Q. Which of the following is NOT a method that a fraudster might use to conceal inventory shrinkage?

Falsely increasing the perpetual inventory figure.

Q. Which of the following is considered a red flag of check tampering?

All of the above

Q. The debt-to-equity ratio is computed by dividing current liabilities by total equity.

False

Q. Which of the following real estate loan schemes would be best described as an air loan?

A builder, in collusion with an appraiser and other real estate insiders, fraudulently applies for a loan
to construct a building on a nonexistent property and keeps the proceeds.

Q. In most construction contracts, a certain amount will be withheld from each draw request by the
contractor. This amount is not paid until the contract has been finished and approved by the owner.
The withheld amount is referred to as which of the following?

Retainage

Q. The ____________ details how much profit (or loss) a company earned over a particular period of
time.

Income statement

Q. A fraud scheme in which an accountant fails to write down obsolete inventory to its current fair
market value has what effect on the company’s current ratio?

The current ratio will be artificially inflated.

Q. If a bank loan is a nonperforming loan, it might be a red flag for fraud. Which of the following is a
fraud scheme that is often connected to a nonperforming loan?

All of the above

Q. Baker used his company credit card to pay for a business dinner at which he was entertaining a
client, knowing the credit card bill would be paid by Baker's employer. Baker saved the receipt and
later filed an expense report seeking reimbursement for the cost of the meal, attaching the receipt as
support. This is an example of what kind of fraud?

Multiple reimbursement scheme

Q. Which of the following are considered red flags of insider computer fraud?

I. Access privileges limited to those required to perform assigned tasks.

II. Access logs are not reviewed.
III. Production programs are run during normal business hours.
IV. Exception reports are not reviewed and resolved

II and IV only

Q. Solicitations for pre-approved credit cards should be shredded before being discarded in the trash.

True
Q. Which of the following methods would be useful in detecting a ghost employee scheme?

All of the above

Q. As a means to prevent check fraud, companies should establish maximum amounts above which
the company’s bank will not accept checks drawn against the account.

True

Q. Performing a physical inventory count is an effective way to detect a skimming scheme

True

Q. Common fraud schemes involving ATMs include all of the following EXCEPT:

Credit data blocking

Q. Which of the following is the best definition of the automobile insurance scheme known as
ditching?

An insured falsely reports a vehicle as stolen to collect on an insurance policy.

Q. In a telemarketing scam, the person who reads vague words about the deal and records the
victim's agreement is known as the:

Verifier

Q. A Ponzi scheme can best be described as an illegal business structure that might offer
merchandise, but generates all of its revenues from the relentless recruitment of new members.

False

Q. Which of the following is an example of the piggybacking method used to gain access to restricted
areas?

All of the above

Q. ___________ is the deliberate scrambling of a message so that it is unreadable except to those

who hold the key for unscrambling the message.

Encryption

Q. Reconciling the cash register total to the amount of cash in the drawer is an ineffective method of
detecting a cash larceny scheme.

False

Q. Generally speaking, _________________ is the proper basis for initially recording a piece of
equipment on a company's books.

Historical cost

Q. Which of the following is a red flag of fraudulent register disbursements?

All of the above

Q. Upon accepting a check from a customer, an employee should always do which of the following?

Ask for identification and inspect it to ensure its validity

Q. AD&N Railway solicits bids to lay several miles of new railroad track. Bob, who works for AD&N,
writes the specifications for the project to provide that AD&N will only contract with companies that
have more than 25 years of experience. Bob knows that only B&P Track Co., one of the prospective
bidders, has more than 25 years of experience. What type of procurement fraud scheme has taken
place?

Bid tailoring

Q. The purpose of draw requests in construction lending is to provide:

Documentation that costs have been incurred and reimbursement is sought

Q. Rachel's boss was an authorized maker on the company checks. Rachel stole one of the checks
and forged her boss's signature. This check tampering scheme is known as a forged endorsement
scheme.

False

Q. Which of the following best describes a mischaracterized reimbursement expense scheme?

An employee who travels frequently on business submits receipts from his hotel stay during a family
vacation as a business expense.

Q. Which of the following refers to the type of network security systems that are designed to
supplement firewalls and other forms of network security by detecting malicious activity coming across
the network or on a host?

Intrusion detection systems

Q. _______________ is a system by which the bank verifies checks presented for payment against
the list provided by the company of approved checks written on the account.

Positive pay

Q. Which of the following is a typical method used to make corrupt payments in bribery and corruption
schemes?

All of the above

Q. Management has an obligation to disclose all events and transactions in the financial statements
that are likely to have a material effect on the entity's financial position.

True

Q. James runs an electronics store. One of the main challenges in his business is keeping up with
technological advances. Because of this, his auditors want to ensure inventory is not fraudulently
overstated on the store's balance sheet. Which of the following actions should the auditors take to
ensure inventory is not overstated?

All of the above

Q. Which of the following would be considered a forged maker scheme?

Erica steals a check from her employer, makes it payable to herself, and then forges the CFO’s
signature on the check. The CFO is an authorized check signer at the company.

Q. There are two methods for recognizing revenue on long-term construction contracts. Which of the
following is one of those methods?

Percentage-of-completion method

Q. Excessive write-offs are a form of concealment for which of the following schemes?

All of the above

Q. Which of the following scenarios illustrates a fraudster’s use of social engineering?

A fraudster calls a company employee and requests sensitive information while claiming to be a
coworker whose systems are down

Q. Publicly available information that anyone can lawfully obtain by request, purchase, or observation
is known as which of the following?

Open-source information

Q. Which of the following is the correct calculation of the quick ratio?

(Cash + marketable securities + receivables) / current liabilities

Q. A recommended practice to detect expense reimbursement schemes is to compare current period

expenses to both historical expenditure amounts and budgeted expense amounts.

True

Q. A health care provider's practice of charging a comprehensive code, as well as one or more
component codes, by billing separately for subcomponents of a single procedure is known as
______________.

Unbundling

Q. Carl has just received a call from his credit card company alerting him that his identity might have
been stolen. After checking with a credit bureau, Carl discovers several lines of credit that have been
opened without his knowledge. Which of the following measures should Carl take going forward to
reduce the chances of this happening to him again?

All of the above

Q. Annika, a bookkeeper created checks to a local vendor and had her boss sign them. She then
used correctional fluid to cover up the vendor's name and insert her own. She also changed the
amounts of the checks in the same manner.What kind of scheme did Annika commit?

An altered payee scheme

Q. For a ghost employee scheme involving an hourly employee to be successful, all of the following
must happen EXCEPT:

The ghost employee must be a fictitious person.

Q. Joe formed a company called Glenn Corp. He opened a bank account in Glenn Corp.’s name and
used his home computer to create fraudulent invoices from Glenn Corp. for "consulting services."
However, Glenn Corp. is a fictitious entity that was created solely to commit fraud, and no services
have been rendered. Joe mailed these invoices to his employer, Paisley Company. Paisley Company
promptly submitted payment to Glenn Corp., not realizing that the company was fake, and Joe
deposited the money. What type of billing scheme did Joe commit?

A shell company scheme

Q. When an employee signs a legally enforceable noncompetition agreement, the provisions of the
noncompetition agreement continue after the employee leaves the company where he signed the
agreement.

True

Q. A confidence scheme designed to part victims from their money by falsely promising the future
delivery of a product or service in exchange for an upfront payment is called a(n):

Advance-fee swindle

Q. The BEST solution for financial institutions and merchants to reduce losses from check fraud is to
do which of the following?

Educate employees to recognize forged or fraudulent checks

Q. The accounts receivable clerk should be responsible for both collecting cash and disbursing
company funds.

False

Q. The equipment needed to run a check fraud ring is very expensive and difficult to obtain.

False

Q. When fabricating a counterfeit credit card, which of the following is the most difficult facet to
reproduce?

Hologram

Q. Cash theft schemes fall into which of the following two categories?

Skimming and cash larceny

Q. When developing a program for safeguarding proprietary information, an organization should form
a company task force to develop the program, and the task force should include representatives from
relevant departments all across the company, such as research and development, corporate security,
and records management.

