. The ghost employee may be a fictitious person or a real individual who simply does not work for the victim employer. When the ghost is a real person, it is often a friend or relative of the perpetrator. In some cases the ghost employee is an accomplice of the fraudster who cashes the fraudulent paycheques and splits the money with the perpetrator.

38- ___________ is a methodology for resolving fraud allegations from inception to disposition.

A. Fraud examination B. Forensic accounting C. Fraud auditing D. None of the above

Fraud examination is a methodology for resolving fraud allegations from inception to disposition. More specifically, fraud examination involves obtaining evidence and taking statements, writing reports, testifying to findings, and assisting in the detection and prevention of fraud.

39- All of the following are classifications of financial statement fraud EXCEPT:

A. Lapping accounts B. Incorrect or misleading asset valuationsC. Incorrect or misleading disclosures D. Fictitious revenues

The five classifications of financial statement schemes are:* Fictitious revenues* Timing differences* Concealed liabilities and expenses* Incorrect or misleading disclosures* Incorrect or misleading asset valuations

40 - Which of the following should NOT be included as part of the "fraud team" assembled to investigate a possible fraud?

A. Suspect's supervisor B. Auditors C. Legal counsel D. Management representative

Fraud examinations usually require a cooperative effort among different disciplines. A typical investigation team might include Certified Fraud Examiners, 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 know if the supervisor may be involved.

41 - The risk of the auditor not detecting a material misstatement resulting from employee fraud is greater than the risk of the auditor not detecting a material misstatement resulting from management fraud.

A. True B. False

The risk of the auditor not detecting a material misstatement resulting from management fraud is greater than for employee fraud, because management is frequently 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.

42 - In an insurance fraud scheme, _________ might occur if a sales representative makes a false statement with the intent to deceive the prospective policyholder in order to knowingly obtain an unlawful gain.

A. Misrepresentation B. Fictitious policies C. False information D. None of the aboveMisrepresentation might occur if a sales representative makes a false statement with the intent to deceive the prospective policyholder in order to knowingly obtain an unlawful gain.

CFE – FINANCIAL43 - Due to the difficulty of perpetrating a lapping scheme, the fraudster will often keep a second set of books to keep track of his misdoings.

A. True B. False

Because lapping schemes can become very intricate, fraudsters sometimes keep a second set of books on hand detailing the true nature of the payments received. In many skimming cases, a search of the fraudster's work area will reveal a set of records tracking the actual payments and how they have been misapplied to conceal the theft. It may seem odd that people would keep records of their illegal activity on hand, but many lapping schemes become extremely complicated as more and more payments are misapplied. The second set of records helps the perpetrator keep track of the funds that were stolen and which accounts need to be credited to conceal the fraud. Uncovering these records, if they exist, will greatly facilitate the investigation of a lapping scheme

44- "Protective" and "shadow" bidding are names assigned to which of the following schemes?

A. Bid rotation B. Phantom bids C. Complementary bids D. Bid suppression

Complementary bidding, also known as "protective" or "shadow" bidding, occurs when competitors submit token bids that are too high to be accepted (or if competitive in price, then they list special terms that will not be acceptable). Such bids are not intended to be accepted, but designed merely to give the appearance of genuine competition.

45- In proving corrupt payments, the fraud examination often begins with which of the following?

A. Preparing the business profile B. Interviewing of the co-conspiratorC. Interviewing the target D. Preparing the vertical analysis

In proving corrupt payments, the business profile begins the examination process. It identifies prospective witnesses and targets, as well as relevant documents and transactions, and should provide leads as to whether an on-book or off-book scheme is being used.

46 - There are several different classifications of confidence schemes. The one designed to obtain illegal gains by falsely promising the future delivery of a product or service is called a(n):

A. Pyramid scheme B. Bait and switch C. Advance fee swindle D. None of the above

Advance fee swindles are structured to obtain an illegal gain by falsely promising the delivery of a product or service. In some schemes, the product is marketed to a large number of customers and then the operation is shut down prior to the delivery stage.

47 - During a review of AAA Service's payroll records, Julia, an internal auditor, noticed that Bert Banks has no deductions taken from his paycheques for taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Julia most likely uncover?

A. Fictitious vendor B. Falsified salary C. Ghost employee D. None of the above -

An analysis of the payroll withholdings may reveal either ghost employees or trust account abuses. Ghost employees often will have no withholding taxes, insurance, or other normal deductions. Therefore, a listing of any employee without these items may reveal a ghost employee. Additionally, paycheques to individuals who are not listed in the company's personnel records are a red flag of a ghost employee scheme.

48 - Identity theft is an increasingly frequent type of fraud that is non-discriminatory in nature-anyone can be targeted.

A. True B. False

CFE – FINANCIALIdentity theft is an increasingly frequent type of fraud that is nondiscriminatory in nature. Anyone can be targeted; the victim might be a college student, a retiree, a schoolteacher, or a successful attorney. It is a fraud that rapidly spreads and that the victim might not find out about it until he applies for credit and is rejected. The identity thief runs up an average of $20,000 to $30,000 in bills before turning to the next victim. Repairing a credit record is where the victim's nightmare begins. It sometimes takes the victims years to clear their credit.

49 - Which of the following is the correct accounting model?

A. Assets = liabilities + owners' equity B. Assets = liabilities - owners' equityC. Assets + liabilities = owners' equity D. None of the above

Accounting is based on the accounting model or accounting equation: assets = liabilities + owners' equity.

51 - Some of the common fraud schemes involving transfers of money include all of the following EXCEPT:

A. Unauthorised electronic or wire transfers B. Misrepresentation of identityC. "Knock and enter" techniques D. Dishonest bank employees

Some of the common fraud schemes involving transfers of money include: (1) dishonest bank employees, (2) misrepresentation of identity; (3) system password security compromised; (4) forged authorisations; and (5) unauthorised entry and interception.

52 - According to Internal Auditing Standards, the internal auditor must have sufficient knowledge about fraud to identify indicators that fraud might have been committed. This includes having knowledge about all of the following EXCEPT:

A. The characteristics of fraud B. The types of frauds associated with the activities being auditedC. The techniques used to commit fraud D. The axioms of fraud

The internal auditor's responsibilities for detecting fraud during audit assignments include having sufficient knowledge of fraud to identify red flags indicating fraud may have been committed. This knowledge includes the characteristics of fraud, the techniques used to commit fraud, and the various fraud schemes and scenarios associated with the activities reviewed.

53 - Mitchell is the head cashier for a clothing store that specialises in men's silk suits. After suffering some large gambling losses, he was struggling financially. To cover his gambling debts, he started issuing numerous refund credits to his own credit card for amounts just below the store's review limit. This is an example of a what type of scheme?

A. Credit card skimming B. Cash larceny C. Understated reimbursements D. Fictitious 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. In 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. One benefit of the credit card method is that the perpetrator does not have to physically take 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 red-handed taking cash.

54 - Which of the following must be disclosed in an organisation's financial statements?I. Changes in estimatesII. Changes in accounting principlesIII. Changes in reporting entities

A. I and III B. I and II C. II and III D. All of the above

CFE – FINANCIALThere 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 required treatment for these accounting changes varies among the types and across jurisdictions, they are all susceptible to manipulation by the determined fraudster.

55- Stolen credit card numbers are often sold over the Internet.

A. True B. False

The Internet has become a breeding ground for individuals to obtain stolen credit card information. The thieves who steal this information find credit cards or lists of credit card holders and their corresponding account numbers. They then make the numbers available to a larger group, which uses the information to obtain goods and services in the name of the cardholder.

56- Spies rarely have to break into file cabinets or desk drawers, because messy desks often help them get the information they need.

A. True B. False

When spies do infiltrate a company's premises, they rarely have to break into file cabinets or desk drawers to get the information they need. Due to laziness, ignorance, or just poor organisational skills, employees often fail to lock up sensitive documents each night. Messy desks are the rule, not the exception. Messy desks are easier for a spy to rifle through than neatly organised workstations. If documents are removed from a sloppy desktop, they may not be missed for quite some time.

57- Mail order and telephone order sales are the easiest way to commit credit card fraud.

A. True B. False

A great deal of credit card fraud is childishly simple to complete. Many crooks have great success by simply selecting a name from the phone book, calling, and pretending to be a credit card representative. The victim is told that his card number may have been obtained and used illegally by criminals and is asked to provide the card number for verification.

58- Bugging and wiretapping are examples of ______________.

A. Misdirection B. Hacking C. Technical surveillance D. Pretext calls

Corporate spies employ various forms of technological surveillance equipment, the tools varying according to the needs of the job at hand. Hidden microphones, wiretaps, and other forms of electronic surveillance equipment have become extremely common ways for intelligence professionals to keep tabs on their competition. The spy has two primary considerations in a wiretapping campaign: where to insert the surveillance equipment and which of the various technologies to employ.

60- Which of the following is a means of measuring the relationship between two different financial statement amounts?

A. Relational comparison B. Transaction detail analysisC. Statement comparison D. Ratio analysis

Ratio analysis is a means of measuring the relationship between two different financial statement amounts. The relationship and comparison are the keys to the analysis, which allows for internal evaluations using financial statement data. Traditionally, financial statement ratios are used in comparisons to an entity's industry average. They can be very useful in detecting red flags for a fraud examination.

61 - The quick ratio compares assets that can be immediately liquidated with current liabilities.

A. True B. False

CFE – FINANCIAL

The quick ratio, often referred to as the acid test ratio, compares the most liquid assets to current liabilities. This 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 requirements. The quick ratio is a conservative measure of liquidity that is often used in turbulent economic times to provide an analyst with a worst-case scenario of a company's working capital situation.

62- Bill is driving along in his car, when suddenly he is passed by two cars. The 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. The rear-ended car contains five passengers, all claim to have injuries. What type of scheme might Bill have unwittingly been a victim of?

A. A vehicle insurance scheme called "swoop and squat" B. Bad driving schemeC. A phantom vehicle scheme D. Road rage

A victim of the "swoop and squat" vehicle insurance scheme finds himself passed by two cars while driving. The car in the lead cuts in front of the second, forcing it to stop abruptly. The victim rear-ends the second car while the other driver speeds away. Victims often accept responsibility for the accident, thinking it their fault for not paying attention. The rear-ended vehicle usually contains the maximum amount of passengers, all with injuries.

63- All countries have workers' compensations laws that require employees to prove employer fault and engage in long legal proceedings to determine fault, before an employer or insurance plan is required to reimburse employees for physical injuries on the job

A. True B. False

Some countries have workers' compensation laws that require employers or their insurance plan to reimburse an employee (or on his behalf) for injuries that occurred on the job regardless of who is at fault and without delay of legal proceedings to determine fault. The injury may be physical, such as a broken limb, or mental, such as stress.

64 - Which of the following is a way for employees on commission to fraudulently increase their pay?

A. Converting sales of others B. Fictitious salesC. Altered sales D. All of the above

There are three ways employees on commission can fraudulently increase their pay: 1) falsify the amount of sales made, 2) increase the rate of commission, or 3) claim the sales of another employee. Employees can falsify the amount of sales they have made in three ways, the first being the creation of fictitious sales. The second way for fraudsters to falsify the value of sales they have made is to alter the prices listed on sales documents. The third way employees can overstate sales is by claiming the sales of another employee as their own.

65 - What happens when an employee records a fictitious refund of goods at his cash register?

A. The register is out of balance B. The victim company's inventory is overstatedC. The victim company's inventory is understated D. None of the above

A refund shows a disbursement of money from the register as the customer gets his money back. In a fictitious refund scheme, a fraudster processes a transaction as if a customer were returning merchandise, even though there is no actual return. Two things result from this fraudulent transaction. The first is that the fraudster takes cash from the register in the amount of the false return. Since the till roll shows that a merchandise return has been made, it appears that the disbursement is legitimate.

The 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. Since the transaction is fictitious, no merchandise is actually returned. The result is that the company's inventory is overstated.

CFE – FINANCIAL66 - Dieter and Juan worked together to steal nearly $50,000 from Valdosta Medical Supply. Dieter, an accounts payable clerk, deliberately overpaid a few of the company's vendors. He then called the vendors, explained the "mistake," and asked for the excess to be refunded. Juan, a mailroom employee, intercepted the incoming refund cheques and cashed them. The two men split the proceeds. What type of scheme did Dieter and Juan commit?

A. Shell company B. LarcenyC. Pass-through D. Pay-and-return

Instead 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. In pay-and-return schemes, employees intentionally mishandle payments that are owed to legitimate vendors. One way to do this is to purposely double-pay an invoice. For instance, a clerk might intentionally pay an invoice twice, then call the vendor and request that one of the cheques be returned. The clerk then intercepts the returned cheque.

67 - If a company's balance sheet indicates that it is adding to its fixed 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. Improper asset valuation B. Timing differencesC. Concealed liabilities D. Fictitious revenues

Some red flags associated with improper asset valuation include:*Recurring negative cash flows from operations or an inability to generate cash flows from operations while reporting earnings and earnings growth.*Significant declines in customer demand and increasing business failures in either the industry or overall economy.*Assets, liabilities, revenues, or expenses based on significant estimates that involve subjective judgments or uncertainties that are difficult to corroborate.*Non-financial management's excessive participation in or preoccupation with the selection of accounting principles or the determination of significant estimates. *Unusual increase in gross margin or margin in excess of that of industry peers.*Unusual growth in the number of days' sales in receivables.*Unusual growth in the number of days' purchases in inventory.*Allowances for bad debts, excess and obsolete inventory, etc., that are shrinking in percentage terms or are otherwise out of line with industry peers.*Unusual change in the relationship between fixed assets and depreciation.*Adding to assets while competitors are reducing capital tied up in assets.

68 - Pretending to find a wallet full of money, the fraudster convinces his mark that they should divide the "discovered" money. As a show of good faith, the con man suggests that each individual should withdraw a sum of money from their bank and turn it over to a lawyer or another third party for safekeeping. When the designated time to spilt the money comes, the victim finds that the fraudster and his money are gone. This scheme is known as a(n):

A. Block hustle B. Envelope switchC. Scavenger scheme D. Pigeon drop

A pigeon drop is often used on middle-aged or elderly women deemed likely to have a savings account. Pretending to find a wallet full of money, the con men convince their mark that they should divide the "discovered" money. As a show of good faith, each should withdraw a sum of money from their bank and turn it over to a lawyer or another third party for safekeeping. They agree to place an ad in a newspaper for the lost wallet. If it is not claimed within a certain amount of time, they will split the money. Naturally, when the designated time expires, the victim will find that the lawyer was part of the scam and that her money has vanished.

69 - If a bank loan is a nonperforming loan, it may be a red flag for fraud. Which of the following is NOT a fraud scheme that can be connected to a nonperforming loan?

A. Double-pledging collateral B. Equity skimmingC. Land flips D. Bribery

CFE – FINANCIAL

Fraud schemes resulting in a non-performing loan include:* Fraudulent appraisals-The cash flow cannot support an inflated loan and resulting debt amount.* False statements-The loan was made on false or fraudulently presented assumptions.* Equity skimming-There was never any intention to make the underlying loan payments.* Construction over-budget items-The over-budget amount might be a concealment method for other schemes such as embezzlement, misappropriation, or false statements.* Bribery-The loan was made because an officer of the lender received a bribe or kickback from the borrower.* Land flips-The purpose of the loan was to finance the seller out of a property that has an artificially inflated value. * Disguised transactions or sham transactions-The loan transactions are sham transactions, without substance, made to conceal other ills.

70- A scheme in which competitors agree to refrain from bidding or agree to withdraw a previously submitted bid is known as which of the following?

A. Bid suppression B. Complementary biddingC. Phantom bids D. Bid rotation

In 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. Other forms of this 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 make arrangements to refrain from competing in a designated portion of a market. This might be accomplished based on customer or geographic area. The result of such a division is that competing firms will not bid or will submit only complementary bids (discussed below) when requests for bids are issued in the competitor's unassigned area.

71- Blue sold $1000 worth of merchandise and collected payment from his customer in currency. Blue only recorded the sale of $800 worth of merchandise. Blue turned $800 over to his employer and pocketed the remaining $200. According to the Corporate Fraud Handbook, Blue's scheme is:

A. An understated sales (skimming) scheme B. A false billing schemeC. An unrecorded sales (skimming) scheme D. A lapping scheme

Understated sales work differently than unrecorded sales schemes. The transaction is posted to the books, but for a lower amount than the perpetrator collected from the customer.

For instance, a company might be owed $1,000, but the sale is recorded as $800. When the customer makes payment, the fraudster can skim $200 and post the $800.

72 - Which of the following are considered intellectual property?

A. Innovations B. IdeasC. Designs D. All of the above

Intellectual property is a catch-all phrase used to denote knowledge-based assets and capital, including information but extending to ideas, designs, and innovations, howsoever expressed or recorded.

73 - Which of the following are indicators of insider computer fraud?

A. Production programs are run at unusual hours B. Access logs are not reviewedC. A lack of separation of duties exists in the data centre D. All of the above

The following are indicators of insider computer fraud:* Access privileges exist beyond those required to perform assigned job functions.* Exception reports are not reviewed and resolved.* Access logs are not reviewed.* Production programs are run at unusual hours.

CFE – FINANCIAL* A lack of separation of duties exists in the data centre.

74 - According to the Corporate Fraud Handbook, which of the following occupational fraud schemes is not an "Improper Asset Valuation" scheme?

A. Improper business combination B. Booking of fictitious assetsC. Recording expenses in the wrong period D. Inventory valuation scheme

Most improper asset valuations involve the fraudulent overstatement of stock or debtors. Other improper asset valuations include manipulation of the allocation of the purchase price of an acquired business in order to inflate future earnings, misclassification of fixed and other assets, or improper capitalisation of stock or start-up costs. Improper asset valuations usually take the form of one of the following classifications: inventory valuation, accounts receivable, business combinations, and fixed assets.

75 - The most common give-away scam, in which a postcard arrives in the mail telling the receiver he has won a prize such as cash or a luxury car, is known as:

A. The fly and buy B. The bait and switchC. The 1-in-5 D. None of the above

The most common give-away scam is known as the "1-in-5." A postcard arrives in the mail telling the receiver they have already won a prize. A new luxury vehicle tops the list, along with $5,000 in cash, a diamond necklace, a living room set, and $500 in gift certificates for clothing and household furnishings. The odds of winning any of the prizes are astronomical. Victims are given trinkets or coupons redeemable only for the company's own shoddy merchandise.

76 - During a telemarketing scam, if other methods do not appease a caller, the fraudster often turns to intimidation and threats.

A. True B. False

If obfuscation and consolation prizes fail to appease the caller, the con turns to threats and intimidation. This is a favourite method for dealing with senior citizens, especially elderly women. Threats are not used just to keep customers from filing complaints, but to cajole more money out of them. Some telemarketers have actually threatened callers' personal safety if they refused to pay.

77 - Fair market value is the value a willing seller and a willing buyer would exchange in an open market. Sales price, on the other hand, is the actual amount exchanged.

A. True B. False

Fair market value is the estimated price the property would bring if freely offered on the open market with both a willing seller and a willing buyer. Sales price is the actual price paid for the property. It may be higher or lower than fair market value. And, loan value is the percentage of a property's value (fair market value or sales price) a lender can or may loan a borrower.

78 - The primary prevention of cash larceny is:

A. Register tape counts B. Daily cash countsC. Segregation of duties D. None of the above

The 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. Each of the following duties and responsibilities should ideally be segregated: * Cash receipts* Cash counts* Bank deposits* Deposit receipt reconciliation

CFE – FINANCIAL* Bank reconciliations* Posting of deposits* Cash disbursements

79 - In the fraud theory approach to fraud examination, it is necessary that the fraud examiner perform all of the following tasks EXCEPT:

A. Analyze the available data B. Refine and amend the hypothesisC. Create a hypothesis D. Report hypothesis to management

The fraud theory approach dictates that the fraud examiner: (1) analyze the available data, (2) create a hypothesis, (3) test the hypothesis, and (4) refine and amend the hypothesis. It is not necessary to record or report the hypothesis. Indeed, this hypothesis should not be shared with others. A hypothesis is necessary in complex investigations. It is just that-a hypothesis.

80 - Cash receipts schemes fall into two categories: skimming and unrecorded sales.

A. True B. False

Cash receipts schemes fall into two categories: skimming and larceny. The 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 books, while skimming is the theft of cash that has not yet been recorded in the accounting system. The way in which an employee extracts the cash may be exactly the same for a cash larceny or skimming scheme.

81 - Lapping customer payments is one of the most common methods of concealing receivables skimming.

A. True B. False

Lapping customer payments is one of the most common methods of concealing receivables skimming. Lapping is the crediting of one account through the abstraction of money from another account. It is the fraudster's version of "robbing Peter to pay Paul."

82 - Success in identifying and tracing off-book payments largely depends on identifying the source of funds or accounts, turning an inside witness, or focusing on the point of receipt.

