CFS Fraud Schemes & Classifications Flashcards

Which category of occupational fraud involves an employee manipulating financial statements to misrepresent the company's financial position?

Answer: Financial statement fraud

Financial statement fraud involves intentional misstatements or omissions in financial statements to deceive users, and is one of the three main categories in the ACFE Fraud Tree.

A Ponzi scheme is best characterized as:

Answer: Using new investor funds to pay returns to earlier investors

A Ponzi scheme pays returns to earlier investors using capital from newer investors rather than from legitimate profit, eventually collapsing when new investment slows.

Which skimming scheme involves an employee stealing cash before it is recorded in the accounting system?

Answer: Off-book skimming

Off-book skimming occurs when cash is stolen before any record of the transaction is made, making it difficult to detect through normal reconciliation.

A lapping scheme in accounts receivable fraud works by:

Answer: Using one customer's payment to cover a theft from another customer's account

Lapping involves stealing a customer's payment and then covering it with a subsequent payment from another customer, creating a perpetual cycle of theft concealment.

Which type of fraud scheme involves an employee creating fictitious vendors to generate unauthorized payments?

Answer: Shell company scheme

Shell company schemes involve setting up fictitious vendor entities to submit invoices and receive payments for goods or services never provided.

Ghost employee fraud is classified under which major category of the ACFE Fraud Tree?

Answer: Asset misappropriation

Ghost employee fraud is a payroll scheme under asset misappropriation, where fictitious employees are added to the payroll to divert funds.