True

Q. Anna works as a cashier in an antiques store. Since the merchandise lacks barcodes, she has to
enter the prices manually. One customer purchased a piece of furniture that cost $250 and paid in
cash. Anna recorded the sale at $200 and pocketed the $50 bill. What type of fraud did Anna commit?

An understated sales (skimming) scheme

Q. Which of the following is the most accurate definition of a computer worm?

A self-replicating computer program that penetrates operating systems to spread malicious code to
other systems

Q. ABC Bank recently acquired a new portfolio of consumer loans. Because this particular loan
portfolio is experiencing a higher than normal default rate, management has asked Bradley, a
Certified Fraud Examiner, to evaluate the portfolio. Bradley notices that the loan package was sold
without recourse to the broker, the brokerage fee was high relative to other purchases, and the broker
is no longer in business. Which of the following types of schemes has Bradley most likely uncovered?

Brokered loan fraud

Q. ___________________ is the unaccounted-for reduction in a company's inventory that results

from error or theft.

Shrinkage

Q. Unscrupulous debt consolidation schemes include each of the following EXCEPT:

The debt consolidation company writes a letter to the debtor's creditors and arranges a payment plan

Q. The statement of changes in owners’ equity acts as the connecting link between which two
financial statements?

Income statement and balance sheet

Q. Credits decrease asset and expense accounts.

True

Q. Ed Smith, a city commissioner, negotiated a land development deal with a group of private
investors. After the deal was approved, the investors rewarded Smith with an all-expenses-paid trip,
even though giving such rewards to government officials is prohibited by law. Which of the following is
the most appropriate term to describe what has taken place?

Illegal gratuity

Q. The accounts receivable clerk should be responsible for preparing the bank deposit.

False

Q. Which of the following is NOT a method that is used to conceal inventory shrinkage?

Selling merchandise without recording the sale

Q. All of the following are types of medical provider fraud EXCEPT:

Smurfing

Q. Not every company that runs its business using a pyramid structure is operating an illegal pyramid
scheme.

True
Q. _____________________ is the deliberate misrepresentation of the financial condition of an
enterprise accomplished through the intentional misstatement or omission of amounts or disclosures
in the financial statements to deceive financial statement users.

Financial statement fraud

Q. What effect would improperly recording an expenditure as a capitalized asset rather than as an
expense have on the financial statements?

Assets would be falsely overstated, giving the appearance of a stronger company

Q. Which of the following is a common way a procuring employee might engage in a bid manipulation
scheme?

All of the above

Q. Liam is the manager of a small bank that has recently experienced an increase in the amount of
fraud related to electronic funds transfers (EFT). Which of the following methods can Liam implement
to reduce his bank’s exposure to EFT fraud?

All of the above

Q. Which of the following measures should be in place to help prevent check tampering schemes?

All of the above

Q. A fraudster can understate expenses and their related liabilities to make a company appear more
profitable than it actually is.

True

Q. __________ is the term used for including additional coverages in an insurance policy without the
insured's knowledge.

Sliding

Q. In investigating whether financial statements have been manipulated to make a company appear
more profitable, a Certified Fraud Examiner should look for liabilities that have been overstated.

False

Q. Laura, the sales manager of Sam Corp., To make up for the shortfall, she decides to mail invoices
to fake customers and credit (increase) revenue on the books for these sales. What account will she
most likely debit to balance these fictitious revenue entries and conceal her scheme?

Accounts receivable

Q. ___________ involve paying individuals to undergo unnecessary medical procedures that are then
billed to the patient's insurer or health care program.

Rent-a-patient schemes

Q. Which of the following is a method in which contractors can inflate material costs in negotiated
contracts?

Failing to disclose discounts and credits

Q. Smart cards cannot be easily replicated and are generally more secure than magnetic stripe credit
cards.

True

Q. Which of the following statements is TRUE regarding e-commerce?

All of the above

Q. The Financial Action Task Force’s Recommendation 20 states that countries should require
financial institutions to submit which type of report if there is a known or suspected transaction
involving the proceeds of criminal activity at the institution?

Suspicious Transaction Report

Q. Which of the following scenarios is an example of a kickback scheme?

An employee receives a payment for directing excess business to a vendor

Q. Which of the following statements is TRUE regarding the balance sheet?

Assets are generally presented on the balance sheet in order of liquidity

Q. Although bribery schemes are more common than most other forms of occupational fraud, they
tend to be much less costly.

False

Q. Which of the following is the correct accounting model?

Assets = Liabilities + Owners' Equity

Q. Which of are signs that a multilevel marketing organization's activities might be illegal?

All of the above

Q. If a customer reports the loss or theft of an access device, the financial institution should attempt to
prevent fraud related to electronic funds transfers by canceling the existing card, PIN, or other form of
access and issuing a new one.

True

Q. To help detect cash larceny, the person responsible for collecting incoming cash should also
prepare the bank deposits.

False

Q. The primary reason for a company’s management to construct an electronically and acoustically
shielded “quiet room” is to protect the company’s servers and other sensitive electronic equipment.

False

Q. Assets, liabilities, and owners’ equity are all items that appear on a company’s balance sheet.

True
Q. Due to the paper trail involved and the emphasis placed on the problem by law enforcement, the
vast majority of check fraud offenders are pursued and prosecuted.

False

Q. When a construction developer submits a draw request to a lender, all of the following would be
red flags for loan fraud EXCEPT:

Omission of developer’s personal account statements

Q. Sean is responsible for delivering timesheets to the payroll department on behalf of his supervisor.
One day he decides to withhold his timesheet from those being sent to his supervisor for approval. He
falsely increases the number of hours he has worked and then forges his supervisor’s signature on
his timesheet. He adds the timesheet to the stack of authorized sheets and delivers them to payroll.
This is an example of:

A falsified hours and salary scheme

Q. Rock phishing is the type of phishing scheme that uses text messages or other short message
systems to dupe an individual or business into providing sensitive data by falsely claiming to be from
an actual business, bank, ISP, or other entity.

False

Q. Jill is an accountant who needs to satisfy continuing professional education (CPE) requirements
throughout the year to maintain her professional license. Wanting to use this to her advantage, Jill
figures out that it would be easy to copy the image of the logo from a popular CPE provider and
generate a receipt using basic computer software. She creates a fraudulent receipt and submits it to
her supervisor for reimbursement. What type of scheme is Jill committing?

A fictitious expense scheme

Q. In a _________, a bank buys, sells, and swaps its bad loans for the bad loans of another bank,
creating new documentation in the process.

Daisy chain

Q. Zane obtained a loan from Bank A, the bank a security interest in his commercial property. Before
Bank A’s lien was filed, Zane managed to get another loan from Bank B using the same commercial
property as collateral (unbeknown to Bank B). In which of the following schemes did Zane engage?

Double-pledging collateral

Q. The method of concealing a receivables skimming scheme whereby one customer account is
credited for a payment that was made on another account is called which of the following?

Lapping

Q. All of the following are common methods that fraud examiners can use to uncover an employee
who has an undisclosed financial interest with an outside vendor EXCEPT:

Compare customer account balances to billing files

Q. All organizations with a pyramid structure are illegal.

False
Q. The statement of cash flows includes the following categories: cash flows from strategic activities,
cash flows from operating activities and from investing activities, and from financing activities.

False

Q. Calendars and schedules displayed at an employee’s workstation can inadvertently provide a

company’s competitors with valuable proprietary information.

True

Q. Non-repudiation refers to a method used to guarantee that parties involved in an e-commerce

transaction cannot deny their participation in it.

True

Q. To ensure separation of duties within the IT dept. and between information systems and business
unit personnel, computer operators should be responsible for performing computer programming.

False

Q. What happens when an employee records a fictitious refund of goods at his cash register?

The victim company's inventory is overstated

Q. Which of the following is a potential indicator of check fraud?

All of the above

Q. The restitution against loss to a third party when the insured fails to fulfill a specific undertaking for
the third party's benefit is referred to as:

An indemnity bond

Q. In order to understate net income, therefore lowering income tax liability, an accountant could
fraudulently expense costs rather than properly capitalizing them to an asset account.