A. True B. False

Identifying and tracing off-book payments usually is more difficult than locating on-book schemes. Success 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. The source of off-book funds may be located through indirect evidence of unrecorded sales on the suspect company's books and records, unbalanced ratios of cost of sales, and investigation in the marketplace.

83 - Organised insurance schemes often involve which of the following parties?

A. The doctor B. The lawyer C. The claimant D. All of the above

Organised fraud schemes are composed of the united efforts of a lawyer, a capper, a doctor, and the claimant. These schemes are used not only in workers' compensation cases, but also in other medical frauds such as automobile injuries.

84 - Fraud is much more likely to occur in new bank accounts than in old, established ones.

A. True B. False Fraud is much more likely to occur in new bank accounts than in established accounts. Special efforts must be taken to properly identify potential new customers without offending them.

CFE – FINANCIAL85 - Which of the following is a category of schemes involving stolen inventory and other non-cash assets?

A. Asset requisition and transfer schemes B. False shipment schemesC. Purchasing and receiving schemes D. All of the above

While the misuse of company property might be a problem, the theft of company property is obviously of greater concern. Losses resulting from larceny of company assets can run into the millions of dollars. Most schemes where inventory and other non-cash assets are stolen fall into one of four categories: larceny schemes, asset requisition and transfer schemes, purchasing and receiving schemes, and false shipment schemes.

86 - Illicit funds may be generated by:

A. Phoney salary payments to former employees

B. Extra payments to presently salaried employees that are passed on to the recipient

C. Phoney salary payments to fictitious employees

D. All of the above

Illicit funds can be generated by funnelling phony salary payments to fictitious or former employees, or by making extra payments to presently salaried employees who then either return them to the payer or pass them on to the recipient. To trace such payments, payroll and employee lists, personnel files, employment applications, tax withholding forms, and payroll checks should be obtained from the suspect payer company.

87 - When a fraudster attempts to gain credibility by setting up a front operation and inviting investors for tours, this technique is known as:

A. Reloading B. Biz ops C. Fly and buy D. None of the above

Some scams involve ventures such as vending machines, pay phones, and merchandise display racks. They often gain credibility by setting up a front operation and inviting investors for tours. This part of the ruse is known as the "fly and buy."

88- All but which of the following are anti-hacker measures?

A. Encryption is used for sensitive data files.B. Default passwords on purchased software packages are regularly changed.C. Communication software disconnects after no less than ten unsuccessful attempts.D. Passwords are of sufficient length to prevent guessing.

The following are some anti-hacking preventive measures: *Passwords should be of sufficient length to deter guessing. Most purchased software comes with a vendor-supplied password that is used for installation and then deleted. All packages should be audited to ensure that these default passwords (which are widely known) have been changed. *Encryption should be considered for sensitive data files, password files, and sensitive computer programs.*Communications 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).

89- All of the following are methods of computer manipulation EXCEPT:

A. Salami techniques B. Logic bombs C. Bumping D. Simulation and modelling

Hackers use several techniques to gain information and to avoid detection. These include Trojan horses, trap doors, salami techniques, logic bombs, data diddling, scavenging, data leakage, piggybacking/impersonation, simulation and modelling, and wiretapping.

CFE – FINANCIAL

90- The typical inside computer fraudster tends to have all of the following characteristics EXCEPT:

A. Bored with the job B. Seldom takes time offC. Small ego D. Hard worker

The characteristics of the traditional inside computer fraudster are very similar to those of the hacker or other computer criminal: intelligent, hard working, seldom takes time off, bored with the routine of the job, and has a very large ego. Many computer technicians have demonstrated a greater loyalty to the technology than to the organisation for which they work. This technology loyalty can create an attitude that any behaviour is acceptable if it is in the name of technology.

91- Persons who are expert at passing phoney cheques are sometimes called:

A. Chequesters B. PhoniesC. Paperhangers D. Launderers

Paperhangers are the experts of phoney cheque passing. They frequently pick a particular establishment or store and observe its security methods. Any store that scrutinises cheque writers' identification is not a good target for paperhangers. However, they will observe and select the least experienced or most lackadaisical of store employees to whom to pass the cheque. The paperhanger will ask the clerk for cash back from the transaction and make the cheque out for an amount greater than the price of the purchase. In some cases, the cheques being written are counterfeit; however, in other cases the cheques are purposefully being written on a closed account. A variation of this scam is making a fraudulent deposit at a bank and asking for cash back.

92 - The two basic register disbursement schemes are:

A. True voids and true refunds B. False refunds and false voidsC. False voids and true refunds D. True voids and false refunds

There are two basic register disbursements schemes: false refunds and false voids.

93 - When perpetrating a ghost employee scheme, the benefit of using a salaried employee, rather than an hourly employee, as the ghost is:

A. It is easier to add the employee to the payroll B. The scheme is easier to concealC. It is not necessary to collect timekeeping information D. All of the above

If the perpetrator creates ghosts who are salaried rather than hourly employees, it is not necessary to collect timekeeping information. Salaried employees are paid a certain amount each pay period regardless of how many hours they work. Because the timekeeping function can be avoided, it may be easier for a perpetrator to create a ghost employee who works on salary. However, most businesses have fewer salaried employees, and the salaried employees are more likely to be members of management. The salaried ghost may therefore be more difficult to conceal.

94- Which of the following are reasons why employees commit financial statement fraud?

A. To obtain new financing or to obtain more favourable terms on existing financingB. To demonstrate increased earnings per share, thereby encouraging increased dividend paymentsC. To meet company goals and objectives D. All of the above There are many reasons why individuals fraudulently manipulate their organisations' financial statements. It may be to make the company's earnings look better. It may also be used to cover up the embezzlement of company money. Some of the most common reasons why employees commit financial statement fraud are:* To encourage investment in the company* To demonstrate increased earnings per share, thereby encouraging increased dividend/distribution payouts* To cover up negative cash flows

CFE – FINANCIAL* To manipulate market perceptions* To obtain financing, or to obtain more favourable terms on existing financing* To obtain a higher purchase price in a takeover* To demonstrate compliance with financing covenants* To meet company goals and objectives* To receive performance-related bonuses

95- One way to detect cash larceny schemes is to review and analyse all journal entries posted to the cash accounts.

A. True B. False

Cash larceny can be detected by reviewing and analysing all journal entries made to the cash accounts. This review and analysis should be performed on a regular basis. If an employee is unable to conceal the fraud through altering the source documents, such as the cash register tape, then he may resort to making a journal entry directly to cash. In general (and except in financial institutions), there are very few instances in everyday business activity where an independent journal entry is necessary for cash. One of these exceptions is the recording of the bank service charge. However, this is an easy journal entry to trace to its source documentation, namely the bank statement. Therefore, all other entries directly to cash are suspect and should be traced to their source documentation or explanation. Suspect entries will generally credit the cash account and correspondingly debit various other accounts such as a sales contra account or bad debt expenses.

96 - Smith, a Certified Fraud Examiner for the Ajax Co., observes Jones, an accounts payable clerk, driving an expensive imported sports car to work. Smith also has knowledge that Jones recently had extensive remodelling done on her residence. Smith has sufficient predication to:

A. Confront Jones with an allegation of fraud

B. Conduct discreet inquiries into Jones' responsibilities as an accounts payable clerk

C. Notify management of the possibility that Jones has committed fraudulent acts

D. None of the above Predication is the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe a fraud has occurred, is occurring, and/or will occur. Predication is the basis upon which an examination is commenced. Fraud examinations should not be conducted without proper predication.

Smith must make his actions match the predication. There is not sufficient predication to confront Jones or to make any direct allegations about fraud. If Smith ignored what he has seen, there is the possibility that he would let a fraud go undetected. Smith does have adequate predication to make discreet inquiries. Smith should design audit tests to carefully review Jones' job responsibilities. Smith should be familiar with common schemes employed by accounts payable clerks to commit fraudulent acts.

97 - Which of the following products or services have been sold through multi-level marketing companies?

A. Cosmetics

B. Long distance phone service

C. Nutrition supplements

D. All of the above

98 - Like all types of fraud, financial statement fraud is always committed for the personal gain of the perpetrator.

A. True

B. False

CFE – FINANCIALUnlike some other types of fraud (such as embezzlement), the motivation for financial fraud does not always involve personal gain. Sometimes, 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.

99 - Encryption technology should be used in which of the following instances:

A. Teleconferencing

B. E-mail

C. Faxing

D. All of the above

A secure encryption device can be employed to protect confidential files, especially when transmitting them by modem. Encryption techniques found in popular software packages available at the local computer store are probably not secure enough. These programs are in wide use and are usually no match for a sophisticated hacker. If files are not encrypted, they may be vulnerable to anyone with access to your computer. Encryption technology can also be used to protect phone calls, faxes, e-mail, and teleconferencing.

100 - Some of the more common red flags of new bank account fraud schemes include all of the following EXCEPT?

A. Customer requests a large number of temporary cheques

B. No order for printed cheques

C. Customer residence outside the financial institution's trade area

D. Customer requests two ATM cardsSome of the more common red flags of potential new account schemes are: * Customer residence outside the financial institution's trade area * Dress and/or actions inconsistent or inappropriate for the customer's stated age, occupation or income level * New account requesting immediate cash withdrawal upon deposit * Request for large quantity of temporary cheques * No order for printed cheques

101 - According to the Institute of Internal Auditors (IIA) Practice Advisory 1210.A2-1-Auditors' Responsibilities Relating to Fraud Risk Assessment, Prevention, and Detection-the internal auditor's responsibilities for detecting fraud include: I. Having sufficient knowledge of fraud to be able to identify indicatorsII. Being alert to opportunities, such as control weaknesses, that would allow fraud to occurIII. Evaluating the indicators that fraud may have been committed IV. Notifying the appropriate authorities outside the organisation if there are sufficient indicators that fraud is being committed

A. I, II, and III only

B. I, II, and IV only

C. II, III, and IV only In conducting engagements, the internal auditor's responsibilities for detecting fraud are to: *Consider fraud risks in the assessment of control design and determination of audit steps to perform. While internal auditors are not expected to detect fraud and irregularities, they are expected to obtain reasonable assurance that business objectives for the process under review are being achieved and material control deficiencies-whether through simple error or intentional effort-are detected.

CFE – FINANCIAL*Have sufficient knowledge of fraud to identify red flags indicating fraud may have been committed. This knowledge includes the characteristics of fraud, the techniques used to commit fraud, and the various fraud schemes and scenarios associated with the activities reviewed.*Be alert to opportunities that could allow fraud, such as control weaknesses. If significant control weaknesses are detected, additional tests conducted by internal auditors should be directed at identifying other fraud indicators. Some examples of indicators are unauthorised transactions, sudden fluctuations in the volume or value of transactions, control overrides, unexplained pricing exceptions, and unusually large product losses. Internal auditors should recognise that the presence of more than one indicator at any one time increases the probability that fraud has occurred.*Evaluate the indicators of fraud and decide whether any further action is necessary or whether an investigation should be recommended.

102 - B.J., a Certified Fraud Examiner, is evaluating a portfolio of loans for his client, ABC Bank. ABC recently acquired a new portfolio of consumer loans. B.J. notices that the loan package was sold without recourse to the broker, the brokerage fee was high relative to other purchases, and the broker is no longer in business. This particular loan portfolio is experiencing a higher than normal default rate. What type of scheme might B.J. have uncovered?

A. Securities fraud B. Brokered loan fraudC. Letter of credit fraud D. Money transfer fraud

Loan brokering applies to either packages of individual residential (consumer) loans or single commercial loans. A variation of a brokered loan is the loan participation, where the purchaser participates in the loan but does not purchase the entire loan. The fraud schemes associated with brokered or participated loans generally involve selling phoney loans (packages) or selling participations in loans that have not been properly underwritten. Generally, a large fee is charged for these brokered loans.

With residential loan packages, the broker sells the package, takes the money and disappears. Brokered loans are generally not sold with any recourse to the broker. Therefore, the purchaser must look to the borrower and the underlying collateral for debt satisfaction. With loan participations, the lead bank generally performs the underwriting. However, this does not relieve the participating bank from its obligation to perform its own due diligence.

103 - The OECD Principles of Corporate Governance support establishing stronger protection for foreign shareholders than for domestic shareholders as a means to encourage more international investment.

A. True B. False

The OECD Principles of Corporate Governance state "The corporate governance framework should ensure the equitable treatment of all shareholders, including minority and foreign shareholders." As such, the Principles support equal treatment for foreign and domestic shareholders in corporate governance. They do not address government policies to regulate foreign direct investment.

104 - If an employee sells an item and pockets the cash without recording the sale, this is known as:

A. Skimming B. A register disbursement schemeC. Bribery D. Kiting

Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. The most basic skimming scheme occurs when an employee sells goods or services to a customer, collects the customer's payment, but makes no record of the sale. The employee pockets the money received from the customer instead of turning it over to his employer.

105 - Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these cheques and carefully changed them to appear payable to K. Diamond. She then endorsed the cheques with her own name and deposited them in her personal bank account. What type of scheme did Kristen commit?

A. Concealed cheque

CFE – FINANCIALB. Payables skimming

C. "Tacking on"

D. Forged endorsementOne method that can be used by perpetrators to alter cheques prepared by others is "tacking on" additional letters or words to the end of the real payee designation. For instance, cheques payable to "ABC" company might be altered to read "A.B. Collins." The employee then cashes the cheques in the name of A.B. Collins. In these cases, the simple inclusion of a filler line after the payee designation would prevent the loss.

106 - Which of the following is an example of an intangible asset?

A. Leaseholds

B. Goodwill

C. Patents

D. All of the above are intangible assets

According to Marshall and McManus, "intangible assets" are 'long-lived' assets that differ from property, plant, and equipment that has been purchased outright or acquired 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. Examples of the first type of intangible assets are leaseholds, patents, and trademarks; the second type of asset is known as goodwill."

107 - An insurance agent collects payment from a person for insurance, but doesn't remit the cheque to the insurance company, instead keeping the payment for himself. The insured unknowingly has no coverage. This is known as:

A. Equity fraud

B. Premium fraud

C. Churning

D. None of the above

In insurance premium fraud, an insurance agent collects the premium, but doesn't remit the cheque to the insurance carrier. The insured unknowingly has no coverage available upon a qualifying event.

108 - The removal of cash from a victim organisation before the cash is entered in the organisation's accounting system is:

A. A fraudulent disbursement

B. Skimming

C. An illegal gratuity

D. Lapping

Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. Employees who skim from their companies steal sales or debtor payments before they are recorded in the company books. Because of this aspect of their nature, skimming schemes are known as "off-book" frauds; they leave no direct audit trail.

109 - According to International Standard on Auditing (ISA) 240, the auditor is only concerned with fraud that:

A. Involves the misappropriation of company assets

CFE – FINANCIAL

B. Causes a material misstatement in the financial statements

C. Is perpetrated by one or more members of management

D. Is determined to meet the legal definition of fraud

Although fraud is a broad legal concept, for the purposes of ISA 240, the auditor is concerned with fraud that causes a material misstatement in the financial statements. Two 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 make legal determinations of whether fraud has actually occurred.

110 - The initial step in the fraud theory approach to fraud examination is the confirmation of the predication.

A. True

B. False

The fraud theory approach consists of the following steps: (1) analyze the available data, (2) create a hypothesis, (3) test the hypothesis, and (4) refine and amend the hypothesis.

111 - If the cost of goods sold increases by a disproportionate amount relative to sales, and no changes occur in the purchase prices, quantities purchased or quality of products purchased, what does this indicate?

A. Inventory has been charged with embezzlementB. Either ending inventory has been depleted by theft or inventory has been charged with embezzlementC. Ending inventory has been depleted by theftD. Neither ending inventory has been depleted by theft nor inventory has been charged with embezzlement

By using an analytical review, inventory fraud may be detected because certain trends become immediately clear. For example, if the cost of goods sold increases by a disproportionate amount relative to sales, and no changes occur in the purchase prices, quantities purchased, or quality 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 embezzlement.

112 - A health care provider's practice of overbilling an insurance carrier by billing separately for subcomponents of a single procedure is known as:

A. Upcoding

B. Unbundling

C. Capping

D. None of the above

Coding fragmentation involves the separation of one medical procedure into separate components to increase charges. Instead 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. This is often referred to as "unbundling."

113 - Categories of Ponzi schemes include:

A. Product fronts

B. Both pure cash and product fronts

CFE – FINANCIALC. Pure cash

D. None of the above

Ponzi schemes are classified according to the front used in their promotion. The categories are pure cash (which includes endless chain schemes and fill-and-split games) and product fronts (which includes financial instruments, MLMs, and speculations). The categories are set forth graphically in the following chart.

114 - The best solution for financial institutions and merchants to reduce their losses from cheque fraud is to do which of the following?

A. Notify police as soon as a bad cheque is received

B. Educate employees to recognise forged or fraudulent cheques

C. Prosecute cheque offenders

D. Fingerprint customers

The best solution for financial institutions and merchants is to educate employees to recognise forged and fraudulent cheques and the schemes behind them. Merchants and financial institutions should have a strict cheque acceptance policy with which all employees are familiar. When accepting cheques, employees should always ask for identification and make sure it is valid. Many cheque passers mollify store personnel by showing them a small laminated rectangular document with a picture. After looking at several hundred of these, most employees tend not to scrutinise them. Cheque passers count on this. It is important for employees to examine each piece of identification closely every time they are presented with one.

115 - The ___________________ provide(s) specific guidance for policymakers, regulators, and market participants in improving the legal, institutional, and regulatory framework that underpins corporate governance.

A. OECD Principles of Corporate Governance

B. IOSCO Principles for Auditor Oversight

C. IIA Standards for the Professional Practice of Internal Auditing

D. INTOSAI Code of Ethics

The OECD Principles of Corporate Governance provide specific guidance for policymakers, regulators, and market participants in improving the legal, institutional, and regulatory framework that underpins corporate governance, with a focus on publicly traded companies. They also provide practical suggestions for stock exchanges, investors, corporations, and other parties that have a role in the process of developing good corporate governance.

116 - According to the Corporate Fraud Handbook, an expense reimbursement scheme falls under what larger category of Occupational Fraud?

A. Fraudulent statements

B. Corruption

C. Asset misappropriations

D. None of the above

The Corporate Fraud Handbook established three broad categories for occupational fraud: Corruption, Asset Misappropriations and Fraudulent Statements. It then broke down each category into several distinct scheme types. The subcategories of asset misappropriation schemes are listed below:

CFE – FINANCIAL* Skimming schemes* Cash theft schemes* Cheque tampering schemes* Register disbursement schemes* Billing schemes* Expense reimbursement schemes* Payroll schemes* Other fraudulent disbursements* Inventory and other assets schemes

117 - 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. True

B. False

In 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.

118 - While the telephone, newspaper, and postal service remain the key tools of telemarketing fraudsters, they are rapidly moving onto the Internet.

A. True

B. False

While the telephone, newspaper, and postal service remain the key tools of telemarketers, they are rapidly moving onto the Internet. Business opportunities and credit "deals" rank in the top ten schemes on the World Wide Web.

119 - Favourite targets of corporations for intelligence gathering purposes include all of the following EXCEPT:

A. Research and development

B. Legal

C. Marketing

D. Manufacturing and productionSome of the favourite targets of intelligence gatherers include research and development, marketing, manufacturing and production, and human resources.

120 - The risk of an auditor not detecting a material misstatement resulting from fraud is higher than the risk of an auditor not detecting a material misstatement resulting from error.

A. True

B. False

The risk of an auditor not detecting a material misstatement resulting from fraud is higher than the risk of an auditor not detecting one resulting from error. This 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.

121 - A corporate spy can legally use which of the following open sources of information?

CFE – FINANCIAL

A. Public records

B. Reference books

C. Internet

D. All of the above

A corporate spy uses some or all of the following open sources of information:* Public records (regulatory, civil, criminal)* Annual reports* Telephone directories (internal and external)* Analyst reports* News accounts* Magazine articles* Constructed balance sheets* Reference books* Biographical sources* Visual sightings and surveillance* Electronic databases and CD-ROMs* Internet/Web

122 - Open source information is __________.

A. Confidential information

B. Information that is accessible to only the owner

C. Public domain information

D. Information that is secretly acquired

Open source information is information in the public domain, or data that is legally available to anyone. Spies do not have to penetrate corporate security measures to obtain this type of information; it is available to anyone who wants to collect it. The term "public," however, does not necessarily mean free. Many sources have access charges that may be simple low-cost copying fees or rather substantial database expenses.

123 - A(n) ________ is someone on the payroll who does not actually work for the victim company.

A. Ghost employee

B. Shell individual

C. Absent payee

D. Invisible worker

The term ghost employee refers to someone on the payroll who does not actually work for the victim company. Through the falsification of personnel or payroll records a fraudster causes paycheques to be generated for a ghost. The fraudster or an accomplice then converts these paycheques. The ghost employee may be a fictitious person or a real individual who simply does not work for the victim employer.

124 - Sales that are contingent on additional conditions should not be recorded as complete on the books of the selling company.

