Financial Investigations & Data Analysis Flashcards

Which of the following is a primary characteristic of 'shell company' schemes detected in financial investigations?

Answer: Entities that exist only on paper with no real operations, used to move or hide money

Shell companies are legal entities with no genuine business operations, commonly used to obscure the true ownership of assets or launder illicit funds.

When applying Benford's Law, which leading digit should appear most frequently in naturally occurring financial datasets?

Answer: 1

Benford's Law predicts that the digit '1' appears as the leading digit approximately 30.1% of the time in naturally occurring numerical datasets.

A company records revenue from long-term contracts using the completed-contract method while competitors use percentage-of-completion. What fraud concern does this raise?

Answer: Revenue understatement to defer taxes or manipulate earnings

Using the completed-contract method defers revenue recognition and can be used to manage earnings downward for tax benefits or to set up future period manipulation.

In digital forensics supporting a financial investigation, what is the significance of 'metadata'?

Answer: It provides information about when files were created, modified, or accessed, helping establish timelines

Metadata embedded in electronic files reveals creation dates, modification history, and access logs that can contradict suspects' claims or establish fraud timelines.

What is 'money laundering placement' in the context of financial crime investigations?

Answer: Introducing illicit cash into the financial system through initial deposits or purchases

Placement is the first stage of money laundering where illicit cash is introduced into the financial system, often through deposits or purchases at cash-intensive businesses.

A company's inventory shrinkage losses are reported at exactly 0.5% of sales for every quarter over three years. Why is this suspicious?

Answer: Perfectly consistent percentages may indicate fabricated numbers rather than actual physical losses

Suspiciously uniform results across multiple periods often indicate that numbers are being manufactured or smoothed rather than reflecting actual measured losses.

Which analytical procedure would best detect fictitious employees in a payroll fraud scheme?

Answer: Matching payroll records against HR personnel files and looking for duplicated bank account numbers or SSNs

Matching payroll records to HR files and searching for duplicate SSNs or bank accounts identifies ghost employees who exist in payroll but not in actual HR records.