CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE ONE
FRAUD AND CORRUPTION SCHEMES
MONDAY: 19 August 2024. Afternoon Paper. Time Allowed: 3 hours.
This paper consists of one hundred (100) Multiple Choice Questions. Answer ALL questions indicating the letter (A, B, C or D) that represents the correct answer. Each question is allocated one (1) mark.
1. Which one of the following BEST describe the double fraudulent effect of recording fictitious revenue?
A. Expenses are understated and revenue is overstated
B. Revenue is overstated and receivables are overstated
C. Revenue is understated and receivables are overstated
D. Expenses are understated and liabilities are understated (1 mark)
2. Financial statement fraud can be caused through commission or omission. Which one of the following BEST
describes the fraudulent double effect of omission of expenses in the financial statements?
A. Expenses are understated and liabilities are understated
B. Expenses are overstated and liabilities are understated
C. Liabilities are overstated and expenses are understated
D. Liabilities are understated and receivables are overstated (1 mark)
3. Fraud can either be in the book or off the book. Which one of the following is NOT an off the book fraud?
A. Embezzlement of funds
B. Bribery
C. Conflict of interest
D. Economic extortion (1 mark)
4. Which one of the following is NOT an improper asset valuation scheme?
A. Failure to write off obsolete inventory
B. Recording fictitious assets
C. Inadequate provision of bad and doubtful debts
D. Writing off bad debts (1 mark)
5. Which one of the following BEST describes unearned revenue?
A. Bad debts
B. Airlines tickets
C. Improper valuation of receivables
D. Related party revenue transactions (1 mark)
6. Which one of the following methods can BEST be used to detect corrupt payments?
A. Focus at the point of payment
B. Conducting an audit
C. Interviewing employees
D. Interviewing procurement manager (1 mark)
7. Which one of the following statement is ACCURATE in regard to the major objective of bid rigging in a competitive procurement process?
A. To inflate the prices of the bids
B. To support each other to win a bid
C. To manipulate the bids
D. To facilitate excessive buying (1 mark)
8. The directors of XYZ Company are also directors of ABC company. The two companies do substantial amount of business with each other. XYZ failed to disclose their relation with ABC Company in the financial statements.
Which one of the following BEST describes the fraud scheme exhibited XYZ Company?
A. Reporting entities scheme
B. Inadequate disclosure
C. Fraudulent related party’s transactions
D. Changes of accounting policies scheme (1 mark)
9. Which one of the following BEST describes multifactor authentication technical security control?
A. Systems security control
B. Applications security control
C. Network security control
D. Data classification control (1 mark)
10. Which one of the following is NOT a type of an effective technical security control?
A. Data classifications
B. Training and awareness
C. Security audit test
D. Incident response plans (1 mark)
11. Which one of the following financial transaction can be used to understate expenses?
A. Recording direct expenses incurred to generate revenue
B. Recording prepaid expenses
C. Accrual of expenses
D. Capitalisation of expenses (1 mark)
12. Which one of the following statements is ACCURATE in regard to concealment of liabilities in financial statements?
A. Capitalising expenses would result to concealment of liabilities
B. Omission of expenses would result to concealment of liabilities
C. Recording fictitious expenses would result to concealment of liabilities
D. Recording incurred expenses would result to concealment of liabilities (1 mark)
13. Which one of the following is a recommended control method of electronic transfer funds fraud?
A. Removing Automated clearing house (ACH) blocks and filters
B. Having separate bank accounts for checks and electronic payments
C. Direct payment of ACH transactions
D. Having one bank account for checks and electronic payments (1 mark)
14. Which one of the following is NOT an item of the statement of profit or loss?
A. Net sales
B. Expenses
C. Operating expenses
D. Payables (1 mark)
15. Which of the following statements BEST explain a situation where the current liabilities are two times more than the current assets?
A. The organisation will not be able to meet its immediate financial obligations
B. The organisation will have a good statement of cash flow from operation activities
C. The organisation might have overstated the current liabilities
D. The organisation will be able to meet its immediate financial obligations (1 mark)
16. Which one of the following methods is used dishonest contractors to give the appearance of competitive bidding?
A. Bidders submit complementary bids
B. Bidders rotate bids
C. Bidders withdraw bids the last minute
D. Competitive bidders refrain from bidding (1 mark)
17. Which one of the following types of financial analysis is used when comparing an organisation’s revenue trend analysis?
