Fraud IQ Test

Test your anti-fraud IQ by answering practice questions covering material from the CFE Exam.

  • April
  • March
  • February
  • January
  • December
  • November

April

IQ #1 - Black, a fraud examiner, is conducting textual analytics on emails sent to and from specific employees that his client has identified as fraud suspects. He is using the Fraud Triangle to come up with a list of fraud keywords to use in his search. Which of the following words found in email text might indicate a fraudster is rationalizing his actions?
  1. Quota
  2. Write off
  3. Override
  4. Deserve
View Answer
In conducting a textual analytics examination, the fraud examiner should come up with a list of fraud keywords that are likely to point to suspicious activity. This list will depend on the industry, the suspected fraud schemes or types of fraud risk present, and the data set the fraud examiner has available. In other words, if he is running a search through journal entry details, he will likely search for different fraud keywords than if he were running a search of emails.

The factors identified in the Fraud Triangle are helpful when coming up with a fraud keyword list. One of these factors is rationalization; consequently, the fraud examiner should consider how someone in the entity might be able to rationalize committing fraud. Because most fraudsters do not have a criminal background, justifying their actions is a key part of committing fraud. Some keywords that might indicate a fraudster is rationalizing his actions include reasonable, deserve, and temporary.

Other keywords can be used to identify the other factors indicated by the fraud triangle. For example, write off and override would indicate opportunity to commit fraud, while quota suggests pressure to commit fraud.
Correct Answer: (D)

IQ #2 - In interview situations, it is sometimes recommended that the interviewer shake hands with the respondent. What is the purpose of this?
  1. To establish the interview purpose
  2. To break down psychological barriers
  3. Social courtesy
  4. Professional courtesy
View Answer
In some cultures, it is recommended to make physical contact with the person being interviewed by shaking hands. Making physical contact helps break down psychological barriers to communication. The interviewer should not invade the respondent's personal space; however, as this might make the person uncomfortable. The interviewer uses body language to create the impression of trust during the interview by gesturing openly with the arms, clasping hands together, and leaning forward in a manner to indicate interest. Rapport can be established through verbal techniques by using soft words, agreeing with the respondent, and avoiding negative terms.

Correct Answer: (B)

IQ #3 - Forensic analysis should not be performed directly on suspect devices because doing so can alter or damage digital evidence.
  1. True
  2. False
View Answer
Once a computer system is seized and before any analysis occurs, it should be imaged for analysis. Forensic analysis should not be performed on suspect devices directly because doing so can alter or damage digital evidence. Imaging the data from suspect devices allows a fraud examiner to view and analyze a computer's contents without altering the original data in any way.

Imaging refers to the process whereby a forensic image of a hard drive or other digital media is made and imaged to another hard disk drive or other media for forensic analysis. A forensic image (also called a forensic copy, mirror image, or ghost image) is an image or exact, sector by sector, copy of a hard drive or other digital media.
Correct Answer: (A)

March

IQ #1 - In most common law jurisdictions, for a document to be admitted into evidence, it must be properly __________; that is, the party offering the document must produce some evidence to show it is, in fact, what the party says it is.
  1. Marked
  2. Authenticated
  3. Validated
  4. Certified
View Answer
In common law systems using adversarial processes (such as the United States), exhibits—the tangible objects presented as evidence—are inadmissible unless they are relevant and established as authentic. Thus, to be admissible at trial, evidence, other than testimonial evidence, must be properly authenticated; that is, the party offering the item must produce some evidence (e.g., testimony from a person with firsthand knowledge) to show it is, in fact, what the party says it is and to show it is in the same condition as when it was seized. If an exhibit cannot be authenticated, the evidence will not be admitted even if it is plainly relevant. Correct Answer: (B)

IQ #2 - 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?
  1. An illegal pyramid
  2. A fly and buy scheme
  3. A Ponzi scheme
  4. A dog and pony scam
View Answer
A Ponzi scheme is generally defined as an illegal business practice in which new investors’ money is used to make payments to earlier investors. The investment opportunity is typically presented with the promise of uncommonly high returns. While the scam is presented as a legitimate investment, there is little or no actual commerce involved. When an enterprise promotes an investment opportunity that invests little or none of the participants’ money and uses new investments to make dividend payments, the promoters are running a Ponzi scheme. Correct Answer: (C)

