Certified Fraud Examiner (CFE) Financial Transactions and Fraud Schemes Syllabus

Financial Transactions and Fraud Schemes syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for Financial Transactions and Fraud Schemes in Certified Fraud Examiner (CFE), not a summary of it.

1. 1

   Asset Misappropriation: Cash Schemes

   4 topics

   • Skimming Schemes
     • Unrecorded and understated sales
     • Receivables skimming and lapping
     • Concealing skimming through write-offs
   • Cash Larceny
     • Theft from the register and the deposit
     • Deposit lapping and deposit-in-transit manipulation
   • Fraudulent Disbursements
     • Billing schemes and shell companies
     • Check tampering and forged endorsements
     • Payroll and ghost-employee schemes
     • Expense reimbursement schemes
     • Register disbursement schemes
   • Detection and Red Flags for Cash Schemes
     • Analytical review of cash and revenue accounts
     • Surprise cash counts and reconciliations
2. 2

   Asset Misappropriation: Inventory and Non-Cash Schemes

   3 topics

   • Misuse and Theft of Non-Cash Assets
     • Larceny of inventory and supplies
     • Asset requisition and transfer schemes
     • Theft of intellectual property and information
   • Concealment of Inventory Shrinkage
     • Altered perpetual records and physical-count fraud
     • Fraudulent shipping and write-off concealment
   • Detecting Non-Cash Asset Schemes
     • Inventory analytics and shrinkage ratios
     • Physical controls and segregation of duties
3. 3

   Corruption Schemes

   4 topics

   • Bribery and Kickbacks
     • Commercial bribery and bid-rigging
     • Kickback arrangements with vendors
   • Illegal Gratuities and Economic Extortion
   • Conflicts of Interest
     • Purchasing and sales schemes with hidden interests
     • Undisclosed business relationships
   • Detecting Corruption
     • Vendor and procurement data analysis
     • Relationship mapping and beneficial ownership
4. 4

   Financial Statement Fraud

   4 topics

   • Revenue Recognition Schemes
     • Premature and fictitious revenue
     • Channel stuffing and bill-and-hold arrangements
   • Asset and Liability Misstatement
     • Improper asset valuation and capitalization
     • Concealed liabilities and expenses
   • Improper Disclosures and Timing Differences
   • Detecting Financial Statement Fraud
     • Red flags in disclosures and estimates
     • Analytical procedures and earnings quality
5. 5

   Other Fraud and Financial Crime Schemes

   4 topics

   • Bankruptcy and Tax Fraud
     • Concealed assets and planned bankruptcy
     • Tax evasion versus avoidance
   • Money Laundering
     • Placement, layering, and integration
     • Anti-money laundering red flags
   • Securities and Consumer Fraud
     • Ponzi and pump-and-dump schemes
     • Insider trading basics
   • Contract, Procurement, and Insurance Fraud

Financial Transactions and Fraud Schemes flashcards for Certified Fraud Examiner (CFE)

22 of 51 cards from the Financial Transactions and Fraud Schemes deck — real questions with worked answers.

1. What is skimming in occupational fraud, and why is it called an "off-book" scheme?

   Skimming is the theft of cash before it is recorded in the victim organization's books. It is "off-book" because the money is taken at the point of receipt, leaving no direct audit trail in the accounting records.

2. Distinguish skimming from cash larceny.

   Skimming steals cash before it is recorded (off-book, no record exists). Cash larceny steals cash after it has already been recorded in the books (on-book, a record of the funds exists), making larceny easier to detect.

3. In sales skimming, what is "lapping" and how is it used to conceal receivables skimming?

   Lapping is crediting one customer's payment with a later customer's payment to hide the theft of the first payment. The fraudster continually shifts incoming payments to cover prior shortages, delaying detection.

4. What are common methods used to conceal skimming of accounts receivable?

   Lapping payments, force-balancing the cash account, stolen-statement schemes (hiding overdue notices), writing off the receivable as uncollectible, and falsifying account totals or destroying records.