True

Q. Credit card fraud is difficult to execute because the chances of getting caught are quite high.

False

Q. Which of the following is a measure that management can take to prevent an organization’s
computers from being infected by malicious software?

Regularly update the organization’s operating systems.

Q. Which of the following is a red flag of a procurement fraud scheme in which vendors are colluding
to circumvent the competitive bidding process?

All of the above

Q. Which of the following is a common reason why people commit financial statement fraud?

All of the above

Q. Which of the following statements is NOT true regarding the statement of changes in owners’
equity?

It lists the major company shareholders and the change in their ownership equity over the fiscal year

Q. Which of the following is NOT an appropriate technique for detecting a non-conforming goods or
services scheme?

Review the number of qualified bidders who submitted proposals

Q. Pam is the purchasing manager at a retail store. She decides to form her own shell company and
purchase merchandise through this entity. She then sells the merchandise to her employer at an
inflated price as if she were a legitimate vendor. What type of scheme is Pam committing?

A pass-through scheme

Q. A favored device of phony charities is to send school-age children door to door to say that they are
raising money for antidrug programs or for a group that takes underprivileged kids on trips.

True

Q. Which of accounting changes must be disclosed in an organization's financial statements?

I. Changes in estimates
II. Changes in accounting principles
III. Changes in reporting entities

I, II, and III

Q. Heather is a fraud examiner who is investigating a fraud case at a bank. Which of the following of
Heather’s findings might be a red flag of embezzlement?

All of the above

Q. The majority of check fraud is committed by which of the following?

Organized crime rings

Q. When an employee or official uses force or fear to demand money in exchange for making a
particular business decision, he is engaging in:

Economic extortion

Q. Which of the following statements is TRUE with regard to detecting a cash larceny scheme?

All of the above

Q. Which situations would b MOST indicative of a customer committing new account fraud at a bank?

An invalid address or phone number is listed in the customer’s account information

Q. Vertical analysis can best be described as a technique for analyzing a percentage change from
one accounting period to the next.

False
Q. Which of the following describes the primary purpose of an ACH filter?

It enables account holders to provide their banks with a list of criteria to ensure only designated
individuals get paid

Q. Which of the following is TRUE regarding an overstated refund scheme?

An employee overstates the amount of a legitimate refund and keeps the excess cash

Q. Which of the following statements about the methods used to make corrupt payments in bribery
and corruption schemes is INCORRECT?

Payers often make corrupt payments by selling property to recipients at prices higher than the
property’s market value

Q. Loan fraud represents a high risk for financial institutions because although the loss amounts are
lower than other types of fraud, the number of instances is usually higher.

False

Q. Visitors to a company’s facilities should be allowed unrestricted access as long as they have
signed in as a visitor in the company’s logbook and have been issued a visitor’s badge.

False

Q. Favorite targets for intelligence gathering purposes include employees in all of the following
departments EXCEPT:

Shipping and receiving

Q. Which of the following is an acceptable justification for a departure from generally accepted
accounting principles (GAAP)?

The literal application of GAAP would render the financial statements misleading

Q. Jason, a waiter at a popular restaurant, takes a customer’s credit card to process a payment.
While he is on the other side of the dining area with his back turned, Jason swipes the card through a
small device that he regularly uses to steal his customers’ credit card information. Jason is engaging
in a scheme known as credit card ________.

Skimming

Q. Which of the following appears on the balance sheet?

Current assets

Q. What is a tombstone policy?

A fictitious insurance policy

Q. Harold, a medical provider, is compensated based on each service that he provides to patients.
Which of the following best describes this method of compensation?

Fee-for-service
Q. Entries to the left side of an account are referred to as credits, while entries to the right side of an
account are debits.

False

Q. Which of the following is NOT a red flag of a fraudulent credit card transaction?

A customer asks the cashier to take his time and not to hurry.

Q. A doctor provides services to both patients who pay directly and patients whose bills are paid by a
government program. To make his services more attractive to patients outside the coverage of the
government program, he gives patients who pay directly a discount that is not applicable to patients
under the program. Which of the following best describes the provider’s scheme?

Disparate price

Q. Which of the following is NOT an effective control to protect against skimming schemes?

Reconciling the sales records to the cash receipts

Q. There are traditionally two methods of percentage analysis of financial statements. They are:

Horizontal and vertical analysis

Q. Unauthorized credit card activity resulting from a stolen card typically takes place within hours of
the card’s theft and before the victim reports the loss.

True

Q. For employee expense reimbursement requests, electronic receipts are preferred to paper receipts
because they are more difficult to alter or forge.

False

Q. Which of the following activities are included in the bid evaluation and award phase of
procurements involving open and free competition?

The procuring employees assess the bids or proposals

Q. Which of the following is NOT a common type of credit card fraud?

Profiling

Q. Sheila, an accounts payable supervisor for ABC Company, bought supplies for a company she
owned on the side. Sheila entered vouchers in ABC Company's accounts payable system for the cost
of the supplies. Checks were cut to pay for these unauthorized expenses during normal daily check
runs. The goods were drop-shipped to a location where Sheila could collect them. What type of
occupational fraud is this?

A personal purchases with company funds scheme

Q. How does vertical analysis differ from horizontal analysis?

Vertical analysis expresses the percentage of component items to a specific base item, while
horizontal analysis analyzes the percentage change in individual financial statement items from one
year to the next.
Q. A large amount of overdue accounts receivable on the books is a red flag of a fictitious revenue
scheme.

True

Q. Which of the following is NOT a red flag of a corrupt employee?

An employee who refuses to insert himself into areas in which he is not involved

Q. Which of the following types of accounts are decreased by debits?

All of the above

Q. Which of the following is a way that dishonest contractors collude to circumvent the competitive
bidding process?

Submit token bids that are not serious attempts to win the contract

Q. When should an employee be made aware of the need to maintain the confidentiality of an
organization’s proprietary information, as well as which information is considered confidential?

All of the above

Q. Which of the following is a technical or administrative control for securing computer systems and
communication networks?

Implementing logical access controls

Q. All of the following activities are included in the presolicitation phase of procurements involving
open and free competition EXCEPT:

The procuring entity issues the solicitation document

Q. The quick ratio is used to determine the efficiency with which a company uses its assets.

False

Q. Jackson is a receiving clerk at a warehouse. His job is to count the number of units in incoming
shipments, record the figures in receiving reports, and forward copies of the reports to the accounts
payable department. One day, Jackson received a box of 20 laptop computers at the warehouse. His
wife’s computer just broke, so he stole one of the computers from the box. To conceal his scheme,
Jackson sent a receiving report to accounts payable that 20 computers arrived, but he only recorded
19 on the copy of the receiving report used for the inventory records. What type of scheme did
Jackson commit?

A purchasing and receiving scheme

Q. Special care facilities are generally at a greater risk of health care fraud than other medical
institutions.

True

Q. Which of the following activities are included in the solicitation phase of procurements involving
open and free competition?

The prospective contractors prepare and submit their bids

Q. Debits increase asset and liability accounts.

False

Q. According to the going concern disclosure requirements, if there is substantial doubt about a
company’s ability to fulfill its financial obligations over a reasonable period of time, it must be
disclosed in the company’s financial statements.

True

Q. To conduct an electronic payment using a person-to-person (P2P) system, the two individuals
must meet in person at a financial institution to sign an order requesting the transfer of money from

False

Q. David is an accounts receivable clerk at Richmond Storage Rental. Carson, who rents one of the
company’s storage units, submits his monthly payment to Richmond’s office. Instead of applying the
payment to Carson’s account. The next payment that arrives gets applied to Fisher’s account, and
David continues to apply incoming customer payments to the previous customer’s account so that no
one discovers his theft of Carson’s payment. What type of scheme is David committing?

Lapping

Q. All of the following are classifications of financial statement fraud EXCEPT:

Lapping accounts

Q. Many health care claims are now paid via EDI (Electronic Data Interchange). Because EDI leaves
no paper trail, it makes detecting fraud in the health care industry easier.

False

Q. A company must disclose all contingent liabilities in the financial statements, regardless of the
liabilities’ materiality.

