Financial Fraud & Forensic Analysis Flashcards

An accounts receivable clerk steals a customer's payment and conceals the theft by applying a later customer's payment to the first customer's account. What is this scheme called?

Answer: Lapping

Lapping hides skimmed receivables by continually applying later receipts to earlier customers' accounts.

Under Benford's Law, roughly what percentage of naturally occurring numbers in a large data set should begin with the digit 1?

Answer: 30.1%

Benford's Law predicts a leading digit of 1 about 30.1% of the time, far more often than a uniform 11.1%.

The fraud diamond expands the classic fraud triangle by adding which fourth element?

Answer: Capability

Wolfe and Hermanson added capability, meaning the perpetrator's traits and skills, to pressure, opportunity, and rationalization.

What most clearly separates a Ponzi scheme from a pyramid scheme?

Answer: A Ponzi scheme uses a central operator who pays earlier investors with new investors' money, while pyramid participants recruit others directly

Ponzi investors deal with a central promoter who claims investment returns, while pyramid schemes openly pay participants for recruiting.

Check kiting takes advantage of which banking feature?

Answer: The float period between depositing a check and the funds clearing

Kiting moves checks between accounts at different banks so balances look inflated while checks have not yet cleared.

A manufacturer ships far more inventory to its distributors than they can sell, with generous return rights, right before quarter-end. This is most likely:

Answer: Channel stuffing

Channel stuffing pulls future sales into the current period and inflates revenue by overloading distribution channels.

Which analytical test is most effective for spotting ghost employees on a payroll?

Answer: Matching payroll records to HR files and flagging shared bank accounts or addresses

Ghost employees often have no HR file, or share direct-deposit accounts or addresses with real employees.