ACFE Asset Misappropriation Schemes 4 — Questions and Answers
Question 1: Which of the following BEST describes a 'pass-through' billing scheme?
- An employee creates a fictitious vendor that buys goods at cost and resells them to the employer at inflated prices (Correct answer)
- An employee steals inventory and sells it to a competitor
- An employee submits personal expenses as business expenses
- An employee intercepts vendor refund checks
Correct answer: An employee creates a fictitious vendor that buys goods at cost and resells them to the employer at inflated prices
A pass-through scheme uses a fraudster-controlled intermediary company that purchases goods legitimately and resells them to the victim organization at a markup, generating illicit profit.
Question 2: A company discovers that several payments just below the $10,000 manager approval threshold were made to a new vendor. This pattern is MOST indicative of:
- Lapping
- Structuring to avoid controls (Correct answer)
- Larceny of checks
- Inventory shrinkage
Correct answer: Structuring to avoid controls
Keeping transactions just below authorization thresholds—known as 'threshold abuse' or structuring—is a common concealment technique in billing and disbursement fraud.
Question 3: Which control BEST prevents a single employee from both initiating and approving vendor payments?
- Positive pay
- Dual authorization requirements (Correct answer)
- Bank reconciliation
- Physical access restrictions
Correct answer: Dual authorization requirements
Dual authorization requires a second independent approver for payments, preventing one person from controlling the entire disbursement process.
Question 4: An employee steals blank company checks, makes them payable to herself, and signs them using the controller's signature stamp. This is classified as:
- Forged endorsement scheme
- Forged maker scheme (Correct answer)
- Authorized maker scheme
- Altered payee scheme
Correct answer: Forged maker scheme
A forged maker scheme involves creating an unauthorized check by forging or misusing the signature of the authorized signer (the 'maker').
Question 5: According to the ACFE Report to the Nations, what is the MOST common detection method for asset misappropriation schemes?
- External audit
- Internal audit
- Tip (Correct answer)
- Management review
Correct answer: Tip
Tips—often from employees, customers, or vendors—are consistently the leading fraud detection method across all scheme categories in ACFE research.
Question 6: A buyer accepts personal gifts from a vendor in exchange for awarding contracts at above-market prices. How does this relate to asset misappropriation?
- It is a form of corruption, not asset misappropriation (Correct answer)
- It is a billing scheme under asset misappropriation
- It is a cash larceny scheme
- It is a non-cash misappropriation
Correct answer: It is a form of corruption, not asset misappropriation
Accepting kickbacks or gifts in exchange for favorable contract awards is classified as corruption (bribery/kickbacks) under the ACFE Fraud Tree, distinct from asset misappropriation.
Question 7: Which analytical procedure is MOST effective at detecting fictitious vendor invoices when no goods or services were received?
- Three-way matching of purchase orders, receiving reports, and invoices (Correct answer)
- Aging of accounts receivable
- Bank reconciliation
- Payroll register review
Correct answer: Three-way matching of purchase orders, receiving reports, and invoices
Three-way matching requires a purchase order, a receiving report confirming delivery, and an invoice to all agree before payment is authorized, exposing invoices with no corresponding receipt of goods.
ACFE Asset Misappropriation Schemes 4
Which of the following BEST describes a 'pass-through' billing scheme?