A. True

CFE – FINANCIAL

B. False

Sales with conditions are those that have terms that have not been completed and the rights and risks of ownership have not passed to the purchaser. They do not qualify for recording as revenue. These 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.

125 - The INTOSAI auditing standards for government audits include several standards with ethical significance. These standards include that the auditor and supreme audit institution must:

A. Exercise due care and concern in complying with auditing standards

B. Possess the required competence necessary for the effective discharge of the audit mandate

C. Be independent

D. All of the above

The INTOSAI general auditing standards with ethical significance include:a. The auditor and the SAI must be independent. This standard comprises three levels: independence from the legislature, from the executive, and from the audited entity.b. SAIs should avoid conflict of interest between the auditor and the entity under audit. The SAI performs its role by carrying out audits of the accountable entities and reporting the results. To fulfil this role, the SAI needs to maintain its independence and objectivity. The application of appropriate general auditing standards assists the SAI to satisfy these requirements.c. The auditor and the SAI must possess the required competence. The SAI needs to command the range of skills and experience necessary for effective discharge of the audit mandate. Whatever the nature of the audits to be undertaken under that mandate, the audit work should be carried out by persons whose education and experience is commensurate with the nature, scope, and complexities of the audit task. The SAI should equip itself with the full range of up-to-date audit methodologies, including systems-based techniques, analytical review methods, statistical sampling, and audit of automated information systems.d. The auditor and the SAI must exercise due care and concern in complying with the INTOSAI auditing standards. This embraces due care in planning, specifying, gathering, and evaluating evidence, and in reporting findings, conclusions, and recommendations. Performance and exercise of technical skill should be of a quality appropriate to the complexities of a particular audit. Auditors need to be alert for situations, control weaknesses, inadequacies in record keeping, errors and unusual transactions, or results that could be indicative of fraud, improper or unlawful expenditure, unauthorised operations, waste, inefficiency, or lack of probity.

126 - In investigating a bribery scheme involving on-book fictitious disbursements, a fraud examiner should review all of the following EXCEPT:

A. Endorsement on the cheque

B. Cash receipt journals

C. Second endorsements

D. Location where the cheque was negotiated

After a preliminary examination, the fraud examiner should focus on the most suspect payments, noting in particular the following: endorsement of the cheque, location where the cheque was negotiated, cheques with a second endorsement, cheques payable to a business which were cashed and not deposited, and cheques that fall into an unexplained pattern.

127 - _____________ are structured to obtain an illegal gain by falsely promising the delivery of a product or service.

CFE – FINANCIAL

A. Sweepstakes, giveaways, and prizes

B. Advertising schemes

C. Merchandising schemes

D. Advance fee swindles

Advance fee swindles are structured to obtain an illegal gain by falsely promising the delivery of a product or service. In some schemes, the product is marketed to a large number of customers and then the operation is shut down prior to the delivery stage.

128 - A restaurant patron hands his credit card to the waiter who, out of sight, swipes the card through a device called a wedge. The wedge stores the credit card number, which the waiter can later sell to a counterfeiter or use to produce his own fake cards. What kind of scheme is this?

A. Creditmaster

B. Skimming

C. Key-enter counterfeiting

D. Account takeover

Credit card skimming requires a device known as a wedge (also called a skimmer), which stores up to 200 credit card numbers. Credit card skimming is more common in businesses where an employee must leave the customer's presence in order to run the transaction. A restaurant patron, for example, hands his credit card to a waiter who swipes the card through a wedge while conducting the legitimate transaction. Once the waiter has collected enough numbers, he can either sell them to a counterfeiter or produce his own fake cards using the stolen information.129 - A control technique commonly used in computerised systems that checks each source document against a detailed list processed by the computer is referred to as:

A. Computer sequence checking

B. Computer matching

C. One-for-one checking

D. None of the above

One-for-one checking consists of checking each source document against a detailed list processed by the computer. This technique is normally used for low-volume input because of the cost and time involved.

130 - Which of the following cheque tampering schemes is the most difficult to prevent?

A. Forged endorsement schemes

B. Altered payee schemes

C. Forged maker schemes

D. Authorised maker schemes

The authorised maker scheme may be the most difficult cheque tampering scheme to defend against. An authorised maker scheme occurs when an employee with signature authority on a company account writes fraudulent cheques for

CFE – FINANCIALhis own benefit and signs his own name as the maker. The perpetrator in these schemes can write and sign fraudulent cheques himself. He does not have to alter a preprepared instrument or forge the maker's signature.

131 - In order to lower net income and income tax liability, an accountant may misstate financial statements by expensing costs which should be capitalised to an asset account.

A. True

B. False

Just as capitalising expenses is improper, so is expensing costs that should be capitalised. The organisation may do this in order to minimise its net income due to tax considerations. Expensing an item that should be depreciated over a period of time would help accomplish just that-net income is lower and so are taxes.

132 - According to the Corporate Fraud Handbook, cash theft schemes are much more common than skimming schemes.

A. True

B. False

Frauds involving the misappropriation of cash can be broken down into three groups: skimming schemes, cash theft (larceny) schemes, and fraudulent disbursements of cash. Fraudulent disbursements made up the majority of the cash schemes in our study (74.2%), followed by skimming (21.5%) and cash theft/larceny (16.2%).

133 - Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemarketing fraudsters.

A. True

B. False

The unemployed are another favourite target for sweepstakes pitches and job search services. Whereas "the system" has left the jobless without hope, the telemarketer offers a way around official channels. People with bad credit pay telemarketers to "repair" their credit records or get major credit cards. Instead, they get a list of banks that offer credit cards, commonly published in newspapers, or an application for a card that requires a security deposit for activation, usually several hundred or a thousand dollars. These people are also targeted by advance-fee loan scams, which promise loans in exchange for a fee.

134 - One of the most basic expense reimbursement schemes is perpetrated by simply requesting reimbursement for a personal expense by claiming that the expense is business related.

A. True

B. False

Most companies only reimburse certain expenses of their employees. Which expenses a company will pay for depends to an extent upon policy, but in general, business-related travel, lodging, and meals are reimbursed. One of the most basic expense reimbursement schemes is perpetrated by simply requesting reimbursement for a personal expense by claiming that the expense is business related. Examples of mischaracterised expenses include claiming personal travel as a business trip, listing dinner with a friend as "business development," and so on.

135 - There 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. True

CFE – FINANCIALB. False

There 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-book schemes are best approached from the point of payment, and off-book schemes are most easily identified at the suspected point of receipt or through the use of an inside witness or surveillance.

136 - Property flips are examples of what type of fraud?

A. Money transfer fraud

B. New account fraud

C. Automated teller machine fraud

D. Real estate fraud

Property flipping is the process by which an investor purchases a home and then resells it at a higher price shortly thereafter. Some property flips are legitimate business transactions, and there are numerous individuals and groups in the real estate market who make an honest living flipping properties. However, property flipping becomes illegal and fraudulent when a home is purchased and resold within a short period of time at an artificially inflated value. The key 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 justified. A property that sells twice in the same day at an increase of $100,000 is hard to justify.

137 - Fictitious receivables are a common method used to conceal payments of bribes or kickbacks.

A. True

B. False

There are three basic methods for concealing on-book payments of bribes and/or kickbacks. They are fictitious disbursements, ghost employees, and overbilling schemes.

138 - The internal auditor's responsibilities for detecting fraud include:

A. Considering fraud risks when determining the audit steps to perform

B. Notifying appropriate authorities within the organisation if it is determined that fraud is occurring

C. Being alert to opportunities for fraud, such as control weaknesses

D. All of the above

139 - In a financial misstatement scheme in which capital expenditures are recorded as income statement items, the transactions will have the following effect on the organisation's financial statements:

A. Net income will be understated

B. Sales revenue will be overstated

C. Net income will be overstated

D. All of the above

CFE – FINANCIALJust as capitalising expenses is improper, so is expensing costs that should be capitalised. The organisation may want to minimise its net income due to tax considerations, or to increase earnings in future periods. Expensing an item that should be depreciated over a period of time helps to accomplish just that-net income is lower and, therefore, so are taxes.

140 - According to the hierarchy of occupational fraud schemes in the Corporate Fraud Handbook, payroll fraud falls under the larger classification of fraudulent disbursements.

A. True

B. False

Fraudulent disbursements as a group made up over 48% of all the cases in our study. This group has been broken down into the following scheme types:* Cheque tampering schemes* Register disbursements schemes* Billing schemes* Expense schemes* Payroll schemes* Other fraudulent disbursements

141 - When interviewing a person during a fraud examination, the "tough" approach is usually best.

A. True

B. False

The examiner's attitude toward others affects their attitude toward him. A hostile attitude will create anxiety 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 "tough," except when the need arises and toughness has been carefully planned and evaluated.

142 - Which of the following audit steps can be used in searching for a ghost employee?

A. Determine whether all employees have executed tax withholding forms

B. Determine whether employees have not elected to receive health benefits

C. Compare a listing of current and former employees to the payroll

D. All of the above

143 - There are two basic schemes perpetrated during the performance phase of a contract. These two schemes are: I. Product substitutionII. Defective pricingIII. Mischarges

A. I and II

B. II and III

C. I and III

D. None of the above

Contract performance activities include change orders; timely review of completed portions prior to sign-off and release of monies; and assessment of deliverables for compliance with the terms of the contract, including quality control. There

CFE – FINANCIALare two basic schemes perpetrated during the performance phase: product substitution and mischarges (accounting, material, and labour).

144 - According to the Corporate Fraud Handbook, 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. Significant event

B. Liability omission

C. Related-party transaction

D. Accounting change

145 - If you are responsible for the backup computer system, which of the following general internal control categories should you look for in your company's detailed procedures?

A. Computer operations

B. Implementation controls

C. Data file controls

D. System software controls

146 - According to the Internal Auditing Standards, an internal auditor should consider performing a number of the following procedures with respect to fraud. Which is NOT one of those procedures?

A. Notify senior management immediately once the incidence of significant fraud has been established

B. Discuss the fraud and its impact with all levels of management

C. Submit a draft of the report to legal counsel for review

D. Inform management if the results of the investigation indicate that the fraud has had a previously undiscovered materially adverse effect on the financial statements

147 - You receive an e-mail from your bank stating that your account could have been compromised. The e-mail requests that you reply with your PIN and account number. What type of scheme might this be?

A. Recovering

B. Pharming

C. Phishing

D. Fronting

148 - Researchers can collect confidential information through which of the following sources:

A. Export licensing

B. Scientific publications

C. Conferences

CFE – FINANCIALD. All of the above

149 - According to futurist Alvin Toffler, ___________ is the most highly valued commodity for the new millennium.

A. Information

B. Currency

C. Real estate

D. None of the above

150 -Green is scheduled to make a business trip to Paris. He purchases an airline ticket three months before the trip for $300. Two weeks before the trip, when airline fares have increased, he purchases a second ticket to Paris for $700. Green removes the passenger receipt from the second ticket and returns it for a full refund, which he keeps. He then flies using the first ticket he purchased for $300, but when he submits his expense report to his employer for the trip, he attaches the receipt from the $700 ticket and requests that amount for reimbursement. This type of scheme is called:

A. Pay-and-return reimbursement

B. Pass-through expense request

C. Overpurchasing

D. Bill-and-hold purchasing

151 - A diploma, professional certification, or licence can be the identifying information that a fraudster uses to obtain a false identity.

A. True

B. False

152 - Able is an internal auditor for a retail organisation. Every month, she reviews the amount of refunds or discounts given by each cashier in her company. This alone will tell her if a particular refund or group of refunds is inappropriate.

A. True

B. False

153 - Boiler room operations are generally very difficult to prosecute.

A. True

B. False

154 - Which of the following is NOT a type of a corrupt recipient?

A. The big spender

B. The gift giver

C. The rule breaker

D. The complainer

CFE – FINANCIAL

155 - White booked a flight for a business trip with his company's travel agent. He filled out two expense reports for this trip, and on each report he requested reimbursement for the cost of the ticket. On one report, he attached his airline stub as support for the expense. On the other report he attached the travel agency's invoice as support. According to the Corporate Fraud Handbook, White was attempting a multiple reimbursement scheme.

A. True

B. False

156 - 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. Unauthorised withdrawals

B. Moving money from dormant accounts

C. Unauthorised disbursement of funds to outsiders

D. False accounting entries

157 - Employees who are most likely to be recruited by spies are those who exhibit some loyalty or devotion toward their employer.

A. True

B. False

158 - Telephone company, health club, and school records contain information that an identity thief can use to steal someone's identity.

A. True

B. False

159 - Loan fraud represents a high risk area for financial institutions because although the number of occurrences might be small, the dollar amount per occurrence tends to be large.

A. True

B. False

160 - Off-book schemes are most easily identified at the suspected point of receipt or through the use of an inside witness or surveillance.

A. True

B. False

161 - White booked a flight for a business trip with his company's travel agent. He filled out two expense reports for this trip, and on each report he requested reimbursement for the cost of the ticket. On one report, he attached his airline stub as support for the expense. On the other report he attached the travel agency's invoice as support. According to the Corporate Fraud Handbook, what kind of scheme was White attempting?

A. A mischaracterised expense scheme

CFE – FINANCIALB. An overstated expense scheme

C. A false billing scheme

D. None of the above

162 - One 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. True

B. False

163 - In tracing illicit funds, proving on-book payments usually is easier than proving off-book payments.

A. True

B. False

164 - Which type of fraudulent disbursement scheme targets an organisation's purchasing function?

A. Billing scheme

B. Cheque tampering scheme

C. Expense reimbursement scheme

D. Payroll scheme

165 - If 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 kind of counterattack operation is it performing?

A. Misdirection operation

B. Cloaking operation

C. Decoy operation

D. None of the above

166 - One of the most effective ways to protect a company's trade secrets and confidential business information is to conduct an exit interview with departing staff.

A. True

B. False

167 - Able, a salesman, "borrowed" a stack of blank receipts from a friend who was a waiter at a local restaurant. Able filled in the blank receipts to make it appear that he had been entertaining clients at business lunches. He submitted the receipts to his manager and was reimbursed for the "expenses" he had incurred. According to the Corporate Fraud Handbook, this scheme can best be characterised as:

A. A fictitious expense scheme

B. A kickback scheme

CFE – FINANCIALC. A mischaracterised expense scheme

D. A false billing scheme

168 - An employee within the claims operations of an insurance company is known to have a drinking problem, and irregularities start to appear. This scenario is a common red flag for which type of insurance fraud?

A. Collusion by insurer's staff

B. Agent fraudC. TheftD. None of the above

169 - In order to prevent inventory theft, who should conduct physical observations of a company's inventory?

A. Purchasing agents

B. Warehouse personnel

C. Purchasing supervisor

D. None of the above

170 - Workers' compensation premium rates can vary significantly based upon the job classification of the employee.

A. True

B. False

171 - Boiler rooms, fronters, closers, and verifiers are all associated with which of the following?

A. Advance fee frauds

B. Telemarketing scams

C. Internet fraud

D. Real estate scams

172 - Which individual is generally in the best position to manipulate the financial statements and keep it from being uncovered?

A. The general counsel

B. The vice president of operations

C. The chief financial officer

D. The chief executive officer

173 - Exercising due professional care means determining the amount of work needed to achieve the engagement objectives; the relative complexity, materiality, or significance of matters to which assurance procedures are applied; and the adequacy and effectiveness of risk management, control, and governance processes.

A. True

CFE – FINANCIAL

B. False

174 - According to International Standard on Auditing (ISA) 240, the primary responsibility for the prevention and detection of fraud rests with:

A. Those charged with governance of the entity

B. Auditors

C. Management

D. Both management and those charged with governance of the entity

175 - In which of the following loan fraud schemes is the purpose of the loan to finance a property which has an artificially inflated value?

A. False statements

B. Disguised transactions

C. Fraudulent appraisals

D. Land flips

176 - In a funds transformation fraud scheme, banking personnel in collusion with the lender sometimes will engage in fraudulent behaviours to forego the requirement to record additional loan loss provisions. Which of the following is a method used to carry out this scheme?

A. Property is sold to an existing customer or a new customer in exchange for making a new loan on another unrelated project.

B. The transaction is conducted through nominees.

C. The transaction is conducted through shell companies.

D. All of the above

177 - Setting achievable financial goals and removing operational obstacles blocking effective financial performance are tactics management can implement to reduce which factor related to committing financial statement fraud?

A. Opportunity

B. Rationalization

C. Pressure

D. None of the above

178 - Linked financing typically has which, if any, of the following characteristics?

A. High returns are promised

B. Large deposits are offered to the financial institution on the condition that loans are made to particular persons affiliated to the deposit banker

CFE – FINANCIALC. Bribes are paid to the broker or financial institution employee

D. All of the above

179 - The most common on-book schemes include all of the following: fictitious disbursement schemes, ghost employees, overbilling, and skimming.

A. True

B. False

180 - A shell company is a fictitious entity created for the sole purpose of committing fraud.

A. True

B. False

181 - A ________________ is a fictitious entity created for the sole purpose of committing fraud.

A. Fraudulent invoice

B. Charter company

C. Shell company

D. Nonaccomplice vendor

182 -The hypothesis formed at the beginning of an examination is usually a _______ scenario.

A. Presumption of innocence

B. "Best-case"

C. Hypothetical

D. "Worst-case"

183 - Which of the following is NOT a type of skimming scheme?

A. Theft of cheques through the mail

B. Understated sales and receivables

C. False refunds

D. Unrecorded sales

184 - One confidence scheme involves diploma mills. The characteristic warning sign of a possible diploma mill is:

A. That advanced standing for courses is granted

B. A fancy-sounding university

C. The processing fee charged

CFE – FINANCIALD. None of the above

185 - When a Certified Fraud Examiner is investigating an information theft case, a critical first step is to find out how the sensitive information was compromised.A. TrueB. False186 - The intelligent criminal will generally prefer to steal currency rather than cheques if given the opportunity.

A. True

B. False

187 - While the internal auditor should have sufficient knowledge to identify the indicators of fraud, he is not expected to have the expertise of a person whose primary responsibility is detecting and investigating fraud.

A. True

B. False

188 - Internal controls are always the strongest deterrent to financial statement fraud.

A. True

B. False

189 - Which of the following is NOT a countermeasure that security officers can implement to thwart a spy's attempt at infiltrating their company?

A. Ensure that vendors' credentials have been verified and that vendors are escorted by a company representative during their visits.

B. Establish a procedure for tracking and locking up sensitive data.

C. Ensure that proprietary data is stored in areas visible to the public.

D. Have employees sign nondisclosure agreements.

190 - A customer writes out a cheque and asks the store clerk if she may have cash back from the transaction. She makes the cheque out for an amount greater than the price of the purchase. The customer has purposefully written the cheque on a closed account. What type of fraudster is this customer?

A. Third-party bill payer

B. Dumpster diver

C. Paperhanger

D. None of the above

191 - Green, an employee of ABC Corporation, formed a company called Acme Consulting. He opened a bank account in Acme's name and used his home computer to create invoices from Acme for "consulting services." In reality, Acme does not provide any services at all. It is a company in name only. Green submitted the invoices from Acme Consulting to his employer, ABC Corporation. When ABC made payment on the false invoices, Green collected and deposited them. According to the Corporate Fraud Handbook, Green has committed:

A. A shell company scheme

CFE – FINANCIAL

B. A personal purchases scheme

C. A pay-and-return scheme

D. A cash larceny scheme

192 - Business warning signs of construction loan fraud include:

A. Stage payment requests

B. Replacement loans

C. Funds transformation

D. All of the above

193 - In a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though there is no actual return.

A. True

B. False

194 - When an employee records a fictitious refund at his cash register, the victim company's stock is overstated and a disbursement from the register is recorded.

A. TrueB. False195 - According to the hierarchy of occupational fraud schemes in the Corporate Fraud Handbook, payroll fraud falls under what larger classification?

A. Fraudulent disbursements

B. Corruption

C. Fraudulent statements

D. Skimming

196 - Baker was a cash register employee for a large retail store. When Baker's friend shopped at the store, he would take his merchandise to Baker's register. Instead of charging his friend, Baker would ring a "no sale" on the register and his friend would pretend to pay for the merchandise. Baker's friend would take the merchandise out of the store without paying for it, and the two would later split it. According to the Corporate Fraud Handbook, what kind of fraud scheme is this?

A. Theft of inventory

B. This is not occupational fraud because Baker's friend took the merchandise and he was not an employee of the victim company

C. A register disbursement scheme

D. Skimming

197 - A type of embezzlement 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:

CFE – FINANCIAL

A. Moving money from dormant accounts

B. Unauthorised withdrawals

C. Unauthorised disbursement of funds to outsiders

D. False accounting entries

198 - Unscrupulous debt consolidation schemes include each of the following EXCEPT:

A. The debt consolidation company writes a letter to the debtor's creditors and arranges a payment plan.

B. The debt consolidation company charges an upfront processing fee and then disappears.

C. The debt consolidation company collects payments but does not appropriately forward them.

D. All of the above are schemes.

199 - During an interview of an executive as part of an investigation into potential financial statement fraud, the executive should be asked specifically if he has committed fraud.

