Asset Misappropriation Schemes Flashcards

An employee submits expense reports for the same business meal twice, once using the restaurant receipt and once using a credit card statement. This is an example of which scheme?

Answer: Multiple reimbursement scheme

A multiple reimbursement scheme involves submitting the same legitimate expense more than once through different documents to obtain duplicate payments.

Which of the following best describes a 'lapping' scheme in accounts receivable?

Answer: Stealing a customer payment and covering it with a subsequent customer's payment

Lapping involves stealing one customer's payment and then using a later customer's payment to cover the first theft, creating a rolling shortage.

A warehouse employee removes inventory for personal use and disguises the shortage by creating fictitious 'damaged goods' write-offs. Which internal control would most directly detect this fraud?

Answer: Periodic physical inventory counts reconciled to perpetual records

Physical inventory counts compared to perpetual records reveal unexplained shrinkage that cannot be fully justified by legitimate write-offs.

Under the ACFE's classification of asset misappropriation, 'skimming' differs from 'cash larceny' primarily because:

Answer: Skimming occurs before the cash is recorded in the company's books

Skimming is an off-book scheme where cash is stolen before it enters the accounting records, making it harder to detect through record review.

An accounts payable clerk creates a vendor in the system using her own home address and submits invoices for services never rendered. This scheme is best classified as:

Answer: Shell company scheme

A shell company scheme involves establishing a fictitious vendor entity—often with no real business operations—to submit fraudulent invoices.

Which financial statement red flag is most commonly associated with a billing scheme involving fictitious vendors?

Answer: Unexplained increase in cost of goods sold or operating expenses

Fictitious vendor payments inflate operating expenses or COGS without a corresponding business benefit, causing unexplained expense increases.

A payroll supervisor adds fictitious employees to the payroll and deposits their paychecks into accounts she controls. What is the most effective preventive control against this scheme?

Answer: Independent verification of new employee data against HR records

Comparing payroll records to HR-authorized employee rosters ensures that every person receiving a paycheck is a legitimate, authorized employee.