False

Q. A pyramid scheme is designed to initially pay off to its beginning "investors."

True

Q. ______________ is a term used to classify malicious software that is intended to facilitate criminal
behavior.

Crimeware

Q. Labor costs are more susceptible to mischarging in a contract scheme than material costs.

True

Q. If a company hires an employee from a competitor, it might open itself up to claims from the
competitor that it is unlawfully using proprietary information taken by the employee.

True
Q. The qualitative financial reporting characteristic of comparability prohibits any change in an
accounting principle previously employed.

False

Q. Which of the following is the most accurate definition of a firewall?

A system that blocks unauthorized or unverified access to network assets by surveying incoming and
outgoing transmissions

Q. Which of the following is the most accurate definition of a Trojan horse?

A program or command procedure that gives the appearance that it is useful but in fact contains
hidden code that causes malicious damage

Q. Sales that are contingent on additional terms should not be recorded as revenue on the selling
company's books.

True

Q. Which of the following statements is TRUE with regard to factoring companies?

Factoring groups buy credit card receipts from telemarketing operations at a discount.

Q. The warehouse supervisor at South Corp. has stolen $50,000 worth of inventory over the last year.
During an analytical review of the financial statements, which of the following red flags might South
Corp.’s auditors find that would indicate the inventory theft?

The percentage change in cost of goods sold was significantly higher than the percentage change in
sales

Q. Employees are often willing to abide by nondisclosure agreements, but they often do not
understand that the information they are communicating might be confidential.

True

Q. Which of the following is a common reason why someone might commit financial statement fraud?

To obtain favourable terms on financing

Q. All of the following are red flags of fraudulent insurance claims EXCEPT:

The insured does not have a history of making insurance claims.

Q. Delta, a Certified Fraud Examiner, was hired to serve as an expert accounting witness in a case of
alleged financial statement fraud. As part of her expert testimony, Delta explained how, under
International Financial Reporting Standards, management must make every effort to ensure that the
company’s financial statements are complete, neutral,. Delta was explaining the concept of:

Faithful representation

Q. Which of the following is a technical or administrative control for securing computer systems and
communication networks?

All of the above

Q. It is good practice for merchants and financial institutions to enforce a strict check acceptance
policy and insist on seeing a valid form of identification when dealing with checks from customers.

True

Q. Cooper is an intelligence professional for Whetstone Intelligence, a competitive intelligence firm.

She is tasked with gathering intelligence about Cryptic Global, the major competitor of Whetstone’s
biggest client. To gather the intelligence, Cooper infiltrates Cryptic Global’s office by posing as a
member of its cleaning crew and collects information left around employees’ computers and desks.
Cooper’s approach is an example of:

Scavenging

Q. A register disbursement scheme is easier to conceal when register employees have the authority
to void their own transactions.

True

Q. Jacob was on a business trip in another city. One night, he met up with some friends (unrelated to
his work) at an expensive restaurant and paid for the group's entire meal on his credit card,
announcing that “the company would pay for it.” He submitted the receipt for the dinner along with the
rest of his legitimate business receipts from the trip and described the dinner as “client entertainment.”
What type of scheme did Jacob commit?

A mischaracterized expense scheme

Q. Utility company, health club, and school records contain information that an identity thief can use to
steal someone’s identity.

True

Q. Jason, an employee at Go Marketing, has just informed his supervisor that he intends to leave the
company and go to work for a competitor. Upon accepting his resignation, Jason’s boss reminds him
of a document that he signed several years prior in which Jason agreed not to divulge confidential or
proprietary company information. What is the name of the document that Jason signed?

Nondisclosure agreement

Q. Which of the following is NOT a red flag that might indicate the existence of a need recognition
scheme?

The purchasing entity's materials are being ordered at the optimal reorder point

Q. Kickbacks are improper, undisclosed payments made to obtain favorable treatment.

True

Q. Which of the following best illustrates the use of technical surveillance for purposes of corporate
espionage?

A spy hacks into a target computer and monitors an employee’s communications

Q. Which of the following schemes refers to the falsification of personnel or payroll records, causing
paychecks to be generated to someone who does not actually work for the victim company?

Ghost employee scheme

Q. Pass-through schemes are usually undertaken by employees who receive inventory on the victim
company's behalf.

False

Q. Which of the following methods might be used to conceal a sham loan transaction in which the
loan officer receives part of the proceeds (kickback)?

Charging off the loan as a bad loan

Q. When looking at a set of financial statements, on which statement would you find notes payable,
current assets, retained earnings, and accumulated depreciation?

Balance sheet

Q. A detailed expense report should require which of the following components?

All of the above

Q. A skimming scheme is easier to detect than a cash larceny scheme because it leaves an audit
trail.

False

Q. Which of the following would be considered a timing difference financial statement fraud scheme?

Recording revenue in Year 1 when the payment is received, even though the service won’t be
performed until Year 2

Q. A patient goes to the doctor for a medical condition. The doctor identifies the condition, but decides
to order additional lab testing that he knows to be unnecessary. The doctor owns the lab that he
sends the patient to, and he will profit from the unnecessary testing. Which of the following best
describes the doctor’s scheme?

Clinical lab scheme

Q. All of the following are options for authenticating users in information systems EXCEPT:

Encryption

Q. Michael, a medical provider, performs an appendectomy, a procedure that is supposed to be billed

as one code. Instead, he intentionally submits two codes for the same procedure, one for an
abdominal incision and one for removal of the appendix. Which of the following best describes
Michael’s scheme?

Unbundling

Q. Which of the following is NOT a symptom that might indicate a malware infection?

Several system programs launch automatically at startup

Q. Which of the following can best be described as fraud perpetrated by medical practitioners,
medical suppliers, or medical institutions on patients or health care programs to increase their own
income by illicit means?

Provider fraud
Q. Sales and cost of goods sold almost always move together, unless there have been changes in
purchase prices, quantities purchased, or quality of products being purchased.

True

Q. Which of the following is considered misuse of a noncash asset?

All of the above are considered misuses of noncash assets

Q. Which of the following is a common way identity thieves obtain personal information about their
victims?

All of the above

Q. Lack of employee education concerning nondisclosure agreements is one of the primary reasons
employees communicate confidential information to outside parties.

True

Q. A medical provider billed a health care program for a name-brand drug, while providing the patient
with a generic version of the drug. This inflated billing scheme is known as which of the following?

Upcoding

Q. Fraud is much more likely to occur in new bank accounts than in old, established ones.

True

Q. Gaps in the sequence of transactions on the register log might indicate that a fraudulent register
disbursement scheme is taking place.

True

Q. Which of the following statements is TRUE?

Skimming schemes are generally more difficult to detect than cash larceny schemes

Q. Which of the following would be helpful in detecting a skimming scheme?

All of the above

Q. Brittany, a cash register teller, signed onto her register, rang a "no sale" transaction to open the
drawer, and then removed a large sum of money. Which of the following schemes has taken place?

A cash larceny scheme

Q. Electronic payment tampering is generally easier to detect than traditional check tampering
because it leaves a clear audit trail.

False

Q. At the end of each fiscal year, the accounts reflected on the income statement are reduced to a
zero balance.

True
Q. There is nothing inherently wrong with a company engaging in related-party transactions, as long
as the transactions are fully disclosed.

True

Q. Which of the following is a basic method used to prove corrupt payments in bribery and corruption
schemes?

All of the above

Q. All of the following are best practices for ensuring separation of duties within the
information technology department and between information systems and business unit personnel
EXCEPT:

Only programmers should be server administrators

Q. Daniel, a plant manager for a utility company, has his own commercial cleaning business on the
side. Daniel threatened to withhold business from any vendors of the utility company that did not hire
his cleaning business for their office cleaning needs. Which of the following best describes the type of
corruption scheme in which Daniel engaged?

Economic extortion scheme

Q. Which of the following is a common area for construction loan fraud schemes?

All of the above

Q. In order for an hourly employee to commit a falsified hours and salary scheme, he may overstate
either the number of hours worked or his rate of pay.

True

Q. Which of the following departments is known for divulging proprietary information to the public
through such mediums as academic journals and conference presentations?

