Explanation:
Correct Answer: B) Understated Sales
The scenario illustrates an understated sales scheme. The employee alters receipts to show lower purchase prices than the actual amounts collected, skimming the difference between the true revenue and the amount reflected on the fraudulent receipt.
Incorrect Answers:
A) Overstated Sales – Overstated sales involve posting transactions to the books for higher amounts than collected, which is not the case in this scenario.
C) False Discounts – False discounts involve recording transactions as if customers were given a discount, while this scenario focuses on altering receipts to reflect lower purchase prices.
D) Theft of Checks – Theft of checks is not the type of scheme illustrated in this scenario, where the primary manipulation is with altered receipts.

Explanation:
Correct Answer: C) Illicit Gains
The key characteristic of a false discount skimming scheme is the employee skimming the amount of the discount, resulting in illicit gains. The employee records a false discount, accepts full payment, and pockets the difference.
Incorrect Answers:
A) Full Payment Recording – Full payment recording is a step in the scheme, but the focus is on the illicit gains obtained by skimming the discount amount.
B) Employee Authority – Employee authority is mentioned in the context of granting discounts, but the specific characteristic is the illicit gains from skimming.
D) Theft of Checks – Theft of checks is not the type of scheme illustrated in this scenario, which involves false recording of discounts.

Explanation:
Correct Answer: B) Understated Sales
The scenario describes an understated sales scheme, where the employee intentionally records a sales total lower than the amount paid by the customer, allowing them to skim the excess amount.
Incorrect Answers:
A) Overstated Sales – Overstated sales involve recording transactions for higher amounts than collected, which is not the case in this scenario.
C) False Discounts – False discounts involve recording transactions as if customers were given a discount, while this scenario focuses on intentionally entering lower sales totals.
D) Theft of Checks – Theft of checks is not the type of scheme illustrated in this scenario, which involves manipulating sales totals.

Explanation:
Correct Answer: D) Theft of Incoming Checks
The scenario exemplifies the theft of incoming checks scheme. The employee responsible for handling incoming checks steals them instead of recording the payments on customer accounts.
Incorrect Answers:
A) Overstated Sales – Overstated sales involve recording transactions for higher amounts than collected, not the theft of incoming checks.
B) Understated Sales – Understated sales involve intentionally entering lower sales totals, which is not the type of scheme illustrated in this scenario.
C) False Discounts – False discounts involve recording transactions as if customers were given a discount, not the theft of incoming checks.

Explanation:
Correct Answer: C) Notices of Nonpayment
The employee might face the challenge of concealing the check theft scheme as the victim company sends notices of nonpayment to its customers when receivables become past due. This could expose the stolen checks, especially if they were expected payments on receivables.
Incorrect Answers:
A) Expectation of Payments – The expectation of payments is mentioned in the scenario but is not the primary challenge faced by the employee in concealing the scheme.
B) Fictitious Persons and Companies – The use of fictitious persons and companies is a method mentioned in the scenario for laundering stolen checks, but it is not a challenge faced by the employee in concealing the scheme.
D) Complex Check Theft – While the theft of checks is mentioned, the challenge highlighted in the correct answer is the exposure due to notices of nonpayment.

Explanation:
Correct Answer: B) Immediate Spending
The primary advantage for the thief in substituting stolen checks for receipted currency is immediate spending. Unlike stolen currency, which must be endorsed and cashed or deposited, a stolen check can be added to the day’s receipts, and an equal amount of currency can be removed immediately.
Incorrect Answers:
A) Easier Concealment – While check substitution might facilitate the thief in converting stolen payments, the primary advantage is the immediate spending of the check.
C) Untraceable Currency – The text mentions that currency is harder to trace than a check, but the advantage of immediate spending is the focus here.
D) Receipt Matching – Receipt matching is a consequence of the substitution, ensuring that the total receipts match the amount of cash on hand.

