CFE Asset Misappropriation Schemes 3 — Questions and Answers
Question 1: A purchasing manager splits a $45,000 purchase order into three $15,000 orders to avoid the $20,000 competitive bidding threshold. This is known as:
- Bid rigging
- Bid suppression
- Bid splitting (or 'structured' purchasing) (Correct answer)
- Fictitious invoicing
Correct answer: Bid splitting (or 'structured' purchasing)
Bid splitting involves breaking a large purchase into smaller amounts specifically to circumvent procurement thresholds that require competitive bidding.
Question 2: Which of the following is a characteristic behavioral red flag ('red flag') of an employee committing asset misappropriation?
- Frequently arriving at work early and staying late without overtime pay
- Refusing to take vacation or cross-train colleagues on their duties (Correct answer)
- Consistently completing work assignments ahead of schedule
- Volunteering for additional compliance duties
Correct answer: Refusing to take vacation or cross-train colleagues on their duties
Employees who refuse vacations or resist having others learn their duties often do so to prevent the discovery of ongoing fraud schemes.
Question 3: The Occupational Fraud and Abuse classification system developed by the ACFE categorizes asset misappropriation into two main branches. These are:
- Cash schemes and non-cash schemes (Correct answer)
- Theft schemes and concealment schemes
- Internal schemes and external schemes
- On-book schemes and off-book schemes
Correct answer: Cash schemes and non-cash schemes
The ACFE's fraud tree divides asset misappropriation into cash schemes (skimming, larceny, fraudulent disbursements) and non-cash schemes (misuse and larceny of non-cash assets).
Question 4: An employee uses a company credit card to purchase personal electronics and then submits the expense report listing the items as 'office supplies.' This is best classified as:
- Fictitious expense reimbursement
- Mischaracterized expense scheme
- Personal purchase scheme using company funds (Correct answer)
- Overstated expense scheme
Correct answer: Personal purchase scheme using company funds
A personal purchase scheme involves using a company-issued payment method to buy items for personal benefit, regardless of how it is labeled on the expense report.
Question 5: During a fraud examination, an examiner discovers that a company's accounts payable aging report shows many vendor invoices paid within one day of receipt, all approved by the same manager. This pattern is most consistent with:
- Efficient cash management practices
- A kickback or billing fraud scheme requiring rapid payment (Correct answer)
- A lapping scheme targeting accounts receivable
- Ghost employee payroll fraud
Correct answer: A kickback or billing fraud scheme requiring rapid payment
Unusually rapid invoice approvals by a single individual suggest the approver has a personal interest in ensuring the vendor is paid quickly, a hallmark of kickback arrangements.
Question 6: Which type of documentary evidence is typically most useful in proving a check tampering scheme?
- Vendor contracts and purchase orders
- Original cancelled checks, bank statements, and signature cards (Correct answer)
- Payroll registers and W-2 forms
- Fixed asset schedules and depreciation records
Correct answer: Original cancelled checks, bank statements, and signature cards
Cancelled checks reveal alterations to payee names or amounts, and comparison to signature cards shows unauthorized endorsements or forged signatures.
Question 7: A cash register operator voids a transaction after a customer has paid and then pockets the cash. This scheme is most accurately described as:
- Register disbursement scheme
- Skimming via false voids (Correct answer)
- Cash larceny through forced balancing
- Refund fraud
Correct answer: Skimming via false voids
Recording a false void after cash is received removes the sale from the register tape, allowing the employee to steal the cash while the records appear balanced.
CFE Asset Misappropriation Schemes 3
A purchasing manager splits a $45,000 purchase order into three $15,000 orders to avoid the $20,000 competitive bidding threshold.
This is known as: