PCI PCI Financial Investigation & Asset Recovery 2 — Questions and Answers
Question 1: What is 'lapping' as a financial fraud scheme?
- Stealing payments from one account and covering it with funds from another (Correct answer)
- Reviewing large volumes of financial data rapidly
- Creating fictitious vendors to receive payments
- Manipulating inventory counts to hide theft
Correct answer: Stealing payments from one account and covering it with funds from another
Lapping is a scheme where an employee steals a payment from one customer and then uses subsequent payments from other customers to cover the shortfall.
Question 2: What is 'ghost employee' fraud?
- Adding fictitious employees to the payroll to divert funds (Correct answer)
- Paying former employees after termination in error
- Misclassifying contractors as employees
- Overpaying employees due to clerical error
Correct answer: Adding fictitious employees to the payroll to divert funds
Ghost employee fraud involves adding fictitious persons to the payroll so that fraudsters can collect their wages.
Question 3: What does 'net worth analysis' reveal in a financial investigation?
- Changes in an individual's assets and liabilities that may indicate unexplained income (Correct answer)
- The total value of a company's publicly traded stock
- An individual's creditworthiness for obtaining loans
- The fair market value of seized property
Correct answer: Changes in an individual's assets and liabilities that may indicate unexplained income
Net worth analysis compares a subject's known income to changes in assets and liabilities, revealing income that cannot be explained by legitimate sources.
Question 4: In embezzlement cases, what is the significance of Benford's Law?
- Naturally occurring numbers follow a predictable distribution that fraud can disrupt (Correct answer)
- All financial records must be retained for seven years
- Transactions over $10,000 must be reported to the IRS
- Financial audits must be conducted by certified accountants
Correct answer: Naturally occurring numbers follow a predictable distribution that fraud can disrupt
Benford's Law states that in legitimate datasets the leading digit follows a specific distribution, and deviations from this pattern may indicate fraudulent data manipulation.
Question 5: What is the primary purpose of a forensic accounting examination in an investigation?
- To analyze financial records to detect fraud, embezzlement, or other financial crimes (Correct answer)
- To prepare tax returns for businesses under investigation
- To conduct external audits for publicly traded companies
- To determine the value of a business for acquisition purposes
Correct answer: To analyze financial records to detect fraud, embezzlement, or other financial crimes
Forensic accounting applies accounting and investigative skills to analyze financial records in the context of legal proceedings or investigations.
Question 6: What is a Ponzi scheme?
- A fraudulent investment operation where returns are paid from new investor funds rather than profits (Correct answer)
- An illegal trading scheme involving insider information
- A tax evasion scheme using offshore accounts
- A payroll fraud scheme involving ghost employees
Correct answer: A fraudulent investment operation where returns are paid from new investor funds rather than profits
A Ponzi scheme pays returns to earlier investors using money from newer investors rather than actual profits, eventually collapsing when new investment dries up.
PCI PCI Financial Investigation & Asset Recovery 2
What is 'lapping' as a financial fraud scheme?