Explanation:
Correct Answer: C) Check for Currency Substitution
The employee is using the method of check for currency substitution. After substituting unrecorded checks for currency, the employee conceals the theft by manipulating account totals, stealing account statements, and making fraudulent accounting entries.
Incorrect Answers:
A) Forced Account Totals – Forced account totals are mentioned as one of the concealment techniques, but the specific method used in this scenario is check for currency substitution.
B) Lapping – Lapping is mentioned as one of the concealment techniques, but the specific method used in this scenario is check for currency substitution.
D) Skimming Receivables – Skimming receivables is a broader concept and not the specific concealment method employed in this scenario.

Explanation:
Correct Answer: D) No Goods or Services Expectation
The unexpected source of funds, such as a manufacturer’s refund, provides an advantage in that the party issuing the check expects no goods or services in return. This simplifies the substitution process as there is no expectation for a reciprocal transaction.
Incorrect Answers:
A) Increased Fraud Complexity – The unexpected source of funds simplifies the process, reducing fraud complexity rather than increasing it.
B) Additional Concealment Steps – The unexpected source of funds streamlines the process, potentially reducing the need for additional concealment steps.
C) Ease of Detection – The unexpected source of funds does not inherently make the scheme easier to detect; it is more related to the simplicity of the substitution process.

Explanation:
Correct Answer: A) Increased Customer Complaints
If the stolen checks were payments on the victim company’s receivables, customers are likely to complain about the misapplication of their payments, increasing the risk of detection. Customers expect payments on their accounts to be accurately recorded, making any discrepancies more noticeable.
Incorrect Answers:
B) Easier Concealment – The theft of checks on receivables tends to complicate concealment due to increased customer complaints.
C) Reduced Fraud Risk – Customer complaints and the expectation of accurate recording make the fraud risk higher rather than reduced.
D) Enhanced Accountability – Increased customer complaints may lead to decreased accountability due to potential exposure of the theft.

Explanation:
Correct Answer: B) Enhanced Detection Difficulty
The cashed check serving as evidence makes it more difficult for a check theft scheme involving this customer to go undetected. The customer is likely to cooperate in revealing the evidence of the payment, enhancing the difficulty of concealing the theft.
Incorrect Answers:
A) Increased Customer Cooperation – Increased customer cooperation, in this context, would contribute to enhanced detection difficulty rather than reduced oversight concerns.
C) Concealment Effectiveness – The presence of evidence makes concealment less effective, not more effective.
D) Reduced Oversight Concerns – Enhanced detection difficulty implies increased oversight concerns, not reduced concerns.

Explanation:
Correct Answer: B) Lapping
When the perpetrator is involved in both collecting and posting payments, lapping is a common technique used to conceal the theft of receivables payments. Lapping involves crediting one account by abstracting money from another, creating an appearance of up-to-date payments while actually stealing the funds.
Incorrect Answers:
A) Check for Currency Substitutions – Check for currency substitutions is mentioned in the text but is not the technique used to conceal receivables skimming in the described scenario.
C) False Discounts – False discounts involve recording transactions as if the customer received a discount, not concealing the theft of receivables payments.
D) Theft of Checks Received Through the Mail – Theft of checks through the mail is a separate scheme and not the technique used when the perpetrator controls both collecting and posting payments.

Explanation:
Correct Answer: B) Imbalance in Cash Account
By posting customer payments to receivables accounts without depositing them, the perpetrator creates an imbalance in the cash account. This imbalance is then hidden by forcing the total on the cash account, overstating it to match the total postings to accounts receivable.
Incorrect Answers:
A) Imbalance in Receivables – The imbalance is created in the cash account, not in receivables.
C) Imbalance in Sales – The imbalance is related to the cash account, not sales.
D) Imbalance in Tax Liability – While the example involves tax liability, the specific imbalance created is in the cash account, not tax liability.

Explanation:
Correct Answer: D) Abstracting Money
In a lapping scheme, the perpetrator abstracts money from one account and applies it to another, creating an appearance of up-to-date payments on the first account while actually stealing the funds. Abstracting money is the key action in the lapping process.
Incorrect Answers:
A) Destroying Transaction Records – Destroying transaction records is a separate concealment technique but not the method used in a lapping scheme.
B) False Disbursements – False disbursements involve creating fictitious transactions, not the action of abstracting money in a lapping scheme.
C) Forcing Account Balances – Forcing account balances is mentioned in the text but is not the action used in a lapping scheme.