Research and development

Q. Which of the following is a common scheme perpetrated by suppliers of reusable medical

equipment?

All of the above

Q. Julia, a fraud examiner, is performing tests to look for potential asset misappropriation schemes at
her company. One of her routine tests is to compare the payroll records to the human resources files.
What type of fraud scheme is she most likely looking for when performing this test?

A ghost employee scheme

Q. Which of the following is NOT a common red flag of a bid tailoring scheme?

Competitive awards vary among several suppliers

Q. Which of the following is a red flag for new bank account fraud?

All of the above

Q. ABC Corporation guaranteed a large personal loan taken out by its chief financial officer (CFO).
ABC will only be liable if the CFO defaults on the loan. To date, the CFO has made all scheduled loan
payments on time. The loan term runs for two more years. ABC does NOT have to disclose this loan
arrangement in its financial statements.

False

Q. Unauthorized personal use of a company vehicle constitutes misuse of a noncash asset, a form of
asset misappropriation.

True

Q. Workers’ compensation schemes are generally broken into four categories. Which of the following
is NOT one of these categories?

Double duty fraud

Q. The removal of cash from a victim organization before the cash is entered in the organization's
accounting system is:

Skimming

Q. If compliance with generally accepted accounting principles (GAAP) would be significantly more
expensive than a different method that isn’t GAAP, use of an alternative method is permitted.

False

Q. Generally, if the dollar amount of an embezzlement scheme at a financial institution is small

enough such that the targeted entity's financial statements will not be materially affected, the scheme
can be most effectively detected through which of the following methods?

Conducting a review of source documents

Q. All of the following are types of expense reimbursement schemes EXCEPT:

Ghost expense

Q. The most common giveaway scam, in which a postcard arrives in the mail telling the receiver he
has already won a prize such as a new luxury vehicle or cash, is known as:

The "1-in-5"

Q. Which accounting principle requires corresponding expenses and revenue to be recorded in the
same accounting period?

Matching

Q. If an employee is aware that surprise cash counts are conducted, he will generally be less inclined
to commit a cash larceny scheme.

True

Q. The person who is responsible for the shipment of inventory should also be responsible for the
conversion of inventory to scrap.

False
Q. Which of the following does NOT constitute an electronic funds transfer?

An airline ticket purchased through the Internet with the use of a credit card

Q. Which of the following is recommended to prevent fraud in electronic payments?

All of the above

Q. Which of the following statements is TRUE regarding a fictitious refund scheme?

The amount of cash in the register balances with the register log

Q. To detect provider fraud, a fraud examiner should be alert for which of the following red flags?

I. Pressure for rapid processing of claims

II. Frequent telephone inquiries on claim status
III. No supporting documentation for charges (e.g., lab results)
IV. Patient's address on the claim form is the same as the provider’s

I, II, III, and IV

Q. All of the following can help prevent a computer from being infected by malicious software
EXCEPT:

Installing shareware into a system's root directory

Q. Fraudulent disbursement schemes include which of the following?

All of the above

Q. Heidi, a Certified Fraud Examiner and internal auditor for a health care program, has been asked
to review the program's system of internal controls in the claims processing area. Heidi has decided to
present the management of the unit with a list of general indicators for fraud that are applicable to
many health insurance fraud schemes by program beneficiaries. All of the following would be included
on Heidi's list EXCEPT:

Individuals who mail their claim and ask for their claim payment to be sent through direct bank
transfer

Q. Which of the following is a method that can be used to destroy or manipulate data?

All of the above

Q. Which of the following does NOT happen in a fictitious refund scheme?

Merchandise is returned to the stock room

Q. Mario, an employee of a person-to-person payment company, has been writing down the account
numbers and passwords of customer accounts with the intent of fraudulently using them to pay for
items he purchases online. Mario is engaging in:

EFT fraud
Q. Roxanne works in the accounting department of a bank, but is having difficulty paying her personal
expenses. She decides to debit the bank's general ledger and credit her own account. Which of the
following best describes Roxanne’s scheme?

False accounting entry

Q. Which of the following are information security goals that an e-commerce system should be
designed to provide its users and asset holders?

I. Penetrability of data
II. Materiality of data
III. Integrity of data
IV. Availability of data

III and IV only

Q. Katie is a sales clerk at a jewelry store. She watched another sales clerk, Helen, type her access
code into her register and memorized it. When Helen called in sick, Katie logged in to the cash
register using Helen’s code and processed customer transactions as usual. After completing one sale,
she left the drawer open and slipped a large sum of money into her pocket from the register drawer.
What type of scheme did she commit?

A cash larceny scheme

Q. A ____________ scheme involves the theft of cash BEFORE it appears on a company’s books,
and a __________ scheme involves the theft of cash AFTER it appears on the books.

Skimming; cash larceny

Q. Maria, a successful restaurateur, has been informed of an unusually attractive investment

opportunity by a recent acquaintance and decides to invest in it. Several months and a couple of
underwhelming payments later, Maria grows frustrated with the diminishing disbursements and
attempts to withdraw her money. After several weeks of delay, she realizes that the promoter seems
to have vanished, along with her investment. Maria is the victim of which of the following fraudulent
ploys?

A Ponzi scheme

Q. Zach was booking travel arrangements for a business trip. He purchased an airline ticket online
using his own funds and obtained a receipt for the ticket via email. Using photo-editing software, Zach
inflated the ticket price on the electronic receipt and submitted the altered receipt to his employer for
reimbursement. This is an example of what type of fraud scheme?

Overstated expense scheme

Q. Boiler room operations are generally very difficult to catch in the act.

True

Q. A person is involved in an automobile accident but does not have insurance. To be reimbursed for
the damages, he gets insurance, waits a short time, and then reports the vehicle as having been in an
accident. He has committed an insurance scam known as _____________.

Past posting
Q. An unscrupulous contractor could engage in a cost mischarging scheme by taking which of the
following actions?

Hiding unallowable costs in accounts used for allowable costs

Q. Which of the following statements concerning fraud involving special care facilities is TRUE?

Many patients in special care facilities are less likely to report fraud because they often are not
responsible for their own financial affairs

Q. Which financial ratio is calculated by dividing current assets by current liabilities?

Current ratio

Q. A virus that loads itself onto the target system's memory, infects other files, and then unloads itself
is called a:

Direct-action virus

Q. Which of the following is a common method fraudsters use to conceal liabilities and expenses in
order to make a company appear more profitable than it actually is?

All of the above

Q. An organization's financial statements are primarily the responsibility of:

Management

Q. Like most other types of fraud, the motivation for financial statement fraud almost always involves
personal gain.

False

Q. Which of the following is the most accurate description of logical access control?

process by which users are allowed to use computer systems and networks

Q. Failing to record bad debt expense for the period will result in fraudulently overstated accounts
receivable.

True

Q. A draw request on a construction loan should be accompanied by all of the following EXCEPT:

Expenses from similar contracts

Q. Which of the following activities are included in the post-award and administration phase of
procurements involving open and free competition?

The procuring entity performs its contractual obligations

Q. Implementing privilege escalation and using buffer overflow exploits are examples of administrative
controls used for securing computer systems and communication networks.

False
Q. Skimming schemes can involve the theft of cash sales or the theft of accounts receivable
payments.

True

Q. It is considered acceptable practice to deviate from generally accepted accounting principles

(GAAP) in which of the following circumstances?

All of the above

Q. Which of the following is the most accurate definition of spyware?

A type of software that collects and reports information about a computer user without the user’s
knowledge or consent

Q. A pyramid scheme is promoted by encouraging victim investors to recruit new members. The more
members recruited, the higher the investor rises in the ranks of the enterprise, and the more money
he is supposed to make.

True

Q. Credit card counterfeiting operations might include the use of which of the following?

All of the above

Q. Which of the following practices is a potential indicator of a bid splitting scheme?

Sequential purchases under the competitive bidding limits that are followed by change orders

Q. Telemarketing schemes target individuals, not businesses.

False

Q. In double-entry accounting, every transaction in the accounting records will have both a debit and
a credit side, and these sides will always be equal.