A. True

B. False

200 - To conceal a receivables skimming scheme, the perpetrator may make which of the following false entries in the victim organisation's accounting system?

A. A debit to a fictitious account receivable

B. A debit to an expense account

C. A debit to sales discounts

D. Any of the above

201 - All of the following are classifications of billing schemes identified by the Corporate Fraud Handbook: shell company schemes, bid rigging, and personal purchases with company funds.

A. True

B. False

202 - The financial statements of an organisation are primarily the responsibility of:

A. Management

B. Auditors

C. Fraud examiners

D. Stockholders

203 - If, during an audit of an entity's financial statements, the auditor suspects fraud involving management, he should first communicate these suspicions to:

CFE – FINANCIALA. Local law enforcement authorities

B. Those parties charged with governance of the entity

C. All employees of the entity

D. All of the above

204 - Grey, a Certified Fraud Examiner, 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. Income statement

B. Balance sheet

C. Cash flow statement

D. All of the above

205 - Which of the following is an example of a risk factor relating to the incentive or pressure to commit fraudulent financial reporting?

A. Deficient internal controls

B. Low morale among senior managementC. Excessive pressure on management or operating personnel to meet financial targetsD. All of the above

206 - Which of the following control procedures will NOT help prevent payroll fraud?

A. The employee who prepares the payroll personally distributes paycheques

B. A time clock is used for office employees

C. Payroll accounting is handled separately from the general ledger function

D. The department head does not distribute paycheques

207 - Frauds involving determining needs and bid specifications are the most prominent schemes in which phase of the development of a contract?

A. Presolicitation phase

B. Solicitation and negotiation phase

C. Contract performance and administration phase

D. None of the above

208 - Nicolette works part-time at an independent record store. Whenever her friend Jacob comes into the store during one of her shifts, he picks up a CD and brings it to the register where Nicolette is stationed. After ringing a "no sale" transaction on the cash register, Nicolette pretends to swipe Jacob's credit card for payment. She puts the CD in a bag and gives it to Jacob, who walks out without actually paying for the merchandise. What kind of scheme is being committed?

A. False sale

CFE – FINANCIALB. Sales skimming

C. Cash larceny

D. Fake refund

D209 - Beta, a Certified Fraud Examiner, is interviewing Theta, a suspected recipient of illicit income. Theta claims it was a loan. Beta will probably try to determine all of the following EXCEPT:

A. The purpose of the loan

B. How the loan was documented

C. The amount of the loan

D. The identity of the borrower

210 - According to International Standard on Auditing (ISA) 240, in responding to the assessed risks of material misstatement due to fraud, the auditor should incorporate an element of predictability into the selection of the nature, timing, and extent of the audit procedures to be performed.

A. True

B. False

211 - Which of the following is the most common type of occupational fraud?

A. Bribery

B. Fraudulent statements

C. Asset misappropriations

D. Extortion

212 - A spy that that has been planted in a company as a permanent employee is known as a ______.

A. Rat

B. Mole

C. Sleeper

D. Bug

213 - The most common denomination of forged travellers' cheques is:

A. $20

B. $50

C. $100

D. $10

CFE – FINANCIAL214 - Unlike some fraudsters who steal as the result of a perceived need, most identity thieves make a living stealing identities for profit. Identity thieves include which of the following?

A. Illegal telemarketers

B. College kids

C. Rental car agents

D. All of the above

215 - The objective 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 risks involved.

A. True

B. False

216 - The initial step in the fraud theory approach to fraud examination is the confirmation of the predication.

A. True

B. False

217 - The IOSCO Principles for Auditor Oversight state that auditor oversight should take place:

A. By professional associates

B. Within the audit firm

C. Through government regulation

D. All of the above

218 - Which of the following are sources of information for the business profile?

A. Business reporting companies

B. Customers and competitors

C. Banks and lending institutions

D. All of the above

219 - In a home-based business scheme, swindlers marketing home-based businesses require a person to buy materials for assembly-at-home products, but the materials are essentially worthless or cheap.

A. True

B. False

220 - Brown, a manager for a retail store, suspects his register employees of skimming off-book sales. Brown will NOT be able to detect this kind of scheme by comparing their till roll totals to the amount of money in their cash drawers.

A. True

CFE – FINANCIALB. False

221 - While the telephone, newspaper, and postal service remain the key tools of telemarketing fraudsters, they are rapidly moving onto the Internet.

A. True

B. False

222 - According to the Internal Auditing Standards, who is responsible for resolving fraud incidents?

A. The audit committee

B. Management

C. The fraud investigator

D. The internal auditor

223- ABC, Ltd. and XYZ, Ltd. are the only two companies in Cork County that lay asphalt. An audit reveals that the state is paying more for asphalt work in Cork 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 XYZ has withdrawn its bid. What scheme might ABC and XYZ be involved in?

A. Phantom bidding B. Bid rotationC. Bid suppression D. Altering bids

224 - The wrongful taking or conversion of another's property for the benefit of someone else is most properly referred to as which of the following?

A. Misapplication

B. Grand larceny

C. Larceny

D. Embezzlemen

225 - _________ 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. Independent auditors

B. Members of the Board of Directors

C. Internal auditors

D. Government regulators

226 - _________ involves feeding information thieves false facts in order to neutralise their intelligence efforts.

A. Social engineering

B. Misdirection

CFE – FINANCIALC. Cloaking

D. Security surveying

227 - Which of the following asset misappropriation schemes allows the perpetrator to misappropriate funds without ever actually handling cash or cheques while at work?

A. Register disbursement schemes

B. Skimming

C. Billing schemes

D. All of the above

228 - There are a number of fraud schemes that are being perpetrated with regard to automatic teller machines (ATMs). These schemes include all of the following EXCEPT:

A. Employee manipulation

B. Unauthorised access to PIN numbers and account codes

C. Stealing ATM deposits

D. Counterfeit ATM cards

229 - In a(n) _____________ scheme, the company or con men that initially conned a consumer contacts that consumer and offers to help retrieve the lost money. However, the investigation requires an up-front fee and the consumer is swindled again.

A. Scavenger or revenge

B. Money manager

C. Advance fee

D. Directory

230 - Ramon is the CEO of the Drummond Group, a consulting group. Sales have increased at least five percent every year for the past seven years. Unfortunately, the company has hit a slump this year, and revenue is far less than anticipated. However, in order to receive his performance bonus, Ramon must show a sales increase of at least seven percent. When the financials are released, sales have increased by exactly seven percent. Which of the following ratio analyses would be most helpful in revealing that Ramon included fictitious sales in the company's financials?

A. Inventory turnover

B. Receivable turnover

C. Debt-to-equity ratio

D. Quick ratio

231 - Blue, a fiscal officer, had access to company cheques but was not authorised to sign them. Blue's company used an automated cheque signer which was guarded by a custodian. Blue took some blank cheques and made them payable to himself, then snuck into the custodian's office and signed them with the cheque signer. According to the Corporate Fraud Handbook, Blue committed a forged maker scheme.

CFE – FINANCIALA. True

B. False

232 - A TSCM survey is useful for performing what function?

A. Locating hidden assets

B. Identifying existing and potential security weaknesses

C. Uncovering ghost employees

D. Detecting fraudulent disbursements

233 - Which of the following is NOT one of the fraud schemes perpetrated at the contract performance and administration phase?

A. Mischarging

B. Defective pricing

C. Product substitution

D. None of the above

234 - Which of the following is not a type of skimming scheme according to the Corporate Fraud Handbook?

A. Forged cheques

B. Short term skimming

C. Understated sales

D. Unrecorded sales

235 - One way fraud is different from many other property crimes is __________.

A. Fraud is often a crime of violence

B. Fraud doesn't occur at night

C. The perpetrator's identity is often known

D. Fraud losses are never covered by insurance

236 - Unlike some fraudsters who steal as the result of a perceived need, most identity thieves make a living stealing identities for profit. Identity thieves include which of the following?

A. Illegal telemarketers

B. College kids

C. Rental car agents

D. All of the above

CFE – FINANCIAL237 - The ___________________ provide(s) specific guidance for policymakers, regulators, and market participants in improving the legal, institutional, and regulatory framework that underpins corporate governance.

A. IOSCO Principles for Auditor Oversight

B. OECD Principles of Corporate Governance

C. INTOSAI Code of Ethics

D. IIA Standards for the Professional Practice of Internal Auditing

238 - The median cost of register disbursement schemes is among the lowest of all fraudulent disbursements.

A. True

B. False

239 - Under an effective document retention policy, when an organisation is faced with potential litigation or a legal document request is pending or imminent, the destruction of documents should cease.

A. True

B. False

240 - When establishing a document retention policy, companies should consider:

A. Applicable laws and regulations regarding record-keeping requirements

B. Specific concerns related to electronic documents and data

C. Any trade-specific rules for documenting and retaining records

D. All of the above

241 - In a well-designed internal control system for computer operations, the users of the system should have access to the production program code.

A. True

B. False242 - Persons who are expert at passing phoney cheques are sometimes called:

A. Paperhangers

B. Chequesters

C. Launderers

D. Phonies

243 - Which of the following is a type of computer virus?

A. Phreaker

B. Worm

C. Hacker

CFE – FINANCIAL

D. Pharmer

244 - The Corporate Fraud Handbook discussed several methods that fraudsters use to conceal cheque tampering. These include preparing bogus support documentation, miscoding fraudulent cheques, and forced reconciliations.

A. True

B. False

245 - The majority of cheque tampering schemes are committed by owners/executives.

A. True

B. False

246 - According to the Corporate Fraud Handbook, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation's books are known as:

A. Cash theft schemes

B. Skimming and bribery schemesC. Bribery schemesD. Skimming schemes247 - Espionage involves legitimate intelligence collection and analysis using legal means.

A. True

B. False

248 - According to the Corporate Fraud Handbook, which type of scheme is generally hardest to detect?

A. Cash theft

B. Both cash larceny and skimming are equally difficult to detect

C. Cash distraction

D. Skimming

249 - When a person buys precious stones from a telescammer, the stones arrive sealed in a plastic bag, not to preserve the stones' quality, but to ensure that the buyer cannot inspect the gems.

A. True

B. False

250 - All countries have workers' compensations laws that require employees to prove employer fault and engage in long legal proceedings to determine fault, before an employer or insurance plan is required to reimburse employees for physical injuries on the job

A. True B. False

251 - Which of the following is a type of property value used in the appraisal process?

CFE – FINANCIALA. Loan value

B. Fair market value

C. Sales price

D. All of the above

252 - In tracing illegal payments, the fraud examiner should focus on the suspected recipient if:

A. The person making the payments is one person suspected of taking from many

B. The payments are in cash or from off-book funds

C. The person making the payments is unknown

D. All of the above

253 - Which accounting principle requires corresponding expenses and revenue to be recorded in the same accounting period?

A. Full disclosure

B. Matching principle

C. Consistency

D. Conservatism

254 - Smith, a Certified Fraud Examiner for the Ajax Co., observes Jones, an accounts payable clerk, driving an expensive imported sports car to work. Smith also has knowledge that Jones recently had extensive remodelling done on her residence. Smith has sufficient predication to:

A. Notify management of the possibility that Jones has committed fraudulent acts

B. Confront Jones with an allegation of fraud

C. Conduct discreet inquiries into Jones' responsibilities as an accounts payable clerk

D. None of the above

255 - The most common methods for concealing liabilities and expenses include liability/expense omissions and capitalised expenses.

A. True B. False

256 - Bob and Steve work for competing companies. Steve is in the airport waiting for a flight and notices Bob typing away on his laptop computer. Steve takes a seat behind Bob and can clearly see what Bob is typing. Steve quickly takes 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 Steve's presence.

A. True B. False

257 - Predication, as it relates to the examination of fraud, means the basis upon which the examination is undertaken.

A. True

CFE – FINANCIAL

B. False

258 - A _________ is a program that usually attaches itself to, overwrites, or otherwise replaces other legitimate programs and performs unsolicited, usually malicious, actions without the knowledge of the user.

A. Hacker

B. Firewall

C. Computer virus

D. PIN

259 - When a Certified Fraud Examiner begins a fraud examination, he or she must assume that:

A. The suspect is guiltyB. The suspect is innocentC. The case will end in litigationD. None of the above

260 - Which of the following are computer hacking detection measures?I. Review the file log for sign-on and sign-off activityII. Review the file log for unsuccessful access attempts III. Provide sufficient resources and staff to administer the data security function IV. Periodically review telecommunications security

A. I, II, III, and IV

B. III and IV only

C. III only

D. II and IV only

261 - Baker, an employee of ABC Corporation, had complete control of the purchasing function for his department. Baker authorised the purchase of several thousand dollars worth of supplies which were unnecessary to ABC. Baker used these supplies to make improvements to his home. This is an example of what kind of fraud?

A. Theft of inventory

B. Cheque tampering

C. Personal purchases with company funds

D. None of the above

262 - Which of the following usually represents the highest risk for fraud in financial institutions?

A. False statements

B. Embezzlement

C. Teller fraud

D. Loan frau

CFE – FINANCIAL

263 - Someone who is seeking unauthorised access to a computer system and the information contained therein is known as a ____________.

A. Jumper

B. Hacker

C. Saboteur

D. None of the above

264 - One method of covering cash larceny at the cash register is to physically alter the register tape to make the tape reflect the amount of cash in the drawer.

A. True

B. False

267 - Which of the following is NOT an example 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 transaction; 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 knowledge

D. Subsequent employment with former contractor

268 - Draw requests 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. True

B. False

269 - Aside from a lack of segregation of duties in the data centre, which of the following are considered red flags of insider computer fraud?I. Access privileges equal to those required to perform assigned tasks II. Access logs not reviewed III. Production reports run at usual hours IV. Exception reports not reviewed and resolved

A. III and IV only

B. I, II, III, and IV

C. II and IV only

270 - Blue "borrowed" his employer's snowplough for his own snow removal business which he operated on the side. Blue only used the snowplough on the weekends 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 know he had been using it. The snowplough was returned unharmed. According to the Corporate Fraud Handbook, how should Blue's scheme be categorised?

A. As a fraudulent statement scheme

CFE – FINANCIAL

B. As theft of a non-cash asset

C. As a payroll fraud

D. None of the above

271 - Able, a bookkeeper for a small company, typed out cheques to a local vendor and her boss signed them. She then used the erase function on her typewriter to delete the vendor's name and insert her own. She also changed the amounts of the cheques in the same manner. Then she cashed the cheques. According to the Corporate Fraud Handbook, what kind of scheme did Able commit?

A. A forged maker scheme

B. An altered payee scheme

C. A authorised maker scheme

D. A forged endorsement sche

272 - Which of the following is NOT a type of cheque tampering scheme?

A. Forged maker

B. Forged endorsement

C. False voids

D. Authorised maker

273 - Ownership of an equity 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. True

B. False

274 - Baker used the company credit card to pay for a business dinner at which he was entertaining a client. The credit card bill was paid by Baker's employer. Baker saved the receipt, and later he filed an expense report seeking reimbursement for the cost of the meal. He attached the receipt as support. According to the Corporate Fraud Handbook, this is an example of what kind of fraud?

A. Personal purchases with company funds

B. Mischaracterised expenses

C. Multiple reimbursements

D. A false billing scheme

275 - Companies conducting business online combat Internet fraud by adopting which of the following precautions?

A. Encryption

B. Internal network security

CFE – FINANCIAL

C. Customer validation

D. All of the above

276 - Billing for a higher level of medical service than was actually rendered is called which of the following?

A. Global service period violation

B. Uplinking

C. Fragmenting

D. Upcoding

277 - Nicolette works part-time at an independent record store. Whenever her friend Jacob comes into the store during one of her shifts, he picks up a CD and brings it to the register where Nicolette is stationed. After ringing a "no sale" transaction on the cash register, Nicolette pretends to swipe Jacob's credit card for payment. She puts the CD in a bag and gives it to Jacob, who walks out without actually paying for the merchandise. What kind of scheme is being committed?

A. Sales skimming

B. Fake refund

C. Cash larceny

D. False sale

278 - Which of the following financial instruments can be used as a front for a Ponzi scheme?

A. Currency exchanges

B. Investment pools

C. Stocks

D. All of the above

279 - Good corporate governance practices enable:

A. Access to capital

B. Economic efficiency

C. Confidence in financial markets

D. All of the above

280 - Circumstantial evidence is defined as:

A. All proof other than direct proof of wrongdoing

B. Proof that is not verified by a direct witness

C. Evidence which offers proof of possible wrongdoing but is not admissible in court

CFE – FINANCIALD. None of the above

281 - Green, a fiscal officer, had access to company cheques but was not authorised to sign them. Green's company used an automated cheque signer which was guarded by a custodian. Green took some blank cheques and made them payable to himself, then snuck into the custodian's office and signed them with the cheque signer. According to the Corporate Fraud Handbook, Green committed:

A. A forged maker scheme

B. A concealed cheque scheme

C. An authorised maker scheme

D. An altered payee scheme

282 - The accounting concept of conservatism leads to an asymmetrical accounting, where the revenues purposefully are overstated and the expenses purposefully are understated.

A. True

B. False

283 - Most forgery schemes are committed by accounts payable clerks, office managers, bookkeepers, or other employees whose duties typically include the preparation of company cheques.

A. True

B. False

284 - According to the Corporate Fraud Handbook, which of the following is NOT one of the major categories of fraudulent financial statement schemes?

A. Fictitious revenues

B. Improper disclosure

C. Ghost employees

D. Timing differences

285 - One of the drawbacks to computer history logs is wrapping. Which of the following is the correct definition of wrapping?

A. Forcing the software to record at the beginning of the file if the file is full and not printed out

B. Forcing the software to download the history before additional history can be recorded

C. Not having enough RAM

D. Not having enough memory in the hard drive

286 - Which of the following is NOT a form of fraudulent disbursement?

A. Billing schemes

B. Payroll schemes

CFE – FINANCIALC. Cheque tampering

D. Skimming

287 - The 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. Passwords of sufficient length (for example, eight characters)

B. Prohibition of shared passwords

C. Passwords revoked if the employee is terminated

D. All of the above

288 - ABC, Ltd. and XYZ, Ltd. are the only two companies in Cork County that lay asphalt. An audit reveals that the state is paying more for asphalt work in Cork 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 XYZ has withdrawn its bid. What scheme might ABC and XYZ be involved in?

A. Bid suppression

B. Phantom bidding

C. Bid rotation

D. Altering bids

289 - According to the Corporate Fraud Handbook, which of the following is NOT a method that is used to conceal inventory shrinkage?

A. Forced reconciliation of the inventory records

B. Writing off stolen inventory as scrap

C. Physical padding

D. Selling merchandise without recording the sale

290 - Which of the following is NOT a recommended protection measure to prevent identity theft?

A. Mail bills from a post office location

B. Obtain a copy of your credit report on a regular basis

C. Shred pre-approved credit applications

D. Keep financial documents in your desk drawer

291 - Types of insurance agent/broker fraud include:

A. Premium fraud

B. Fictitious payees

C. Fictitious death claims

CFE – FINANCIAL

D. All of the above

292 - Which of the following methods might conceal a sham loan to a borrower, with the loan officer receiving part of the proceeds (kickback)?

A. Paying off the old loan with proceeds from a new loan

B. "Digging" the loan on the books

C. Increasing the amount of the loan

D. All of the above

293 - In the prime rate credit card scam, telescammers offer customers major 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. True

B. False

294 - The practice of recording the deposits of transfers between multiple bank accounts before recording the disbursements is called which of the following?

A. Kiting

B. Timing differences

C. An error

D. Lapping

295 - __________ 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. Integrity

C. Confidentiality

D. None of the above

296 - The Corporate Fraud Handbook defines a forged maker scheme as a cheque tampering scheme in which an employee misappropriates a signed cheque intended for a third-party and converts the cheque by signing the third-party's name on the back.

A. True

B. False

297 - All of the following are detection methods for purchasing fraud schemes EXCEPT:

A. Statistical sampling

B. Analytical review

CFE – FINANCIALC. Correspondent sample surveys

D. Site visit observation

298 - Document retention policies should cover which of the following types of documents?

A. Accounting records

B. Client correspondence

C. Employment records

D. All of the above

299 - Which of the following were included in the Treadway Commission's recommendations to help reduce the probability of fraudulent financial reporting?

A. Adequate resources and authority provided to the audit committee

B. A written charter for the audit committee

C. A mandatory, independent audit committee

D. All of the above

300 - Which of the following is NOT a countermeasure that security officers can implement to thwart a spy's attempt at infiltrating their company?

A. Ensure that vendors' credentials have been verified and that vendors are escorted by a company representative during their visits.

