Question 1
Karl finds a residential property with a non-resident owner. He then forges contractual
property documents showing that the owner is transferring ownership of the property
completely to Karl, such as would normally happen during a property sale. The property
owner is unaware that Karl has created and filed the documents. Later, Karl takes the
falsified documents to a lender and borrows money against the property. Which of the
following best describes Karl's scheme?
a. Air loan
b. Fraudulent sale
c. Property flipping
d. Unauthorized draw on home equity line of credit
CORRECT ANSWER
Fraudulent sale scams are particularly harmful because they involve the fraudulent
acquisition of real estate by filing a fraudulent deed or respective real estate document that
makes it appear that the property legally belongs to the criminal. This scam does not happen
at the origination of the loan, but rather it might occur without the homeowner's knowledge
decades after the property was originally sold. The perpetrator identifies a property—
typically belonging to an estate or non-resident owner—that is owned free and clear. They
then create fictitious property transfer documents that purport to grant all rights and title on
the property to the fraudster. The true owner's signature is forged on the documents, and
the scammer files them in the jurisdiction's real property records. Once the ownership
documents are filed, they apply for and execute a loan on the property (using a straw
borrower). Often, the value is inflated. The perpetrator absconds with 100% of the loan
proceeds.Correct Answer: (B)
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,Question 2
Grey, a controller for a small company, took a large sum of money from the company
deposits and concealed the theft by making false accounting entries. The money that Grey
stole had already been recorded in his company's accounting system. Grey's scheme can
best be classified as a(n):
a. Cash larceny scheme
b. Illegal gratuities scheme
c. Fraudulent financial statement scheme
d. Skimming scheme
CORRECT ANSWER
Skimming is defined as the theft of off-book funds. Cash larceny schemes, however, involve
the theft of money that has already appeared on a victim company's books. Neither of the
other choices is correct because neither of those schemes is a type of asset
misappropriation scheme. Grey's scheme involves the misappropriation of company assets
(cash).Correct Answer: (A)
Question 3
In credit repair scams, the fraudster promises to "erase" or "doctor" an applicant's credit
history, but in reality there is no way to erase bad credit.
a. True
b. False
CORRECT ANSWER
Similar to loan scams are those that promise to repair credit. Fraudsters who pitch credit
repair services like to say that they can "wipe away," "doctor," or "cosmeticize" negative
items on credit, insinuating they have ways of changing or disguising a person's credit
history. Despite the fact that there is really no way to erase bad credit, many people fall
for this scam, paying large sums of money to expunge their records.
Correct Answer: (A)
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,Question 4
ABC Bank recently acquired a new portfolio of consumer loans. Because this particular
loan portfolio is experiencing a higher than normal default rate, management has asked
Bradley, a Certified Fraud Examiner (CFE), to evaluate the portfolio. Bradley notices that
the loan package was sold without recourse to the broker, the brokerage fee was high
relative to other purchases, and the broker is no longer in business. Which of the following
types of schemes has Bradley most likely uncovered?
a. Daisy chain fraud
b. Letter of credit fraud
c. Brokered loan fraud
d. Money transfer fraud
CORRECT ANSWER
Loan brokering applies to either packages of individual residential (consumer) loans or
single commercial loans. A variation of a brokered loan is loan participation, where
multiple parties purchase and have interests in a loan or a package of loans. The fraud
schemes associated with brokered loans or loan participation generally involve selling
phony loans (packages) or selling participations in loans that have not been properly
underwritten. Normally, a large fee is charged for these brokered loans. With residential
loan packages, the broker sells the package, takes the money, and disappears. Brokered
loans are not usually sold with any recourse to the broker. Therefore, the purchaser must
look to the borrower and the underlying collateral for debt satisfaction. With loan
participations, the lead bank generally performs the underwriting. However, this does
not relieve the participating bank from its obligation to perform its own due diligence.
Correct Answer: (C)
Question 5
The method of concealing a receivables skimming scheme whereby one customer account
is credited for a payment that was made on another account is called which of the
following?
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, a. Altered payee designation
b. Inventory padding
c. Currency substitution
d. Lapping
CORRECT ANSWER
Lapping customer payments is one of the most common methods of concealing
skimming. It is a technique that is particularly useful to employees who skim receivables.
Lapping is the crediting of one account through the abstraction of money from another
account.For example, suppose a company has three customers: A, B, and C. When A's
payment is received, the fraudster steals it instead of posting it to A's account. Customer
A expects that their account will be credited with the payment they have made, but this
payment has actually been stolen. When A's next statement arrives, A will see that the
payment was not applied to their account and will complain. To avoid this, some action
must be taken to make it appear that the payment was posted. When B's payment
arrives, the fraudster takes this money and posts it to A's account. Payments now appear
to be up to date on A's account, but B's account is short. When C's payment is received,
the perpetrator applies it to B's account.