A. Ratio analysis
B. Relational comparison
C. Horizontal analysis
D. Vertical analysis (1 mark)
18. Which one of the following BEST describes social engineering scheme?
A. Piggybacking
B. Wire tapping
C. Baiting
D. Electronic piggybacking (1 mark)
19. Sequential purchases under the competitive bidding limits that are followed change orders is a red flag of which of the following procurement fraud scheme.
A. Bid tailoring
B. Bid splitting
C. Need recognition
D. Bid specification scheme (1 mark)
20. Which one of the following is a fraud scheme associated with competent bidders refraining from bidding?
A. Market division
B. Bid rotation
C. Bid suppression
D. Bid manipulation (1 mark)
21. Which one of the following is NOT a fraud scheme perpetrated health care providers?
A. Coding
B. Excessive services
C. Experimental procedures
D. Intentional misrepresentation of the diagnosis (1 mark)
22. Which one of the following is NOT a red flag of bid specifications procuring entity’s employees?
A. Bid specifications that are too broad
B. Broad specification
C. Narrow specification
D. Bid specifications that are vague (1 mark)
23. Which one of the following BEST describe the process which users are allowed to access computer systems and networks?
A. Computer administrative control
B. Technical access control
C. Logical access control
D. Physical access control (1 mark)
24. Which one of the following steps of risk assessment involves identifying the risks threats of each asset and calculating the probability of each risk materialising?
A. The third step
B. The second step
C. The first step
D. The fourth step (1 mark)
25. Which one of the following fraud prevention schemes could help detect fraud through a bank reconciliation statement?
A. Undertaking special audits
B. Cash that has not been recorded in the books
C. Undertaking income statement audit
D. Undertaking audit of statement of financial position (1 mark)
26. Which one of the following accounts would be misrepresented capitalisation of expenditure?
A. Liabilities account
B. Asset account
C. Revenue account
D. Long term liabilities (1 mark)
27. Which one of the following is a red flag of theft of inventory?
A. Writing off inventory as scrap
B. Failure to write off scrap inventory
C. Increasing perpetual inventory records to balance with physical inventor balances
D. Decreasing physical inventory balances to balance with perpetual inventory (1 mark)
28. Failure to write off bad debts will result to .
A. understated receivables and overstated receivables
B. overstated expenses and overstated receivables
C. understated expenses and overstated receivables
D. understated profits and overstated receivables (1 mark)
29. Which one of the following is ACCURATE in regard to cyber fraud?
A. Entering, altering or falsified data in the computer an authorised employee to gain a financial advantage
B. Hacking into a computer system
C. Unauthorised disclosure of data to an external party using the internet
D. Computer forgery an authorised person (1 mark)
30. Which one of the following statements is ACCURATE in regard to security of Internet of Things (IOT) technology?
A. IOT technology tends to focus more on security than innovative design
B. IOT technology tends to focus more on innovative than security
C. IOT technology tends to focus equally on both innovation and security
D. IOT devices commonly connect to networks using adequate security (1 mark)
31. Which one of the following describes the method used to gain unauthorised access through the use of undocumented security procedures?
A. Virus software
B. Back door
C. Trap door
D. Trajon horse (1 mark)
32. Which one of the following security controls is a type of security risk assessment?
A. Logical security controls
B. Administrative and technical security controls
C. Administrative controls
D. Technical security controls (1 mark)
33. Which of the following statements is NOT accurate in regard to competitive binding?
A. In bid rigging winning bidders subcontract losing bidders
B. In bid rigging there is bid winning pattern
C. The winning bidder bid price in a competitive bidding is always competitive
D. The winning bidder bid price in a competitive bidding is not always competitive (1 mark)
34. Which one of the following financial statements is misrepresented overvaluation of non-current assets?
A. Statement of financial position
B. Statement of profit and loss
C. Statement of owner’s equity
D. Statement of cash flows (1 mark)
35. Which one of the following statements BEST describe un-bundling health care provider fraud scheme?
A. Involves double billing for one procedure
B. Involves billing for a fictitious procedure
C. Involves billing one procedure as two procedures inflating the total bill
D. Involves billing one procedure as two procedures and understate the total bill (1 mark)
36. Which one of the following BEST describes an occurrence when one (or more) bidder(s) sits out of the bidding so that another party is guaranteed to win a bidding process.
