Over- and under-shipment schemes can be used to create a complex paper trail for the colluding parties to launder money. In an over-shipment scheme, money launderers understate the quantity of goods that are shipped. More goods are shipped than the company invoices for. For example, Company A invoices 100,000 widgets to Company B at a price of one dollar per widget. However, Company A ships 200,000 widgets to Company B. Company B then sells the widgets on the open market for $200,000 and deposits the extra $100,000 into an account controlled by Company A. In contrast, the quantity of goods that are shipped is overstated in an under-shipment scheme. The company invoices for more goods than it actually ships.

In an over-invoicing scheme, the exporter invoices goods or services to the importer at a price above their market value. This scheme transfers value to the exporter because the exporter collects the amount of the higher price that was invoiced, which is more than the goods or services can be sold for on the open market. For example, Company A sends a shipment of widgets worth $100,000 to Company B but invoices Company B for $200,000. Company A then deposits the extra $100,000 into an account controlled by Company B.

In a duplicate invoicing scheme, the exporter issues more than one invoice for the same trade transaction. By issuing duplicate invoices, a money launderer can justify multiple payments for the same goods or services.

Inflated shipment scheme is not the name of a trade-based money laundering scheme.
Correct Answer: (C)

Fraud risk assessment is a process aimed at proactively identifying and addressing an organization's vulnerabilities to internal and external fraud. A fraud risk assessment starts with an identification and prioritization of fraud risks that exist in the business. The process evolves as the results of that identification and prioritization begin to drive education, communication, organizational alignment, and action around effectively managing fraud risk and identifying new fraud risks as they emerge.
Correct Answer: (D)

According to generally accepted accounting principles (GAAP), revenue and corresponding expenses should be recorded or matched in the same accounting period. The timely recording of expenses is often compromised due to pressures to meet budget projections and goals or due to lack of proper accounting controls. As the expensing of certain costs is pushed into periods other than the ones in which they actually occur, they are not properly matched against the income that they help produce. For example, revenue might be recognized on the sale of certain items, but the cost of goods and services that went into the items sold might not be recorded intentionally in the accounting system until the following period. This might make the sales revenue from the transaction almost pure profit, inflating earnings. In the next period, earnings would have fallen by a similar amount.
Correct Answer: (B)

Steven failed to act as a reasonably prudent director would under similar circumstances; therefore, Georgia would likely file suit against Steven for violating his duty of care. People in a position of trust or fiduciary relationship—such as officers, directors, high-level employees of a corporation or business, and agents and brokers—owe certain duties to their principals or employers, and any action that runs afoul of such fiduciary duties constitutes a breach. The principal fiduciary duties are loyalty and care. The duty of loyalty requires that the employee/agent act solely in the best interest of the employer/principal, free of any self-dealing, conflicts of interest, or other abuse of the principal for personal advantage. The duty of care means that people in a fiduciary relationship must act with such care as an ordinarily prudent person would employ in similar positions.
Correct Answer: (B)

A bustout is a planned and fraudulent bankruptcy. It can take many different forms, but the basic approach is for an apparently legitimate business to order large quantities of inventory or other goods on credit, and then dispose of those goods through legitimate or illegitimate channels. Because the point of the bustout scheme is to quickly resell the goods for cash, the fraudster is likely to purchase more liquid items like inventory than real estate, insurance policies, or services. The perpetrator then closes shop, absconding with the proceeds and leaving the suppliers unpaid. The debtor might then go into bankruptcy. Often, by this point the debtor has already made false accounting entries or taken other steps to conceal the assets or make the sales look legitimate. Other times, debtors simply flee the jurisdiction or do not show up at the proceedings.
Correct Answer: (D)

To establish criminal liability for tax evasion, most jurisdictions require a willful attempt to evade or defeat taxes in an unlawful manner. In the context of tax evasion, a good faith or legitimate misunderstanding of the applicable law typically negates willfulness (the voluntary, intentional violation of a known legal duty). That is, honest mistakes, in contrast to willful evasion, do not constitute tax evasion. However, a court might find that a defendant’s claimed misunderstanding of the law is implausible given the evidence presented.
Correct Answer: (B)

In some retail organizations, there is one cash register, and each employee has a different access code. By using someone else’s access code to enter the register and then steal cash under their name, the perpetrator makes sure that another employee will be the prime suspect in the theft. Katie’s theft was not a skimming scheme because the cash she stole was already in the company’s possession and recorded in the register. An understated sales scheme is a type of skimming scheme in which a fraudster records a sale for less than it actually is and skims the difference.