IQ #3 - A U.S. bankruptcy court appoints an examiner to investigate allegations that the debtor in the proceeding has committed fraud. Under the bankruptcy laws, this appointment gives the examiner the power to run the debtor’s business and submit a reorganization plan.
  1. True
  2. False
View Answer
In the context of bankruptcy proceedings in the United States, an examiner is a neutral party appointed by the bankruptcy court to investigate and report on relevant matters to Chapter 11 bankruptcy cases. An examiner is normally appointed in a bankruptcy proceeding to investigate certain allegations of fraud and misconduct on the part of the debtor (or principals of the debtor). Typically, a bankruptcy examiner is appointed when creditors, the Office of the UST, or other interested parties file a motion for the appointment of a trustee or an examiner in which allegations of fraud or misconduct are made. A bankruptcy judge will hold a hearing on the motion, and during the hearing, he will hear the evidence submitted by all filing parties (creditors, et al.), as well as the debtor’s response to the allegations. After hearing the evidence, the judge has the option to either appoint a trustee or an examiner, or leave the debtor in possession of the business—a decision that hinges on what is best for the interested parties. If an examiner is appointed, his sole responsibility is to “investigate and report” the results of the investigation to the court and other parties in interest as quickly as possible. Examiners have the power to subpoena records and depose witnesses. They do not have the power to run businesses, make business decisions, or propose plans of reorganization (generally speaking). Courts may expand the examiner’s powers to perform certain duties of trustees or debtors-in-possession. Correct Answer: (B)

February

IQ #1 - 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.
  1. Advance fee
  2. Retrieval
  3. Double-hustle
  4. Scavenger
View Answer
The scavenger or revenge scheme involves the company that initially conned the consumer. Using a different company’s name, the outfit contacts the consumer again and asks if he would like to help put the unethical company out of business and get his money back. Naturally, an upfront fee is required to finance the investigation. Correct Answer: (D)

IQ #2 - Frank has recently opened several checking accounts, all with different banks. Frank’s plan is to take advantage of each bank’s delayed posting by continually swapping checks from one account to another to create the false impression that there is money available in each account. Frank’s ploy is known as which of the following?
  1. Check washing
  2. Check kiting
  3. Check ring
  4. Check skimming
View Answer
In a check kiting scheme, multiple bank accounts are opened and money is “deposited” from account to account; however, the money never exists. Floating makes check kiting possible. Floating is the additional value of funds generated in the process of collection and arises because the current holder of funds has been given credit for the funds before the check clears the financial institution upon which it is drawn. Businesses are most susceptible to check kiting if they have employees who are authorized to write checks or make deposits in more than one bank account. Today, check kiting is more difficult because technology allows for a much shorter float period. Correct Answer: (B)

IQ #3 - 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.
  1. True
  2. False
View Answer
True. Entries to the left side of an account are debits, and entries to the right side of an account are credits. Debits increase asset and expense accounts, while credits decrease them. Conversely, credits increase liability, owners’ equity, and revenue accounts; debits decrease them. Every transaction recorded in the accounting records will have both a debit and a credit, thus the term double-entry accounting. The debit side of an entry will always equal the credit side so that the accounting equation remains in balance. Correct Answer: (A)

January

IQ #1 - Bailey, a Certified Fraud Examiner in an adversarial system, is being cross-examined in court on his expert opinion relating to a fraud matter. Darwin, a defense attorney, asks Bailey a question that is phrased in an overly and unnecessarily complex manner. Which of the following is the best way for Bailey to respond?
  1. Avoid answering the question by talking about something else.
  2. Ask the judge for a recess.
  3. Request that the question be rephrased.
  4. Object to the question phrasing.
View Answer
Generally, witnesses should never give away or volunteer free information during cross-examination in adversarial proceedings. When providing an answer during cross-examination, it might be difficult to avoid getting trapped in various assumptions, what-if scenarios, and generalities presented by counsel. Opposing counsel might also pose overly complex questions in an attempt to convolute the witness's responses. If this occurs, the witness should retrench by asking for the question to be rephrased in smaller components. Correct Answer: (C)

IQ #2 - Following the Wall Street Crash of 1929, the U.S. Congress passed the ______________ to regulate the public offering of securities and to protect investors.
  1. Securities Act of 1933
  2. Securities Exchange Act of 1931
  3. Investment Fraud Prevention Act of 1933
  4. Truth in Lending Act of 1931
View Answer
Concern over the Wall Street Crash of 1929 and the manipulation of the securities markets precipitated the need for federal intervention. In 1933, the U.S. Congress enacted the Securities Act of 1933 to regulate the public offering of securities and to protect investors. Simply put, the 1933 Act regulates the issuance of the securities themselves, and the 1934 Act covers subsequent trading of securities through brokers and exchanges. Correct Answer: (A)

IQ #3 - White, a Certified Fraud Examiner, believes that Blue, a fraud suspect, is guilty of embezzlement. White shares his theory with his supervisor. Blue later turns out to be innocent. Blue can sue and probably recover from White on a theory of defamation.
  1. True
  2. False
View Answer
Defamation is an unprivileged publication of a false statement about a person that causes harm to that person's reputation. To recover for defamation, the plaintiff must prove all of the following elements:

*The defendant made an untrue statement of fact.
*The statement was communicated (published) to third parties.
*The statement was made on an unprivileged occasion.
*The statement damaged the subject's reputation.