A. Bid suppression
B. Bid rotation
C. Market division
D. Complementary bids (1 mark)
37. What can a business provide to its employees as a fraud prevention procedure?
A. Background check
B. Competitive Pay
C. Audits
D. Reporting (1 mark)
38. Fraudulent appraisal is associated with which one of the following loan fraud schemes?
A. Credit card loans
B. Overdraft loans
C. Real estate loans
D. Personal loans (1 mark)
39. Which one of the following is a red flag of off book fraud schemes?
A. Overdue account receivable balances
B. Increased revenues
C. Increased cash balances
D. Increased receivable balances (1 mark)
40. Which of the following is a red flag of ghost employees scheme?
A. Employees in the payroll but not in the human resource master file
B. The wage bill suddenly goes down
C. Employees in the human resource master file but not in the payroll
D. Unexplained salary increases for some employees (1 mark)
41. Which of the following is NOT an appropriate technique for detecting a nonconforming goods or services scheme?
A. Conduct unannounced inspections of questioned goods or materials
B. Interview procurement personnel about the presence of any red flags
C. Determine if contract costs have exceeded or are expected to exceed the contract value
D. Review the inspection and testing reports of questioned goods or materials (1 mark)
42. Which of the following unauthorised access BEST describes wire-tapping?
A. Technical surveillance
B. Logical access
C. Piggybacking
D. Physical access (1 mark)
43. Which of the following is NOT an indicator of a bid tailoring scheme?
A. Competitive bids are awarded to the same bidder
B. A good number of bidders respond to bid requests
C. A contract is not rebid when a fewer than minimum number of bids are received
D. The bid specifications are too broad (1 mark)
44. Which of the following is a fraud scheme that a warehouse employee can use to conceal inventory shrinkage?
A. Increasing the inventory book balance
B. Failure to Write off stolen inventory as scrap
C. Physical padding of inventory
D. Decreasing physical inventory balance (1 mark)
45. Which one of the following types of control BEST describe encryption of data?
A. Physical security control
B. Technical security control
C. Administrative security control
D. Application security control (1 mark)
46. Which one of the following procedures helps in detecting substandard goods or services scheme?
A. Reviewing the contractor’s claims, invoices and supporting documents
B. Reviewing the number of qualified bidders who submitted proposals
C. Reviewing correspondence and contract files for indications of compliance regarding specifications
D. Establishing the source of the suspect goods or materials (1 mark)
47. The most common practice for management to commit financial statement fraud is .
A. increasing bonuses
B. meeting unrealistic targets
C. avoiding negative publicity
D. complying with financing covenants (1 mark)
48. Which of the following practices is a potential indicator of a bid splitting scheme?
A. Frequent use of sole-source procurement contracts
B. Sequential purchases under the competitive bidding limits that are followed change orders
C. Low employee turnover in an organisation’s procurement department
D. Two or more purchases from the same supplier in amounts just above competitive bidding limits (1 mark)
49. D&N Railway solicits bids to lay several miles of new railroad track. Bob, who works for D&N writes the specifications for the project to provide that D&N will only contract with companies that have more than 25 years of experience. Bob knows that only B&Q Track Co., one of the prospective bidders has more than 25 years of experience. What type of procurement fraud scheme has taken place?
