Fraud IQ Test

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

  • July
  • June
  • May
  • April
  • March
  • February

July

IQ #1 - Turnbull, a fraud victim, hired Kennedy, a CFE, to trace a fraudster’s assets to facilitate the recovery of the illicit proceeds obtained by the fraudster. Which of the following typically will be the MOST useful source of information for Kennedy in his efforts to trace the fraudster’s assets?
  1. The fraudster's bank records
  2. The fraudster's paystubs
  3. Third-party witnesses
  4. Surveillance footage
View Answer
Records obtained from financial institutions are perhaps the single most important financial source available to a fraud examiner for asset-tracing purposes. They can be used as evidence for fraud, as well as to:
  • Identify witnesses and other evidence.
  • Uncover criminal profits.
  • Identify criminal assets.
  • Locate assets that can be used to satisfy a judgment.
  • Identify localities where assets are stored.
  • Determine the lifestyle of an account holder.
  • Determine the financial health of an organization.
  • Determine the source of funds placed into an account.
  • Determine the use of the funds from an account.
Correct Answer: (A)

IQ #2 - In interview situations, ______________ is defined as a "relation marked by harmony, conformity, accord, or affinity."
  1. Norming
  2. Active listening
  3. Calibration
  4. Rapport
View Answer
Merriam-Webster's Dictionary defines rapport as a "relation marked by harmony, conformity, accord, or affinity." In other words, there must be some common ground established before questioning begins. This is usually accomplished by the interviewer spending a few minutes engaging the respondent in casual conversation. For example, the interviewer might pay the respondent a compliment, make a joke, or ask a friendly question. This aspect, however, should not be overdone, as most people are aware that the interviewer is there for a meaningful purpose.
Correct Answer: (D)

IQ #3 - In admission-seeking interviews, the transition from the accusatory process to the verbal confession should occur when the accused provides the first detailed information about the offense.
  1. True
  2. False
View Answer
In an admission-seeking interview, the interviewer should transition to the verbal confession when the accused provides the first detailed information about the offense. There are three general approaches to obtaining the verbal confession: chronologically, by transaction, or by event. The approach taken should be governed by the circumstances of the case. Once a verbal confession is obtained, the interviewer must probe gently for additional details—preferably details that only the subject knows.
Correct Answer: (A)

June

IQ #1 - The USA PATRIOT Act requires U.S. financial institutions to implement programs designed to verify the identity of any person seeking to open an account. These programs are called _________.
  1. Customer Verification Programs
  2. Customer Identification Programs
  3. Anti-Money Laundering Programs
  4. None of the above
View Answer
Section 326 of the USA PATRIOT Act expands the Bank Secrecy Act by requiring U.S. financial institutions to implement Customer Identification Programs (CIPs). These CIPs are to be incorporated into financial institutions’ money laundering programs, and at a minimum, they must include reasonable procedures for:
  • Verifying the identity of any person seeking to open an account to the extent reasonable and practicable
  • Maintaining records of the information used to verify a person’s identity, including name, address, and other identifying information
  • Consulting lists of known or suspected terrorists or terrorist organizations to determine if the person seeking to open the account appears on any such list
Correct Answer: (B)

IQ #2 - Suzanne runs her own business, but has decided to close it and file for bankruptcy. Before she does so, she orders a large quantity of inventory on credit and resells it for cash. She closes the business and leaves the suppliers with almost nothing to recover in the bankruptcy proceeding that follows. Which of the following best describes Suzanne’s scheme?
  1. Bustout scheme
  2. Pump and dump scheme
  3. Concealed asset scheme
  4. Multiple filings scheme
View Answer
A bustout is a planned and fraudulent bankruptcy. It can take many different forms, but the basic approach is for an apparently legitimate business to order large quantities of inventory or other goods on credit, and then dispose of those goods through legitimate or illegitimate channels. Because the point of the bustout scheme is to quickly resell the goods for cash, the fraudster is likely to purchase more liquid items like inventory than real estate, insurance policies, or services. The perpetrator then closes shop, absconding with the proceeds and leaving the suppliers unpaid. The debtor might then go into bankruptcy. Often, by this point the debtor has already made false accounting entries or taken other steps to conceal the assets or make the sales look legitimate. Other times, debtors simply flee the jurisdiction or do not show up at the proceedings.
Correct Answer: (A)