True

Q. James is a purchaser for a large government entity. ABC, Inc. tells James that if he will award ABC
at least $5 million in contracts over the next two years, ABC will hire James at the end of the two
years at twice his current salary. Because no actual money changes hands, this could not be
considered a bribery or corruption scheme.

False

Q. White, an employee of ABC Corporation, intentionally issued two payments for the same invoice.
After the checks 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. This is an example of:

A pay-and-return scheme

Q. Which of the following is NOT a type of physical access control device that can be used to control
access to physical objects?

Profiling software
Q. It is very difficult to alter automated insurance or health care claims.

False

Q. Real estate scams are easily recognized, as there is almost always an element of time pressure or
"now-or-never" pitch from the perpetrator.

True

Q. Julia runs a printing company and has an antique printing press that she uses in her business. She
purchased the press from a friend for $5,000. Similar presses are selling on the market today for
about $8,000. Julia has a colleague who recently paid $9,000 for an antique printing press. According
to the historical cost basis of asset measurement, how much should Julia initially record the printing
press for on her books?

$5,000

Q. A forged maker scheme is a check tampering scheme 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
check’s endorsement line.

False

Q. Examples of fraud schemes perpetrated by health care institutions and their employees include all
of the following EXCEPT:

Unintentional misrepresentation of the diagnosis

Q. Which of the following is a common red flag of a defective pricing procurement fraud scheme?

A contractor’s cost estimates are inconsistent with its prices

Q. Which of the following control procedures will NOT help prevent payroll fraud?

Having the employee who prepares the payroll also review and sign all payroll checks

Q. Common methods of inflating health care billings include all of the following EXCEPT:

Sliding policies

Q. An unscrupulous contractor could engage in a cost mischarging scheme by taking which of the
following actions?

All of the above

Q. Boiler rooms, fronters, closers, and verifiers are all terms associated with which of the following?

Telemarketing scams

Q. If an employee intercepts a company check intended for a third party and converts that check for
his own benefit, he has committed:

Check tampering
Q. Which of the following is the most accurate definition of a software keylogger?

A type of program that monitors and logs the keys pressed on a system’s keyboard

Q. Green, a door-to-door appliance salesman, sold several appliances to households in a

neighborhood. Green took the money the customers gave him as down payments for the sales and
spent it. He did not turn the orders in to his employer. Green’s scheme can best be classified as:

An unrecorded sales (skimming) scheme

Q. Which of the following best describes social engineering?

A method for gaining unauthorized access to a computer system in which an attacker deceives
victims into disclosing personal information or convinces them to commit acts that facilitate the
attacker’s intended scheme

Q. A contractor who delivers materials of lesser quality than specified in the contract or uses a lower
quality staff than specified in the contract might be involved in which of the following types of
procurement fraud schemes?

Non-conforming goods or services fraud

Q. Which of the following best illustrates the concept of human intelligence?

A corporate spy poses as a customer of a competing company to elicit information from the
competitor’s salespeople.

Q. Which of the following is NOT a problem situation regarding a construction loan that might be
concealed using change orders?

Design changes were requested

Q. All of the following are classifications of billing schemes EXCEPT:

Bid rigging

Q. Which of the following is an example of a fictitious expense reimbursement scheme?

An employee generates a fake receipt using basic computer software and includes it with his expense
report

Q. Which of the following is an example of a way in which an electronic funds transfer (EFT) fraud
scheme can be committed?

All of the above

Q. The asset turnover ratio is calculated by dividing net sales by average total assets.

True

Q. Which of the following types of procurement fraud schemes involves a procurement employee who
convinces his employer, the procuring entity, that it needs excessive or unnecessary products or
services?

Need recognition schemes

Q. _________ is an attack in which a user is fooled into entering sensitive data into a malicious
website that imitates a legitimate website.

Pharming

Q. When a fraudster calls up someone at the target company and cajoles or tricks the person into
providing valuable information, that corporate espionage technique is referred to as which of the
following?

Social engineering

Q. ABC Company purchases a material amount of products from another entity whose operating
policies can be controlled by ABC Company’s management, but it does not disclose this situation on
its financial statements. In which type of improper disclosure scheme has ABC Company engaged?

Related-party transaction

Q. Which of the following is NOT a common red flag of procurement fraud schemes involving
collusion among contractors?

More competitors than usual submit bids on a project or product

Q. Which of the following is NOT a common carrier of malware?

Dual in-line memory modules

Q. Which of the following best describes the difference between a flipping scheme and a flopping
scheme in the context of mortgage fraud?

In a flopping scheme, the value of the first transaction is deflated instead of inflating the second
transaction

Q. Jan, a Certified Fraud Examiner for a major insurance company, has received an anonymous tip
that an employee in the claims department is processing claims for his own benefit during non-
working hours. To gather information about the validity of this tip, Jan should look at which of the
following reports?

All of the above

Q. Special care facilities generally have the capability to meet all of their patients’ needs without the
services of outside providers, leading to a lower likelihood of fraud involving such institutions.

False

Q. All of the following measures are recommended to help mitigate the risk of billing schemes
EXCEPT:

Prohibit competitive bidding

Q. Shareholders' reports and company newsletters might give a competitor valuable information about
a company's product secrets.

True
Q. Which of the following best describes phishing?

A method for acquiring sensitive information by falsely claiming through electronic communication to
be from an entity with which the target does business

Q. One method competitive intelligence professionals commonly use to gather data about a
competitor involves posing as a job applicant and interviewing with key employees at the competing
company. This practice is best described as conducting surveillance.

False

Q. In which of the following scenarios might a credit card skimming scheme be conducted?

All of the above

Q. Which of the following is a method that would help prevent the theft of company inventory?

All of the above

Q. Password cracking is a method attackers use to gain unauthorized access to a computer system
by bypassing password security through the use of undocumented system functions.

False

Q. Which of the following could be used to balance the accounting equation if cash were stolen?

All of the above

Q. DRG creep occurs when staff members at medical institutions intentionally manipulate diagnostic
and procedural codes in a pattern to increase claim reimbursement amounts.

True

Q. What financial statement fraud scheme involves recording revenues and expenses in improper
periods?

Timing differences

Q. The assumption that a business will continue indefinitely is reflected in the accounting concept of:

Going concern

Q. How does positive pay help prevent check fraud?

The bank verifies checks presented for payment against a list of approved checks provided by the
company

Q. Research and development personnel often inadvertently divulge confidential information through
which of the following?

All of the above

Q. All of the following are payroll scheme types EXCEPT:

Stolen paychecks
Q. The type of fraud that targets groups of people who have some social connection, such as
neighborhoods of racial minorities or immigrant groups, is known as:

Affinity fraud

Q. Both falsely increasing the perpetual inventory balance and failing to reconcile inventory records
are ways a fraudster might conceal inventory shrinkage.

False

Q. Which of the following lists the information security goals that an e-commerce system should
provide its users and asset holders?

Confidentiality, integrity, availability, authentication, and non-repudiation

Q. Falsified prescriptions for equipment, excessive supplies, noncovered supplies, and scooter scams
are forms of fraud commonly involving what type of health care entity?

Reusable medical equipment suppliers

Q. Bank reconciliations should be performed by an authorized signatory on the account.

False

Q. The microchip in a smart card provides it with greater security than a conventional magnetic stripe
credit card.

True

Q. Which of the following financial statement manipulations is NOT a type of improper asset valuation
scheme?

Recording expenses in the wrong period

Q. Matthew receives a voice mail message telling him that his credit card might have been used
fraudulently. He is asked to call a phone number. When he calls the number, he hears a menu and a
list of choices that closely resembles those used by his credit card company. The phone number even
appears to be similar to that of his card issuer. Of which of the following types of schemes has
Matthew become the target?

Vishing

Q. Bruce is a purchaser for Acme Widgets. Bruce’s brother-in-law is a salesperson for Olson
Electronics, one of Acme’s largest suppliers. Bruce told his supervisor about the relationship, and she
approved his ordering of supplies from his brother-in-law as long as the purchases were reviewed by
a senior manager. Acme’s management discovers that another supplier offers the same parts as
Olson Electronics but at a cheaper price. Acme Widgets is considering suing Bruce for conflict of
interest. Which of the following is the MOST ACCURATE statement about Acme’s chances of
success?

