Fraud Q&A
Dr. Lynn Clements
Question #1
Given all of the following fraud prevention methods
within organizations, which one is probably the most
effective?
A. reducing rationalization
B. having an open-door policy
C. increasing the perception of detection
D. screening employees
Source: Association of Certified Fraud Examiners Website
Answer #1
Increasing the perception of detection may well be
the most effective fraud prevention method. Controls,
for example, do little good in forestalling internal theft
and fraud if their presence is not known by those at
risk. In the audit profession, this means letting
employees, managers, and executives know that
auditors are actively seeking out information
concerning internal theft.
Source: Association of Certified Fraud Examiners Website
Question #2
Beta, a fraud suspect, said he stole money from the
ABCCompany because the company didn’t pay its
entry-level workers a living wage. The view that crime
is primarily caused by a disadvantaged economic class
position is called:
A. economic theory
B. social process theory
C. social structure theory
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #2
Social structure theories suggest that forces operating
in lower-class areas of the environment push many
residents into criminal behavior patterns. They hold
that a disadvantaged economic class position is a
major cause of criminality.
Source: Association of Certified Fraud Examiners Website
Question #3
Blue, a fraud offender, had no known history of
criminality. One theory of crime causation
suggests that people are not inherently bad, but
rather are taught to commit crime through life’s
experiences. This is called the:
A. social causation theory
B. trait theory
C. social learning theory
D. none of the above
Answer #3
The social learning theory is the one most relevant to
criminology, since it includes the acquisition of
criminal behavior patterns. Social learning theorists,
notably Albert Bandura, argue that people are not
born with the ability to act criminally, but that they
learn to be aggressive and commit crime through life’s
experiences. Social learning theorists believe
criminality is learned through a process called
behavior modeling. In modern society, criminal and
aggressive acts usually are modeled after three
principal sources: family members, environmental
experiences, and the mass media.
Source: Association of Certified Fraud Examiners Website
Question #4
Lane, a Certified Fraud Examiner, conducted an
examination of the Blue Corp. Betty was a prime
suspect in the disappearance of money, but Lane could
not prove it. Later, he discovered Betty had been
recently hired by the Red Corp., another client of his.
Under the Certified Fraud Examiner Code of
Professional Ethics, Lane must:
A. inform the Red Corp.
B. not inform the Red Corp.
C. inform the Red Corp. if the evidence is clear and
convincing
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #4
Article VI says that: “A CFE shall not reveal any
confidential information obtained during a professional
engagement without proper authorization.” Under this
scenario, the CFE may not disclose the fact of
Betty’s employment at the Blue Corp., or that she was
a suspect in the disappearance of money without the
authorization of the Blue Corp. However, even if that
authorization was received, the CFE is limited as to
what can be disclosed...
Source: Association of Certified Fraud Examiners Website
Question #5
According to research, most embezzlers decide to
commit their crimes because:
A. they are essentially dishonest
B. they are living beyond their means
C. they have drug problems
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #5
Donald R. Cressey found in a 1953 study of embezzlers
that most of those he examined “had lived beyond
their means for some time before deciding to
embezzle.” Later authors have extended this
statement more generally, remarking, “The most
interesting fact about the white-collar offenders’
aggregate financial status is not the value of their
assets but the extent of their liabilities…”
Source: Association of Certified Fraud Examiners Website
Question #6
A control technique commonly used in computerized
systems which checks each source document against
a detailed list processed by the computer is referred to
as:
A. computer sequence checking
B. computer matching
C. one-for-one checking
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #6
One-for-one checking consists of checking each
source document against a detailed list processed by
the computer. This technique is normally used for low
volume input because of the cost and time involved.
Source: Association of Certified Fraud Examiners Website
Question #7
One of the first steps in determining if financial
statements contain fraudulent entries is to find out if the
equity of the debits and credits has been maintained.
In order to accomplish this task, which one of the
following should be examined?
A. the trial balance
B. the income statement
C. the balance sheet
D. the statement of cash flows
Source: Association of Certified Fraud Examiners Website
Answer #7
The equality of debits and credits in the ledger should be
verified at the end of each accounting period, if not
more often. If fraudulent financial statements are
suspected, a verification of the equality of debits and
credits also is one of the first steps. Frauds often
result in books that don’t balance. Such a verification,
which is called a trial balance, may be in the form of
a calculator tape or in the form of a summary listing of
both the balances and the titles of the accounts used
in preparing the financial statements...
Source: Association of Certified Fraud Examiners Website
Question #8
Cain, the authorized signer on his company’s accounts,
prepared and signed a check payable to the company’s
plumber. He gave the check to Baker, his secretary, and
asked her to mail the check to the plumber. Instead,
Baker took the check home, signed the plumber’s name on
the back and had her husband cash the check at their
grocery store. According to Occupational Fraud and
Abuse, Baker committed which of the following schemes?