A. Bid suppression
B. Bid alteration
C. Bid tailoring
D. Bid division (1 mark)
50. Which of the following is a common red flag of a defective pricing procurement fraud scheme?
A. Contractor submits a request for change orders
B. A contractor uses valid cost schedules
C. A contractor delivers products that appear to be counterfeit
D. A contractor’s cost estimates are inconsistent with its prices (1 mark)
51 How can a business set up effective communication for employees to report fraud?
A. Anonymous emails or phone lines
B. One on one meetings with management
C. One-on-one meetings with peers
D. Public tribunal (1 mark)
52 Which one of the following transactions can fraudulently overstate non- current assets?
A. Overstating expenses
B. Capitalising expenses
C. Overstating cost of the assets
D. Under valuation of assets (1 mark)
53 Which one of the following is NOT an e-commerce security goal?
A. Confidentiality
B. Availability
C. Repudiation
D. Non- repudiation (1 mark)
54 The most common account(s) manipulated when perpetrating financial statement fraud are .
A. expenses
B. inventory
C. revenues
D. accounts receivables (1 mark)
55 Which of the following is the MOST common type of improper asset valuation?
A. Current assets valuation
B. Non- current assets valuation
C. Inventory valuation
D. Receivables valuations (1 mark)
56 Recording fictitious receivables will usually result in .
A. increase in accounts receivable turnover
B. increase in the number of days in receivables
C. increased sales discount percentage
D. sales return percentage that remains constant (1 mark)
57 Fraud that involves theft of an entities assets is called .
A. fraudulent financial reporting
B. a “cookie jar” reserve
C. misappropriation of assets
D. income smoothing (1 mark)
58 The following are principles of bribery and corruption, EXCEPT .
A. risk assessment
B. due diligence
C. monitoring and review
D. integrity and accountability (1 mark)
59 The most common technique used management to misstate financial information is .
A. overstatement of expenses
B. improper revenue recognition
C. understatement of liabilities
D. understatement of assets (1 mark)
60 Fraud awareness training should be .
A. broad and all-encompassing
B. extensive and include details of all functional areas
C. focused on employees understanding the importance of ethics
D. specifically related to employee’s job specification (1 mark)
61 Which one of the following is a factor that relates to incentives or pressure to commit fraudulent financial reporting?
A. Significant accounting estimates involving subjective judgement
B. High turnover of accounting, internal audit and information technology staff
C. Managements practices of making overly aggressive forecasts
D. Excessive pressure for management to meet debt repayment requirements (1 mark)
62 Which of the following is NOT a factor that relates to opportunities to misappropriate assets?
A. Adverse relationship between management and employees
B. Presence of large amounts of cash on hand
C. Inadequate internal controls over assets
D. Inappropriate segregation of duties (1 mark)
63 Which of the following BEST describes a Ponzi scheme?
A. Old investors are paid with money from new investors.
B. Operations involve recruiting new members
C. Promotes itself as a pyramid
D. It can be legal or illegal (1 mark)
64 Which one of the following investments has a history of usual inconsistent returns influenced fluctuations in financial markets?
A. Ponzi investment
B. Pyramid investment
C. Both Ponzi and Pyramid investments
D. Traditional investments (1 mark)
65 Which one of the following is a red flag of a bid rigging scheme?
A. Competent industry players submit consistently low prices for the bids
B. Competent industry players submit bids each time higher than the other bidder
C. Bid prices go down when a new competitor enters the competition
D. Bid prices go up when a new competitor enters the competition (1 mark)
66 Which one of the following procurement fraud scheme is perpetrated procuring entity’s employees in collusion with the contractors?
A. Bid manipulation scheme?
B. Need recognition scheme
C. Defective pricing
D. Product Substitution scheme (1 mark)
67 Which one of the following BEST describes the expense scheme where a marketing officer uses the company’s credit card to pay for expenses and then submit the expenses receipts for reimbursement?
A. Double payment scheme
B. Misappropriation of company’s funds
C. Multiple reimbursement scheme
D. Fictitious expenses scheme (1 mark)
68 Which one of the following schemes BEST describes the fraud scheme, where a marketing director, entertain his friends and relatives and submit expenses receipt for reimbursement?