B. Have employees sign nondisclosure agreements.

C. Ensure that proprietary data is stored in areas visible to the public.

D. Establish a procedure for tracking and locking up sensitive data.

301 - All of the following are elements of a contract EXCEPT:

A. Lawful subject matter

B. Mutual promises and mutual obligations

C. Must be in writing

D. Competent parties

302 - White made personal use of a company vehicle while on an out-of-town assignment. He provided false written and oral information regarding the nature of the use of the vehicle. The vehicle was returned unharmed. According to the Corporate Fraud Handbook, what type of fraud did White commit?

A. A misappropriation of a non-cash asset

B. An expense reimbursement scheme

C. A fraudulent statement scheme

CFE – FINANCIALD. White did not commit occupational fraud

303 - All of the following are types of fraud schemes perpetrated through the Internet EXCEPT:

A. Control group identities

B. Pyramid schemes

C. Internet commerce

D. Investment and securities fraud

304 - The most effective purchasing fraud prevention measure is proper documentation.

A. True

B. False

305 - ABC, Ltd. submits a bid on a contract. At the same time, it submits bids from several nonexistent companies. It appears to the contractor that there has been a vigorous bidding competition when in fact ABC has been merely bidding against itself. This type of scheme is known as which of the following?

A. Bid rotation

B. Complementary bids

C. Bid suppression

D. Phantom bids

306 - Asset misappropriations are the most common type of occupational fraud.

A. True

B. False

307 - Which of the following is a financial statement analysis technique that involves computing the percentage change in individual income statement or balance sheet items from one year to the next?

A. Horizontal analysis

B. Vertical analysis

C. Statistical sampling

D. Ratio analysis

308 - Premium fraud, agent fraud, claimant fraud, and organised fraud are all types of what?

A. Receivable fraud

B. Credit card fraud

C. Workers' compensation fraud

D. Liability fraud

CFE – FINANCIAL

309 - Contract and procurement fraud is generally committed by:

A. Dishonest employees

B. Dishonest contractors

C. Dishonest companies

D. None of the above

310 - Grey, a controller for a small company, was responsible for preparing and making the daily deposits, recording the deposits in the company's books, and reconciling the bank statement. Grey took several thousand dollars from the company deposits and concealed the theft by making false accounting entries. The money Grey stole had already been recorded in his company's accounting system as sales and receivables. According to the Corporate Fraud Handbook, Grey's scheme is:

A. A cash theft scheme

B. A fraudulent financial statement scheme

C. An illegal gratuities scheme

D. A skimming scheme

311 - To prevent financial statement fraud, management must work to reduce:

A. The opportunity to commit fraud

B. Possible rationalisations for fraudulent conduct

C. The situational pressures to commit fraud

D. All of the above

312 - To safeguard a company against cash theft, each of the following duties should be segregated EXCEPT:

A. Cash receipts

B. Bank deposits

C. Bank reconciliations

D. All of the above should be segregated

313 - Off-book sales of goods always cause shrinkage.

A. True

B. False

314 - In developing an effective corporate governance framework, countries should consider:

A. The framework's impact on market integrity and economic performance

B. The need for effective international dialogue and cooperation

CFE – FINANCIALC. The applicable legal and regulatory requirements

D. All of the above

315 - Which of the following are commons ways identity thieves obtain personal information about their victims?

A. Shoulder surfing

B. Using pretext calls

C. Sorting through trash

D. All of the above

316 - Internal controls that govern the day-to-day operation of the computer system are referred to as:

A. Data file controls

B. Computer operations controls

C. System software controls

D. Implementation controls

317 - The process whereby chemicals are used to erase amount and payee information on a cheque is called:

A. Acid wash

B. Frying

C. Cheque washing

D. Scanning

318 - Improperly capitalising expenses results in which of the following effects on the current period's financial statements?I. Increased assetsII. Increased liabilitiesIII. Increased expensesIV. Increased net income

A. I and IV

B. II and III

C. I only

D. I and III

319 - The five classifications of financial statement schemes are fictitious revenues, timing differences, concealed liabilities and expenses, incorrect or misleading disclosures, and incorrect or misleading asset valuations.

A. True

B. False

CFE – FINANCIAL

320 - Responsibilities of a Certified Fraud Examiner include which of the following?

A. Testify to findings

B. Initially detecting the fraud

C. Reporting to management on the guilt/innocence of suspects

D. All of the above

321 - Which of the following control procedures will NOT help prevent payroll fraud?

A. The same employee or group of employees distributes paycheques every pay period

B. Payroll cheques are written out of a separate payroll account

C. Actual payroll amounts are reviewed and compared to budgeted amounts

D. Personnel records are maintained independently of timekeeping

322 - Fraud in financial statements usually takes the form of overstated assets or revenue and understated liabilities or expenses.

A. True

B. False

323 - The risk of the auditor not detecting a material misstatement resulting from employee fraud is greater than the risk of the auditor not detecting a material misstatement resulting from management fraud.

A. True

B. False

324 - Blue, a cash register teller, signed onto her register, rang a "no sale" to open the drawer, and then removed several hundred dollars. According to the Corporate Fraud Handbook, what kind of scheme is this?

A. A skimming scheme

B. A register disbursement scheme

C. A cash theft scheme

D. None of the above

325 - Which of the following is often present in housing and commercial property sales fraud schemes?

A. Attorneys filing false documents

B. A phoney or fraudulent appraisal report

C. No expert assistance at closing

D. None of the above

CFE – FINANCIAL326 - Skimming is both the theft of cash that has already appeared on a victim organisation's books and the theft of cash that has not yet been recorded on the books.

A. True

B. False

327 - Owners' equity usually represents amounts from two sources: owner contributions and undistributed earnings.

A. True

B. False

328 - Which of the following financial statements shows a "snapshot" of the company's financial position at a specific point in time?

A. Balance sheet

B. Statement of cash flows

C. Income statement

D. All of the above

329 - Able was in charge of purchasing computer equipment for ABC Corporation. Able set up a shell company, used the shell company to purchase used computer equipment, then re-sold that equipment to ABC Corporation at an inflated price. This is an example of:

A. A pay-and-return scheme

B. A pass-through scheme

C. A fictitious cost scheme

D. None of the above

330 - Cash, accounts receivable, and inventory are all examples of current assets.

A. True

B. False

331 - A computer program that attaches itself to other legitimate programs and performs unsolicited and malicious actions without the knowledge of the user is commonly referred to as a:

A. Hacker

B. Spoof

C. Virus

D. Smurf

332 - In a telemarketing scam, the person who calls the potential victim and makes the initial pitch is known as the:

CFE – FINANCIALA. Verifier

B. Closer

C. Fronter

D. None of the above

333 - Users of financial statements may include:

A. Customers

B. Company owners

C. Regulating bodies

D. All of the above

334 - Generally, expense account review uses one of two methods: historical comparisons or comparisons with budgeted amounts.

A. True

B. False

335 - The worth of a business, if it is any good, will always be higher than the value of its hard assets. This is reflected in the accounting concept of:

A. Cost

B. Going concern

C. Materiality

D. Objective evidence

336 - Cash theft is the removal of cash from a victim entity prior to its entry in an accounting system.

A. True

B. False

337 - Which of the following is a financial statement analysis technique that involves computing the percentage change in individual income statement or balance sheet items from one year to the next?

A. Ratio analysis

B. Statistical samplingC. Vertical analysisD. Horizontal analysis

338 - Expenditures incurred for advertising, repairs and maintenance, rent, and utilities are examples of:

A. Gross margin expenses

B. Operating expenses

CFE – FINANCIALC. Cost of goods sold

D. Non-deductible costs

339 - Telemarketing schemes target individuals, not businesses.

A. True

B. False

340 - The cash flows from operations section on a statement of cash flows prepared using the indirect method begins with accrual-basis net income and adjusts for non-cash revenues and expenses to arrive at net cash flows from operations.

A. True

B. False

341 - Which of the following often occurs in a credit card refund scheme?

A. The employee rings up a refund and credits the customer's account

B. The customer uses a phoney credit card to obtain the refund

C. The employee rings up a refund, but credits his card, not the customer's

D. All of the above

342 - In most instances where an employee creates fraudulent invoices to overbill his employer, he uses an existing vendor.

A. True

B. False

343 - Complementary bidding is also known as "protective" or "shadow" bidding.

A. True

B. False

344 - One 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. Numbers that clear are then sold to counterfeiters. This type of scheme is called which of the following?

A. Skimming

B. Grabbing

C. Probing

D. Swiping

345 - Cash-basis accounting involves recording revenues and expenses based on when the company pays or receives cash.

A. True

CFE – FINANCIAL

B. False

346 - A cash larceny from a bank 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 books remain in balance.

A. True

B. False

347 - All of the following terms describe characteristics of a corrupt payer EXCEPT:

A. The one-person operation

B. The gift bearerC. The big spenderD. The too-successful bidder348 - Both historical comparisons and comparisons with budgeted amounts may be used to review expense accounts.

A. True

B. False

349 - Which of the following internal control procedures can help prevent cash larceny schemes?

A. Segregation of the responsibilities for cash receipts and bank deposits

B. Mandatory job rotation

C. Surprise cash counts

D. All of the abov

350 - Sue, a Certified Fraud Examiner and internal auditor for an insurance company, has been asked to review the company's system of internal controls in the claims processing area. Sue 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 Sue's list EXCEPT:

A. Telephone inquires asking hypothetical questions about coverage in the event of a loss similar to the actual claim

B. Asking that the claim be paid as soon as possible

C. Pressure for speed of handling

D. A claim made a short time after the inception of the policy

351 - Able worked in the shipping department of a computer chip manufacturer. One 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 Fraud Handbook, Able's scheme should be classified as a theft of a non-cash asset.

A. True

B. False

352 - Testing a hypothesis involves creating a(n) __________ scenario.

CFE – FINANCIALA. "Where-am-I"

B. "What-if"

C. Unknown

D. "Who's-guilty"

353 - In an alleged case of contract fraud, a fraud examiner conducted unannounced inspections and tests, reviewed a large sample of inspection reports, and interviewed personnel to verify contract compliance of materials. The fraud examiner may be reacting to which of the following suspected schemes?

A. Product substitution

B. Bid rigging

C. Labour mischarges

D. None of the above

354 - All of the following schemes are typically perpetrated during the performance stage of a contract EXCEPT:

A. Product substitution

B. Bid rigging

C. Labour mischarges

D. Accounting mischarges

355 - Skimming is an example of an "off-book" fraud.

A. True

B. False

356 - Ace Electronics is a company that sells computers, televisions, home entertainment centres, and other consumer electronic equipment. A downturn in the market has caused severe financial problems in the company. In order to fool the auditors as they begin their inventory count, several of Ace's managers have begun stacking empty boxes in the warehouse to create the illusion of extra inventory. This scheme is known as:

A. Inventory shuffling

B. Forced reconciliation

C. Physical padding

D. None of the above

357 - All but which of the following activities are included in the presolicitation phase of the contracting procedure?

A. Bid submission

B. Award criteria

CFE – FINANCIALC. Developing the specifications

D. Need recognition

358 - Program or system changes should be moved to a test library from the production library before the changes are made. The 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. True

B. False

359 - The detection and proving of contract and procurement fraud requires expertise in which of the following areas?

A. Company or governmental authority policies and procedures

B. Awareness of industry standards and practices

C. Contract law

D. All of the above

360 - Improper disclosures relating to financial statement fraud may involve:

A. Accounting changes

B. Management fraud

C. Subsequent events

D. All of the above

361 - Forgery can include both the signing of another person's name on a document with fraudulent intent and any fraudulent alteration of a document.

A. True

B. False

362 - Which of the following is not designated as one of the five major categories of cheque tampering in the Corporate Fraud Handbook?

A. Counterfeit cheque schemes

B. Forged maker schemes

C. Forged endorsement schemes

D. Altered payee schemes

363 - Proof of corrupt influence often involves demonstrating that the person acted in a manner that was not in the interest of the organisation.

A. True

B. False

CFE – FINANCIAL

364 - In computer sequence checking, the computer verifies the preassigned serial numbers of input transactions and reports missing or duplicate numbers.

A. True

B. False

365 - In countries in which government health care plans are provided, the majority of health care fraud is perpetrated by health care providers.

A. True

B. False

366 - Identity theft is an increasingly frequent type of fraud that is non-discriminatory in nature-anyone can be targeted.

A. True

B. False

367 - When evaluating controls to prevent or reduce fraud risks to an organisation, internal auditors should consider:

A. Whether fraud could be committed by an individual or whether it would require collusion

B. The negative effects of giving the appearance that employees are not trusted

C. The balance between cost and benefit

D. All of the above

368 - In a computerised system, maintenance controls perform all but which of the following functions?

A. Ensure that stored data has not been changed except through normal processing channels

B. Keep data up-to-date

C. Identify unusual data requiring further action

D. Verify password compliance

369 - Freeware and shareware are two common ways a computer may become infected by a virus.

A. TrueB. False370 - Institute of Internal Auditors (IIA) Practice Advisory 1210.A2-1-Auditors' Responsibilities Relating to Fraud Risk Assessment, Prevention, and Detection-states that the internal auditor has the responsibility to establish and maintain internal control at a reasonable cost.

A. True

B. False

CFE – FINANCIAL371 - In a __________ scheme, multiple bank accounts are opened and money is deposited from account to account, although the actual funds never exist.

A. Payroll cheque fraud

B. Demand drafts

C. Cheque kiting

D. Stop payment orders

372 - All of the following are methods that might be employed to prevent computer viruses, EXCEPT:

A. Using a diskette to boot your system

B. Testing computer software on an isolated system before loading it into the production machines

C. Use of anti-virus software packages

D. Backing up files

373 - Accounting mischarges are defined as knowingly 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. True

B. False

374 - As a very general proposition, suspected on-book schemes are best approached from the point of payment. Off-book or other cash schemes are easier to detect at the suspected point of receipt.

A. True

B. Fals

375 - An automobile owner abandons his vehicle and falsely reports it as stolen in order to cash in on an insurance policy. This type of scam is called:

A. Twisting

B. Sliding

C. Churning

D. Ditching

376 - Frederick was a property manager for a large apartment complex while he was attending university. One of his duties was to collect rent from the tenants. If rent was paid after the third of the month, a late fee was tacked on to the amount due. When a tenant paid his rent late, Frederick would backdate the payment, record and remit only the rent portion to his employers, and pocket the late fee. This is an example of what type of fraud?

A. Fraudulent write-offs

B. Skimming

C. Larceny

CFE – FINANCIALD. Plugging

377 - Telemarketing companies who push secured credit cards, requiring a cash deposit (usually $250-$300 minimum) in the issuer's bank to activate the card, are committing a:

A. Gold card scam

B. Credit services scam

C. Credit repair scam

D. Prime-rate credit card scam

378 - When a hacker calls up someone at the target company and cajoles or tricks the person into providing valuable information, that technique is referred to as which of the following?

A. Spamming

B. Replicating

C. Social engineering

D. None of the above

379 - In a properly run payroll system, timecards that have been authorised by management should be:

A. Sent directly to payroll

B. Given back to the employees for review

C. Destroyed

D. Any of the above

380 - Fraudulent disbursement schemes can be broken down into several smaller categories, including cheque tampering schemes, billing schemes, payroll schemes, and expense schemes.

A. True

B. False

381 - Companies may inadvertently divulge confidential information in sales proposals.

A. True

B. False

382 - Instead of creating completely fictitious sales, some dishonest employees understate legitimate sales so that an accomplice is billed for less than delivered.

A. TrueB. False383 - The items on telescammers' best-seller lists that are sold as valuable but are essentially worthless include:

CFE – FINANCIAL

A. World War II memorabilia

B. Coins

C. Figurines

D. All of the above

384 - Baker, the managing partner in a small law firm, is the authorised signer on all company cheques. When his phone bill arrived last month, Baker prepared and signed a company cheque to pay the bill. He did not disclose this payment to his partners. According to the Corporate Fraud Handbook, Baker committed an authorised maker scheme.

A. True

B. False

385 - The Corporate Fraud Handbook identified all of the following as types of skimming schemes: unrecorded sales, understated sales, short-term skimming, and forged cheques.

A. True

B. False

386 - Which of the following is a sign that a proposed entrepreneurial program might not be legitimate?

A. References specified by the company

B. Promises of exclusive territories

C. The lack of a complete disclosure document

D. All of the above

387 - Which of the following is a sign that a proposed entrepreneurial program might not be legitimate?

A. References specified by the company

B. Promises of exclusive territories

C. The lack of a complete disclosure document

D. All of the above

388 - When perpetrating a ghost employee scheme, the benefit of using a salaried employee, rather than an hourly employee, as the ghost is:

A. The scheme is easier to conceal

B. It is easier to add the employee to the payroll

C. It is not necessary to collect timekeeping information

CFE – FINANCIAL

D. All of the above

389 - Fraudulent telemarketers often intentionally select elderly and unemployed individuals as victims.

A. True

B. False

390 - A running tabulation of how much inventory should be on hand is known as the hypothetical inventory.

A. True

B. False

391 - The Corporate Fraud Handbook discussed several methods that fraudsters use to conceal cheque tampering. These include:

A. Forced reconciliations

B. Preparing bogus support documentationC. Miscoding fraudulent chequesD. All of the above

392 - Which of the following are common real estate loan fraud schemes?

A. Equity skimming

B. Appraisal fraud

C. Short-sale schemes

D. All of the above

393 - 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 paycheques were issued.

Able would fill out his timecard in erasable ink, wait until his supervisor had signed off on it, then change the number of hours on the timecard before he took it to payroll accounting. This increased the size of his paycheques. According to the Corporate Fraud Handbook, this is an example of:

A. Cheque tampering

B. Forgery

C. A ghost employee scheme

D. A falsified hours and salary scheme

394 - The OECD Principles of Corporate Governance are non-binding, and the responsibility for enforcing the standards rests with individual governments.

CFE – FINANCIALA. True

B. False

395 - Effective computer security ensures the availability of accurate data in time to meet an organisation's needs at a cost that is commensurate with risks involved. One of the key elements in an effective computer security system is the maintenance of which of the following? I. Confidentiality II. MaterialityIII. Integrity IV. Availability

A. II and III only

B. I, II, III, and IV

C. I, III, and IV only

D. I, II, and III only

396 - The type of fraud that targets groups of people who have some social connection, such as neighbourhoods of racial minorities or immigrant groups, is known as:

A. Consolation

B. Affinity fraud

C. Reloading

D. None of the above

397 - The primary foundation of the INTOSAI professional framework for auditing in the public sector is the call for legislated independence of government auditing institutions.

A. True

B. False

398 - The primary foundation of the professional framework for auditing in the public sector is the call for legislated independence of government auditing institutions.

A. True

B. False

399 - The risk that management will override internal controls is present in all entities.

A. TrueB. False400 - In a telemarketing scam, the person who reads vague words about the deal and records the victim's agreement is known as the:

CFE – FINANCIALA. Closer

B. Fronter

C. Verifier

D. None of the above

401 - _________ is the term used to represent amounts received from the sale of goods or services during an accounting period.

A. Expenses

B. Assets

C. Equity

D. Revenues

402 - Which of the following ratios compares assets that can be immediately liquidated with liabilities that are expected to come due during the next operating cycle?

A. Quick ratio

B. Asset turnover

C. Profit margin

D. Collection ratio

403 - All of the following red flags are indicators of bid rigging schemes EXCEPT:

A. Joint ventures by firms who could have proposed individually

B. Successful bidder consulting with buyer in need recognition stage

C. Other qualified vendors fail to submit proposals

D. Wide disparity in bid prices404 - All pyramids schemes are illegal.

A. True

B. False

405 - Which of the following is a common recruiting method that a spy can use on existing employees of a targeted company?

A. Trapping

B. Recruiting by justification

C. False flag recruitment

CFE – FINANCIALD. All of the above

406 - In a(n) _____________ scheme, the company or con men that initially conned a consumer contacts that consumer and offers to help retrieve the lost money. However, the investigation requires an up-front fee and the consumer is swindled again.

A. Advance fee

B. Money manager

C. Scavenger or revenge

D. Directory

407 - One pressure tactic that fraudsters use in a pyramid scheme is to make the potential investor believe that time is of the essence: "Get in now, or regret it forever."

A. True

B. False

408 - If an employee sells an item and pockets the cash without recording the sale, this is known as skimming.

A. True

B. False

409 - Health insurance fraud accounts for five to 10 percent of all health care dollars paid out.

A. True

B. False

410 - The majority of cheque tampering schemes are committed by owners/executives.

A. True

B. False

411 - In order to detect insurance fraud, an examiner should be alert for which of the following red flags? I. Pressuring for rapid processing of claimsII. Exhibiting more than the usual knowledge about insurance coverage and claims proceduresIII. Similar handwriting or signatures on different receipts, valuations, or invoicesIV. The signature on the proposal does not appear to be the same signature as shown on the claim form

A. I and II only

B. I, II, III, and IV

C. II and III only

D. III and IV only

CFE – FINANCIAL

412 - Employees who are most likely to be recruited by spies are those who exhibit some loyalty or devotion toward their employer.

