Fraud IQ Test

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

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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. A false billing scheme
  2. A mischaracterized expense scheme
  3. An authorized maker 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: (C)

IQ #2 - 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:
  1. Skimming
  2. An overstocked refund scheme
  3. A false void scheme
  4. A fictitious refund scheme
View Answer
One type of register disbursement scheme is the overstated refund. Rather than creating an entirely fictitious refund, a fraudster might overstate the value of a real customer's refund, pay the customer the actual amount owed for the returned merchandise, and then keep the excess portion of the return.

In a fictitious refund scheme, an employee processes a transaction as if a customer were returning merchandise, even though there is no actual return. Then the employee takes cash from the register in the amount of the false return. The customer might or might not be aware of the scheme taking place.

Fictitious voids are similar to refund schemes in that they make fraudulent disbursements from the register appear to be legitimate. To process a false void, the first thing the perpetrator needs is the customer’s copy of the sales receipt. Typically, when an employee sets about processing a fictitious void, the employee simply withholds the customer’s receipt at the time of the sale. In many cases, customers do not notice that they are not given a receipt.

Skimming is the removal of cash from a victim entity prior to its entry in an accounting system. Correct Answer: (B)

IQ #3 - 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.
  1. True
  2. False
View Answer
Horizontal analysis is a technique for analyzing the percentage change in individual income statement or balance sheet items from one year to the next. The first period in the analysis is considered the base period, and the changes in the subsequent period are computed as a percentage of the base period.

Vertical analysis is the expression of the relationship or percentage of component items to a specific base item on the income statement or balance sheet. Ratio analysis is a means of measuring the relationship between any two different financial statement amounts. The relationship and comparison are the keys to any of these types of financial analyses. Correct Answer: (B)


IQ #1 - Workers’ compensation schemes are generally broken into four categories. Which of the following is NOT one of these categories?
  1. Double duty fraud
  2. Agent fraud
  3. Claimant fraud
  4. Premium fraud
View Answer
Workers’ compensation schemes are generally broken into four categories: premium fraud, agent fraud, claimant fraud, and organized fraud schemes.
  • Premium fraud involves the misrepresentation of information to the insurer by employers to lower the cost of workers’ compensation premiums. For example, an employer might understate the amount of the payroll for higher-risk classifications, thus receiving lower-cost premiums.
  • Agent fraud schemes consist primarily of pilfering premiums and conspiring to reduce premiums. Underhanded agents sometimes issue certificates of coverage to the ostensibly insured customer while misappropriating the premium rather than forwarding it to the insurance carrier. Agents might also conspire to alter or improperly influence insurance applications to offer lower premiums to their clients.
  • Claimant fraud involves misrepresenting the circumstances of any injury or fabricating that an injury occurred.
  • Organized fraud schemes are composed of the united efforts of a lawyer, a capper, a doctor, and the claimant. This type of scheme is used not only in workers’ compensation cases but also in other medical frauds, such as automobile injuries.
Correct Answer: (A)

IQ #2 - When an employee or official uses force or fear to demand money in exchange for making a particular business decision, that individual is engaging in:
  1. Bribery
  2. An illegal gratuity scheme
  3. A kickback scheme
  4. Economic extortion
View Answer
Extortion is defined as the obtaining of property from another, with the other party’s consent induced by wrongful use of actual or threatened force or fear. Economic extortion is present when an employee or official, through the wrongful use of actual or threatened force or fear, demands money or some other consideration to make a particular business decision. Thus, an example of an economic extortion scheme is an employee or government official demands money in exchange for making a business decision. Similarly, if a politician threatens to shut down a business if it does not pay a bribe, this is also an example of an economic extortion scheme. Correct Answer: (D)

IQ #3 - The primary reason for a company's management to construct an electronically and acoustically shielded quiet room is to protect the company’s computer servers and other sensitive electronic equipment.
  1. True
  2. False
View Answer
Management can prevent corporate spies from listening in on meetings through the use of a quiet room. A quiet room is an area that is acoustically and radio-frequency shielded so that conversations that occur within the room cannot be monitored or heard from outside the room. Correct Answer: (B)