A. an altered payee scheme
B. a forged endorsement scheme
C. a forged maker scheme
D. an authorized maker scheme
Source: Association of Certified Fraud Examiners Website
Answer #8
Forged endorsement frauds are those check tampering
schemes in which an employee intercepts a company
check intended for a third party and converts the
check by signing the third party’s name on the
endorsement line of the check.
Source: Association of Certified Fraud Examiners Website
Question #9
White, an employee of ABC Corporation, intentionally issued
two payments for the same invoice. After the disbursements
had been mailed, White called the vendor and explained that
a double payment had been made by mistake. She asked
the vendor to return one of the checks to her attention. When
the vendor returned the check, White took it and cashed it.
According to Occupational Fraud and Abuse, this is an
example of:
A. a shell company scheme
B. a pass-through scheme
C. a receivables skimming scheme
D. a pay-and-return scheme
Source: Association of Certified Fraud Examiners Website
Answer #9
In pay-and-return schemes, employees intentionally
mishandle payments which are owed to legitimate
vendors. One way to do this is to purposely double-
pay an invoice. For example, in one case a secretary
was responsible for opening mail, processing claims
and authorizing payments. She intentionally paid
some bills twice, then requested the recipients to
return one of the checks. She would intercept these
returned checks and deposit them into her own
account.
Source: Association of Certified Fraud Examiners Website
Question #10
You are a Certified Fraud Examiner engaged by the
ABC Company to trace the cash sales through the
accounting records. The ABC Company is in the
insurance industry and bills the premiums to the
customers one month in advance. You expect to see a
debit to cash or accounts receivable for the one-month
amount and a credit to which of the following?
A. unearned revenues
B. prepaid assets
C. deferred charges
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #10
Deferred revenues may be listed on the balance sheet
as a current liability, where they are called unearned
revenues or revenues received in advance. If a long
period is involved, they are presented on the balance
sheet in a section called deferred credits...
Source: Association of Certified Fraud Examiners Website
Question #11
The statute that specifically outlaws the giving or
receiving of anything of value for the purpose of
improperly obtaining or receiving favorable treatment in
connection with U.S. Government contracts is
A. The Foreign Corrupt Practices Act
B. The Anti-Kickback Act of 1986
C. The Civil False Claims Act
D. The “Honest Services” Act
Source: Association of Certified Fraud Examiners Website
Answer #11
The Anti-Kickback Act of 1986 outlaws the giving or
receiving of anything of value for the purpose of
improperly obtaining or receiving favorable treatment
in connection with U.S. government contracts.
Source: Association of Certified Fraud Examiners Website
Question #12
A recorded transcription of a question and answer
session between a witness and an attorney is called
a(n)
A. interrogatory
B. subpoena
C. deposition
D. summons
Source: Association of Certified Fraud Examiners Website
Answer #12
Depositions are probably the most popular and useful
form of discovery. A deposition is sworn testimony
given by a party or witness upon questioning by
counsel for one of the parties before trial and outside
of court, usually in a lawyer’s office.
Source: Association of Certified Fraud Examiners Website
Question #13
Under the Sarbanes-Oxley Act, which of the following
is responsible for establishing procedures for receiving
and dealing with complaints and anonymous employee
tips regarding irregularities in the company’s
accounting methods, internal controls, or auditing
matters?
A. Board of Directors
B. Audit committee
C. Chief Executive Officer
D. Internal auditor
Source: Association of Certified Fraud Examiners Website
Answer #13
Under the Sarbanes-Oxley Act, the audit committee is
required to establish procedures (such as a hotline)
for receiving and dealing with complaints and
anonymous employee tips regarding irregularities in
the company’s accounting methods, internal controls,
or auditing matters.
Source: Association of Certified Fraud Examiners Website
Question #14
Which of the following statements in INCORRECT with
respect to mail fraud?
A. The predicate mailing must be placed in a post
office or postal depository.
B. The mailing must contain the false or fraudulent
misrepresentation.
C. The scheme need not be a success.
D. The victim need not suffer a loss.
Source: Association of Certified Fraud Examiners Website
Answer #14
The mailing does not need to contain the false and
fraudulent representations, as long as it is an
integral part of the scheme. What is integral or
incidental depends on the facts of each case;
generally a mailing that helps advance the scheme in
any significant way will be considered sufficient.
Source: Association of Certified Fraud Examiners Website
Question #15
The FBI asks IBC Manufacturing to assist it in an investigation of
one of IBC’s employees. Specifically, the FBI asks one of IBC’s
managers to search the employee’s locker and give the FBI any
illegal drugs found. Which of the following statements is most
correct?
A. IBC cannot be guilty of violating the 4th Amendment
because it is not a government agency.
B. IBC’s actions would be private action, not state action;
therefore, the 4th Amendment would not apply.
C. IBC may be in violation of the 4th Amendment because it is
acting at the request of the government.
D. IBC could not be in violation of the 4th Amendment
because it is a private company; however, it may be subject
to civil liability.