Acme’s chances are poor because the company was aware of the situation and it allowed Bruce to do
business with his brother-in-law’s company despite the relationship

Q. Insurance agent/broker fraud includes which of the following?

All of the above

Q. Because it is a common occurrence, the fact that documents are missing from a loan file is
generally not a red flag for loan fraud.

False

Q. Which of the following is a poor information security procedure that contributes to loss of
proprietary information?

All of the above

Q. Which of the following types of accounts are increased by credits?

All of the above

Q. In a/an _____________ scheme, the company that initially conned a consumer contacts that
consumer and offers to help retrieve the lost money. However, the investigation requires an upfront
fee and the consumer is swindled again.

Scavenger

Q. Most shell company schemes involve the purchase of fictitious:

Services

Q. If an insurance company does not attempt to uncover false claims, it can, under certain
circumstances, be found guilty of health care or insurance fraud.

True

Q. Which of the following health care frauds would be best described as a fictitious provider scheme?

A thief steals a health care provider’s identifier and bills a health care program under the name of a
fake clinic

Q. Which of the following is a means of measuring the relationship between two different financial
statement amounts?

Ratio analysis

Q. Early revenue recognition is classified as what type of financial fraud scheme?

Timing differences

Q. _________ provide telemarketing scammers with the autodialers, phone lists, credit card receipts,
and merchandise they require to operate.

Turnkeys

Q. If a fraudster wanted to conceal the misappropriation of cash, which of the following actions would
NOT result in a balanced accounting equation?

Decreasing another asset

Q. The primary purpose of physical access controls is to prevent unauthorized access to computer
software.

False

Q. Examples of expense reimbursement schemes include which of the following?

All of the above

Q. David runs a local catering company. He keeps his books on a calendar year and uses the accrual
basis of accounting. In December of Year 1, a customer placed an order with him to cater the food for
a party that would take place in February of Year 2. The contract was signed and the balance was
paid in full when the order was placed in December. When should David report the revenue from this
party and the associated expenses of catering it?

Both the revenue and expenses should be recorded in February

Q. A property flipping scheme occurs when someone purchases a piece of real estate and sells it
shortly thereafter at an unjustly inflated value.

True

Q. Grey, a controller for a small company, took a large sum of money from the company deposits and
concealed the theft by making false accounting entries. The money Grey stole had already been
recorded in his company's accounting system as sales and receivables. Grey’s scheme can best be
classified as a(n):

Cash larceny scheme

Q. Which of the following is a common method used by fraudsters to physically infiltrate and spy on
organizations?

All of the above

Q. ABC Paving and XYZ Asphalt are the only two companies in Greenwood County that lay asphalt.
An audit reveals that the government is paying more for asphalt work in Greenwood County than in
other counties in the region. A review of the records reveals that of the last ten asphalt contracts
awarded in Greenwood County, five have gone to ABC and five have gone to XYZ. Which of the
following procurement fraud schemes is most likely occurring?

Bid rotation

Q. In a construction loan, developer overhead is a ripe area for abuse. The purpose of developer
overhead is to provide:

Operating capital

Q. In a financial statement fraud scheme in which capital expenditures are recorded as expenses
rather than assets, the transactions will have the following effect on the organization's financial
statements:

Total assets will be understated

Q. Duplicate check numbers in the listing of canceled checks are a potential sign of fraud.

True
Q. Which of the following is a method of committing a falsified hours and salary scheme?

All of the above

Q. A Ponzi scheme can be characterized as an ostensibly legitimate, yet ultimately fraudulent,

investment opportunity wherein the promoter pays previous investors with money gained from new
victims.

True

Q. In credit repair scams, the fraudster promises to “erase” or “doctor” an applicant’s credit history, but
in reality there is no way to erase bad credit.

True

Q. Which of the following types of transactions is most likely to use a person-to-person (P2P)
payment system?

A person buying a book on an online auction site

Q. Which of the following is TRUE concerning the different types of workers’ compensation fraud
schemes?

All of the above

Q. The asset turnover ratio is used to assess a company’s ability to meet sudden cash requirements.

False

Q. Which of the following is most indicative that the winning bid on an original construction project
was not feasible?

Increasing trend in the number of change orders

Q. Which of the following is NOT a type of loan that frequently turns up in corruption cases?

A legitimate loan made at market rates

Q. Which of the following is one of the four major categories of check tampering schemes?

All of the above

Q. As a sale is made, the appropriate charges for cost of goods sold or other expenses directly
corresponding to the sale should be recorded in the same accounting period.

True

Q. Baker, the managing partner in a small law firm, is the authorized signer on all company checks.
When his personal phone bill arrived last month, Baker prepared and signed a company check to pay
the bill. He did not disclose this payment to his partners. Baker committed:

An authorized maker scheme

Q. Advance-fee swindles, debt consolidation schemes, and diploma mills are all examples of
confidence schemes.

True

Q. The most effective way to prevent and detect electronic payment fraud is through proper
separation of duties.

True

Q. What is the primary difference between a Ponzi scheme and a pyramid scheme?

A pyramid scheme promotes itself as a pyramid, whereas a Ponzi scheme promotes itself as an
investment opportunity

Q. Bruce, a manager for a retail store, suspects his register employees of skimming sales. Bruce will
be able to detect this kind of scheme by comparing their register totals to the amount of money in their
cash drawers.

False

Q. For corporate espionage purposes, technical surveillance generally consists of gathering

documentary evidence or information that can be found via open sources.

False

Q. Which of the following is TRUE regarding the methods typically used for making corrupt payments
in bribery and corruption schemes?

All of the above

Q. Which of the following scenarios is an example of a conflict of interest?

An employee has an undisclosed personal relationship with a company that does business with his
employer

Q. When performing vertical analysis on an income statement, which of the following components is
assigned 100 percent?

Net sales

Q. Frequent check deposits in round numbers for the same amount and checks written to individuals
for large, even amounts might be indicators of check fraud.

True

Q. Physical access controls refer to the process by which users are allowed access to computer
programs, systems, and networks.

False

Q. Skimmed checks and false voids are types of check tampering schemes.

False
Q. When a task force is charged with developing a program for safeguarding proprietary information,
which of the following should be the first step that it takes?

Determine what information should be protected

Q. Pharming differs from phishing in that in a pharming scheme:

The attacker does not have to rely on having the user click on a link in an email to direct him to the
malicious website that is imitating a legitimate website

Q. A medical institution receives funding based on all the services it provides related to a condition or
disease. This system of compensation is referred to as capitation.

False

Q. Chapman Inc. has always used the first-in, first-out (FIFO) inventory valuation method when
calculating its cost of goods sold. This is also the standard inventory valuation method for other
comparable entities in Chapman’s industry. Chapman’s controller wants to change to the weighted-
average cost method because it will make Chapman’s net income appear much larger than FIFO
valuation will. After several years of poor performance, management would love to boost the
company’s appearance to potential investors. However, Chapman must continue to use the FIFO
inventory valuation method. This is reflected in which of the qualitative characteristics of financial
reporting?

Comparability

Q. Of the following, who should conduct physical observations of a company's inventory in order to
most effectively prevent inventory theft?

A sales representative

Q. Financial statement fraud is the intentional or erroneous misrepresentation of the financial

condition of an enterprise.

False

Q. Which of the following situations is an example of DRG creep?

A hospital has a pattern of incorrectly coding and documenting minor cuts and scratches as major
lacerations

Q. Which of the following statements is TRUE with regard to the statement of cash flows?

The statement of cash flows is often used in tandem with the income statement to determine a
company’s true financial performance

Q. Horizontal analysis is a technique for analyzing the relationships among the items on an income
statement, balance sheet, or statement of cash flows by expressing line items as percentages of a
specific base item.

False

Q. Billing for experiments with new medical devices that have not yet been approved by a
jurisdiction's health care authority is one form of medical fraud.

True
Q. Payers can make corrupt payments by giving recipients hidden interests in profit-making
enterprises.

