The correct answer is A. David is committing a lapping scheme. Lapping occurs when an employee steals one customer’s payment and conceals the theft by applying a later payment from another customer to the first customer’s account. The employee must then continue shifting later payments to earlier accounts to keep the shortage hidden. This creates a rolling concealment pattern that can continue until discovered through customer complaints, account confirmations, delayed postings, or independent reconciliation. Padding, substitution, and duplication are not the standard ACFE classifications for this receivables concealment method. Because David is using later customer payments to cover earlier stolen receipts, his conduct fits the classic definition of lapping under cash receipts fraud schemes.

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The correct answer is A. Fictitious revenue schemes involve recording sales that did not actually occur. Because no real customer owes money for the fake sale, the related accounts receivable often remain unpaid and become long overdue. A rising amount of old or uncollectible receivables can therefore be a red flag that revenue was fabricated to inflate income. Option B is less direct because companies might fail to write off bad receivables for several reasons, including improper allowance estimates. Option C is inconsistent with many fictitious revenue schemes because fake credit sales commonly increase receivables. Option D, receivables paid only a few days late, does not strongly indicate fictitious sales. The ACFE materials identify fictitious revenues and accounts receivable anomalies as common financial statement fraud indicators.

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The correct answer is C. Cash larceny involves stealing cash after it has been recorded, so detection often depends on tracing recorded cash activity to source documents and bank deposits. Reviewing, analyzing, and tracing journal entries made to cash accounts helps identify unsupported adjustments, unusual entries, concealment entries, or discrepancies between accounting records and actual cash activity. Option A is weak because the person responsible for cash receipts should not perform independent comparisons; segregation of duties is important. Option B is incorrect because cash receipt listings should be prepared and controlled before they reach accounts receivable personnel. Option D is also improper because cashiers should not independently reconcile their own register activity. Independent review is essential for detecting cash larceny.

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The correct answer is D. The balance sheet is based on the fundamental accounting equation: Assets = Liabilities + Owners’ Equity. Assets represent resources owned or controlled by the entity. Liabilities represent obligations owed to creditors, while owners’ equity represents the owners’ residual interest after liabilities are deducted from assets. Because every accounting transaction affects at least two accounts, the equation must remain in balance. Revenues, expenses, cost of goods sold, and gross profit are primarily income statement elements, not the two main components that balance against assets on the statement of financial position. Understanding this equation is essential for fraud examiners because improper entries, concealed liabilities, overstated assets, and equity manipulation can distort financial statements.

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Detailed Explanation:

Rationale for Correct Answer: Hollinger and Clark’s research emphasized that management policy should focus on: (1) developing a clear understanding of theft behavior and its causes, and (2) enforcing sanctions consistently. Both are necessary to reduce employee deviance and occupational fraud. Thus, C. Both A & B is correct.

Key Concept: Hollinger-Clark Study — policy implications for managing employee theft.

Detailed Explanation:

Rationale for Correct Answer: Gross profit = Net sales – Cost of Goods Sold (COGS). This is the correct definition, as per standard accounting principles.

Analysis of Incorrect Options:

A. Gross revenue – Defined as total sales before deductions, not after.

B. Net profit – Net profit is after all expenses (operating, interest, taxes), not before.

D. Operating expenses – Appear after gross profit, not at the top.

Key Concept: Income statement structure and key definitions .

The correct answer is A, money laundering. The ACFE material defines money laundering as the process by which criminals disguise illicit assets as legitimate assets that they have a right to possess and spend. It involves concealing the existence, nature, source, control, beneficial ownership, location, or disposition of property derived from criminal activity. Cross-border financing may be a feature of laundering, but it is not the overall process described. Asset trafficking is not the best ACFE classification for disguising criminal proceeds. Concealment of assets may occur in fraud or bankruptcy matters, but it is broader and does not specifically capture the laundering of illegal proceeds into apparently legitimate funds.

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Detailed Explanation:

Rationale for Correct Answer: Intangible assets are long-lived assets that lack physical substance and differ from property, plant, and equipment. Examples include goodwill, patents, trademarks, and copyrights. They provide long-term benefits but cannot be physically touched.

Analysis of Incorrect Options:

A. Tangible Assets – These have physical form (e.g., equipment, land).

C. Forced Assets – Not an accounting category.

D. None of the above – Incorrect since intangible assets match the definition.

Key Concept: Classification of Assets — tangible vs. intangible.

The correct answer is C. Reviewing insurance policy applications for irregularities, inconsistencies, and missing information before coverage is granted is an effective preventive control. Many insurance fraud schemes begin at the application or underwriting stage through false statements, omitted risk factors, fictitious policies, or misrepresentations about the insured. Careful pre-issuance review helps identify suspicious information before the insurer assumes risk. Option A is generally impractical and may raise privacy and legal concerns after claim payment. Option B is inappropriate because combining underwriting and claims processing in one person weakens segregation of duties. Option D is also poor practice because information sharing, where lawful and appropriate, can help insurers identify patterns, duplicate claims, and suspicious applicants. Strong underwriting controls are essential to fraud prevention.

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Detailed Explanation:

Rationale for Correct Answer: Tangible assets are those that can be physically perceived (touched, seen, etc.) and appraised (assigned a measurable value). Examples include buildings, land, equipment, and inventory. Both characteristics are correct, making C the best choice.

Analysis of Incorrect Options:

A. Capable of being perceived – True, but incomplete.

B. Capable of being appraised – True, but incomplete.

D. Neither A nor B – Incorrect since both statements are accurate.

Key Concept: Tangible Assets — physical and measurable property owned by a business.