Source: Association of Certified Fraud Examiners Website
Answer #15
In order for an employee to sue an employer for the
violation of a constitutional right, there must be some
form of “state action” involved. State action is involved
during any investigation by a state or federal entity,
including investigations of their own employees. There
are no bright-line rules regarding when an investigation
can be considered to involve state action. However, the
following examples could be considered to involve state
action: Investigations conducted by a private
company but at the suggestion of the state or federal
authorities...
Source: Association of Certified Fraud Examiners Website
Question #16
Able is a Certified Fraud Examiner and a private
consultant. He is hired to perform a fraud investigation.
In the preliminary stages of the investigation, before
criminal or civil litigation, which of the following is
probably the only method available to Able to obtain
documentary evidence?
A. search warrant
B. subpoena
C. subpoena duces tecum
D. voluntary consent
Source: Association of Certified Fraud Examiners Website
Answer #16
Evidence is obtained by three methods. “Subpoenas” are
ordinarily issued by the court or by a grand jury. A “subpoena
duces tecum” calls for the production of documents and
records, whereas a regular subpoena is used for witnesses.
Obtaining documents by subpoena is not possible if the
examiner is not an agent of the grand jury or the court. “Search
warrants” are issued by a judge upon presentation of probable
cause to believe the records are being used or have been used
in the commission of a crime. A search warrant will be issued
only to members of law enforcement. Therefore, Able is limited
to obtaining documents through voluntary consent, which can
be oral or written.
Source: Association of Certified Fraud Examiners Website
Question #17
The first three numbers of a Social Security number
(with the exception of the 700 series) reflect:
A. state of issue
B. city of issue
C. individual identifiers
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #17
With the exception of the 700 series, the first three digits
of a Social Security number reflect the state of issue.
Source: Association of Certified Fraud Examiners Website
Question #18
Blue, a Certified Fraud Examiner, was interviewing
Green, a fraud suspect. When Blue asked pertinent
questions, Green would frequently repeat the question.
One main reason Green would do this is because he is
attempting to:
A. ensure he understands the question
B. gain time to frame his answer
C. frustrate Blue and end the interview
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #18
Repeating the question is another means for the
deceiver to gain time to frame his or her answer.
The question may be repeated verbatim, or the
respondent may frame the answer with a request to
repeat the question. Example: “What did you say,
again?” or “Are you asking me if I took kickbacks?” A
truthful subject usually does not have to contemplate
his or her answer.
Source: Association of Certified Fraud Examiners Website
Question #19
In interviews, most fictitious alibis can be detected by
the suspect’s:
A. selective memory
B. inconsistent fact statements
C. body language
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #19
Most fictitious alibis surface in the suspect’s selective
recollection of events. The guilty suspect will
typically be able to remember, in great detail, events
before and after the one of significance. But at the
crucial time, the suspect frequently has memory
problems.
Source: Association of Certified Fraud Examiners Website
Question #20
Baker, a Certified Fraud Examiner, has obtained an oral
confession from Gamma, a fraud suspect. In addition to
fraud, Gamma also admitted he was smuggling drugs in an
unrelated case. How should this be handled in Gamma’s
written statement?
A. Both crimes should be included in the same statement.
B. Separate statements should be taken for separate
crimes.
C. Information concerning the drug smuggling should be
omitted.
D. none of the above
Source: Association of Certified Fraud Examiners Website
Answer #20
There should not be more than one written
statement for each offense. If facts are
inadvertently omitted, they can later be added to the
original statement as an addendum. For legal
purposes, prepare separate statements for unrelated
offenses...
Source: Association of Certified Fraud Examiners Website
CFE Exam
Four sections of 125 questions each:
Financial transactions
Legal elements of fraud
Fraud investigation
Criminology and ethics
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp
CFE Exam: Financial Transactions
“This section tests your knowledge of the types of
fraudulent financial transactions incurred in
books of account. To pass this section, you will
be required to demonstrate knowledge of these
concepts: basic accounting and auditing theory,
fraud schemes, proving illicit income, internal
controls to deter fraud, and other auditing and
accounting matters.”
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp
CFE Exam: Legal Elements of Fraud
“This section’s purpose is to ensure that you are
familiar with the many legal ramifications of
conducting fraud examinations, including criminal
and civil law, rules of evidence, rights of the
accused and accuser, and expert witness matters.”
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp
CFE Exam: Fraud Investigation
“CFEs must know how to conduct fraud
investigations. This section includes questions in
the following areas: interviewing, taking
statements, obtaining information from public
records, evaluating deception, and report writing.”
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp
CFE Exam:Criminology and Ethics
“The purposes of this section are to test your
knowledge of criminological concepts and to
evaluate your understanding of the underlying
ethics of the fraud examination profession. This
part includes administration of criminal justice,
theories of crime causation, theories of fraud
prevention, crime information sources, and ethical
situations.”
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp
CFE Exam
Preparing for the exam
On your own using the Fraud Examiners Manual
CFE Exam Prep Course (50 hours of A&A CPE
only through 12-31-03)
Computer requirements
Timing of the exam
Grading of the exam
Pass guarantee
Exam fees
Source: http://marketplace.cfenet.com/cfe/CertByExam.asp