A. Manipulation expense scheme
B. Cash embezzlement scheme
C. Fictitious expenses scheme
D. Mischaracterised expense scheme (1 mark)
69 Which one of the following is a type of logical access control?
A. Encryption of data
B. Authentication
C. Security audits
D. Data classification (1 mark)
70 Which of the following is a methodology for responding to a cybersecurity incident?
A. Identification and analysis
B. Computer risk assessment
C. Cyber security planning
D. Breach notification (1 mark)
71 Which one of the following is NOT a situational pressure associated with financial statement fraud?
A. Unrealistic targets
B. Decreased revenue or market share
C. Financial crisis pressure
D. Performance compensation bonus (1 mark)
72 Which of the following types of fraud scheme describes fraud where payment of goods is done for goods that have not been supplied.
A. Fraudulent disbursement
B. Misappropriation of funds
C. Misapplication of funds
D. Fictitious disbursements (1 mark)
73 Which of the following statement is ACCURATE in regard to the effect on the current ratio?
A. Failure to write off obsolete inventory would inflate the current ratio
B. Omission of expenses would not inflate the current ratio
C. Omission of expenses would understate the current ratio
D. Failure to write off obsolete inventory would understate the current ratio (1 mark)
74 Which one of the following statements is NOT an objective of a computer security risk assessment process?
A. Detect computer security risks that make an organisation vulnerable to computer fraud
B. Quantify the impact if the risk materialised
C. Identify the risks that make an organisation vulnerable to computers and computer systems
D. Establish an economic balance between the impact if the risk materialised and the cost of the resources required (1 mark)
75 Which one of the following financial transactions can be used to overstate revenue?
A. Recording revenue that has been earned but not received
B. Recording revenue to be earned in the subsequent accounting period
C. Matching revenue with the respective expenses
D. Failure to record expenses incurred (1 mark)
76 Which one of the following statements is NOT accurate in regard to data classification control methods?
A. Involves categorisation of data for effectiveness and efficient use
B. Involves assigning economic value to data and establishing a structured approach for data management
C. Involves determining appropriate controls that are commensurate to the risks assessed
D. Involves establishing strong controls to mitigate the risks assessed (1 mark)
77 Which one of the following is a method used to embezzle money a small amount at a time from many different accounts?
A. Salami technique
B. Data diddling
C. Spoofing
D. Pretexting (1 mark)
78 Which one of the following is NOT a technique for detection of change order abuse?
A. Reviewing any change orders submitted that has added extra items
B. Examining change orders that increase the scope or cost of the signed contract
C. Interviewing complaining contractors and unsuccessful bidders about the presence of red flags
D. Examining change orders that decrease the scope or cost of the signed contract (1 mark)
79 Procurement fraud scheme where the cost of the contract exceeds the contract value is called .
A. material mischarges
B. accounting mischarges
C. substandard goods
D. defective pricing (1 mark)
80 Which one of the following is NOT a recommended step that businesses should take to protect their customers and employees from identity theft?
A. Conduct regular employee training on best practices regarding the handling of information
B. Retain personal information for as long as possible
C. Require employees to use complex passwords or passphrases
D. Retain personal information only for the period required (1 mark)
81 The cyber security incident response plan should be created and implemented during which step?
A. Preparation step
B. Planning step
C. Containment and eradication step
D. Recovery and follow-up step (1 mark)
82 Which one of the following is an example of identity theft that involves a criminal suspect identifying themselves as another person?
A. Criminal identity theft
B. Impersonation identity theft
C. Business identity theft
D. Fabricated identity theft (1 mark)
83 Which one of the following transactions would NOT conceal misappropriation of cash?
A. Reducing owners’ equity
B. Creating an expense
C. Decreasing a liability
D. Decreasing an asset (1 mark)
84 Which of the following is the MOST effective method of detecting payments of bribes to procuring entity’s employees?
A. Life style audits
B. Interviewing employees
C. Audit tests
D. Integrity tests (1 mark)
85 Which one of the following scenario is an example of a conflict of interest?
A. An employee has an undisclosed personal relationship with the director of a company that does business with his employer
B. An employee is related to a party that works for one of his company’s vendors and discloses to his employee
C. An independent director does business with the organisation, the organisation is aware that he owns the company and the cost of the services are highly inflated
D. An employee working for an IT company works as a tour guide over the weekends but he does not disclose to his employer (1 mark)