Katie did not commit a register disbursement scheme because register disbursement schemes involve a fraudulent transaction that justifies the removal of cash from the register, such as a false return or a voided sale. Katie did not make any entry that would account for the missing money—she simply took money out of the register under Helen’s name so that she could avoid blame. Therefore, Katie committed a cash larceny scheme.
Correct Answer: (C)

Medical facilities that offer special care services, such as nursing homes and psychiatric hospitals, and the patients in them are at a greater risk of fraud than most other medical institutions. Many health care fraud schemes are revealed after a patient reports strange charges or other red flags. Unfortunately, criminals take advantage of the fact that patients in special care facilities are more vulnerable to fraud. There are several features unique to special care facilities that make them particularly vulnerable to fraud:

• Unscrupulous providers can operate their schemes in volume because the patients are all in the same facility.
• Many patients in special care facilities do not have the legal capacity or ability to be responsible for their own financial affairs and, consequently, are not as likely to report fraud involving their care.
• In some instances, special care facilities make patient records available to outside providers who are not responsible for the direct care of the patient (sometimes in violation of regulations).
• In automated claims environments, scrutiny of the claims at the processor level is inadequate because the automated systems used do not accumulate data that would promptly flag indications of improbably high charges or levels of service.
• Even when abusive practices are detected and prosecuted, repayment is rarely received from wrongdoers because they usually go out of business or deplete their resources so that they lack any resources to repay the funds.
• Patient personal funds are often controlled by the facility’s administration and are an inviting target for embezzlement. Individually, patients generally maintain a relatively small balance in their personal funds accounts. Collectively, however, these funds generate a considerable source of income for an unscrupulous special care facility operator or employee.

Correct Answer: (A)

The question of when it is appropriate to stray from generally accepted accounting principles (GAAP) is a matter of professional judgment; there is not a clear-cut set of circumstances that justifies such a departure. However, the fact that complying with GAAP would be more expensive or would make the financial statements look weaker is not a reason to use a non-GAAP method of accounting for a transaction.
Correct Answer: (B)

Green's scheme is an unrecorded sales (skimming) scheme. An unrecorded sales scheme occurs when an employee sells goods or services to a customer and collects the customer’s payment but makes no record of the sale.

Independent salespersons are in a good position to perform sales skimming schemes. A prime example is a person who sells goods door to door but does not turn in the orders to their employer. In this case, Green did not remit any of his sales to the appliance company, so the skimming scheme that took place was an unrecorded sales scheme.

In a typical understated sales (skimming) scheme, an employee enters or submits a sales total that is lower than the amount paid by the customer and skims the difference between the actual purchase price of the item and the sales figure recorded.
Correct Answer: (D)

Upcoding occurs when a provider bills for a higher level of service than actually rendered. In a typical upcoding scheme, a durable medical equipment (DME) company provides patients with an inexpensive product (e.g., a manual wheelchair) but bills the government for a more expensive product (e.g., an electric wheelchair).

Another common upcoding scheme is to falsely claim that an established patient is a new patient. A new patient generally requires an extensive examination and consumes more of the provider’s time. Therefore, under some medical coding systems, providers are reimbursed more for new patients than established patients.
Correct Answer: (C)

Fraudsters commonly obtain personal and business information from improperly discarded computers, media drives, copiers, printers, mobile phones, and other devices. Like computers, some copiers and printers have internal hard drives that store sensitive data. Because it is possible to recover deleted data, fraudsters might search for sensitive information on second-hand devices that they purchase online or obtain from another source. Data can be permanently erased from such devices with specialized software.
Correct Answer: (B)

Taxes on periodic income or wealth (e.g., real property taxes) are a source of revenue for many governments, but fraudsters often commit tax evasion by falsifying or omitting material information. Common forms of criminal income and wealth tax evasion include:

• Failing to submit a report of one's taxable income, if such a report is required
• Intentionally misrepresenting one's income or wealth
• Pretending to transfer assets to another person or entity to lower tax liability
• Intentionally failing to withhold the taxable portion of an employe'’s income, if so required
• Failing to report foreign bank accounts or other taxable assets, if required
• Falsely claiming income was earned in another jurisdiction to lower tax liability

Correct Answer: (D)

Nearly every country prohibits covert employee monitoring unless a specific criminal activity has been identified. Therefore, nearly every employer is required to notify its employees before implementing an employee monitoring program. The notice should be clear and comprehensive, and it should be made in writing.
Correct Answer: (A)

Both the UK Bribery Act and the U.S. Foreign Corrupt Practices Act (FCPA) make it a crime to offer foreign public officials bribes or to accept bribes from them in connection with international business transactions, and their prohibitions on bribing foreign government officials are broadly comparable. Thus, like the FCPA, the UK Bribery Act seeks to punish corruption on a global level, but the UK Bribery Act has an even broader application than the FCPA. One way in which the UK Bribery Act has a broader application than the FCPA is that it makes commercial bribery—bribes paid to people working in the private sector—a crime, whereas the FCPA only prohibits bribes involving foreign government officials.
Correct Answer: (A)

When responding to the organization’s residual fraud risks, management may transfer some or all of the risk by purchasing fidelity insurance or a bond. The cost to the organization is the premium paid for the insurance or bond. The covered risk of loss is then transferred to the insurance company.
Correct Answer: (C)

When responding to the organization’s residual fraud risks, management can help mitigate a risk by implementing appropriate countermeasures, such as prevention and detection controls. The fraud risk assessment team should evaluate each countermeasure to determine if it is cost effective and reasonable given the probability of occurrence and impact of loss.
Correct Answer: (C)

The fraud risk assessment process should be visible and communicated throughout the business. Employees will be more inclined to participate in the process if they understand why it is being done and what the expected outcomes will be. To that end, sponsors should be strongly encouraged to openly promote the process. The more personalized the communication from the sponsor, the more effective it will be in encouraging employees to participate in the process. Whether it is a video, town-hall meeting, or company-wide email, the communication should be aimed at eliminating any reluctance employees have about participating in the fraud risk assessment process.
Correct Answer: (B)