CFE Asset Misappropriation Schemes 2 — Questions and Answers
Question 1: An employee submits expense reports for the same business meal twice, once using the restaurant receipt and once using a credit card statement. This is an example of which scheme?
- Fictitious expense reimbursement
- Mischaracterized expense
- Multiple reimbursement scheme (Correct answer)
- Altered receipt scheme
Correct answer: Multiple reimbursement scheme
A multiple reimbursement scheme involves submitting the same legitimate expense more than once through different documents to obtain duplicate payments.
Question 2: Which of the following best describes a 'lapping' scheme in accounts receivable?
- Inflating invoice amounts before posting to the ledger
- Stealing a customer payment and covering it with a subsequent customer's payment (Correct answer)
- Creating fictitious customer accounts to divert refunds
- Writing off customer balances after pocketing cash
Correct answer: Stealing a customer payment and covering it with a subsequent customer's payment
Lapping involves stealing one customer's payment and then using a later customer's payment to cover the first theft, creating a rolling shortage.
Question 3: A warehouse employee removes inventory for personal use and disguises the shortage by creating fictitious 'damaged goods' write-offs. Which internal control would most directly detect this fraud?
- Mandatory vacation policy for warehouse staff
- Periodic physical inventory counts reconciled to perpetual records (Correct answer)
- Segregation of duties between purchasing and accounts payable
- Pre-numbered receiving reports
Correct answer: Periodic physical inventory counts reconciled to perpetual records
Physical inventory counts compared to perpetual records reveal unexplained shrinkage that cannot be fully justified by legitimate write-offs.
Question 4: Under the ACFE's classification of asset misappropriation, 'skimming' differs from 'cash larceny' primarily because:
- Skimming involves larger dollar amounts than cash larceny
- Skimming occurs before the cash is recorded in the company's books (Correct answer)
- Cash larceny requires collusion while skimming does not
- Skimming only applies to electronic payments
Correct answer: Skimming occurs before the cash is recorded in the company's books
Skimming is an off-book scheme where cash is stolen before it enters the accounting records, making it harder to detect through record review.
Question 5: An accounts payable clerk creates a vendor in the system using her own home address and submits invoices for services never rendered. This scheme is best classified as:
- Shell company scheme (Correct answer)
- Pass-through scheme
- Pay-and-return scheme
- Personal purchase scheme
Correct answer: Shell company scheme
A shell company scheme involves establishing a fictitious vendor entity—often with no real business operations—to submit fraudulent invoices.
Question 6: Which financial statement red flag is most commonly associated with a billing scheme involving fictitious vendors?
- Sudden decrease in accounts receivable turnover
- Unexplained increase in cost of goods sold or operating expenses (Correct answer)
- Significant increase in fixed asset additions
- Declining gross profit margin combined with rising revenue
Correct answer: Unexplained increase in cost of goods sold or operating expenses
Fictitious vendor payments inflate operating expenses or COGS without a corresponding business benefit, causing unexplained expense increases.
Question 7: A payroll supervisor adds fictitious employees to the payroll and deposits their paychecks into accounts she controls. What is the most effective preventive control against this scheme?
- Requiring dual approval for all vendor payments
- Independent verification of new employee data against HR records (Correct answer)
- Monthly bank reconciliations performed by a senior accountant
- Mandatory use of direct deposit for all employees
Correct answer: Independent verification of new employee data against HR records
Comparing payroll records to HR-authorized employee rosters ensures that every person receiving a paycheck is a legitimate, authorized employee.
CFE Asset Misappropriation Schemes 2
An employee submits expense reports for the same business meal twice, once using the restaurant receipt and once using a credit card statement.
This is an example of which scheme?