Explanation:
Correct Answer: C) Customer Complaints
In lapping schemes, fraudsters face the challenge of customer complaints. If payments are not applied to accounts promptly, customers are likely to notice and complain about the misapplication of their payments. This challenge is inherent in the lapping process.
Incorrect Answers:
A) Lack of Oversight – Lack of oversight is a general condition mentioned for employees with high autonomy but is not a specific challenge faced in lapping schemes.
B) Concealing the Theft – Concealing the theft is the goal of the fraudster but is not a challenge explicitly highlighted in the context of lapping.
D) Destroying Transaction Records – Destroying transaction records is a concealment technique but is not explicitly mentioned as a challenge faced in lapping schemes.

Explanation:
Correct Answer: C) Absence of Payment
When unrecorded sales are skimmed, the key difference is the absence of payment on the books. While the sale is recorded, the corresponding payment is not received and appears as a delinquent account, requiring the fraudster to somehow account for the missing payment.
Incorrect Answers:
A) The Skimming Process – The skimming process is not explicitly different; the key difference is the absence of payment on the books.
B) Expectation of Payments – The expectation of payments is a general condition in receivables skimming and is not the key difference between recorded and unrecorded sales.
D) Concealment Techniques – Concealment techniques are mentioned in the text but are not the key difference highlighted in the context of unrecorded sales skimming.

Explanation:
Correct Answer: C) To track stolen funds and misapplied payments
Fraudsters in lapping schemes keep a second set of books to track stolen funds and how payments have been misapplied to conceal the theft. This helps perpetrators manage the complexity of lapping schemes, facilitating the concealment of the fraud by keeping records of their illegal activity.
Incorrect Answers:
A) To brag about their illegal activities – Keeping a second set of books is primarily for practical reasons related to concealing the fraud, not for bragging purposes.
B) To provide evidence for investigators – The second set of books is not meant to provide evidence for investigators but rather to assist the fraudster in managing the complexity of lapping schemes.
D) To use as a backup in case of loss – The second set of books is not intended as a backup in case of loss but as a tool to aid in the concealment of the lapping scheme.

Explanation:
Correct Answer: A) Intercepting the customer’s account statement
Fraudsters in receivables skimming attempt to conceal the fact that they have skimmed a payment by intercepting the customer’s account statement. This is done by changing the customer’s address or physically intercepting the statements, allowing the fraudster to alter or produce counterfeit statements indicating that the payment was properly posted.
Incorrect Answers:
B) Altering the customer’s payment – Altering the customer’s payment is not the primary method mentioned for concealing receivables skimming.
C) Delaying the company deposit – Delaying the company deposit is a method used in the context of disguising the skimming of sales, not specifically for concealing receivables skimming.
D) Destroying transaction records – Destroying transaction records is mentioned as a concealment technique in a different context but is not the primary method for concealing receivables skimming.

Explanation:
Correct Answer: B) Rigid deposit schedule; Intercepting customer statements
Fraudsters face the challenge of rigid deposit schedules when using lapping to conceal the skimming of sales. To overcome this, they delay making the company deposit until enough money is collected to recoup the stolen funds. Additionally, they intercept customer statements to avoid customer complaints about missing payments.
Incorrect Answers:
A) Lack of oversight; Keeping a second set of books – Lack of oversight is mentioned as a general condition but is not specifically related to the challenge faced when using lapping to conceal the skimming of sales.
C) Complexity of schemes; Delaying company deposit – Complexity of schemes is mentioned but is not the challenge specifically associated with the use of lapping to conceal the skimming of sales.
D) Intercepting customer statements; Intercepting account notices – Intercepting account notices is not the primary challenge mentioned; the challenge is rigid deposit schedules and overcoming it by delaying the deposit.