86 Which one of the following accounts is MOSTLY affected personal purchases billing schemes?
A. Travel and accommodation account
B. Payroll account
C. Repairs and maintenance
D. Printing and stationery (1 mark)
87 Which of the following organisation is likely to record substantial fictitious revenue?
A. A private company
B. A public limited company
C. A government ministry
D. A limited partnership (1 mark)
88 Which one of the following statements is ACCURATE in regard to quick ratio?
A. Quick ratio is calculated dividing realisable receivables, cash, bank and financial securities with current liabilities
B. Quick ratio is calculated dividing total receivables, cash, bank and financial securities with current liabilities
C. Quick ratio is calculated dividing total receivables, cash, bank and financial securities with total liabilities
D. Quick ratio is calculated dividing total receivables, inventory, cash, bank and financial securities current liabilities (1 mark)
89 Which one of the following situation is an obvious red flag of a new account fraud?
A. A new customer personal account and immediately requests two ATM cards
B. A customer opens a business account and soon after has payroll transactions on the account
C. A customer deposits a substantial amount of funds in a new personal account and withdrawals the money in equal instalments
D. An invalid address or phone number is listed as customer’s account information (1 mark)
90 Which one of the following is NOT a type of inadequate disclosure scheme related to financial reporting?
A. Undisclosed legal liability
B. Undisclosed related party’s transactions
C. Undisclosed omission of expenses
D. Undisclosed changes in reporting entities (1 mark)
91 Which one of the following statements is ACCURATE in regard to the first step of risk assessment related to computers and computer systems?
A. Identifying physical and digital assets that need to be protected
B. Determining the value of each asset
C. Recommending the counter-measures and other remedial activities
D. Identifying the risks and threats of each asset and calculating the probability of each risk materialising
(1 mark)
92 With regard to health care fraud which of the following statements BEST describes fictitious provider scheme?
A. A fraudster steals a health care provider’s identification information and bills a government health care program under the name of a fake clinic
B. A provider operates a mobile lab that bills a health care program for unnecessary tests
C. A doctor at a hospital inflates the cost of services coding them as being more complex than they should be
D. A group of people posing as medical professionals provide services without proper licenses (1 mark)
93 Which one of the following statements is NOT accurate in regard to log management analysis?
A. Provides information for auditing purposes
B. Provides evidence for investigation purposes
C. Provides support in investigations
D. Can help to detect operational trends and long-term trends (1 mark)
94 Tom is an employee of ABC Company. He formed a company called Rex Corp. Rex Corp does not conduct any business operations. Tom uses the company to pass business for his ABC Company. Which one of the following BEST describes the fraud scheme that Tom was perpetrating?
A. Conflict of interest
B. Purchases for personal use scheme
C. Shell company scheme
D. Billing scheme (1 mark)
95 Which one of the following is a method of overstating revenue?
A. Channel stuffing
B. Warranty costs and product
C. Capitalising expenses
D. Omitting liabilities/expenses (1 mark)
96 Camila received a voice mail saying that somebody is trying to use his account fraudulently through Internet banking. Which of the following BEST describes this social engineering scheme?
A. Phishing
B. Vishing
C. SmiShing
D. Pharming (1 mark)
97 James an employee of a person-to-person payment company, has been stealing account numbers and passwords of customer accounts with the intent of fraudulently using them to make online payments. Which of the following describes the fraudulent scheme?
A. Internet fraud
B. Credit card fraud
C. Debit card fraud
D. Accounts take over (1 mark)
98 Which of the following techniques BEST describes an attempt to exploit the system security for purposes of identifying the systems’ vulnerabilities
A. Detection intrusion system
B. Network security system
C. Application Security
D. Penetration test (1 mark)
99 Which one of the following is an illegal method of gathering information from competitors?
A. Placing a mole in a company
B. Espionage
C. Competitive Intelligence
D. Human Intelligence (1 mark)
100 The type of fraud that targets groups of people who have some social connection such as neighborhood, professional association of racial minorities or immigrant groups, is referred to as .
A. consumer fraud
B. ponzi scheme
C. charity schemes
D. affinity (1 mark)
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