5. Name three red flags specific to skimming schemes.

   Declining or unusually low cash-to-credit ratios, shrinking gross margins or inventory shortages without explanation, and customer complaints about payments not being credited to their accounts.

6. What are the two basic categories of cash larceny schemes by point of theft?

   Larceny at the point of sale (register) and larceny from the deposit (stealing cash en route to or from the bank, e.g., deposit lapping).

7. What is "deposit lapping" in a cash larceny scheme?

   Stealing from one day's deposit and replacing it with the next day's receipts, continually carrying the shortage forward so the deposit appears complete on a delayed basis.

8. What are the three major categories of fraudulent disbursement schemes most commonly tested?

   Billing schemes, payroll schemes, and expense reimbursement schemes (plus check tampering and register disbursement schemes).

9. What is a shell company billing scheme?

   A fraudster creates a fictitious vendor (shell company) and submits false invoices to the employer, causing payments for goods or services that were never provided.

10. What is a "pass-through" billing scheme and how does it differ from a shell company scheme?

    In a pass-through, the fraudster's shell company actually buys real goods/services and resells them to the employer at an inflated price, pocketing the markup. Unlike a pure shell scheme, real goods are delivered.

11. List the five principal types of check tampering schemes.

    Forged maker schemes, forged endorsement schemes, altered payee schemes, authorized maker schemes, and concealed check schemes.

12. In payroll fraud, what is a "ghost employee"?

    A ghost employee is someone on the payroll who does not actually work for the company (fictitious or a former/terminated employee), with the fraudster collecting the paychecks.

13. What four steps are generally required for a ghost employee scheme to succeed?

    (1) Add the ghost to the payroll, (2) collect timekeeping/wage data for the ghost, (3) issue the paycheck, and (4) deliver the check to the fraudster.

14. What are the main types of expense reimbursement fraud?

    Mischaracterized expenses (personal claimed as business), overstated expenses (inflated amounts), fictitious expenses (invented), and multiple reimbursements (submitting the same expense more than once).

15. What is a register disbursement scheme, and name its two main types?

    A scheme where the fraudster removes cash from the register through false transactions recorded as disbursements. The two types are false refunds and false voids.

16. What is a key detection control for cash receipts schemes involving segregation of duties?

    Separate the duties of receiving/recording cash, depositing cash, and reconciling bank statements so no single person controls a transaction from start to finish.

17. What ratio analysis red flag suggests skimming of sales?

    A declining ratio of cost of goods sold to sales is normal, but rising cost of goods sold relative to declining recorded sales (or shrinking gross profit margin with stable inventory usage) signals unrecorded sales/skimming.

18. Define misuse vs. theft (larceny) of non-cash assets.

    Misuse is the unauthorized "borrowing" or use of company assets (e.g., equipment, vehicles) that are returned. Theft is the permanent taking/larceny of the non-cash asset (e.g., inventory, supplies, scrap).

19. What is inventory shrinkage and how is it calculated?

    Shrinkage is the unaccounted-for loss of inventory. Shrinkage = Beginning inventory + Purchases − Ending inventory (per books) − Cost of goods sold actually accounted for; it is the difference between recorded inventory and physical count.

20. Why do fraudsters try to conceal inventory shrinkage, and what are common concealment methods?

    Shrinkage is the prime red flag of non-cash theft. Concealment methods include altering perpetual inventory records, creating fictitious sales/receivables, writing off inventory as obsolete/scrap, and physical padding of inventory counts.

21. What is the "shrinkage" relationship a fraud examiner uses to detect non-cash asset theft?

    Physical inventory should equal perpetual (book) inventory. A large unexplained gap (physical < book) indicates theft; comparing shrinkage trends and percentages across periods/locations highlights schemes.

22. Name detection methods for non-cash asset misappropriation.

    Statistical sampling, trend analysis of shrinkage, physical inventory counts vs. perpetual records, computer/analytics review of shipping and inventory data, and tips/complaints.

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