A. True

B. False

413 - Persons who are expert at passing phoney cheques are sometimes called:

A. Chequesters

B. Paperhangers

C. Launderers

D. Phonies

414 - An employee awareness program should be instituted to protect proprietary information. An important component of such a program is to make employees aware of "shoulder surfing."

A. True

B. False

415 - One recent innovation has significantly reduced the incidence of cheque fraud among banks. This technique is which of the following?

A. Electrostatic detection apparatus

B. Inkless fingerprints

C. Signature analysis

D. Video spectral comparator

416 - One technique to prevent cheque and credit card fraud is the use of a micro-line. This technique is useful because:

A. The 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. The line is actually a small hologram that is hard to recreate by counterfeiters.

D. The line is made up of very small words or letters that are difficult to recreate by normal printing methods.

417 - The 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. The purchase of a fixed asset

B. The purchase of raw materials with which to manufacture inventory

CFE – FINANCIAL

C. The payment of employee salaries

D. The payment of dividends to company shareholders

418 - Shoddy merchandise is a familiar element of the biz op scam.

A. True

B. False

419 - All of the following are basic methods by which companies conceal payments of bribes and/or kickbacks, EXCEPT:

A. Fictitious receivables

B. Fictitious payables

C. Ghost employees

D. Overbilling

420 - Able, a Certified Fraud Examiner, is looking at a cheque that he suspects is forged. It 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. The tool the specialist will most likely use to reveal the use of correction fluid is a(n):

A. Video spectral comparator

B. Correction fluid analyzer

C. Electrostatic detection apparatus

D. Biometric fingerprint identifier

421 - Traditional methods of making illegal payments include which of the following?

A. Payment of credit card bills

B. Gifts, travel, and entertainmentC. Cheques and other financial instrumentsD. All of the above422 - Which of the following is NOT an estimate that is commonly manipulated as part of construction loan fraud scheme?

A. Developer overhead

B. Costs to complete

C. Selling price

D. Draw requests

CFE – FINANCIAL423 - The Corporate Fraud Handbook identified all of the following as types of skimming schemes: unrecorded sales, understated sales, short-term skimming, and forged cheques.

A. True

B. False

424- All of the following are detection methods for purchasing fraud schemes EXCEPT:

A. Site visit observation

B. Analytical review

C. Statistical sampling

D. Correspondent sample surveys

425 - A scheme whereby a bank buys, sells, and swaps its bad loans for the bad loans of another bank, creating new documentation in the process, is called what?

A. Linked financing

B. Nonexistent borrower scheme

C. Daisy chain

D. None of the above

426 - Telemarketing schemes target individuals, not businesses.A. TrueB. False427 - The five classifications of financial statement schemes are fictitious revenues, timing differences, concealed liabilities and expenses, incorrect or misleading disclosures, and incorrect or misleading asset valuations.

A. True

B. False

428 - _____________ is a technique for analysing the relationships between the items on an income statement, balance sheet, or statement of cash flows by expressing components as percentages.

A. Vertical analysis

B. Horizontal analysis

C. Ratio analysis

D. None of the abov

429 - Billing schemes are a popular form of employee fraud mainly because they offer the prospect of large rewards.

A. True

CFE – FINANCIALB. False

430 - To safeguard a company against cash theft, each of the following duties should be segregated EXCEPT:

A. Bank deposits

B. Bank reconciliations

C. Cash receipts

D. All of the above should be segregated

431 - Logical access to a computer system refers to which of the following?

A. Access to a computer system through the use of a mainframe

B. Physical security over the equipment and information

C. Access to a computer system from any location where someone can sign on

D. Application security over the software and libraries

432 - __________ indemnifies against economic loss to the insured caused by the dishonesty of employees.

A. Fidelity insurance

B. Property insurance

C. Disability insurance

D. Life assurance

433 - This hacking technique involves using unsuspecting and gullible users to provide information.

A. Network weaving

B. Social engineering

C. Impersonation

D. Scavenging

434 - Predication, as it relates to the examination of fraud, means the basis upon which the examination is undertaken.

A. True

B. False

435 - One confidence scheme involves diploma mills. The characteristic warning sign of a possible diploma mill is:

CFE – FINANCIALA. The processing fee charged

B. A fancy-sounding universityC. That advanced standing for courses is grantedD. None of the above436 - Which of the following is a reason that pyramid schemes continue to flourish?

A. Pyramids use ingenuity and false logic in their pitches.

B. Pyramids operate mainly through pre-existing affiliations.

C. Pyramids initially pay off, providing excellent word of mouth.

D. All of the above

437 - According to COSO's Internal Control-Integrated Framework, internal control is defined as a process designed to provide reasonable assurance regarding the achievement of objectives related to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.

A. True

B. False

438 - Sharon, a Certified Fraud Examiner and internal auditor for an insurance company, has been asked to review the company's system of internal controls in the claims processing area. Sharon 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 Sharon's list EXCEPT:

A. Pressure by the claimant to pay a claim quickly

B. Individuals who mail their claim and ask for their claim cheque to be mailed back to them

C. Threats of legal action when a claim is not paid quickly

D. Anonymous telephone inquiries regarding the status of a pending claim

439 - Bob works as a cashier in a busy restaurant. Bob has a small device hidden under the counter. When no one is looking, Bob sometimes swipes a customer's credit card through this device before he swipes the card through the actual credit card authorisation machine. This device is designed to record all of the information contained on the magnetic strip on the back of the card and is called which of the following?

A. Swiper

B. Stealer

C. Grabber

D. Wedge

440 - According to the Corporate Fraud Handbook, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation's books are known as skimming schemes.

A. True

CFE – FINANCIALB. False

441 - Which of the following internal auditor responsibilities pertaining to fraud requires the examination and evaluation of the adequacy and effectiveness of internal controls commensurate with the extent of the potential exposure within the organisation?

A. Detection

B. Prevention

C. Reporting

D. Investigation

442 - ________ provide telemarketing scammers with the autodialers, phone lists, credit card receipts, and merchandise they require to operate.

A. Fronters

B. Closers

C. Turnkeys

D. Factoring companies

443 - The two basic register disbursement schemes are:A. True voids and false refundsB. False voids and true refundsC. False refunds and false voidsD. True voids and true refunds

444 - All pyramid schemes can also be classified as Ponzi schemes.

A. True

B. False

445 - 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. True name fraud

B. Credit doctor fraud

C. Non-receipt fraud

D. None of the above

446 - According to International Standard on Auditing (ISA) 240, ________ involves intentional misstatements in the financial statements to deceive financial statement users.

A. Material misrepresentation

CFE – FINANCIAL

B. Fraudulent financial reporting

C. A reporting error

D. Item adjustment

447 - When an employee records a fictitious refund at his cash register, the victim company's stock is overstated and a disbursement from the register is recorded.

A. True

B. False

448 - Contingent liabilities are obligations a firm may be required to honour in certain cases. A pending lawsuit is a representative example of a contingent liability. The company's potential liability, if material, must be discussed in the notes to the financial statements.A. TrueB. False449 - If the fraud examiner tests her hypothesis and finds that all the facts do not fit a particular scenario, the examiner should then _______.

A. Bring in a consultant

B. Assume no fraud was committed

C. Revise and retest the hypothesis

D. Look for a different suspect

450 - The wrongful taking or conversion of another's property for the benefit of someone else is most properly referred to as which of the following?

A. Misapplication

B. Embezzlement

C. Grand larceny

D. Larceny

451 - Most mainframe security systems allow for three levels of security. The three levels are:

A. Log, warn, and fail

B. Access code, passwords, and user ID

C. Defined passwords, warn, and system alert

D. Sign-on, access password, and log-off

452 - Solicitations for pre-approved credit cards should be shredded before being discarded in the trash.

A. True

CFE – FINANCIAL

B. False

453 - The Corporate Fraud Handbook discussed several methods that fraudsters use to conceal cheque tampering. These include preparing bogus support documentation, miscoding fraudulent cheques, and forced reconciliations.

A. True

B. False

454 - Most shell company schemes involve the purchase of an employee.

A. True

B. False

455 - A credit card ____________ scheme involves the fraudster swiping a credit card through a device known as a wedge. This device records the credit card information, which is later used to conduct unauthorised transactions.

A. Probing

B. Swiping

C. Grabbing

D. Skimming

456 - Which of the following is NOT one of the five components of internal control, as identified by COSO?

A. Monitoring

B. Enterprise risk management

C. Control environment

D. Risk assessment

457 - All but which of the following activities are included in the presolicitation phase of the contracting procedure?

A. Bid submission

B. Award criteria

C. Developing the specifications

D. Need recognition

458 - The equipment that is necessary for a successful cheque fraud ring to function is often expensive and hard to obtain.

CFE – FINANCIAL

A. True

B. False

459 - ________ is defined as the wrongful taking or conversion of the property of another for the wrongdoer's benefit.

A. Bribery

B. Land flipping

C. Misapplication

D. Embezzlement

460 - A counterfeit travellers' cheque can often be detected by feeling the cheque surface. The surface of a phoney cheque will feel slick and flat.

A. True

B. False

461 - The hypothesis formed at the beginning of an examination is usually a _______ scenario.

A. Presumption of innocenceB. "Best-case"C. "Worst-case"D. Hypothetical

462 - When the bank statement is reconciled, cheques that have dual endorsements should always raise suspicions, particularly when the second signer is an employee of the company.A. TrueB. False463 - When reviewing bank reconciliations, which of the following tests should a company perform?

A. Confirm the mathematical accuracy of the reconciliation

B. Foot the balance to the company's ledger

C. Examine the bank statement for possible alterations

D. All of the above

464 - The authorised maker scheme is generally the most difficult cheque tampering scheme to defend against.

A. True

B. False

CFE – FINANCIAL465 - According to the Corporate Fraud Handbook, schemes in which an employee physically misappropriates cash that has already appeared on the victim organisation's books are known as skimming schemes.

A. True

B. False

466 - According to the Corporate Fraud Handbook, most shell company schemes involve the purchase of fictitious goods.

A. True

B. False

467 - During an audit of the financial statements, the external auditor should obtain written representations from management stating:

A. That management has disclosed to the auditor its knowledge of any allegations of fraud, or suspected fraud, affecting the entity's financial statements communicated by employees, former employees, analysts, regulators, or others

B. That management acknowledges its responsibility for the design, implementation, and maintenance of internal control to prevent and detect fraud

C. That management has disclosed to the auditor its knowledge of fraud or suspected fraud affecting the entity involving any members of management

D. All of the above

468 - As defined by International Standard on Auditing (ISA) 240, fraudulent financial reporting involves:

A. The manipulation, falsification, or alteration of accounting records or supporting documentation from which the financial statements are prepared

B. The misrepresentation in, or intentional omission from, the financial statements of events, transactions, or other significant information

C. The intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure

D. Any of the above

469 - 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. Cheques were cut to pay for these unauthorised expenses during normal daily cheque runs. The goods were ordered drop shipped to a location where Able could collect them. This type of occupational fraud is known as a billing scheme.

A. True

B. False

470 - The risk that management will override internal controls is present in all entities.

A. True

CFE – FINANCIAL

B. False

471 - The purpose of International Standard on Auditing 240 is to:

A. Place the primary responsibility for preventing fraud on auditors

B. Establish standards and provide guidance on the auditor's responsibility to consider fraud in an audit of financial statements

C. Establish requirements for auditors related to designing and implementing fraud-related internal controls

D. All of the above

472 - According to the Corporate Fraud Handbook, which type of scheme is generally hardest to detect?

A. Skimming

B. Cash theft

C. Cash distraction

D. Both cash larceny and skimming are equally difficult to detect

473 - Billing schemes are the most common and second most costly (slightly behind cheque tampering) of the fraudulent disbursement schemes. Payroll and expense reimbursement schemes, on the other hand, are among the least costly of the fraudulent disbursements.

A. True

B. False

474 - In a well-designed internal control system for computer operations, the users of the system should have access to the production program code.

A. True

B. False

475 - It is perfectly safe to conduct a sensitive or confidential conversation on a cellular telephone device. These transmissions are generally secure and protected.

A. TrueB. False476 - In most instances where an employee creates fraudulent invoices to overbill his employer, he uses an existing vendor.

A. True

B. False

CFE – FINANCIAL

477 - Which of the following is NOT a red flag of fraudulent register disbursements?

A. Personal cheques from cashier found in register

B. Multiple refunds or voids for amounts just under the review limit

C. Gaps in the sequence of transactions on till roll

D. Multiple cashiers operate from a single cash drawer with separate access codes

478 - According to International Standard on Auditing (ISA) 240, in responding to the assessed risks of material misstatement due to fraud, the auditor should incorporate an element of predictability into the selection of the nature, timing, and extent of the audit procedures to be performed.

A. True

B. False

479 - The most direct way of gaining access to a computer is to _______.

A. Use an authorised person's password

B. Use a Trojan horse

C. Use a logic bomb

D. Use a trap door

480 - One illegal type of investment scam is called a:A. PatsyB. PulleyC. PonziD. Percy481 - How can travel agents and airline reservation personnel be helpful to corporate spies?

A. They can act as regular spies.

B. They can serve as informants.

C. They can act alone and analyse information for the spy.

D. None of the above

482 - In 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.

A. True

B. False

CFE – FINANCIAL483 - Expense reports should require all of the following:* Receipts or other support documentation* Explanation of the expense including specific business purpose* Time period expense occurred * Place of expenditure * Amount

A. True

B. False

484 - In proving income from illicit sources, a behavioural profile may lead the examiner to understand the motive behind the fraud.

A. True

B. False

485 - Illicit funds can be generated by funnelling phony salary payments to fictitious or former employees, or by making extra payments to presently salaried employees who then either return them to the payer or pass them on to the recipient.

A. TrueB. False486 - Which of the following is not designated as one of the five major categories of cheque tampering in the Corporate Fraud Handbook?

A. Counterfeit cheque schemes

B. Altered payee schemes

C. Forged endorsement schemes

D. Forged maker schemes

487 - In order to examine on-book payments of fictitious disbursements, the fraud examiner would examine a suspected company's bank account information and records regarding its payments for services.

A. True

B. False

488 - ___________ is the analytical process that transforms disaggregated competitor data into relevant, accurate, and usable knowledge about competitors' positions, performance, capabilities, and intentions.

A. Information

B. Espionage

C. Competitive intelligence

D. Intellectual property

CFE – FINANCIAL

489 - One pressure tactic that fraudsters use in a pyramid scheme is to make the potential investor believe that time is of the essence: "Get in now, or regret it forever."

A. True

B. False

490 - A person responsible for collecting cash should NOT have authority to prepare bank deposits.

A. TrueB. False491 - As part of an effective Programme for Safeguarding Proprietary Information, an entity should assemble an Intellectual Property Protection Committee or task force, the purpose of which is to:

A. Develop an employee awareness program

B. Shred sensitive documents

C. Institute an encryption policy

D. Determine what information should be protected

492 - Shell company schemes in which actual goods or services are sold to the victim company are known as pass-through schemes.

A. True

B. False

493 - Which of the following is a technique that fraudulent cheque passers try to use on bank tellers?

A. The customer tries to flatter, hurry, or confuse the teller to draw attention away from the transaction

B. The customer delays endorsing the cheque or producing identification during peak hours to frustrate the teller and hurry the transaction

C. The customer offers altered or damaged identification to open an account or cash a cheque

D. All of the above

494 - In a financial misstatement scheme in which capital expenditures are recorded as income statement items, the transactions will have the following effect on the organisation's financial statements:

A. Sales revenue will be overstated

B. Net income will be understated

C. Net income will be overstated

D. All of the above

495 - Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemarketing fraudsters.

A. True

CFE – FINANCIAL

B. False

496 - All of the following are types of fraud schemes perpetrated through the Internet EXCEPT:

A. Internet commerce

B. Control group identities

C. Pyramid schemes

D. Investment and securities fraud

497 - The owners' equity in a firm generally represents amounts from which two sources?

A. Bonds sold and owner contributions

B. Undistributed earnings and bank loans

C. Owner contributions and bank loans

D. Undistributed earnings and owner contributions

498 - _________ provide telemarketing scammers with the autodialers, phone lists, credit card receipts, and merchandise they require to operate.

A. Turnkeys

B. Factoring companies

C. Closers

D. Fronters

499 - A type of embezzlement 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. False accounting entries

B. Unauthorised withdrawals

C. Moving money from dormant accounts

D. Unauthorised disbursement of funds to outsiders

500 - The purpose of notes to financial statements is to provide all information required to avoid misleading potential investors, creditors, or any other users of the financial statements.

A. True

B. False

501 - Which of the following is NOT part of the fraud examination process?

CFE – FINANCIAL

A. Obtaining evidence

B. Writing reports

C. Testifying to findings

D. Punishing the offender

502 - Which of the following is an example of a conflict of interest?

A. An employee who has an undisclosed interest in a transaction; 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. The employee's interest in the transaction is undisclosed and the employer does not know of the employee's interest in the business deal

D. All of the above

503 - Chitry, a sales executive for CIT Manufacturing, frequently took clients out for dinner and shows when they came to town to tour the plant. He generally paid for these expenses himself and submitted the receipts to his supervisor for approval and reimbursement. Occasionally, however, he also took his family out to restaurants and concerts and included these expenses in his reimbursement requests by indicating that he was entertaining a client. This type of fraud is known as a(n):

A. Mischaracterised expense reimbursement

B. Altered receipt reimbursement

C. Overstated expense reimbursement

D. Fictitious expense reimbursement

504 - A person is involved in an auto accident but doesn't have insurance. To be reimbursed for the damages, he gets insurance, waits a short time, and then reports the vehicle as having been in an accident. This person has committed an insurance scam known as _____________.

A. Past posting

B. Churning

C. Ditching

D. None of the above

505 - As a rule of thumb, any multi-level marketing organization 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. True

B. False

CFE – FINANCIAL

506 - The most difficult part of a shell company scheme, from the fraudster's perspective, is ___________________.

A. Producing invoices for fictitious goods or services

B. Getting the victim company to pay the invoices

C. Discovering the correct person within the victim company to send invoices to

D. None of the above507 - The most common give-away scam, in which a postcard arrives in the mail telling the receiver he has won a prize such as cash or a luxury car, is known as:

A. The 1-in-5

B. The bait and switch

C. The fly and buy

D. None of the above

508 - Pretending to find a wallet full of money, the fraudster convinces his mark that they should divide the "discovered" money. As a show of good faith, the con man suggests that each individual should withdraw a sum of money from their bank and turn it over to a lawyer or another third party for safekeeping. When the designated time to spilt the money comes, the victim finds that the fraudster and his money are gone. This scheme is known as a(n):

A. Block hustle

B. Scavenger scheme

C. Pigeon drop

D. Envelope switch

509 - The median cost of register disbursement schemes is among the highest of all fraudulent disbursements.

A. True

B. False

510 - A bribe or illicit payment made in the form of a hidden interest may be hard to detect for all of the following reasons EXCEPT:

A. The recipient's interest may be concealed through a straw or nominee

B. The recipient's interest may be paid directly from the payer's normal business account

C. The recipient's interest may be undocumented or may be a verbal agreement

D. The recipient's interest may be hidden in a trust or other business interest511 - In a well-designed internal control system for computer operations, the users of the system should have access to the production program code.

CFE – FINANCIAL

A. True

B. False

512 - Kickbacks are classified as asset misappropriations rather than corruption schemes because they involve collusion between employees and vendors.

A. True

B. False

513 - According to the Institute of Internal Auditors (IIA) Practice Advisory 1210.A2-1-Auditors' Responsibilities Relating to Fraud Risk Assessment, Prevention, and Detection-the internal auditor's responsibilities for detecting fraud include: I. Having sufficient knowledge of fraud to be able to identify indicatorsII. Being alert to opportunities, such as control weaknesses, that would allow fraud to occurIII. Evaluating the indicators that fraud may have been committed IV. Notifying the appropriate authorities outside the organisation if there are sufficient indicators that fraud is being committed

A. I, II, III, and IV

B. II, III, and IV only

C. I, II, and IV only

D. I, II, and III only

514 - Because they generally do not have access to a large amount of funds, unemployed people are rarely targeted by telemarketing fraudsters.

A. True

B. False

515 - According to the Corporate Fraud Handbook, which of the following is not a fraudulent financial statement scheme?

A. Forged maker schemes

B. Fictitious revenues schemes

C. Timing differences schemes

D. Concealed liabilities and expenses schemes

516 - Because phoney death certificates are usually not difficult to obtain, false death claims on life insurance policies are often paid relatively easily.

A. True

CFE – FINANCIALB. False

517 - Which of the following ratio calculations is used to determine a company's ability to meet sudden cash requirements?