Explanation:
Correct Answer: B) By creating fictitious accounts
In the context of concealing skimming, an employee might make false entries in the victim organization’s accounting system by creating fictitious accounts. This involves setting up completely fictitious accounts and debiting them for the cost of skimmed receivables, which can go unnoticed until the fictitious receivables are written off as uncollectible.
Incorrect Answers:
A) By intercepting customer statements – Intercepting customer statements is a method for concealing the fact that payments are skimmed, but it is not about making false entries in the accounting system.
C) By writing off account balances – Writing off account balances is one of the methods mentioned for covering skimming, but it’s not about making false entries in the accounting system.
D) By destroying transaction records – Destroying transaction records is a separate concealment technique and is not specifically related to making false entries in the accounting system.

Explanation:
Correct Answer: D) Inventory shrinkage
The primary challenge faced by fraudsters in some skimming schemes, especially off-book sales of goods, is inventory shrinkage. Off-book sales of goods lead to a reduction in physical inventory without a corresponding reduction in the perpetual inventory, resulting in shrinkage. High levels of shrinkage can indicate a potential victim of occupational fraud.
Incorrect Answers:
A) Intercepting customer statements – Intercepting customer statements is a method for concealing the fact that payments are skimmed and is not the primary challenge faced in off-book sales of goods.
B) Debiting expense accounts – Debiting expense accounts is a method for concealing skimming, but it is not the primary challenge faced in off-book sales of goods.
C) Creating fictitious accounts – Creating fictitious accounts is another method for concealing skimming, but it is not the primary challenge faced in off-book sales of goods.

Explanation:
Correct Answer: C) By debiting expense accounts
An employee might cover their skimming by posting entries to contra revenue accounts, such as “discounts and allowances” or the bad debts expense account. This involves creating entries that compensate for missing money and help conceal the fact that payments were intercepted.
Incorrect Answers:
A) By creating fictitious accounts – Creating fictitious accounts is a method for making false entries in the accounting system but is not specifically related to covering skimming by posting entries to contra revenue accounts.
B) By intercepting customer statements – Intercepting customer statements is a method for concealing the fact that payments are skimmed and is not specifically related to posting entries to contra revenue accounts.
D) By writing off account balances – Writing off account balances is another method for covering skimming, but it is not specifically related to posting entries to contra revenue accounts.

Explanation:
Correct Answer: C) The fraudster retains the stolen money for a short period before passing it on.
Short-term skimming involves the fraudster keeping the stolen money for only a short while before eventually passing the payment on to their employer. The employee delays the posting of the skimmed funds, placing them in an interest-bearing account or short-term security, earning interest before eventually withdrawing the principal and applying it to the customer’s account.
Incorrect Answers:
A) The fraudster delays the posting of stolen money for an extended period – This is not the characteristic of short-term skimming; it describes a prolonged delay in posting stolen money.
B) The stolen money is invested for a long period before being returned – This is not characteristic of short-term skimming, which involves a relatively short retention period of the stolen money.
D) The stolen money is immediately used for personal expenses – This is not the characteristic of short-term skimming; it involves retaining the money for a short period before passing it on.

Explanation:
Correct Answer: B) By analyzing journal entries in cash and inventory accounts
Skimming schemes involving lapping can be detected by reviewing and analyzing all journal entries made to the cash and inventory accounts. Irregular entries, such as false credits to inventory, write-offs, and irregular entries to cash accounts, might indicate the presence of a skimming scheme.
Incorrect Answers:
A) By confirming customers’ accounts – Confirming customers’ accounts is a method for detecting lapping, but it’s not the primary method discussed in the context of journal entry review.
C) By conducting a physical inventory count – Conducting a physical inventory count is a method for detecting inventory shrinkage, which is not specifically related to lapping.
D) By applying ratio analysis to sales accounts – Applying ratio analysis to sales accounts is a general method for detecting skimming on a grand scale but is not specifically related to lapping.

Explanation:
Correct Answer: B) Significant discrepancies between deposit date and posting date.
A potential indication of a skimming scheme involving lapping is the presence of significant discrepancies between the deposit date and the posting date of customers’ payments. If there are delays in posting payments to the books, waiting for another customer’s payment, it might indicate a lapping scheme.
Incorrect Answers:
A) Consistent alignment of deposit date and posting date – This is not indicative of a lapping scheme; discrepancies are more likely to be present.
C) Frequent changes in the source documents – Frequent changes in source documents are not necessarily indicative of a lapping scheme.
D) A direct correlation between invoice and payment dates – A direct correlation between invoice and payment dates is not indicative of a lapping scheme; it might be a normal business practice.