Correct Answer: (D)
Question 6
When an employee signs a legally enforceable noncompetition agreement, the provisions
of the noncompetition agreement continue after the employee leaves the company where
they signed the agreement.
a. True
b. False
CORRECT ANSWER
A noncompetition agreement is an agreement whereby employees agree not to work for
competing companies within a certain period of time after leaving their current
employer. If an organization uses a noncompetition agreement, management should
remind its employees about the agreement's provisions during an exit interview
4
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Karl finds a residential property with a non-resident owner. He then forges contractual
property documents showing that the owner is transferring ownership of the property
completely to Karl, such as would normally happen during a property sale. The property
owner is unaware that Karl has created and filed the documents. Later, Karl takes the
falsified documents to a lender and borrows money against the property. Which of the
following best describes Karl's scheme?
a. Air loan
b. Fraudulent sale
c. Property flipping
d. Unauthorized draw on home equity line of credit
CORRECT ANSWER
Fraudulent sale scams are particularly harmful because they involve the fraudulent
acquisition of real estate by filing a fraudulent deed or respective real estate document that
makes it appear that the property legally belongs to the criminal. This scam does not happen
at the origination of the loan, but rather it might occur without the homeowner's knowledge
decades after the property was originally sold. The perpetrator identifies a property—
typically belonging to an estate or non-resident owner—that is owned free and clear. They
then create fictitious property transfer documents that purport to grant all rights and title on
the property to the fraudster. The true owner's signature is forged on the documents, and
the scammer files them in the jurisdiction's real property records. Once the ownership
documents are filed, they apply for and execute a loan on the property (using a straw
borrower). Often, the value is inflated. The perpetrator absconds with 100% of the loan
proceeds.Correct Answer: (B)
1
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,Question 2
Grey, a controller for a small company, took a large sum of money from the company
deposits and concealed the theft by making false accounting entries. The money that Grey
stole had already been recorded in his company's accounting system. Grey's scheme can
best be classified as a(n):
a. Cash larceny scheme
b. Illegal gratuities scheme
c. Fraudulent financial statement scheme
d. Skimming scheme
CORRECT ANSWER
Skimming is defined as the theft of off-book funds. Cash larceny schemes, however, involve
the theft of money that has already appeared on a victim company's books. Neither of the
other choices is correct because neither of those schemes is a type of asset
misappropriation scheme. Grey's scheme involves the misappropriation of company assets
(cash).Correct Answer: (A)
Question 3
In credit repair scams, the fraudster promises to "erase" or "doctor" an applicant's credit
history, but in reality there is no way to erase bad credit.
a. True
b. False
CORRECT ANSWER
Similar to loan scams are those that promise to repair credit. Fraudsters who pitch credit
repair services like to say that they can "wipe away," "doctor," or "cosmeticize" negative
items on credit, insinuating they have ways of changing or disguising a person's credit
history. Despite the fact that there is really no way to erase bad credit, many people fall
for this scam, paying large sums of money to expunge their records.
Correct Answer: (A)
2
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,Question 4
ABC Bank recently acquired a new portfolio of consumer loans. Because this particular
loan portfolio is experiencing a higher than normal default rate, management has asked
Bradley, a Certified Fraud Examiner (CFE), to evaluate the portfolio. Bradley notices that
the loan package was sold without recourse to the broker, the brokerage fee was high
relative to other purchases, and the broker is no longer in business. Which of the following
types of schemes has Bradley most likely uncovered?
a. Daisy chain fraud
b. Letter of credit fraud
c. Brokered loan fraud
d. Money transfer fraud
CORRECT ANSWER
Loan brokering applies to either packages of individual residential (consumer) loans or
single commercial loans. A variation of a brokered loan is loan participation, where
multiple parties purchase and have interests in a loan or a package of loans. The fraud
schemes associated with brokered loans or loan participation generally involve selling
phony loans (packages) or selling participations in loans that have not been properly
underwritten. Normally, a large fee is charged for these brokered loans. With residential
loan packages, the broker sells the package, takes the money, and disappears. Brokered
loans are not usually sold with any recourse to the broker. Therefore, the purchaser must
look to the borrower and the underlying collateral for debt satisfaction. With loan
participations, the lead bank generally performs the underwriting. However, this does
not relieve the participating bank from its obligation to perform its own due diligence.
Correct Answer: (C)
Question 5
The method of concealing a receivables skimming scheme whereby one customer account
is credited for a payment that was made on another account is called which of the
following?
3
@https://www.stuvia.com/user/thestudyvault
, a. Altered payee designation
b. Inventory padding
c. Currency substitution
d. Lapping
CORRECT ANSWER
Lapping customer payments is one of the most common methods of concealing
skimming. It is a technique that is particularly useful to employees who skim receivables.
Lapping is the crediting of one account through the abstraction of money from another
account.For example, suppose a company has three customers: A, B, and C. When A's
payment is received, the fraudster steals it instead of posting it to A's account. Customer
A expects that their account will be credited with the payment they have made, but this
payment has actually been stolen. When A's next statement arrives, A will see that the
payment was not applied to their account and will complain. To avoid this, some action
must be taken to make it appear that the payment was posted. When B's payment
arrives, the fraudster takes this money and posts it to A's account. Payments now appear
to be up to date on A's account, but B's account is short. When C's payment is received,
the perpetrator applies it to B's account.
Correct Answer: (D)
Question 6
When an employee signs a legally enforceable noncompetition agreement, the provisions
of the noncompetition agreement continue after the employee leaves the company where
they signed the agreement.
a. True
b. False
CORRECT ANSWER
A noncompetition agreement is an agreement whereby employees agree not to work for
competing companies within a certain period of time after leaving their current
employer. If an organization uses a noncompetition agreement, management should
remind its employees about the agreement's provisions during an exit interview
4
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