Certified Fraud Examiner CFE- Fraud-Schemes-and-Financial-Crimes Exam Questions and Answers PDF

Detailed Explanation:

Rationale for Correct Answer: An underring occurs when an employee intentionally enters a lower sales amount into the register than what was collected from the customer. The difference is pocketed by the employee. This is a common register manipulation skimming scheme.

Analysis of Incorrect Options:

B. Recording a sale procedure – General process, not fraud.

C. Internal sales audits – Control activity, not the fraud scheme.

D. All of the above – Incorrect, since only “underring” is accurate.

Key Concept: Underring schemes in cash register fraud.

Detailed Explanation:

Rationale for Correct Answer: Cash larceny involves the theft of incoming cash after it has been recorded. Strong segregation of duties is critical to prevent concealment. By separating cash deposit responsibilities from bank reconciliation duties , one employee cannot both steal funds and cover their tracks.

Analysis of Incorrect Options:

A. Restricting substitution – Weakens controls; job rotation and cross-training help prevent fraud.

C. Same register use – Reduces accountability, making theft harder to trace.

D. Surprise cash counts – Strong detective control, but not as preventive as segregation of duties.

Key Concept: Preventing cash larceny through segregation of duties .

Detailed Explanation:

Rationale for Correct Answer: The full disclosure principle requires that all material facts and deviations from GAAP be disclosed to readers of financial statements so that they are not misled. Transparency is essential for informed decision-making by investors, creditors, and regulators.

Analysis of Incorrect Options:

B. SAS – Refers to auditing standards, not accounting standards.

C. Writer – Incorrect; disclosures are intended for readers/users.

D. None of above – Incorrect since option A is correct.

Key Concept: Full disclosure principle — providing users with all material information.

The correct answer is D. Assigning the duties of an employee who is on vacation to other employees supports mandatory vacation and job rotation controls. These controls help prevent and detect cash larceny by interrupting the fraudster’s control over cash handling and concealment procedures. If a dishonest employee must be absent and another employee performs the same duties, irregularities such as missing cash, altered records, delayed deposits, or unsupported adjustments are more likely to surface. Option A relates more to surprise cash counts, which are useful, but the stronger preventive control in this list is rotation through vacation coverage. Option B weakens accountability because employees should use separate registers or identifiers. Option C violates segregation of duties by combining custody and disbursement authority.

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