A. Collection ratio

B. Debt to equity

C. Current ratio

D. Quick ratio

518 - Encryption technology should be used in which of the following instances:

A. Faxing

B. E-mail

C. Teleconferencing

D. All of the above

519 - According to the Corporate Fraud Handbook, which of the following scheme types is most common?A. Conflicts of interestB. BriberyC. Economic extortionD. Illegal gratuities520 - According to the Corporate Fraud Handbook, 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. Liability omission

B. Accounting change

C. Related-party transaction

D. Significant even

521 - There is nothing inherently wrong with related party transactions, as long as they are fully disclosed and are at arm's-length.

A. True

B. False

522 - Employees who are most likely to be recruited by spies are those who exhibit some loyalty or devotion toward their employer.

A. True

B. False

CFE – FINANCIAL523 - Internet scams have become very prevalent due, in part, to the fact that many online transactions are poorly regulated and policed.

A. True

B. False

524 - Falsifying incoming deliveries of inventory can best be classified as what type of scheme?

A. Larceny scheme

B. Asset transfer scheme

C. Purchasing and receiving scheme

D. None of the above

525 - Cheque fraud rings cannot organise without a significant amount of capital because the equipment necessary to operate a cheque fraud ring is extremely expensive.

A. True

B. False

526 - Perpetrators of cheque tampering schemes generally prefer to make the cheque payable to "cash" so that it does not require an endorsement to be converted.

A. True

B. False

527 - Which of the following is NOT a type of purported or actual loan that frequently turns up in corruption and fraud cases?

A. A legitimate loan from a third-party bank, 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

D. An interest sold or given at below-market terms

528 - If 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. True

B. False

529 - The terms "Ponzi scheme" and "pyramid" are identical and should be used interchangeably.

A. True

CFE – FINANCIAL

B. False

530 - Bob, a Certified Fraud Examiner, has been called in to investigate a potential contract and procurement fraud case. He begins to suspect that the company is engaging in a bid specification scheme. To confirm his hypothesis, which of the following weaknesses would Bob NOT expect 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 known

C. Using specifications, conditions, schedules, or single source justifications developed by, or in consultation with, a contractor who is also a bidder

D. Splitting costs into separate categories in order to avoid review

531 - The bank examiner swindle is generally perpetrated against _______________.

A. Younger women

B. Older men

C. Older women

D. None of the above

532 - 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 known, and awarding the contract to the last bidder are typical red flags of which type of contract and procurement fraud?

A. Presolicitation schemes

B. Bid submission schemes

C. Performance schemes

D. Bid-rigging schemes

533 - ________shareholder rights allow investors to seek redress once their rights have been violated.

A. Ex-ante

B. Ex-hoc

C. Ex-post

D. None of the above

534 - Peter is the contracts manager for a city government. In order for contractors to do business with the municipality, they must pay Peter 10 percent of the total amount of the contract. This type of corruption is known as:

A. Economic extortion

CFE – FINANCIAL

B. Bribery

C. A conflict of interest

D. Bid-rigging

535 - All of the following statements are true, EXCEPT:

A. Revenue accounts are decreased with debits.

B. Asset accounts are increased with debits.

C. Expense accounts are decreased with debits.

D. Liability accounts are increased with credits.

536 - _________ is the term used to represent amounts received from the sale of goods or services during an accounting period.

A. Assets

B. Equity

C. Revenues

D. Expenses

537 - Which of the following calculations of receivable turnover is correct?

A. Days in the year divided by average net receivables

B. Net sales on account divided by average net receivables

C. Cost of sales divided by average net receivables

D. None of the above

538 - Voided cheques may indicate cheque tampering.

A. True

B. False

539 - Which of the following is the definition of the computer manipulation technique known as a salami technique?

A. Using several networks in a series in order to avoid detection

B. Stealing a small amount of assets from a large number of sources without noticeably reducing the whole

C. Searching for valid access codes or trap doors

CFE – FINANCIAL

D. Toggling back and forth between benign activity and hacking

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

A. The claim is made a short time after the inception of the policy

B. The insured has a history of many insurance claims

C. The insured is very pushy and insistent about a fast settlement

D. All of the above are red flags

541 - All of the following are common control techniques in a computerised system EXCEPT:

A. Edit checks

B. Password encryption matching

C. One-for-one checking

D. Computer sequence checking

542 - Which of the following methods is NOT suggested in the Corporate Fraud Handbook as a way to detect a ghost employee scheme?

A. Compare the disbursement date of trust account taxes with the deposit date

B. Review payroll records for duplicate addresses or deposit accounts

C. Look for employees who have no withholding taxes, insurance or other normal payroll deductions

D. Review payroll records for duplicate social insurance numbers

543 - PayPal is an example of what type of payment system?

A. Business-to-business

B. Person-to-business

C. Person-to-person

D. Proprietor-to-proprietor

544 - Pure cash and product fronts are categories of ____________.

A. Phishing

B. Ponzi schemes

C. Skimming schemes

CFE – FINANCIAL

D. Pharming

545 - Which of the following is an example of an "off-book" fraud?

A. Skimming

B. Ghost employee schemes

C. Billing schemes

D. Cash larceny

546 - Generally, to conceal an asset misappropriation in the company's books, 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

D. None of the above

547 - Accounting mischarges could include all of the following EXCEPT:

A. Failing to produce an inspection certificate

B. Hiding items in accounts that are not closely audited

C. Knowingly charging unallowable items to the buyer

D. Concealing or misrepresenting unallowable items as allowable

548 - In order to detect insurance fraud, an examiner should be alert for which of the following red flags? I. Pressuring for rapid processing of claimsII. Exhibiting more than the usual knowledge about insurance coverage and claims proceduresIII. Similar handwriting or signatures on different receipts, valuations, or invoicesIV. The signature on the proposal does not appear to be the same signature as shown on the claim form

A. I, II, III, and IV

B. II and III only

C. III and IV only

D. I and II only550 - _______________ is perpetrated by a physician, clinic, hospital, medical supplies vendor, or other provider to create illegitimate income.

A. Beneficiary fraud

B. Provider fraud

CFE – FINANCIALC. Insured fraud

D. None of the above

551 - Ineffective monitoring of management, a complex organisational structure, and deficient internal control components are all examples of which type of fraud risk factor relating to fraudulent financial reporting?

A. Opportunities

B. Attitudes/rationalizations

C. Pressures/incentives

D. None of the above

552 - Which of the following is the definition of the computer manipulation technique known as a Trojan horse?

A. Searching 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 work normally

C. Gaining information about a system using deception, such as someone else's password

D. Using several networks in a series in order to avoid detection

553 - When attempting to prove illegal payments, off-book payments are best detected at the point of payment of funds.

A. True

B. False

554 - Which of the following is NOT a red flag of cheque tampering?

A. Cancelled cheques

B. Missing cheques

C. Questionable payee addresses

D. Voided cheques

555 - To fraudulently increase the amount of commission to be paid, an employee can:

A. Create fictitious sales

B. Increase the rate of commission

C. Alter the prices charged to customers on legitimate sales

CFE – FINANCIALD. Any of the above

556 - There are traditionally two methods of percentage analysis of financial statement They are:I. Directional analysisII. Horizontal analysisIII. Vertical analysisIV. Diagonal analysis

A. II and III

B. III and IV

C. I and II

D. I and IV

557 - To establish a trade secret, a company has to show:

A. That the information gives the company some sort of competitive edge

B. That the company has made efforts to keep the information confidentialC. That the information is not known in the industryD. All of the above558 - Consumer fraud is a fairly recent phenomenon that is typically committed against organisations.

A. True

B. False

559 - To detect bid-rigging schemes, the fraud examiner must be alert for:

A. Unsuccessful bidders who later become subcontractors

B. A rotational pattern to winning bidders

C. Same contractors who bid on all projects with rotating low bidders

D. All of the above

560 - Significant unexplained discrepancies highlighted by any of the three financial statement analyses (ratio analysis, vertical analysis, or horizontal analysis) usually are sure indicators that fraud exists.

A. True

B. False

561 - A false statement must be made in writing and signed in order to be considered an offence.

A. True

B. False

CFE – FINANCIAL

562 - The degree to which an organisation is exposed to the risk of fraud relates to:

A. The honesty and integrity of those involved in the process

B. The fraud risks inherent in the businessC. The extent to which effective internal controls are present either to prevent or detect fraudD. All of the above

563 - In conducting a fraud investigation, internal auditors may use non-audit employees of the organisation to assist in the investigation.

A. True

B. False

564 - Which of the following is an example of the computer manipulation technique known as piggybacking?

A. Toggling back and forth between benign activity and hacking

B. Searching for valid access codes or trap doors

C. Gaining access to a computer using deception, such as someone else's password or identity

D. Using several networks in a series in order to avoid detection

565 - Fraud in financial statements usually takes the form of:I. Overstated assets or revenueII. Understated liabilities and expenses

A. II only

B. Both I and II

C. I only

D. Neither I nor II

566 - Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these cheques and carefully changed them to appear payable to K. Diamond. She then endorsed the cheques with her own name and deposited them in her personal bank account. What type of scheme did Kristen commit?

A. "Tacking on"

B. Forged endorsementC. Concealed chequeD. Payables skimming

567 - This hacking technique involves using unsuspecting and gullible users to provide information.

A. Scavenging

B. Network weaving

CFE – FINANCIAL

C. Impersonation

D. Social engineering

568 - Computer biological access verification includes all but which of the following?

A. Retina scans

B. Voice prints

C. DNA sampling

D. Fingerprints

569 - The users of financial statements include company ownership and management, lending organisations, and investors.

A. True

B. False

570 - Which of the following is NOT a common element used to prove the intent element of a white-collar crime?

A. The accused acted to impede the investigation of the offence.

B. The accused repeatedly engaged in the same or similar activity.

C. The accused made statements he/she clearly knew to be false.

D. The accused made consistent statements.

571 - When an employee writes a fraudulent cheque to himself but conceals the scheme by listing a different payee on the books, the fake payee is usually a fictitious vendor.

A. True

B. False

572 - To ensure proper segregation of duties, which of the following should NOT be done by a single programmer?

A. Operate the computer, have unsupervised access to production programs, or have access to production data

B. Have supervised access to both production programs and data

C. Operate the computer and have access to production programs, whether supervised or not

D. None of the above

573 - Which of the following is NOT a cheque disbursement control that will help prevent cheque tampering?

CFE – FINANCIAL

A. Bank reconciliations are only made by signatories on the account

B. Bank statements should be reconciled and reviewed by more than one person

C. Changes in vendor information should be verified

D. Cheque "cutting" and preparation is not done by a signatory on the account

574- In order to prevent fraudulent register disbursements, an employee other than the register worker should be responsible for preparing register count sheets and agreeing them to till rolls.

A. True B. False

575- Most telemarketing and other consumer frauds are committed against young people.

A. True B. False

576- Which of the following is NOT a common type of credit card fraud?

A. Profiling B. De-emboss/re-embossC. Advance payments D. Shaving and pasting

577- Beta, a fraud perpetrator, requested that funds be wired from his account. The wire transfer will show up on the bank statement as a credit memo.

A. True B. False

578- ________________ is the crediting of one account through the abstraction of money from another account.

A. Skimming B. Padding C. Rigging D. Lapping

579- The terms "Ponzi scheme" and "pyramid" are identical and should be used interchangeably.

A. True B. False

580- People who give and take bribes usually have distinct characteristics. A person who is known to frequently bend or ignore standard operating procedures or rules, insert himself into areas he is not normally involved, or assert authority or make decisions that are normally made by others, is called the "rule breaker."

A. True B. False

581- All of the following are classifications of billing schemes identified by the Corporate Fraud Handbook EXCEPT:

A. Shell company schemes B. Invoicing via non-accomplice vendo C. Bid rigging D. Personal purchases with company funds

582- In attempting to detect a skimming scheme, which of the following procedures should be used?

A. Horizontal analysis B. Vertical analysisC. Ratio analysis D. All of the above

583- According to the OECD Principles of Corporate Governance, 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

CFE – FINANCIALA. True B. False

584- Labour costs are more susceptible to mischarging than accounting or material costs.

A. True B. False

585- If an employee sells an item and pockets the cash without recording the sale, this is known as skimming.

A. True B. False

586- Trojan horses, trap doors, salami techniques, data diddling, and piggybacking are all examples of what?

A. Hacker detection measures B. Anti-hacker measuresC. Hacker computer manipulation D. Hacking insurance

587- When tracing illegal payments, if the suspected payer is unknown, then the examiner should focus on the suspected recipient.

A. True B. False

588- In general, the subject of an investigation should be interviewed first.

A. True B. False

589- Older people are the favourite prey of telescammers.

A. True B. False

590- According to the IOSCO Principles for Auditor Oversight, effective oversight of the auditing profession generally includes:

A. A mechanism to require that auditors have proper qualifications and competencyB. A mechanism to require auditors to be subject to the discipline of an auditor oversight body that is independent of the audit professionC. A mechanism to require that auditors are independent of the enterprises that they auditD. All of the above

591- Basic methods of concealing on-book payments of bribes include which of the following?

A. Ghost employees B. OverbillingC. Fictitious payables D. All of the above

592 - Which of the following is the definition of the computer manipulation technique known as data diddling?

A. Toggling back and forth between benign activity and hacking

B. Changing data before or during entry into the computer system

C. Gaining information about a system using deception, such as someone else's password

D. Searching for valid access codes or trap doors

593- During a fraud examination, all of the following methods might uncover an employee who had an undisclosed financial interest with an outside vendor EXCEPT:

CFE – FINANCIALA. Tips and complaints from employees or vendorsB. Comparison of vendor addresses with employee addressesC. Comparison of customer account balance to the billing file D. Review of exit interviews

594- An SPI program is a good way for corporations to protect sensitive information. SPI stands for which of the following:

A. Secretive proprietary investments B. Securing privileged informationC. Safeguarding proprietary information D. None of the above

595- Methods companies use to conceal on-book payments of bribes and/or kickbacks include all of the following EXCEPT:

A. Inventory shrinkage B. Ghost employeesC. Fictitious disbursements D. Overbilling schemes

596- Which of the following defences against unauthorised access to confidential information should a company institute?

A. Voice mail B. Automatic log-offs and password changesC. Cordless telephones D. All of the above

597- Claim fraud may well represent an insurance company's largest fraud risk. Most claims are legitimate; however, some are not. All of the following are red flags for claim fraud EXCEPT:

A. In a fire loss, the claim includes a lot of recently purchased expensive propertyB. A claim is made shortly after the policy's inceptionC. The insured is calm about delays in settling the claimD. In a burglary loss, the claim includes large, bulky property

598- Which of the following is NOT a countermeasure that security officers can implement to thwart a spy's attempt at infiltrating their company?

A. Establish a procedure for tracking and locking up sensitive data.B. Ensure that vendors' credentials have been verified and that vendors are escorted by a company representative during their visits.C. Ensure that proprietary data is stored in areas visible to the public.D. Have employees sign nondisclosure agreements.

599- Pass-through schemes are usually undertaken by employees in charge of purchasing on behalf of the victim company.

A. True B. False

600- The ability of a telemarketing fraudster to sound convincing while exaggerating the value of a business opportunity or gift is known as:

A. Puffing B. Nailing C. Banging D. None of the above

601- Joint ventures may give a competitor valuable information about a company's product secrets.

A. True B. False

602- Baker, a debtors clerk, stole incoming customer payments before they were posted to the customers' accounts. Baker placed the stolen funds in a short term security. Later, Baker withdrew the stolen funds and posted them to the customers' accounts, but he kept the interest that had been earned. According to the Corporate Fraud Handbook, Baker is guilty of:

CFE – FINANCIAL

A. An understated sales and receivables (skimming) schemeB. A short-term skimming scheme C. A write-off schemeD. None of the above because the payments were returned

603- A high level of inventory shrinkage should serve as a warning to a company of potential occupational fraud.

A. True B. False

604- If a contractor delivers (1) substandard material, (2) untested materials, or (3) counterfeit products, then the contractor may be involved in which of the following schemes?

A. Product substitution B. Material mischargesC. Labour mischarges D. None of the above

605- "Fraud examination" is best described as which of the following?

A. A method for proving the culpability of a suspectB. A methodology for resolving fraud allegations from inception to dispositionC. The science of detecting fraud D. A method for finding evidence of guilt

606- Cheque tampering is unique among the fraudulent disbursement schemes because it is the one type of scheme in which the perpetrator physically prepares the fraudulent cheque.

A. True B. False

607- A customer buys a big screen television. Although the store offers free delivery and can deliver the TV that afternoon, the customer insists on taking the television with him. In fact, he has a trailer in the parking lot, ready to go. The customer is paying by credit card. As the security manager of the store, which of the following do you think is the most likely scenario?

A. The customer is laundering money.B. The customer wants to watch a big game right away on television.C. The customer is probably paying for the item with a counterfeit or stolen credit card.D. The customer does not want his wife to know about his purchase.

608- ____________ is any defalcation or embezzlement accomplished by tampering with computer programs, data files, operations, equipment, or media, and resulting in losses sustained by the organisation whose computer system was manipulated.

A. Media fraud B. Computer fraudC. Consumer fraud D. None of the above

609- One does not need to own property to arrange insurance on it.

A. True B. False

610- Cash inflows from activities such as the sale of the company's own stock, the issuance of company bonds, or the obtainment of a loan should appear in which section of the statement of cash flows?

A. Cash flows from investing activities B. Cash flows from operationsC. Cash flows from financing activities D. None of the above

611- __________ is the term used for including additional coverages in the insurance policy without the knowledge of the insured.

A. Sliding B. Twisting C. Churning D. None of the above

CFE – FINANCIAL

612- A fraud scheme in which an accountant fails to write down obsolete inventory to its current market value has a ________________ effect on the current ratio of the balance sheet.

A. Positive B. Negative

613- Loan fraud represents a high risk 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. True B. False

614- Predication, as it relates to the examination of fraud, means the basis upon which the examination is undertaken.

A. True B. False

615- Red flags that a cheque may be counterfeit include which of the following?

A. The transit number in the top right corner doesn't match the electronically encoded number at the bottom of the chequeB. The printing of the cheque is not uniform in texture and colourC. The printing on the cheque slants up or downD. All of the above

616- Smart cards (also called chip cards) contain a _________ that uses encrypted information to identify the user.

A. Microprocessor chip B. Magnetic stripeC. Hologram D. None of the above

617- 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. True B. False

618- Most telemarketing fraud calls are placed during the evening.

A. True B. False

619- Most telemarketing and other consumer frauds are committed against young people.

A. True B. False

620- In credit repair scams, the fraudster promises to "erase" or "doctor" an applicant's credit history, but in reality there is no way to erase bad credit.

A. True B. False

623- Communication activity logs maintain what information?

A. Data files accessed B. Modifications to password access capabilityC. Date, time, and duration of access D. Programs executed

624- Your phone rings and nobody is on the other end of the line, but you hear a very faint tone, or a high-pitched squeal and beep. This may be a warning sign of ________.

A. Aerial photography B. Video surveillanceC. Satellite tracking devices D. Bugging

CFE – FINANCIAL625- Which of the following are indicators of a need recognition (determining needs) scheme?

A. Defining of a "need" that can only be met by a certain supplier or contractorB. Writing off large numbers of items to scrap C. Unusually high requirements for stock and inventory levelsD. All of the above

626- Material costs are more susceptible to mischarges than are labour costs.

A. True B. False

627- Using suppliers other than the one proposed, failing to disclose residual material stock, and withholding information on bulk or batch purchasing advantages are all red flags of:

A. Product substitution B. Defective pricing schemesC. Mischarges D. None of the above

628- Beta, an apartment manager, discovers that Able, a tenant at the apartment complex, pays his rent every month in cash. Beta decides to pocket 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. On-book scheme B. Skimming schemeC. Larceny scheme D. None of the above

629- The most common payroll frauds are ghost employee schemes, falsified hours and salary schemes, and commission schemes.

A. True B. False

630- In conducting a fraud investigation, internal auditors may use non-audit employees of the organisation to assist in the investigation.

A. True B. False

631- Computer backup files can be a major liability in the protection of trade secrets.

A. True B. False

632- A biometric fingerprint identifier does which of the following?

A. It can search through criminal records and identify wanted offendersB. It allows the bank to match the cheque writer's fingerprints with the account holder's fingerprints, which are on fileC. It prevents the account holder from accessing his funds D. All of the above

633- At the beginning of the case, the fraud examiner should decide whether or not the suspect is guilty or innocent and attempt to prove that theory.

A. True B. False

634- Internal controls are always the strongest deterrent to financial statement fraud.

A. True B. False

635- Victims of confidence games are more likely to be organisations or businesses than individuals.

A. True B. False

636- In a directory advertising scheme, the con man sells advertising space in a non-existent magazine or directory.

CFE – FINANCIAL

A. True B. False

637- Jones is attempting to establish the flow of illegal funds from ABC Ltd. When examining the cash disbursements journal, she should begin by looking at payments that fall into which of the following categories:

A. Payments for services where little documentation is required to initiate paymentB. Payments for design fees for goods or services that are regularly purchasedC. Payments for supplies from out-of-state vendors D. All of the above

638- A special room that is acoustically shielded and radio-frequency shielded so that conversations within the room cannot be monitored outside the room is called:

A. Shield room B. Dead room C. Quiet room D. None of the above

639- A sales person's most effective skill is the ability to sound convincing while exaggerating the value of a business opportunity or gift. In telemarketing terminology, this is called ________.