IQ #1 - Javier, a forensic document examiner, determines that a document that purports to be the original writing of a famous author created fifty years ago is actually made from paper created no more than two years ago. Which of the following best describes the document?
  1. An anachronism
  2. An indented writing
  3. An auto forgery
  4. None of the above
View Answer
Anachronisms are items located at a time when they could not have existed or occurred. Generally, exposing anachronisms in fraudulent historical documents requires the expertise of investigators, historical experts, scientific laboratories, and forensic document examiners. For example, accurate handwriting comparisons are rarely possible in the absence of adequate contemporaneous genuine writings of the purported author. In such cases, the experts examine the materials used to produce the documents, such as paper, ink, printing, adhesives and seals, bindings, and covers.
Often, to add credibility to forged documents, fraudsters backdate them. To determine whether contemporary documents were backdated, experts usually rely on diligent investigation and forensic document examiners.
Correct Answer: (A)

IQ #2 - Scott, a fraud examiner, is concerned that employees are abusing their expense accounts and are spending more than the $30 per day allowed for meals. Which of the following is the most appropriate data analysis function for locating meal expenses greater than $30?
  1. Duplicate search
  2. Gap testing
  3. Multi-file processing
  4. Compliance verification
View Answer
Compliance verification determines whether company policies are met by employee transactions. If a company limits the amount of its reimbursements, the software can check to see that this limit is being observed. Many times, fraud examiners can find early indications of fraud by testing detail data for values above or below specified amounts. For example, when employees are out of town, do they adhere to company policy of spending no more than $30 per day for meals? To start, fraud examiners can look at all expense report data and select those with daily meal expenses exceeding $30. With the information returned from this simple query, there is a starting point for suspecting fraud. Compliance verification determines whether company policies are met by employee transactions. Correct Answer: (D)

IQ #3 - The records of a wire transfer identify the amount of the wire, where it was sent, and the date it was sent, but they do not identify who sent the wire.
  1. True
  2. False
View Answer
The records of a wire transfer identify who sent the wire, where it was sent, the date it was sent, and its amount.
Correct Answer: (B)


IQ #1 - Which of the following is an indirect method of proving illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income?
  1. Net-worth method of analysis
  2. Regression analysis
  3. Bank deposit method of analysis
  4. Fundamental analysis
View Answer
The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. Fraud examiners should use the net-worth method when several of the subject’s assets or liabilities have changed during the period under examination and when the target’s financial records are not available.
Correct Answer: (A)

IQ #2 - Green believes that Blue, a fraud suspect, has purchased hidden personal property through suspicious financing. Which of the following sources, if available, would most likely contain information that Green could use to locate Blue’s possible hidden assets?
  1. Registrar of voters
  2. Records of secured transactions
  3. Health department records
  4. Surveyor office records
View Answer
Records of secured transactions in which the debtor(s) owes a stated value to a secured party or parties can provide valuable information. They can help identify personal property that an individual or business has financed. These records typically include the debtor’s name and address, the name and address of the secured party, the filing date, the filing number, the filing type, and the type of collateral pledged as security. Moreover, these records might include documents such as tax liens, notices of secured interest in personal property, bank notes and drafts (including funds transfers between banks), letters of credit, and securities exchanges. Correct Answer: (B)

IQ #3 - If the accused becomes withdrawn after his alibis have been diffused, the interviewer’s best course of action is to remain silent until the accused makes a confession.
  1. True
  2. False
View Answer
After the interviewer diffuses the accused’s alibis, the accused often becomes quiet and withdrawn. Some people in this situation might cry. If this occurs, the interviewer must be comforting. The interviewer should not remain silent or discourage the accused from showing emotion. Generally, such reactions indicate that the accused is considering whether to confess.
At this point in the interview, the interviewer should present an alternative question. The alternative question forces the accused to make one of two choices, both of which constitute a benchmark admission (i.e., an answer that implies guilt). Regardless of whether the accused answers yes or no, he will make a culpable statement, or benchmark admission. Once the benchmark admission is made, the subject has made a subconscious decision to confess.
Correct Answer: (B)


