CFE Forensic Accounting & Financial Fraud Investigation 5

Question 1

A forensic accountant performing a Benford's Law analysis on expense reimbursements finds a significant spike in entries beginning with the digit '2'. The MOST likely explanation consistent with fraud is:

Accepted Answer

Employees submitting reimbursements just under a $25 or $250 approval threshold

Answer

A spike at '2' often indicates fraudsters submitting amounts just under approval thresholds (e.g., $249), a classic structuring behavior detectable through Benford's Law.

Question 2

During a financial fraud investigation, a forensic accountant subpoenas bank records and discovers wire transfers to an offshore account coinciding with the target's vacation schedule. This type of evidence is best categorized as:

Accepted Answer

Circumstantial evidence supporting the fraud hypothesis

Answer

Timing correlations between transfers and the suspect's activities are circumstantial evidence that, combined with other facts, can build a compelling fraud case.

Question 3

Under ASC 606 (Revenue from Contracts with Customers), a software company recognizes all multi-year subscription revenue at contract signing. A forensic accountant investigating this practice would classify it as:

Accepted Answer

A violation of the five-step revenue recognition model requiring ratable recognition

Answer

ASC 606's five-step model requires recognizing revenue as performance obligations are satisfied over time, not at contract inception for multi-year subscriptions.

Question 4

A forensic investigator is analyzing a CEO's personal financial records and finds that the CEO purchased significant company stock options two weeks before a favorable earnings announcement that was not yet public. This conduct most directly implicates:

Accepted Answer

Insider trading violations under Rule 10b-5

Answer

Trading on material non-public information violates SEC Rule 10b-5, which prohibits insider trading as a form of securities fraud.

Question 5

In a check kiting scheme involving multiple banks, the forensic accountant should focus on which document to identify the fraudulent float?

Accepted Answer

Bank reconciliations showing timing differences between deposits and clearings

Answer

Check kiting creates artificial float visible in bank reconciliations as deposits in transit that never clear, revealing the timing manipulation between accounts.

(CFE) Certified Forensic Examiner Practice Test

(CFE) Certified Forensic Examiner Practice Test

CFE Forensic Accounting & Financial Fraud Investigation 5