Explanation:
Correct Answer: C) To prevent theft and ensure compliance with work policies.
The primary purpose of using visible video cameras in areas where employees handle cash is to prevent theft and ensure compliance with work policies. The presence of cameras serves as a deterrent and can help identify any suspicious activities related to cash handling.
Incorrect Answers:
A) To record employees’ work hours and activities – Visible video cameras are primarily used for security purposes related to cash handling, not for monitoring work hours.
B) To capture evidence for legal purposes – While video footage may be used as evidence if needed, the primary purpose is to prevent theft and ensure compliance.
D) To document routine account reconciliation processes – Video cameras are not used to document routine account reconciliation processes; their focus is on security and prevention of theft.

Explanation:
Correct Answer: B) Evidence of off-book fraud.
Reconciling the physical inventory count with perpetual inventory records might reveal evidence of off-book fraud, particularly if there is shrinkage in physical inventory without a corresponding reduction in the perpetual inventory. This could indicate a skimming scheme.
Incorrect Answers:
A) Routine account reconciliation discrepancies – The focus of this reconciliation is on detecting inventory shrinkage, not routine account reconciliation discrepancies.
C) Employee work hours and activities – Reconciliation of physical inventory and perpetual records is not related to monitoring employee work hours and activities.
D) Compliance with work policies – This reconciliation is more about detecting fraud than assessing compliance with work policies.

Explanation:
Correct Answer: D) Skimming is an off-book fraud, making routine reconciliation ineffective.
Routine account reconciliation is unlikely to detect skimming schemes because skimming is an off-book fraud. Reconciling register records to cash in the drawer will not indicate any issues related to skimming.
Incorrect Answers:
A) Routine account reconciliation is a time-consuming process – The effectiveness of routine account reconciliation is not related to the time-consuming nature of the process.
B) Skimming involves on-book fraud, not off-book fraud – Skimming is typically an off-book fraud, not on-book fraud.
C) Skimming schemes leave visible evidence on financial statements – Skimming is designed to avoid detection through routine account reconciliation, leaving less visible evidence on financial statements.

Explanation:
Correct Answer: D) Placing restrictive endorsements on all checks received.
A primary control measure to prevent thefts of checks and cash in the receipt process is placing restrictive endorsements (e.g., “For Deposit Only”) on all checks received. This helps ensure that checks are properly accounted for and deposited.
Incorrect Answers:
A) Implementing routine account reconciliation procedures – Routine account reconciliation is not a primary control measure to prevent thefts of checks and cash in the receipt process.
B) Using visible video cameras for surveillance – Visible video cameras contribute to overall security but may not directly prevent thefts of checks and cash.
C) Conducting independent reconciliations of ledger accounts – Independent reconciliations are part of general controls but may not directly prevent thefts during the receipt process.

Explanation:
Correct Answer: C) To minimize the risk of fraudulent activities.
The proper separation of duties in control procedures for sales entries and general ledger access is emphasized to minimize the risk of fraudulent activities. It helps prevent individuals from having excessive control over financial transactions, reducing the opportunities for fraud.

Explanation:
The correct answer is B) The merchandise is not replaced in the store’s inventory.
In a false refund scheme, the fraudulent disbursement occurs when a customer supposedly returns an item, and a refund is processed. However, unlike a legitimate refund, the fraudulent scheme involves not replacing the merchandise in the store’s inventory. This absence of merchandise replacement is a key characteristic of false refunds. The transaction falsely shows cash being disbursed to the customer without the corresponding restoration of inventory.
Option A is incorrect because, in a register disbursement scheme, the removal of cash is recorded.
Option C is incorrect as altering timecards is not related to false refunds at the cash register.
Option D is incorrect as tricking the victim company into remitting payment is more aligned with general fraudulent disbursement schemes, not specifically false refunds.