IQ #1 - Nathan, a Certified Fraud Examiner, has obtained an oral confession from Gabriel, a fraud suspect. Nathan wants to probe Gabriel for additional details. Which of the following is the most appropriate question Nathan should ask Gabriel to find out if there are any remaining proceeds that can be used to reduce losses?
  1. "Did you spend everything?"
  2. "What do you have left?"
  3. "Is there anything left?"
  4. "It’s all gone, isn’t it?"
View Answer
In appropriate situations, the interviewer should find out whether there are unspent or available assets that the confessor can use to reduce losses. The interviewer should ask the accused "What’s left?" rather than asking "Is there anything left?"
Correct Answer: (B)

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. Deposit slip
  2. ATM withdrawal slip
  3. Signature card
  4. Canceled check
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 opening deposit (and possibly the source of 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: (C)

IQ #3 - Tobias, a Certified Fraud Examiner, is conducting an admission-seeking interview of Frederik, a fraud suspect. Tobias has a great deal of documentary evidence that he plans on using to diffuse Frederik's alibis. The proper technique for using the evidence is for Tobias to display it all at once so that Frederik will be demoralized by the overwhelming amount of evidence.
  1. True
  2. False
View Answer
One technique for diffusing alibis is to display the evidence. It is common for most guilty people to overestimate the amount of physical evidence. The interviewer should try to reinforce this notion in the way the evidence is presented to the accused. The physical evidence—usually documents in fraud matters—generally should be displayed one piece at a time, in reverse order of importance. In this way, the accused does not immediately know the full extent of the evidence. When the accused no longer denies culpability, the interviewer should stop displaying evidence.
Each time a document or piece of evidence is presented to the accused, the interviewer should note its significance. During this phase, the accused is still trying to determine how to react to being caught. The interviewer should, therefore, expect that the accused will attempt to lie his way out of the situation. Like denials, the interviewer should stop the alibis and other falsehoods before they are fully articulated.
Correct Answer: (B)


IQ #1 - Which of the following is NOT a characteristic that asset hiders generally look for in the financial vehicles they use to conceal assets?
  1. Security
  2. Accessibility
  3. Liquidity
  4. Transparency
View Answer
Generally, asset hiders look to conceal their assets with financial vehicles that have certain characteristics. For one thing, asset hiders want products that are liquid (i.e., items that can be purchased and sold in a short period of time). Moreover, asset hiders want products that are difficult to trace or are untraceable. With such instruments, asset hiders can break or obscure many links between the initial receipt of the assets and their final disposition. Asset hiders also look for products that are secure and accessible.
Correct Answer: (D)

IQ #2 - Which of the following is a step in the general process for tracing illicit transactions?
  1. Building a financial profile
  2. Establishing reporting protocols
  3. Selecting a response team
  4. Implementing litigation hold procedures
View Answer
Although the procedures performed during a tracing investigation vary depending on the circumstances, an actual investigation to trace transactions generally should involve the following elements:

1. Collect information.
2. Profile the subject (i.e., assemble the personal—financial and behavioral—profile).
3. Review information for leads and prioritize leads.
4. Trace the illicit transactions.

Correct Answer: (A)

IQ #3 - When determining a subject's net worth for asset-tracing purposes, all assets should be valued at current market value to eliminate any question about estimates.
  1. True
  2. False
View Answer
When computing a subject's net worth, these issues should be considered:
*All assets should be valued at cost, not fair market value. Subsequent appreciation or depreciation of assets should be ignored.
*The amount of funds available to the subject from legitimate sources should be estimated or computed generously.
*The subject should be interviewed to identify all alleged sources of funds and to negate defenses that he might raise later.
Correct Answer: (B)