For a statement to qualify as defamatory, the occasion in which the statement is made must be an unprivileged one. If the statement is made on a privileged occasion, then no liability can attach to the speaker. Basically, the law recognizes that there are some circumstances in which the need to share information is so important that people will be allowed to make mistakes from time to time without having to worry about being sued for defamation. Statements that are made in these circumstances are said to be privileged. Correct Answer: (B)

December

IQ #1 - _______________ is comprised of the basic laws of rights and duties. When people refer to something that is "against the law," they are usually referring to this type of law.
  1. Administrative law
  2. Substantive law
  3. Procedural law
  4. Natural law
View Answer
Substantive law defines the type of conduct permissible and the penalties for violation; it is comprised of the basic laws of rights and duties. If someone says an act is “against the law,” he is referring to substantive law. Correct Answer: (B)

IQ #2 - The ________________ is an office within the Department of the Treasury charged with administering and enforcing U.S. sanction policies against targeted foreign organizations and individuals that sponsor terrorism and international narcotics traffickers.
  1. Central Intelligence Agency
  2. FinCEN
  3. Office of Money Laundering Compliance
  4. Office of Foreign Assets Control
View Answer
The Office of Foreign Assets Control (OFAC) is an office within the Department of the Treasury charged with administering and enforcing U.S. sanction policies against targeted foreign organizations and individuals that sponsor terrorism and international narcotics traffickers. OFAC maintains a list of individuals, governmental entities, companies, and merchant vessels around the world that are known or suspected to engage in illegal activities. Persons or entities on the list, known as Specially Designated Nationals and Blocked Persons (SDNs), include foreign agents, front organizations, terrorists and terrorist organizations, and drug traffickers. Correct Answer: (D)

IQ #3 - In common law jurisdictions, evidence of other crimes committed by a defendant in a criminal action is usually admissible to prove that the defendant is generally a bad person, and therefore is likely to have committed the crime with which he is charged.
  1. True
  2. False
View Answer
Evidence of other crimes, wrongs, or acts is not usually admissible to prove the character of a person in common law jurisdictions. That is, such evidence is not admissible to prove that the defendant is generally a bad person, and therefore is likely to have committed the crime with which he is charged. For example, if a defendant is charged with stealing money from his employer's safe, the prosecution would not be permitted to offer evidence that the defendant had previously stolen money from another employer to show the defendant had a propensity to steal. Correct Answer: (B)

November

IQ #1 - Annika, a bookkeeper for a small company, 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. Then she cashed the checks. What kind of scheme did Annika commit?
  1. An altered payee scheme
  2. A forged maker scheme
  3. A forged endorsement scheme
  4. A cash larceny scheme
View Answer
The altered payee scheme is a type of check tampering fraud in which an employee intercepts a company check intended for a third party and alters the payee designation so that the check can be converted by the employee or an accomplice. The fraudster inserts his own name, the name of a fictitious entity, or some other name on the check's payee line. Correct Answer: (A)

IQ #2 - 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?
  1. An illegal pyramid
  2. A fly and buy scheme
  3. A Ponzi scheme
  4. A dog and pony scam
View Answer
A Ponzi scheme is generally defined as an illegal business practice in which new investors’ money is used to make payments to earlier investors. The investment opportunity is typically presented with the promise of uncommonly high returns. While the scam is presented as a legitimate investment, there is little or no actual commerce involved. When an enterprise promotes an investment opportunity that invests little or none of the participants’ money and uses new investments to make dividend payments, the promoters are running a Ponzi scheme. Correct Answer: (C)

IQ #3 - 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.
  1. True
  2. False
View Answer
According to generally accepted accounting principles, revenue and corresponding expenses should be recorded or matched in the same accounting period. The timely recording of expenses is often compromised due to pressures to meet budget projections and goals, or due to lack of proper accounting controls. As the expensing of certain costs is pushed into periods other than the ones in which they actually occur, they are not properly matched against the income that they help produce. For example, revenue might be recognized on the sale of certain items, but the cost of goods and services that went into the items sold might intentionally not be recorded in the accounting system until the following period. This might make the sales revenue from the transaction almost pure profit, inflating earnings. In the next period, earnings would have fallen by a similar amount. Correct Answer: (B)