CFS Asset Misappropriation 2 — Questions and Answers
Question 1: In a 'pay-and-return' billing scheme, the fraudster typically:
- Overpays a vendor and intercepts the vendor's refund check when returned (Correct answer)
- Returns personal purchases to vendors and pockets company reimbursements
- Pays fictitious invoices and routes funds to a shell company
- Issues duplicate payments and voids one before it clears
Correct answer: Overpays a vendor and intercepts the vendor's refund check when returned
In a pay-and-return scheme, the fraudster intentionally overpays or pays a fraudulent invoice, then intercepts and keeps the vendor's refund when the error is discovered.
Question 2: Which of the following is an example of non-cash asset misappropriation?
- Skimming from customer payments
- Submitting false expense reports for reimbursement
- Stealing or misusing company inventory and equipment (Correct answer)
- Creating ghost employees in the payroll system
Correct answer: Stealing or misusing company inventory and equipment
Non-cash asset misappropriation involves stealing or misusing tangible assets such as inventory, equipment, or supplies rather than cash or monetary instruments.
Question 3: A payroll clerk adds unauthorized overtime hours to her own paycheck each pay period. This is best classified as:
- Ghost employee fraud
- Commission fraud
- Pay rate alteration scheme
- Hours and earnings fraud (Correct answer)
Correct answer: Hours and earnings fraud
Hours and earnings fraud involves falsifying the hours worked or earnings calculations on one's own paycheck, such as adding unauthorized overtime, to inflate compensation received.
Question 4: An employee 'force balances' the petty cash fund by:
- Borrowing petty cash and repaying it before month-end reconciliation
- Creating fictitious receipts to cover cash shortages caused by theft (Correct answer)
- Using petty cash for purchases above the authorized transaction limit
- Maintaining two separate petty cash funds to confuse auditors
Correct answer: Creating fictitious receipts to cover cash shortages caused by theft
Forced balancing involves fabricating receipts or supporting documentation to make the petty cash fund appear fully intact despite actual theft of the funds.
Question 5: An employee uses a company credit card to purchase a personal laptop and codes the charge as 'office equipment supplies.' This is known as:
- Mischaracterized expense scheme
- Personal purchases scheme (Correct answer)
- Fictitious expense scheme
- Equipment larceny
Correct answer: Personal purchases scheme
A personal purchases scheme involves using company payment mechanisms—credit cards, purchase orders—to acquire personal items while misrepresenting them as legitimate business expenditures.
Question 6: Which type of check tampering scheme involves intercepting a legitimately issued check and forging the payee's endorsement to deposit it into an unauthorized account?
- Forged maker scheme
- Forged endorsement scheme (Correct answer)
- Altered payee scheme
- Authorized maker scheme
Correct answer: Forged endorsement scheme
A forged endorsement scheme involves stealing a check already made out to the correct payee and forging the endorsement signature on the back to redirect the funds.
Question 7: Surprise physical inventory counts are primarily used to detect:
- Billing fraud through fictitious vendor invoices
- Theft or misuse of physical inventory and supply assets (Correct answer)
- Payroll padding and ghost employee schemes
- Check kiting arrangements across bank accounts
Correct answer: Theft or misuse of physical inventory and supply assets
Surprise inventory counts compare actual physical quantities on hand to recorded book amounts, revealing shortages that may indicate theft or misappropriation of tangible assets.
CFS Asset Misappropriation 2
In a 'pay-and-return' billing scheme, the fraudster typically: