CFA Asset Misappropriation & Embezzlement Flashcards

Which type of asset misappropriation scheme involves an employee intercepting a customer payment before it is recorded in the accounting system?

Answer: Skimming

Skimming is an off-book fraud where cash or checks are stolen before they are ever entered into the accounting records.

An employee diverts incoming payments to cover prior theft by applying later receipts to older accounts — this is known as:

Answer: Lapping

Lapping involves using subsequent customer payments to cover the theft of earlier payments, creating a perpetual cycle of misapplied receipts.

Which internal control is MOST effective at detecting a ghost employee payroll scheme?

Answer: Periodic payroll audit comparing HR records to payroll disbursements

Comparing HR personnel files to payroll disbursement records identifies fictitious employees because ghost employees lack legitimate HR documentation.

What distinguishes embezzlement from theft in a fraud examination context?

Answer: Embezzlement involves misappropriating assets lawfully entrusted to the perpetrator

Embezzlement is the fraudulent conversion of property that was lawfully entrusted to the perpetrator, distinguishing it from simple theft involving no prior lawful possession.

A fraud examiner reviewing expense reimbursements notices that an employee submits the same hotel receipt twice in different expense reports. This is an example of:

Answer: Multiple reimbursement scheme

A multiple reimbursement scheme involves submitting the same legitimate expense more than once to receive duplicate reimbursements.

Which scheme involves an employee creating fictitious vendors in the accounts payable system and submitting fraudulent invoices for payment?

Answer: Shell company scheme

A shell company scheme uses a fictitious or controlled vendor entity to submit false invoices, diverting company payments to the fraudster.