ACFE Investigation 4 — Questions and Answers
Question 1: What is the significance of the 'Garrity warning' in a fraud investigation involving a public employee?
- It requires the employee to waive attorney-client privilege
- It informs the employee that statements made under compulsion cannot be used in criminal proceedings (Correct answer)
- It grants immunity from civil liability
- It compels the employee to submit to a polygraph examination
Correct answer: It informs the employee that statements made under compulsion cannot be used in criminal proceedings
A Garrity warning advises public employees that compelled statements made under threat of job loss cannot be used against them in criminal proceedings.
Question 2: Which financial statement fraud scheme involves recording revenue before it is earned or realizable?
- Channel stuffing
- Cookie jar reserves
- Premature revenue recognition (Correct answer)
- Round-tripping
Correct answer: Premature revenue recognition
Premature revenue recognition records sales before all revenue recognition criteria are met, overstating current period income.
Question 3: During a fraud investigation, a key witness refuses to cooperate. In a private investigation (non-law enforcement), what legal tool can COMPEL testimony?
- An arrest warrant
- A grand jury subpoena
- A civil subpoena issued through litigation (Correct answer)
- A search warrant
Correct answer: A civil subpoena issued through litigation
In civil proceedings, a subpoena can compel witness testimony or document production; private investigators without law enforcement authority must rely on civil process.
Question 4: What is 'parallel construction' and why is it controversial in fraud investigations?
- Building redundant evidence chains from multiple sources to corroborate findings
- Concealing the true origin of evidence by reconstructing an alternative discovery narrative (Correct answer)
- Simultaneously interviewing multiple witnesses to compare accounts
- Using both forensic accounting and digital forensics in the same case
Correct answer: Concealing the true origin of evidence by reconstructing an alternative discovery narrative
Parallel construction conceals how evidence was originally obtained by creating a false alternative discovery story, raising serious legal and ethical concerns.
Question 5: Which element of fraud, as defined by the ACFE, refers to the perpetrator's justification or rationalization of the fraudulent act?
- Pressure
- Opportunity
- Rationalization (Correct answer)
- Capability
Correct answer: Rationalization
The Fraud Triangle's rationalization element represents the mental process by which perpetrators justify their actions to themselves, such as 'I'm just borrowing the money.'
Question 6: When conducting a background investigation on a fraud suspect, which source provides the MOST comprehensive information about prior civil litigation?
- PACER (Public Access to Court Electronic Records) (Correct answer)
- Social media profiles
- Credit bureau reports
- DMV records
Correct answer: PACER (Public Access to Court Electronic Records)
PACER provides access to federal court records including civil suits, bankruptcies, and criminal cases, making it a primary source for litigation history.
Question 7: Which type of analysis compares a company's financial ratios to industry benchmarks to identify anomalies that may indicate fraud?
- Vertical analysis
- Horizontal analysis
- Benford's Law analysis
- Industry comparative analysis (Correct answer)
Correct answer: Industry comparative analysis
Industry comparative analysis benchmarks a company's financial metrics against industry peers to identify outliers that may signal fraudulent manipulation.
ACFE Investigation 4
What is the significance of the 'Garrity warning' in a fraud investigation involving a public employee?