Pass the ACFE Certified Fraud Examiner CFE-Financial-Transactions-and-Fraud-Schemes Questions and answers with Dumpstech

Detailed Explanation:

Rationale for Correct Answer:This statement is False. According to ACFE studies, asset misappropriation is the most common but least costly category of occupational fraud. Fraudulent statements are the least common but most costly, while corruption falls in the middle in both frequency and cost.

Key Concept:Fraud Tree Statistics — frequency and cost comparison of asset misappropriation, corruption, and financial statement fraud.

Detailed Explanation:

Rationale for Correct Answer:Insider cyberfraud thrives in environments where monitoring is weak. If access logs are not reviewed, malicious activity can go undetected, enabling fraud.

Analysis of Incorrect Options:

B. Programs run during business day – Normal IT operations, not a fraud risk.

C. Restricted access – This is a preventive control, not a facilitator.

D. Separation of duties – Strong control, prevents insider fraud.

Key Concept: Conditions facilitating insider cyberfraud.

Detailed Explanation:

Rationale for Correct Answer: Synthetic identity theft occurs when fraudsters combine real identifiers (e.g., SSN, tax ID) with fictitious details to create a “new” identity. This differs from traditional identity theft, where a real person’s identity is used in full.

Analysis of Incorrect Options:

B. Simulated identity theft – Not a standard fraud classification.

C. Traditional identity theft – Uses a complete stolen identity, not a hybrid.

D. Criminal identity theft – Involves using someone else’s identity when charged with a crime.

Key Concept: Synthetic identity theft as an evolving form of fraud.

Detailed Explanation:

Rationale for Correct Answer:Fraudsters may use false packing slips to misdirect deliveries of inventory. By altering or falsifying packing documentation, employees can ensure goods are sent to themselves or accomplices instead of legitimate recipients.

Analysis of Incorrect Options:

A. False shipping slip – Related but less accurate; shipping documents are broader.

C. Fraudulent inventory slip – Not a standard fraud term.

D. False credit slip – Relates to receivables manipulation, not inventory deliveries.

Key Concept:False packing slip schemes in inventory misappropriation.

Detailed Explanation:

Rationale for Correct Answer:The full disclosure principle requires that all material facts and deviations from GAAP be disclosed to readers of financial statements so that they are not misled. Transparency is essential for informed decision-making by investors, creditors, and regulators.

Analysis of Incorrect Options:

B. SAS – Refers to auditing standards, not accounting standards.

C. Writer – Incorrect; disclosures are intended for readers/users.

D. None of above – Incorrect since option A is correct.

Key Concept:Full disclosure principle — providing users with all material information.

Detailed Explanation:

Rationale for Correct Answer:Per generally accepted accounting principles, changes in accounting principles must be disclosed in the financial statements to ensure comparability and transparency. The ACFE notes that disclosures are critical to prevent misleading users of financial statements.

Analysis of Incorrect Options:

A. Subsequent events – Material subsequent events must be disclosed; this statement is false.

B. Contingent losses – Only probable and reasonably estimable losses must be disclosed. If unlikely, no disclosure is required.

C. All information – Only material information requires disclosure.

Key Concept: Disclosure requirements in financial reporting.

Detailed Explanation:

Rationale for Correct Answer:Common skimming schemes include unrecorded sales, theft of incoming checks, and understating sales/receivables. “Fraud & Cost” is not a recognized skimming scheme and appears to be a distractor.

Analysis of Incorrect Options:

A. Unrecorded sales – A classic skimming method.

C. Theft of checks through the mail – Another recognized skimming approach (incoming receivables).

D. Understated sales and receivables – A concealment method within skimming schemes.

B. Fraud & Cost – Not a scheme classification.

Key Concept:Skimming schemes vs. unrelated distractors.

Detailed Explanation:

Rationale for Correct Answer: Misrepresenting income, employment, or creditworthiness on a mortgage application is a classic example of residential loan fraud. This type of fraud occurs when borrowers provide false information to qualify for loans they would not otherwise receive.

Analysis of Incorrect Options:

B. Credit data blocking – Refers to suppressing negative credit information with fraudulent disputes.

C. Double-pledging collateral – Involves using the same collateral for multiple loans.

D. Linked financing – Occurs when loans are structured with related transactions to disguise financial exposure.

Key Concept: Loan and mortgage fraud – misrepresentation of borrower information.

Detailed Explanation:

Rationale for Correct Answer:Shrinkage refers to discrepancies between physical inventory counts and perpetual inventory records. Causes include theft, errors, waste, or fraud. It is one of the most common indicators of asset misappropriation.

Analysis of Incorrect Options:

A. Altered inventory – Not a recognized accounting term.

B. Account receivable – Unrelated to inventory.

D. Write-offs – A corrective accounting entry, not the variance itself.

Key Concept:Inventory shrinkage as a red flag for fraud.

Comprehensive and Detailed Explanation

Why the correct answer is: False accounting entry

According to the ACFE Fraud Examiners Manual – Financial Transactions and Fraud Schemes, under Financial Institution Fraud → Types of Embezzlement Schemes, the Manual provides explicit descriptions of relevant banking fraud schemes, including false accounting entries.

The Manual lists False Accounting Entries as a form of embezzlement in which an employee manipulates general ledger accounts or other accounting records to conceal a theft or unauthorized activity:

“False Accounting Entries” are specifically categorized as a type of embezzlement scheme used by dishonest bank employees to hide misappropriated funds.

In this question, the accountant:

Adjusted the bank’s general ledger

With the intent to conceal the theft of customer funds

This aligns exactly with the ACFE definition of false accounting entries, which involve altering legitimate financial records to hide fraudulent actions.

Therefore, the best ACFE-defined description of the scheme is:

→ False accounting entry (Option B)

Why the other options are incorrect

A. Unauthorized withdrawal

The Manual separately defines Unauthorized Withdrawals as a type of embezzlement in which a bank employee directly removes funds from accounts without permission:

“Unauthorized Withdrawals” are listed as a distinct embezzlement scheme involving unapproved removal of customer funds.

However, in this scenario, the defining act is manipulating ledger records, not simply withdrawing funds. The nature of the concealment technique makes false accounting entry the correct classification.

C. Moving money from inactive accounts

The Manual defines:

“Moving Money from Customers’ Dormant or Inactive Accounts” as a scheme in which employees transfer funds from inactive accounts to themselves.

In this question, the stolen funds come from an active customer account, so this option does not apply.

D. Unauthorized disbursement of funds

The Manual includes:

“Unauthorized Disbursement of Funds to Outsiders” as another type of financial institution fraud.

This refers to payments made to external parties without authorization—not to ledger manipulation to hide theft.

Again, the defining characteristic in the scenario is the use of false ledger entries, which makes Option B the most accurate according to ACFE terminology.