IQ #3 - Sheila is a defendant in a U.S. criminal case. Her defense team has requested no evidence from the prosecution during pretrial discovery. The prosecution, however, requests that the defense team turn over its relevant documents and tangible objects. At this point, Sheila’s defense team must turn over the requested items.
  1. True
  2. False
View Answer
In the pretrial discovery phase of U.S. criminal litigation, if the defendant requests disclosure of the prosecution’s documents and tangible objects, reports of examinations and tests, and its expert witnesses, then the prosecution is correspondingly entitled to disclosure of these items from the defense. The prosecution is not, of course, entitled to disclosure of the defendant’s work product, nor is it entitled to statements made by prospective witnesses to the defendant or his attorneys.
Correct Answer: (B)

May

IQ #1 - 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:
  1. An authorized maker scheme
  2. A mischaracterized expense scheme
  3. A false billing scheme
  4. A forged maker scheme
View Answer
An authorized maker scheme is a type of check tampering fraud in which an employee with signature authority on a company account writes fraudulent checks for his own benefit and signs his own name as the maker. The most common example occurs when a majority owner or sole shareholder uses his company to pay personal expenses directly out of company accounts. Baker's scheme is not a billing scheme because he wrote the check himself and there is no indication that he submitted the phone bill to the firm's regular payment cycle.
Correct Answer: (A)

IQ #2 - Which of the following is NOT one of the three common methods for concealing liabilities and expenses on a company’s financial statements?
  1. Failure to disclose warranty costs and product-return liabilities
  2. Liability/expense omissions
  3. Channel stuffing
  4. Capitalized expenses
View Answer
There are three common methods for concealing liabilities and expenses:
  • Omitting liabilities and/or expenses
  • Improperly capitalizing costs rather than expensing them
  • Failing to disclose warranty costs and product-return liabilities
Correct Answer: (C)

IQ #3 - _________ is an attack in which a user is fooled into entering sensitive data into a malicious website that imitates a legitimate website.
  1. SMiShing
  2. Spear phishing
  3. Pharming
  4. Phishing
View Answer
Pharming is an attack in which a user is fooled into entering sensitive data (such as a password or credit card number) into a malicious website that imitates a legitimate website. It is different from phishing in that the attacker in a pharming scheme does not have to rely on having the user click on a link in an email to direct him to the imitation website.
Correct Answer: (C)

April

IQ #1 - ___________ refers to an instance when law enforcement officers or government agents induce a person to commit a crime that he is not previously disposed to commit.
  1. Collusion
  2. False imprisonment
  3. Entrapment
  4. Covert operation
View Answer
Many jurisdictions recognize the legal defense of entrapment. Entrapment occurs when law enforcement officers or government agents induce a person to commit a crime that he is not previously disposed to commit. Entrapment also poses a legal problem in covert operations, particularly in undercover operations, because the defendant might not be found liable if it appears that he was improperly induced to commit the crime. Therefore, it is imperative that adequate predication exists before the operation is commenced. The law enforcement officer or government agent must act based on more than mere suspicion. For example, if the officer received a reliable tip that a suspect committed fraud, then that could serve as adequate predication. Covert operations must not be used for aimless searches for information performed without notions of what might be uncovered.
Correct Answer: (C)

IQ #2 - Which of the following types of records for a personal bank account would most likely contain the account holder’s name, address, telephone number, and government identification number?
  1. Signature card
  2. Canceled check
  3. ATM withdrawal slip
  4. Deposit slip
View Answer
To open a personal account, the individual opening the account must provide a signature card, or similar document, evidencing a contract between the customer and bank. The signature card is a source of valuable information. Although its form varies, the card usually contains the person’s name, address, telephone number, identification number, amount of the opening deposit (and possibly the source of the opening deposit), and security data (e.g., mother’s maiden name). The person’s identification information might be significant, especially if the depositor used an alias. Also, a fraud examiner might be able to trace the opening deposit through the bank’s records to disclose a source of income.
Correct Answer: (A)

IQ #3 - Martin, a Certified Fraud Examiner, is conducting an admission-seeking interview of Doris, a fraud suspect. Although Martin has already interviewed several witnesses, he should not tell Doris under any circumstances that he has interviewed other individuals.
  1. True
  2. False
View Answer
One technique for diffusing alibis is to discuss the testimony of witnesses. The objective is to give enough information about what other people might say without providing too much. Ideally, the interviewer's statement will create the impression in the accused's mind that many people are in a position to contradict his story.
The interviewer is again cautioned about furnishing enough information to the accused so that he can identify the witnesses. This might place the witnesses in a difficult position, and the accused might contact the witnesses in an effort to influence testimony. The accused could also take reprisals against potential witnesses.
Correct Answer: (B)