True

Q. Victims of confidence games are more likely to be organizations or businesses rather than
individuals.

False

Q. Karl finds a residential property with a non-resident owner. He then forges contractual property
documents showing that the owner is transferring ownership of the property completely to Karl, such
as would normally happen during a property sale. The property owner is unaware that Karl has
created and filed the documents. Later, Karl takes the falsified documents to a lender and borrows
money against the property. Which of the following best describes Karl’s scheme?

Fraudulent sale

Q. Roger, a CFE, is an auditor for the government’s Office of Audit and Evaluation. While conducting
a routine audit of ten construction contracts from the Public Works Department, Roger noticed some
unusual characteristics in the contracts’ bidding documents. The contracts were all awarded to the
same contractor, and the specifications in all ten contracts had unreasonably narrow specifications for
the types of goods being procured. Which of the following types of procurement fraud schemes is
most likely at issue here?

A procurement employee has drafted bid specifications in a way that gives an unfair advantage to a
certain contractor

Q. Off-book sales of goods always cause shrinkage.

True

Q. Fraudulent kickbacks in the health care industry can include which of the following?

All of the above

Q. All of the following are measures that would be helpful in preventing cash larceny schemes
EXCEPT:

Having all employees use the same cash register for their transactions

Q. An excessive number of missing checks without stop payments issued to them is often a red flag
of check tampering.

True

Q. Events occurring after the close of the period that could have a significant effect on the entity's
financial position must be disclosed in the entity’s financial statements.

True

Q. Lindsey, a medical provider, launched a promotion in which she waived all new patients’
copayments. The government health care program under which Lindsey practices requires patients to
make copayments. Which of the following best describes Lindsey’s scheme?

Kickback
Q. Why is the health care industry concerned about the potential effect of the Electronic Data
Interchange (EDI) on fraudulent activity?

The efficiency of EDI allows for more vendors and thus more claims to process

Q. The largest amount of insurance fraud occurs in the area of:

Health care

Q. Which of the following situations is often present in real estate fraud schemes?

A false appraisal report

Q. Revenue should not be recognized for work that is to be performed in subsequent accounting
periods, even though the work might currently be under contract.

True

Q. Which of the following is a common avenue through which proprietary company information is
compromised?

All of the above

Q. A financial fund operator who insists that investors continually reinvest their profits, rather than
take payouts, is a red flag of a Ponzi scheme.

True

Q. An analytical review reveals that Rollins Company’s cost of goods sold increased by 80 percent
last year. Its sales, however, only increased by 40 percent. What might this discrepancy indicate?

Inventory has been depleted by theft

Q. When a medical provider performs a service for a patient but bills the patient’s health care program
for a more complex and more expensive service, this practice is called upcoding.

True

Q. Fraud in financial statements generally takes the form of overstated assets or revenue and
understated liabilities or expenses.

True

Q. Which of the following is an accurate definition of SMiShing?

Obtaining sensitive data through the use of short message services

Q. Which of the following is NOT one of the three common methods for concealing liabilities and
expenses on a company’s financial statements?

Channel stuffing
Q. Which of the following is NOT an appropriate technique for detecting a non-conforming goods or
services scheme?

Determine if contract costs have exceeded or are expected to exceed the contract value

Q. Which of the following is an information security goal that an e-commerce system should strive to
provide its users and asset holders?

Non-repudiation

Q. To prevent fraudulent register disbursements, an employee other than the register worker should
be responsible for preparing register count sheets and agreeing them to register totals.

True

Q. All of the following are red flags of corrupt third parties EXCEPT:

A businessperson who pays off his mortgage early

Q. High percentages of returns, missing compliance certificates, and evidence of falsified test
inspection results are red flags of which of the following procurement fraud scenarios?

A contractor delivering goods or services that do not conform to the contract specifications

Q. Which of the following is a method in which contractors can inflate labor costs in negotiated
contracts?

Subcontract to affiliated companies at inflated rates

Q. Failure to record corresponding revenues and expenses in the same accounting period will result
in an understatement of net income in the period when the revenue is recorded and an overstatement
of net income in the period in which the corresponding expenses are recorded.

False

Q. Nondisclosure agreements are generally an expensive and inefficient means of protecting an

organization’s proprietary information.

False

Q. Liam, a loan officer, and other real estate insiders colluded to steal a homeowner’s identity, take
out a second mortgage on the individual’s property, and split the proceeds. Liam and his co-
conspirators’ actions would best be described as a fraudulent second lien scheme.

True

Q. Which of the following is a way that dishonest contractors collude to circumvent the competitive
bidding process?

All of the above

Q. Which of the following is NOT considered to be a red flag of a Ponzi scheme?

An investment that has a history of inconsistent returns coinciding with fluctuations in financial
markets

Q. Having sensitive trash disposed of by a bonded waste-disposal company, sending and receiving
mail at a secure site, and employing a perimeter security system at the office are all measures aimed
to do which of the following?

Guard manual file systems

Q. To help promote employee awareness of sensitive information, company data should be classified
into different security levels based on value and sensitivity.

True

Q. Which of the following statements is TRUE with regard to a fictitious revenue scheme?

Uncollected accounts receivable are a red flag of fictitious revenue schemes

Q. Companies might inadvertently divulge confidential information in job postings.

True

Q. Elizabeth, a grocery store cashier, slips on a wet floor and falls while at work. She is unharmed,
but she pretends to suffer an injury from the fall. She files a claim against the store's workers'
compensation insurance policy, and she collects payments from the insurance carrier. She also
misses several weeks of work, even though she is fully capable of working. Under which category of
workers’ compensation schemes does Elizabeth’s scheme fall?

Claimant fraud

Q. Glenn has just inherited a large amount of money from a deceased relative. Several weeks later, a
colleague of Glenn’s suggests an investment in a security that is certain to generate returns of 20
percent every six months. Glenn is intrigued, but also worried that it might be a Ponzi scheme. Which
of the following actions should Glenn take before investing?

All of the above

Q. Which of the following statements is NOT true regarding the statement of cash flows?

The statement of cash flows shows a company’s financial position at a specific point in time

Q. Which of the following statements is TRUE with regard to gross margin?

Gross margin is equal to net sales less cost of goods sold

Q. Which of the following is NOT one of the key phases of procurement processes that employ
competitive bidding mechanisms?

The purchase and procurement phase

Q. Which of the following is the term used to describe the method of gaining unauthorized access to a
computer system in which attackers use an automated process to guess a system user's passwords?

Password cracking
Q. Tim, a cash register attendant at a department store, regularly inflates the amount of customer
refunds. For instance, if a customer returns an item for $100, Tim records a $150 refund. Then Tim
gives the customer $100 and keeps $50 for himself. This scheme is known as:

An overstated refund scheme

Q. Which of the following health care frauds would be best described as a phantom services scheme?

A doctor uses the identifying information of patients he has never serviced to bill an insurer or health
care program

Q. Corruption is the wrongful use of influence to procure a benefit for the actor or another person,
contrary to the duty or the rights of others.

True.

Q. If a fraudster wanted to conceal the removal of a liability from the books, which of the following
actions would NOT balance the accounting equation?

Increasing an asset

Q. Jessica worked at the cash register of a department store. Her friend Molly came to the store one
day to help Jessica steal a watch she wanted but couldn’t afford. Molly took the watch to Jessica’s
register and, instead of charging Molly for it, Jessica rang a "no sale" on the register. Molly pretended
to give Jessica cash to make it look like she was paying for the watch. Molly then took the watch out
of the store and later gave it to Jessica. What type of scheme did Molly and Jessica commit?

A false sale scheme

Q. Jeff works as a teller at a bank. One of Jeff’s friends came in as a customer and presented a
cashier's check. Jeff could tell that the item was counterfeit, but the friend convinced him to cash it for
a share of the proceeds. Which of the following best describes the scheme in which Jeff engaged?

Unauthorized disbursement of funds to outsiders

Q. Which of the following is the best description of what is shown on a company’s income statement?

How much profit (or loss) the company earned over a particular period of time

Q. Which of the following is an example of an "off-book" fraud?

Skimming.