CA CA Forensic Accounting & Fraud Detection 2 — Questions and Answers
Question 1: Which analytical technique is commonly used in forensic accounting to identify unusual numeric patterns that may indicate fraud?
- Ratio analysis
- Benford's Law analysis (Correct answer)
- Trend analysis
- Break-even analysis
Correct answer: Benford's Law analysis
Benford's Law predicts the expected frequency distribution of leading digits in naturally occurring data and deviations from this pattern can signal fraudulent manipulation.
Question 2: What is a 'ghost employee' scheme?
- Adding unauthorized overtime to legitimate employees' pay
- Adding fictitious employees to the payroll to collect their wages (Correct answer)
- Changing employee pay rates without authorization
- Continuing to pay terminated employees after their separation date
Correct answer: Adding fictitious employees to the payroll to collect their wages
A ghost employee scheme involves creating fictitious workers on the payroll so the fraudster can collect and divert their paychecks.
Question 3: In a forensic investigation, what does 'chain of custody' refer to?
- The hierarchy of management approvals required for transactions
- The chronological documentation tracking the handling and transfer of evidence (Correct answer)
- The sequence of accounting entries in a transaction cycle
- The order in which financial statements are prepared
Correct answer: The chronological documentation tracking the handling and transfer of evidence
Chain of custody is the unbroken documentation showing the seizure, custody, control, transfer, and analysis of evidence, which is critical for admissibility in court.
Question 4: Which type of occupational fraud involves an employee creating fictitious vendors and submitting fraudulent invoices for payment?
- Cash larceny
- Billing scheme (Correct answer)
- Payroll fraud
- Check tampering
Correct answer: Billing scheme
A billing scheme involves submitting false invoices from fictitious or shell companies to steal funds through the accounts payable process.
Question 5: What does 'money laundering' involve?
- Avoiding tax payments on legitimate business income
- Concealing the origins of illegally obtained money to make it appear legitimate (Correct answer)
- Embezzling funds from an employer over time
- Manipulating stock prices using insider information
Correct answer: Concealing the origins of illegally obtained money to make it appear legitimate
Money laundering is the process of making illegally obtained proceeds appear to come from legitimate sources through a series of financial transactions.
Question 6: Which professional designation is most closely associated with fraud examination in the United States?
- CPA (Certified Public Accountant)
- CMA (Certified Management Accountant)
- CFE (Certified Fraud Examiner) (Correct answer)
- CIA (Certified Internal Auditor)
Correct answer: CFE (Certified Fraud Examiner)
The Certified Fraud Examiner (CFE) credential, issued by the Association of Certified Fraud Examiners (ACFE), is specifically designed for professionals who investigate fraud.
CA CA Forensic Accounting & Fraud Detection 2
Which analytical technique is commonly used in forensic accounting to identify unusual numeric patterns that may indicate fraud?