Mixed Deck — All CFE Topics Flashcards

Each of these agencies is a good fit for the kind of information it gives, except:

Answer: State attorney gen: maintains birth records and info about people's SSNs

Maintaining birth records and SSN information is not a State Attorney General function — vital statistics are kept by state health/vital records offices and SSNs by the Social Security Administration. The other three correctly match the DOJ, CIA, and Secret Service to their actual responsibilities.

Which internal control is most effective at preventing a billing scheme involving fictitious vendors?

Answer: Vendor master file maintenance with independent approval

Maintaining a controlled vendor master file with independent approval of new vendors prevents employees from adding fictitious vendors to submit fraudulent invoices.

Which of the following financial statement fraud schemes would most directly cause gross profit margin to be overstated?

Answer: Understating cost of goods sold

Gross profit margin equals (Sales minus COGS) divided by Sales, so understating COGS directly inflates this metric.

Which of the following rights must be given to a suspect who is being interrogated in a custodial setting by law enforcement, per Miranda v. Arizona?

Answer: The right to remain silent and the right to an attorney

Miranda warnings require law enforcement to inform custodial suspects of their right to remain silent and their right to legal counsel before interrogation.

Which analytical procedure compares each line item in a financial statement as a percentage of a base figure (e.g., total sales) to identify unusual relationships?

Answer: Common-size financial statement analysis

Common-size analysis expresses each line item as a percentage of a base amount, making it easy to spot proportions that deviate from expectations.

This is what the Gramm-Leach-Bliley Act lets:

Answer: All of the above

The Gramm-Leach-Bliley Act covers all three: it permits financial institutions to share and sell customer information while also requiring that customers be given the right to opt out of having their information shared. Because each option is a valid provision, 'All of the above' is correct.

The ACFE's Report to the Nations consistently shows that the MOST common initial detection method for occupational fraud is:

Answer: Tips

According to the ACFE's Report to the Nations, tips are by far the most common way occupational fraud is initially detected, often via hotlines.

An employee at a retail store processes a customer's cash payment for a $100 item but only records a sale of $20 in the cash register, pocketing the $80 difference. This cash has not yet been recorded on the company's books. Which type of asset misappropriation scheme does this scenario describe?

Answer: Skimming

This is an example of a skimming scheme, specifically an understated sales scheme. Skimming is the theft of cash *before* it has been recorded in the company's accounting system. [1] In this case, the employee stole the cash before the full transaction was officially recorded, making it an 'off-book' fraud which is harder to detect than cash larceny.

An employee reports potential fraud to the fraud examiner but requests anonymity. The examiner should FIRST:

Answer: Accept the tip and assess its credibility before taking further action

Anonymous tips should be accepted and evaluated for credibility; many valid fraud investigations begin with anonymous reports.

Which federal statute criminalizes the use of mail or wire communications in furtherance of a scheme to defraud?

Answer: Mail and Wire Fraud Statutes (18 U.S.C. §§ 1341, 1343)

The federal mail fraud (18 U.S.C. § 1341) and wire fraud (18 U.S.C. § 1343) statutes prohibit using mail or wire communications in furtherance of a scheme to defraud.

A CFE notices a suspect's story has inconsistencies between the first and second telling. What is the best next step?

Answer: Ask the suspect to repeat the story a third time from a different starting point

Asking the suspect to retell the story from a different point tests memory and often reveals further inconsistencies or admissions.

A company fails to disclose a material contingent liability in its financial statement footnotes. This omission is best classified as:

Answer: Concealed liabilities and expenses

Omitting material contingent liabilities from footnote disclosures is a form of concealing liabilities, even if no journal entry misstatement is involved.

Which of the following is the best definition of 'earnings management' as it relates to financial statement fraud?

Answer: The use of accounting discretion within GAAP to present results that meet management's targets rather than economic reality

Earnings management exploits discretion within accounting standards to influence reported results, which may cross the line into fraud when it becomes deliberate misrepresentation.

Which federal agency has primary jurisdiction for investigating securities fraud in the United States?

Answer: Securities and Exchange Commission (SEC)

The SEC has primary civil and regulatory authority over securities fraud, though the FBI handles criminal investigations often in parallel with SEC civil enforcement.

Why is a fraud investigation done in the first place?

Answer: To determine if fraud has occurred

Explanation: The main goal of a fraud investigation is to find out if fraud has happened. This could mean gathering evidence, talking to people, and looking at financial records to determine the fraud size and type.

A fraud examiner reviewing bank statements notices several round-dollar transactions just below the $10,000 CTR reporting threshold. This pattern is MOST indicative of:

Answer: Structuring, which is itself a federal crime

Structuring (also called 'smurfing') involves deliberately breaking up transactions to avoid Currency Transaction Report requirements and is a federal crime.

In a lapping scheme, the fraudster typically:

Answer: Uses one customer's payment to cover a previous customer's stolen payment

Lapping involves stealing one customer's payment and covering it with a subsequent customer's payment, creating a perpetual cycle.

Which of the following is the most effective anti-fraud control according to ACFE research?

Answer: Hotlines for reporting tips

ACFE research consistently shows that tips—often received through hotlines—are the most common method of detecting fraud.

Which type of computer fraud involves an employee inserting unauthorized code that skims small amounts from many accounts into a single account?

Answer: Round-down scheme

A round-down scheme (also called a salami attack) involves programming a system to round down fractions of cents from many transactions and accumulate those fractions in a single account.

Which scenario represents a segregation of duties violation that creates fraud risk?

Answer: The same clerk who approves vendor invoices also signs the payment checks

Allowing one person to both approve invoices and issue payments eliminates a key check, enabling them to create fictitious payables and steal funds.