March

IQ #1 - 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?
  1. Need recognition
  2. Collusion
  3. Illegal gratuity
  4. Economic extortion
View Answer
Illegal gratuities are items of value given to reward a decision, often after the recipient has made the decision. Illegal gratuities are similar to bribery schemes except that, unlike bribery schemes, illegal gratuity schemes do not necessarily involve an intent to influence a particular decision before the fact. That is, an illegal gratuity occurs when an item of value is given for, or because of, some act. Often, an illegal gratuity is merely something that a party who has benefited from a decision offers as a "thank you" to the person who made the beneficial decision.
Correct Answer: (C)

IQ #2 - _________ is an attack in which a user is fooled into entering sensitive data into a malicious website that imitates a legitimate website.
  1. SMiShing
  2. Phishing
  3. Spear phishing
  4. Pharming
View Answer
Pharming is an attack in which a user is fooled into entering sensitive data (such as a password or credit card number) into a malicious website that imitates a legitimate website. It is different from phishing in that the attacker in a pharming scheme does not have to rely on having the user click on a link in an email or other message to direct him to the imitation website.
Correct Answer: (D)

IQ #3 - For employee expense reimbursement requests, electronic receipts are preferred to paper receipts because they are more difficult to alter or forge.
  1. True
  2. False
View Answer
Requiring receipts to be submitted electronically is NOT a recommended form of expense reimbursement fraud prevention. In fact, electronic receipts are often much easier to forge or alter than paper receipts.
Correct Answer: (B)

March

IQ #1 - 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?
  1. Need recognition
  2. Collusion
  3. Illegal gratuity
  4. Economic extortion
View Answer
Illegal gratuities are items of value given to reward a decision, often after the recipient has made the decision. Illegal gratuities are similar to bribery schemes except that, unlike bribery schemes, illegal gratuity schemes do not necessarily involve an intent to influence a particular decision before the fact. That is, an illegal gratuity occurs when an item of value is given for, or because of, some act. Often, an illegal gratuity is merely something that a party who has benefited from a decision offers as a "thank you" to the person who made the beneficial decision.
Correct Answer: (C)

IQ #2 - _________ is an attack in which a user is fooled into entering sensitive data into a malicious website that imitates a legitimate website.
  1. SMiShing
  2. Phishing
  3. Spear phishing
  4. Pharming
View Answer
Pharming is an attack in which a user is fooled into entering sensitive data (such as a password or credit card number) into a malicious website that imitates a legitimate website. It is different from phishing in that the attacker in a pharming scheme does not have to rely on having the user click on a link in an email or other message to direct him to the imitation website.
Correct Answer: (D)

IQ #3 - For employee expense reimbursement requests, electronic receipts are preferred to paper receipts because they are more difficult to alter or forge.
  1. True
  2. False
View Answer
Requiring receipts to be submitted electronically is NOT a recommended form of expense reimbursement fraud prevention. In fact, electronic receipts are often much easier to forge or alter than paper receipts.
Correct Answer: (B)

February

IQ #1 - Which of the following is one of the interrelated components of a company's internal control system, as laid out by COSO?
  1. Assurance function
  2. Risk assessment
  3. Ethical culture
  4. Independent oversight
View Answer
COSO's Internal Control—Integrated Framework identified five interrelated components of internal control: control environment, risk assessment, control activities, information and communication, and monitoring. The effectiveness of internal controls can be determined from an assessment of whether (1) each of these five components is in place and functioning effectively and (2) the five components are operating together in an integrated manner.
Correct Answer: (B)

IQ #2 - The research of Dr. Steve Albrecht found which of the following personal characteristics to be the top-ranked motivating factor to commit fraud?
  1. Criminal personality
  2. Dislike of company
  3. Living beyond means
  4. Dislike of boss
View Answer
In Dr. Steve Albrecht’s study, the researchers gave internal auditors at companies that had experienced frauds two sets of 25 motivating factors and asked which factors were present in the frauds they had dealt with. Participants were asked to rank these factors on a seven-point scale indicating the degree to which each factor existed in their specific frauds. Based on this study, the top three most highly ranked factors from the list of personal characteristics were (1) living beyond their means, (2) an overwhelming desire for personal gain, and (3) high personal debt.
Correct Answer: (C)

IQ #3 - According to Government Auditing Standards, assessing the risk of potential fraud relates solely to planning the audit and should therefore be performed only at the beginning of the audit engagement.
  1. True
  2. False
View Answer
Government Auditing Standards, paragraph 6.31, states that "when auditors identify factors or risks related to fraud that has occurred or is likely to have occurred that they believe are significant within the context of the audit objectives, they should design procedures to provide reasonable assurance of detecting such fraud. Assessing the risk of fraud is an ongoing process throughout the audit and relates not only to planning the audit but also to evaluating evidence obtained during the audit."
Correct Answer: (B)