A. Singing B. Heat calling C. Crying D. Puffing

640- Vertical analysis is a technique for analysing the relationships between items on an income statement or balance sheet by expressing all components as percentages. When using vertical analysis of an income statement, which of the following components is assigned 100%?

A. Net assets B. Gross salesC. Net sales D. Total assets

641- A skimming scheme involving the theft of incoming cheques is generally more difficult to conceal than other forms of skimming.

A. True B. False

642- A forged maker scheme is a cheque tampering scheme in which an employee intercepts a company cheque intended for a third-party and converts the cheque by signing the third-party's name on the endorsement line of the cheque.

A. True B. False

643- Cash receipts schemes fall into which of the following two categories?

A. Skimming and theft B. Skimming and unrecorded sales

C. Unrecorded sales and false discounts D. Register manipulation and understated sales

644- Which of the following is NOT a basic element of computer fraud?

A. Input B. Manipulation C. Output D. Data clustering

645- Bid rotation occurs when contractors take turns submitting the lowest bid.

A. True B. False

646- All of the following are types of billing schemes EXCEPT:

A. Bid-rigging B. False invoicing via shell companiesC. False invoicing via nonaccomplice vendorsD. Personal purchases made with company funds

CFE – FINANCIAL

647- All of the following are considered drawbacks to an encryption system for computer voice and data transmission, EXCEPT:

A. Cost of the hardware and software B. Cost of administrationC. Inherent delays caused by extra steps required for processingD. Frequency of inaccurate responses

648- In tracing and proving illegal funds, which of the following questions should be addressed in developing the business profile?I. How is the business organised, legally and structurally?II. What is the money flow pattern in the suspect transaction?III. What is the financial condition of the business? IV. Where are the company's bank accounts?

A. I, II, III, and IV B. II and III only C. I and III only D. II and IV only

649- Which of the following is NOT a type of purported or actual loan that frequently turns up in corruption and fraud cases?

A. An actual loan made on favourable terms, such as interest-freeB. An interest sold or given at below-market termsC. A legitimate loan from a third-party bank, the payments on which are made or guaranteed by the payerD. A prior outright payment described as an innocent loan

650- One of the best ways to detect cheque tampering is to carefully reconcile all company bank accounts. Which of the following tests should be performed as part of this reconciliation?

A. Footing the balance to the organisation's ledgerB. Examining cancelled cheques and comparing them to a list of outstanding chequesC. Confirming the mathematical accuracy of the reconciliation D. All of the above

651- In what order should the following be interviewed:I. Co-conspirators II. Corroborative witnessesIII. Neutral third-party witnesses IV. Subject

A. I, III, IV, II B. I, II, III, IVC. III, II, I, IV D. II, IV, III, I

652- Which of the following questions generally is asked when preparing a business profile?

A. Is there a fraud policy in place? B. Is there a system of internal control?C. Does most of the decision-making authority rest at the top?D. Who are the key personnel associated with the enterprise?

653- In some cases, spies gather corporate information from employees of a target company by tricking employees into revealing confidential information. Typical scams include which of the following?

A. Market research scams B. Employment advertisementsC. Headhunter scams D. All of the above

654- __________________ is the use of professional accounting skills in matters involving potential or actual civil or criminal litigation.

A. Accounting pathology B. Forensic accountingC. Fraud examination D. None of the above

CFE – FINANCIAL655- The person who engages in a purchases scheme is often the very person in the company whose duties include

authorising purchases.

A. True B. False

656- Blue, a manager for a retail store, suspects his register employees of skimming off-book sales. Blue will be able to detect this kind of scheme by comparing their till roll totals to the amount of money in their cash drawers.

A. True B. False

657- The distinguishing feature of a Ponzi scheme is:

A. It lasts a long time B. It always involves either cash or chequesC. Initial investors are paid with subsequent investors' money D. None of the above

658- The removal of cash from a victim organisation before the cash is entered in the organisation's accounting system is skimming.

A. True B. False

659- Once an e-mail message leaves a company's system, it travels straight to the intended party without making any stops before reaching its destination.

A. True B. False

660- The mark receives a call from a person who says he's from an oil and gas service that is sponsoring a lottery on mineral rights. If the consumer invests a certain tax deductible sum, they can receive a percentage of the income in royalty payments. This scheme is known as a:

A. Goat pasture scam B. Badger gameC. Murphy game D. Gold mine swindle

661- Black, an accounts receivable clerk, stole customer A's monthly payment instead of posting it to A's account. When customer B's payment arrived a few days later, Black posted that payment to A's account so that it would not become delinquent. When C's payment arrived a few days after that, Black posted the payment to B's account, which was in danger of becoming past due. Black's method of crediting one account with money taken from another account is known as padding.

A. True B. False

662- Which of the following financial functions are considered activities of a bank?I. Investing money or claims to money II. Lending money or claims to money III. Insuring against risk of loss of moneyV. Collecting money or claims to money

A. I and II only B. I, II, and IV only C. II and IV only D. All of the above

663- An effective internal computer security system includes which of the following components?

A. Employee education B. Vigorous disciplinary action for offendersC. Reporting facilities D. All of the above

664- Able was a manager of a retail store that was supposed to open at 10:00 am every morning. Able would actually open the store at 8:00 each morning and pocket all the sales made in the two hours between 8:00 and 10:00. Able did not record any of the sales transactions for these two hours. According to the Corporate Fraud Handbook, this type of scheme is a skimming scheme.

CFE – FINANCIAL

A. True B. False

665- In a telemarketing scam, the employees of the telemarketing company are often exploited as badly as the fraud victims.

A. True B. False

666- Which of the following controls will help prevent skimming?

A. The person who processes debtor payments has access to collections from customers.B. The person who processes debtor payments is also responsible for preparing the bank deposit.C. The person who processes debtor payments makes all entries in the cash receipts book.D. None of the above

667- In tracing and proving illegal funds, which of the following are sources of information for the business profile? I. Principals and employees II. CustomersIII. Competitors IV. Banks and lending institutions

A. I, II, and IV B. I only C. I, II, and III D. I, II, III, and IV

668- Proof in a fraud case usually proceeds through three basic stages. These stages are listed below. In what order does the examiner proceed through these stages? I. Sealing the case through examination of the subjectII. Obtaining direct evidenceIII. Building circumstantial evidence

A. II, III, I B. I, II, III C. I, III, II D. III, II, I

669- The first step in an examination of suspected corrupt payments should be the payment profile.

A. True B. False

670- Recording expenses in the wrong period and early revenue recognition are classified as what type of financial fraud scheme?

A. Improper asset valuations B. Fictitious revenuesC. Timing differences D. Improper disclosures

671- 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 Fraud Handbook this is an example of:

A. A false billing scheme B. An expense reimbursement schemeC. A falsified hours and salary scheme D. None of the above

672- Each fraud examination begins with the proposition that all cases will end with litigation.

A. True B. False

673- The concealment of a skimming scheme whereby one account is credited by removing funds from another account is called which of the following?

A. Lapping B. Altered payee designationC. Currency substitution D. Inventory padding

CFE – FINANCIAL

674- Green was a salesman whose job required frequent travel. When Green took a vacation, he saved the receipts from his flight, hotel and restaurant expenses. He turned in these receipts to his manager along with an expense report that described the expenses as business-related. Green's company reimbursed him for the expenses. According to the Corporate Fraud Handbook, this is an example of what type of expense reimbursement scheme?

A. An overstated expense scheme B. A mischaracterised expense schemeC. A fictitious expense scheme D. A multiple reimbursement

675- Leaseholds, goodwill, and patents are all examples of _________________.

A. Intangible assets B. Tangible assetsC. Asset misappropriation schemes D. Short-term assets

676- Which of the following types of occupational fraud causes the highest median monetary loss?

A. A billing scheme B. An expense reimbursement schemeC. A payroll scheme D. All of these schemes cost about the same, on average

677- In concealing a cash register scheme, when an employee resorts to destroying records, he usually has already conceded that management will discover the theft.

A. True B. False

678- Which of the following are examples of how thieves obtain an organisation's business information?

A. Computer system penetrations B. AccidentC. Poor information security procedures D. All of the above

679- In telemarketing schemes, a ________ makes the initial pitch to the mark.

A. Closer B. Fronter C. Verifier D. None of the above

680- In proving corrupt payments, the fraud examination often begins with interviewing the co-conspirator.

A. True B. False

681- Which accounting principle requires corresponding expenses and revenue to be recorded in the same accounting period?

A. Full disclosure B. Consistency C. Matching principle D. Conservatism

682- Fraudulent surveys and fake prizes are not commonly used as social engineering schemes to gather information from competitors.

A. True B. False

683- In order to prevent inventory theft, the personnel who requisition inventory should be in charge of receiving and verifying inventory shipments.

A. True B. False

684- Examples of fraud schemes perpetrated by employees of insurers include all of the following EXCEPT:

A. Improper payee B. Use of another's contractC. Billing for experimental procedures D. Payment of cancelled contracts

CFE – FINANCIAL

685- When creating the hypothesis required in the fraud theory approach, the fraud examiner should:

A. NOT form the hypothesis until all witnesses have been interviewedB. Form the hypothesis late in the investigationC. NOT form the hypothesis until all documents have been examinedD. Form the hypothesis early in the investigation

686- Which of the following schemes refers to the falsification of personnel or payroll records, causing paycheques to be generated to someone who does not actually work for the victim company?

A. False workers compensation claims B. Falsified hours and salaryC. Ghost employees D. Commission schemes

687- Forensic accounting differs from fraud examination in that forensic accounting is the use of professional accounting skills in matters involving potential or actual civil or criminal litigation and may or may not involve fraud.

A. True B. False

688- White booked a flight for a business trip with his company's travel agent. He filled out two expense reports for this trip, and on each report he requested reimbursement for the cost of the ticket. On one report, he attached his airline stub as support for the expense. On the other report he attached the travel agency's invoice as support. According to the Corporate Fraud Handbook, what kind of scheme was White attempting?

A. An overstated expense scheme B. A false billing schemeC. A mischaracterised expense scheme D. None of the above

689- In order to properly safeguard cash, every register worker should be required to prepare register count sheets and match them to his or her till roll totals at the end of each shift.

A. True B. False

690- Which of the following is a fraud scheme associated with broker fraud?

A. Premium fraud B. Fictitious death claimsC. Settlement cheques D. All of the above

691- If an employee intercepts a company cheque intended for a third-party and converts that cheque for his own benefit, he has committed:

A. Skimming B. Economic extortionC. Cheque tampering D. Billing fraud

692- Which of the following are elements of computer fraud? I. A defalcation or embezzlementII. Tampering with computer programs, data files, operations, or mediaIII. Access with the intent to defraud IV. Losses to the owner of the manipulated computer

A. I, II, and IV only B. II, III, and IV onlyC. II and III only D. I, II, III, and IV

693- The cash schemes discussed in the Corporate Fraud Handbook fall into two broad categories: fraudulent disbursements and false billings.

CFE – FINANCIALA. True B. False

694- The Corporate Fraud Handbook describes all of the following payroll scheme types EXCEPT:

A. Ghost employees B. Stolen paychequesC. Commission schemes D. Falsified hours and salary

695- ABC, Ltd. and XYZ, Ltd. are the only two companies in Cork County that lay asphalt. An audit reveals that the state is paying more for asphalt work in Cork 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 XYZ. What scheme might ABC and XYZ be involved in?

A. Bid suppression B. Altering bidsC. Phantom bidding D. Bid rotation

696- High percentages of material returns, missing compliance documents, and materials testing done by a supplier with no quality assurance are all red flags of which type of fraud scheme?

A. Accounting mischarges B. Compliance fraudC. Labour mischarges D. Product substitution scheme

697- A large percentage of those who perpetrate cheque tampering frauds are involved in reconciling the company's bank statement.

A. True B. False

698- Baker, a cash register attendant at a department store, regularly inflates the amount of customer refunds. For instance, if a customer returns an item for %100, Baker records a %150 refund. Then Baker gives the customer %100 and keeps %50 for himself. According to the Corporate Fraud Handbook, this scheme is known as:

A. An overstated refund scheme B. LappingC. A fictitious refund scheme D. Skimming

699- When preparing a business profile, the important question is "Who are the key personnel associated with the enterprise?"

A. True B. False

700- In a __________ scheme, the information thief manipulates individuals into handing over secret information through the use of trickery, persuasion, threats, or cajolery.

A. Skimming B. Telling good lies C. Social engineering D. Cloaking and misdirection

701- Whether due to embarrassment or the belief that nothing can be done, only about one in 100 victims of telemarketing fraud ever files a complaint.

A. True B. False

702- Employees who steal inventory are often highly trusted within their organisations.

A. True B. False

703- The term "asset misappropriation," as used in the Corporate Fraud Handbook, includes the unauthorised borrowing of company assets, even if those assets are not stolen.

A. True B. False

CFE – FINANCIAL704- Baker was an accountant with control over his company's payroll records. Able was an employee who resigned

his job with Baker's company. Even though Able was no longer working for the company, Baker left his name on the payroll records. Thus, paycheques continued to be issued to Able. Baker collected the cheques and deposited them in his own bank account. This payroll scheme is known as a ghost employee scheme.

A. True B. False

705- Green was a salesman whose job required frequent travel. When Green took a vacation, he saved the receipts from his flight, hotel and restaurant expenses. He turned in these receipts to his manager along with an expense report that described the expenses as business-related. Green's company reimbursed him for the expenses. According to the Corporate Fraud Handbook, this is an example of a fictitious expense scheme.

A. True B. False

706- Telemarketing frauds often employ the use of:

A. Plate rooms B. Boiler rooms C. Heat rooms D. None of the above

707- Which of the following is NOT a type of expense reimbursement scheme identified by the Corporate Fraud Handbook?

A. Multiple reimbursements B. Skimmed reimbursementsC. Mischaracterised expenses D. Overstated expenses

708- In order for an hourly employee to commit a falsified hours and salary scheme, he must overstate the number of hours he worked or overstate his rate of pay.

A. True B. False

709- In general, corporate spies only resort to using high-tech equipment when simpler means are not available to accomplish the task.

A. True B. False

710- The debt to equity ratio is computed by dividing current liabilities by total equity.

A. True B. False

711- Fraudulent disbursement schemes include which of the following?

A. Forging company cheques B. Doctoring timecardsC. Submitting false invoices D. All of the above

712- According to the Corporate Fraud Handbook, fraudsters generally prefer to steal:

A. Fixtures B. Currency C. Inventory D. Cheques

713- ___________________ is the unaccounted for reduction in a company's inventory that results from theft.

A. Defalcation B. Shrinkage C. Padding D. Skimming

714 - Which of the following characteristics is tested by profiling software programmes to search for authorised access?

A. Typing speed B. Signatures C. Palm prints D. Fingerprints

CFE – FINANCIAL715- Which of the following is a fraud scheme that has been known to occur during the bid specification process?

A. Contractor taking advantage of badly written specificationsB. Employees distorting the requirements of the contractC. Tailoring of the specifications to a particular supplier for no obvious technical reasonD. All of the above

716- Which of the following is a common element of a white-collar crime?

A. Concealment of the crimeB. Misrepresentation necessary to accomplish the schemeC. Intent to commit a wrongful actD. All of the above are elements of white-collar crime

717- Current assets divided by current liabilities is the equation to calculate which financial ratio:

A. Receivable turnover B. Quick ratioC. Profit margin D. Current ratio

718- Accounting records are designed to be kept on objective, rather than subjective, evidence.

A. True B. False

719- In order for a ghost employee scheme to be successful, all of the following must happen EXCEPT:

A. Timekeeping information must be collected for the ghost.B. The ghost employee must be a fictitious person.C. A fictitious person or a real person who does not work for the victim must be added to the payroll.D. A paycheque must be issued and delivered to the perpetrator or an accomplice.

720- Black, an accounting clerk, stole customer A's monthly payment instead of posting it to A's account. When customer B's payment arrived a few days later, Black posted that payment to A's account so that it would not become delinquent. When C's payment arrived a few days after that, Black posted the payment to B's account, which was in danger of becoming past due. Black's method of crediting one account with money taken from another account is known as:

A. Lapping B. Padding C. Cheque tampering D. Account rigging

721- 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 explained that a double payment had been made by mistake. She asked the vendor to return one of the cheques to her attention. When the vendor returned the cheque, White took it and cashed it. According to the Corporate Fraud Handbook, this is an example of:

A. A pay-and-return scheme B. A receivables skimming schemeC. A shell company scheme D. A pass-through scheme

722- In order to conceal the misappropriation of an asset, the accounting equation can be balanced by all of the following EXCEPT:

A. Creating an expense B. Reducing a liabilityC. Decreasing another asset D. Reducing owners' equity

723- In order to prevent inventory theft, the personnel who requisition inventory should be in charge of receiving and verifying inventory shipments.

A. True B. False

CFE – FINANCIAL724- The most common method of misappropriating funds from the payroll is through:

A. The theft of legitimate payroll cheques B. A ghost employee schemeC. The overpayment of wages D. None of the above

725- Cheque tampering occurs when an employee either prepares a fraudulent cheque for his own benefit or intercepts a cheque intended for a third-party and converts it.

A. True B. False

726- Billing for mutually exclusive procedures, which encompasses procedures that are impossible to perform together, is a form of unbundling.

A. True B. False

727- The cash schemes discussed in the Corporate Fraud Handbook fall into two broad categories: __________________ and __________________.

A. Fraudulent disbursements; cash receipts B. Fraudulent disbursements; false billingsC. Cash thefts; skimming D. False billings; payroll schemes

728 - Which of the following is a method for fraudsters to cover cash larceny at the cash register:

A. Destroying the register tape

B. Reversing transactions on the cash register tape

C. Stealing from a coworker's register

D. All of the above

729- General internal controls over a computer data centre are relevant for all applications. Which of the following is NOT considered a general internal control category?

A. Implementation of new systems B. Password security applicationsC. System maintenance D. Computer operations

730- A fraud scheme in which an accountant fails to write down obsolete inventory to its current market value has a ________________ effect on the current ratio of the balance sheet.

A. Positive B. Negative

731- Cain, the authorised signer on his company's accounts, prepared and signed a cheque payable to the company's plumber. He gave the cheque to Baker, his secretary, and asked her to mail the cheque to the plumber. Instead, Baker took the cheque home, signed the plumber's name on the back and had her husband cash the cheque at their grocery store. According to the Corporate Fraud Handbook, Baker committed which of the following schemes?

A. An authorised maker scheme B. An altered payee schemeC. A forged maker scheme D. A forged endorsement scheme

732- fforts of those below them.

A. Pure cash scheme B. Bait and switchC. Round robin D. None of the above

733- Skimming schemes generally are easier to detect than most other types of occupational fraud.

CFE – FINANCIAL

A. True B. False

734- To detect bid rigging schemes, the auditor must be alert for:

A. Qualified vendors who fail to submit bids B. Bid protests from losing biddersC. A wide disparity in bid prices D. All of the above

735- Green, an insurance salesman, sold insurance policies but did not file those policies with the carrier. When his customers made payments on their policies, Green simply kept the money. The carrier did not know the policies existed, and the customers did not know that they were not really insured. According to the Corporate Fraud Handbook, Green's scheme can be classified as:

A. A skimming scheme B. A forged endorsement schemeC. A commission scheme D. A lapping scheme

736- In identifying and tracing off-book payments, the source of off-book funds may be located through:

A. Unbalanced ratios of cost of salesB. Indirect evidence of unrecorded sales on the suspect company's books and recordsC. Investigation in the marketplace D. All of the above

737- Con artists who deal in art objects often pawn off lithograph copies to art buyers as limited editions guaranteed to increase in value.

A. True B. False

738- According to the Corporate Fraud Handbook, the types of schemes which occur most frequently are misappropriations of cash.

A. True B. False

739- A _________ 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.

A. Round robin B. Pure cash scheme C. Bait and switch D. None of the above

740 - Fraudsters generally prefer to steal currency rather than cheques for which of the following reasons?

A. Fraudsters DO NOT prefer to steal currency rather than cheques

B. Currency is harder to trace

C. Cheques are harder to convert

D. Currency is harder to trace and cheques are harder to convert

741- Most shell company schemes involve the purchase of services rather than goods.

A. True B. False

742- Which of the following control procedures will NOT help prevent payroll fraud?

A. The payroll accounting function is independent of the general ledger functionB. Personnel records are maintained independently of payroll and timekeeping functionsC. Those who prepare the payroll, also review and sign all payroll chequesD. Payroll cheques are prenumbered and issued in numerical sequence

CFE – FINANCIAL

743- A nonperforming loan may be an indicator of which of the following fraud schemes?

A. Fraudulent appraisals B. Land flipsC. Bribery D. All of the above