CFS CFS Fraud Schemes & Classifications 1 — Questions and Answers
Question 1: Which category of occupational fraud involves an employee manipulating financial statements to misrepresent the company's financial position?
- Asset misappropriation
- Financial statement fraud (Correct answer)
- Corruption
- Embezzlement
Correct 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.
Question 2: A Ponzi scheme is best characterized as:
- Using new investor funds to pay returns to earlier investors (Correct answer)
- Inflating asset values on the balance sheet
- Bribing government officials for contracts
- Stealing physical inventory from a warehouse
Correct 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.
Question 3: Which skimming scheme involves an employee stealing cash before it is recorded in the accounting system?
- Lapping
- Check tampering
- Off-book skimming (Correct answer)
- Billing scheme
Correct 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.
Question 4: A lapping scheme in accounts receivable fraud works by:
- Inflating revenue figures in the general ledger
- Using one customer's payment to cover a theft from another customer's account (Correct answer)
- Creating fictitious vendors to generate fraudulent payments
- Forging endorsements on company checks
Correct 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.
Question 5: Which type of fraud scheme involves an employee creating fictitious vendors to generate unauthorized payments?
- Shell company scheme (Correct answer)
- Payroll fraud
- Expense reimbursement fraud
- Check kiting
Correct 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.
Question 6: Ghost employee fraud is classified under which major category of the ACFE Fraud Tree?
- Financial statement fraud
- Corruption
- Asset misappropriation (Correct answer)
- Money laundering
Correct answer: Asset misappropriation
Ghost employee fraud is a payroll scheme under asset misappropriation, where fictitious employees are added to the payroll to divert funds.
CFS CFS Fraud Schemes & Classifications 1
Which category of occupational fraud involves an employee manipulating financial statements to misrepresent the company's financial position?