CFE Trivia 4 — Questions and Answers
Question 1: Which U.S. law created the Public Company Accounting Oversight Board (PCAOB)?
- Foreign Corrupt Practices Act
- Dodd-Frank Act
- Sarbanes-Oxley Act (Correct answer)
- Securities Exchange Act of 1934
Correct answer: Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002 (SOX) established the PCAOB to oversee auditors of public companies in response to major accounting scandals like Enron.
Question 2: In fraud investigation, what is a 'net worth analysis' used to detect?
- A company's solvency
- Unexplained increases in a suspect's personal wealth (Correct answer)
- The fair value of stolen assets
- Internal control weaknesses
Correct answer: Unexplained increases in a suspect's personal wealth
Net worth analysis compares a person's increase in net worth to known legitimate income sources to identify unexplained wealth that may indicate fraud proceeds.
Question 3: Which type of fraudulent disbursement involves creating payments to fictitious employees on the payroll?
- Ghost employee scheme (Correct answer)
- Commission scheme
- Workers' compensation fraud
- Pay rate fraud
Correct answer: Ghost employee scheme
A ghost employee scheme involves adding fictitious employees to the payroll so the fraudster can divert the corresponding paychecks.
Question 4: What does 'Benford's Law' help fraud examiners identify?
- Violations of employment law
- Unusual patterns in the leading digits of numerical data (Correct answer)
- Patterns in customer complaint data
- Trends in inventory shrinkage
Correct answer: Unusual patterns in the leading digits of numerical data
Benford's Law states that in naturally occurring datasets, lower leading digits appear more frequently; deviations from this pattern can signal manipulated or fabricated numbers.
Question 5: Which of the following is an example of a 'conflict of interest' scheme?
- An employee stealing petty cash
- A manager approving contracts with a vendor in which the manager has an undisclosed ownership stake (Correct answer)
- An accountant inflating revenue
- A clerk forging a signature on a check
Correct answer: A manager approving contracts with a vendor in which the manager has an undisclosed ownership stake
A conflict of interest occurs when an employee has an undisclosed personal interest in a transaction that benefits themselves at the expense of the employer.
Question 6: According to the ACFE, which industry experiences the highest median loss per fraud case?
- Healthcare
- Banking and financial services
- Government and public administration
- Mining (Correct answer)
Correct answer: Mining
ACFE Report to the Nations data consistently shows that the mining industry suffers among the highest median losses per fraud case due to low case volume and large asset values.
Question 7: What is 'kiting' in the context of banking and fraud?
- Flying surveillance drones over a suspect's property
- Exploiting float time by depositing and withdrawing funds between multiple accounts to inflate balances (Correct answer)
- Forging endorsements on checks
- Issuing checks with no underlying funds
Correct answer: Exploiting float time by depositing and withdrawing funds between multiple accounts to inflate balances
Check kiting exploits the float period between depositing and clearing to artificially inflate account balances and temporarily access non-existent funds.
CFE Trivia 4
Which U.S. law created the Public Company Accounting Oversight Board (PCAOB)?