ACFE Financial Transactions & Fraud Schemes 2 — Questions and Answers
Question 1: A company discovers that an employee has been submitting expense reports for personal meals and entertainment while falsely labeling them as business expenses. This is best classified as:
- Skimming
- Expense reimbursement fraud (Correct answer)
- Payroll fraud
- Billing scheme
Correct answer: Expense reimbursement fraud
Expense reimbursement fraud occurs when employees claim personal expenses as business-related to receive unauthorized reimbursements.
Question 2: In a check tampering scheme, an employee intercepts checks made payable to vendors and alters the payee name to herself before depositing them. This is an example of:
- Forged maker scheme
- Altered payee scheme (Correct answer)
- Concealed check scheme
- Authorized maker scheme
Correct answer: Altered payee scheme
An altered payee scheme involves changing the name of the legitimate payee on a check to redirect funds to the fraudster.
Question 3: Which type of financial statement fraud involves recording revenue before it has been earned or before the earnings process is complete?
- Channel stuffing
- Premature revenue recognition (Correct answer)
- Fictitious revenue
- Revenue smoothing
Correct answer: Premature revenue recognition
Premature revenue recognition records sales before all conditions for revenue recognition under accounting standards have been met.
Question 4: A purchasing manager sets up a shell company and submits invoices to her employer for goods never delivered. The invoices are approved and paid. This scheme is categorized as:
- Non-accomplice vendor scheme
- Shell company scheme (Correct answer)
- Pay-and-return scheme
- Personal purchases scheme
Correct answer: Shell company scheme
A shell company scheme involves creating a fictitious business entity to submit fraudulent invoices to the victim organization.
Question 5: The term 'larceny' in the context of asset misappropriation refers to:
- Theft of cash before it is recorded in the accounting system
- Theft of cash or assets after they have been recorded in the books (Correct answer)
- Falsifying financial statements to conceal losses
- Unauthorized use of company credit cards
Correct answer: Theft of cash or assets after they have been recorded in the books
Larceny involves the theft of assets that have already been recorded on the books, distinguishing it from skimming where assets are taken before recording.
Question 6: Which laundering technique involves purchasing and reselling high-value assets such as real estate or jewelry to obscure the origins of illicit funds?
- Smurfing
- Asset conversion (Correct answer)
- Structuring
- Commingling
Correct answer: Asset conversion
Asset conversion is a layering technique where illegal proceeds are used to purchase legitimate assets that are later sold to generate apparently clean funds.
Question 7: A red flag for potential payroll fraud is when:
- Employee names appear on multiple payroll registers
- Multiple employees share the same bank account for direct deposit (Correct answer)
- Overtime payments increase during peak business seasons
- New hires are added to payroll after HR approval
Correct answer: Multiple employees share the same bank account for direct deposit
Multiple employees sharing one bank account is a strong indicator of ghost employee schemes where fictitious workers' wages are directed to the fraudster's account.
ACFE Financial Transactions & Fraud Schemes 2
A company discovers that an employee has been submitting expense reports for personal meals and entertainment while falsely labeling them as business expenses.
This is best classified as: