CFA CFA Asset Misappropriation & Embezzlement 1 — Questions and Answers
Question 1: Which type of asset misappropriation scheme involves an employee intercepting a customer payment before it is recorded in the accounting system?
- Lapping
- Skimming (Correct answer)
- Fictitious disbursement
- Check tampering
Correct answer: Skimming
Skimming is an off-book fraud where cash or checks are stolen before they are ever entered into the accounting records.
Question 2: An employee diverts incoming payments to cover prior theft by applying later receipts to older accounts — this is known as:
- Kiting
- Lapping (Correct answer)
- Ghost employee fraud
- Billing scheme
Correct answer: Lapping
Lapping involves using subsequent customer payments to cover the theft of earlier payments, creating a perpetual cycle of misapplied receipts.
Question 3: Which internal control is MOST effective at detecting a ghost employee payroll scheme?
- Mandatory vacation policy
- Periodic payroll audit comparing HR records to payroll disbursements (Correct answer)
- Dual authorization for invoice payments
- Rotating bank reconciliation duties
Correct answer: Periodic payroll audit comparing HR records to payroll disbursements
Comparing HR personnel files to payroll disbursement records identifies fictitious employees because ghost employees lack legitimate HR documentation.
Question 4: What distinguishes embezzlement from theft in a fraud examination context?
- Embezzlement involves external perpetrators
- Embezzlement involves misappropriating assets lawfully entrusted to the perpetrator (Correct answer)
- Embezzlement only applies to cash assets
- Embezzlement requires physical removal of property
Correct answer: Embezzlement involves misappropriating assets lawfully entrusted to the perpetrator
Embezzlement is the fraudulent conversion of property that was lawfully entrusted to the perpetrator, distinguishing it from simple theft involving no prior lawful possession.
Question 5: A fraud examiner reviewing expense reimbursements notices that an employee submits the same hotel receipt twice in different expense reports. This is an example of:
- Fictitious expense scheme
- Mischaracterized expense scheme
- Multiple reimbursement scheme (Correct answer)
- Personal purchase scheme
Correct answer: Multiple reimbursement scheme
A multiple reimbursement scheme involves submitting the same legitimate expense more than once to receive duplicate reimbursements.
Question 6: Which scheme involves an employee creating fictitious vendors in the accounts payable system and submitting fraudulent invoices for payment?
- Shell company scheme (Correct answer)
- Bid rigging
- Payroll padding
- Register disbursement fraud
Correct answer: Shell company scheme
A shell company scheme uses a fictitious or controlled vendor entity to submit false invoices, diverting company payments to the fraudster.
CFA CFA Asset Misappropriation & Embezzlement 1
Which type of asset misappropriation scheme involves an employee intercepting a customer payment before it is recorded in the accounting system?