CFS Financial Transactions & Reporting 2 — Questions and Answers
Question 1: A bank teller processes multiple cash deposits just under $10,000 over several days for the same customer. What term describes this activity?
- Layering
- Structuring (smurfing) (Correct answer)
- Integration
- Placement
Correct answer: Structuring (smurfing)
Structuring, also called smurfing, involves breaking large cash amounts into smaller transactions to evade the $10,000 CTR filing threshold.
Question 2: Under the Bank Secrecy Act, a financial institution must file a Suspicious Activity Report (SAR) within how many days of detecting a suspicious transaction?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
SARs must be filed within 30 days of initial detection of the suspicious activity, or 60 days if no suspect can be identified.
Question 3: Which financial statement is most useful for detecting fictitious revenue schemes because it shows cash collected vs. revenue recognized?
- Balance sheet
- Income statement
- Statement of cash flows (Correct answer)
- Statement of retained earnings
Correct answer: Statement of cash flows
The statement of cash flows reveals discrepancies between reported revenue and actual cash receipts, exposing fictitious revenue schemes.
Question 4: A company records a sale at year-end but ships the goods in the following quarter. This is an example of which fraud scheme?
- Channel stuffing
- Improper revenue cutoff (Correct answer)
- Round-tripping
- Bill-and-hold fraud
Correct answer: Improper revenue cutoff
Improper revenue cutoff involves recording revenue in the wrong period, such as booking sales before goods are actually delivered.
Question 5: What does the term 'round-tripping' refer to in the context of financial fraud?
- Wire transfers sent and returned to the same account
- A company selling assets to a counterparty and buying them back to inflate revenue (Correct answer)
- Cycling cash through multiple shell companies
- Reversing journal entries at period end
Correct answer: A company selling assets to a counterparty and buying them back to inflate revenue
Round-tripping involves two companies exchanging assets or cash with no economic substance, artificially inflating each other's revenue.
Question 6: Which ratio is a key red flag indicator when accounts receivable grows much faster than revenue?
- Current ratio
- Days sales outstanding (DSO) (Correct answer)
- Debt-to-equity ratio
- Gross margin ratio
Correct answer: Days sales outstanding (DSO)
Rising DSO relative to peers or prior periods suggests that receivables are not being collected, possibly because they are fictitious.
Question 7: In a lapping scheme, a fraudster covers a misappropriated payment from Customer A by applying a later payment from which source?
- A fabricated credit memo
- Customer B's subsequent payment (Correct answer)
- A petty cash fund
- An intercompany transfer
Correct answer: Customer B's subsequent payment
In lapping, the fraudster uses Customer B's payment to post against Customer A's account, perpetually shifting the shortage forward.
CFS Financial Transactions & Reporting 2
A bank teller processes multiple cash deposits just under $10,000 over several days for the same customer.
What term describes this activity?