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

Detailed Explanation:

Rationale for Correct Answer:The phases of the bidding process include:

Presolicitation (need recognition/specification stage),

Solicitation (inviting bids),

Submission (vendors submit bids).There is no standard phase called Postsolicitation.

Analysis of Incorrect Options:

A. Presolicitation – Valid phase.

C. Solicitation – Valid phase.

D. Submission – Valid phase.

B. Postsolicitation – Not recognized as a formal bidding stage.

Key Concept:Bidding process phases — presolicitation, solicitation, submission.

Detailed Explanation:

Rationale for Correct Answer:This statement is False. Research in occupational fraud consistently shows that when employees believe there is a strong likelihood of being caught, they are less likely to engage in theft or deviant behavior. Deterrence theory emphasizes that perceived certainty of detection is one of the most effective controls against occupational fraud.

Key Concept:Deterrence through perceived detection.

Detailed Explanation:

Rationale for Correct Answer:The balance sheet provides a snapshot of a company’s financial position at a specific date. It shows assets, liabilities, and equity, allowing stakeholders to assess book value and solvency.

Analysis of Incorrect Options:

A. Equity – A component of the balance sheet, not the full report.

C. Income statement – Shows performance over a period, not book worth at a date.

D. Financial record – Too general.

Key Concept:Balance Sheet as a tool for determining book worth at a point in time.

Detailed Explanation:

Rationale for Correct Answer:A ghost employee scheme occurs when fictitious or former employees remain on payroll. Detecting duplicate addresses, Social Security/Government ID numbers, or other anomalies between HR and payroll records is a classic detection method for ghost employees.

Analysis of Incorrect Options:

A. Fraudulent commissions scheme – Relates to sales manipulation, not duplicate personnel records.

B. Falsified hours and salary scheme – Involves timekeeping, not fictitious employees.

C. Expense reimbursement scheme – Concerns fraudulent expense claims, unrelated to payroll records.

Key Concept: Payroll fraud — Ghost Employee scheme.

Detailed Explanation:

Rationale for Correct Answer: Skimming involves theft of cash before it is recorded in the books. Examining journal entries for false credits to inventory would detect inventory fraud, not skimming. Therefore, B is not useful for detecting skimming.

Analysis of Incorrect Options:

A – Confirming customer balances can reveal payments that were never posted because they were skimmed.

C – Physical counts may expose discrepancies caused by skimming disguised as inventory shortages.

D – Comparing register totals to actual cash can reveal missing amounts due to skimming.

Key Concept: Skimming detection focuses on reconciling recorded vs. unrecorded cash.

Detailed Explanation:

Rationale for Correct Answer:Kickbacks are undisclosed payments made by vendors to employees of purchasing companies to secure favorable treatment. They are a classic form of bribery under the corruption classification of the Fraud Tree.

Analysis of Incorrect Options:

A. Bid-rigging – Involves collusion among bidders, not secret payments.

C. Presolicitation – A phase in procurement fraud, not the scheme itself.

D. None of the above – Incorrect, as kickbacks are the precise answer.

Key Concept:Kickbacks — secret vendor payments for favorable purchasing treatment.

Detailed Explanation:

Rationale for Correct Answer:Materiality is most often associated with fraudulent financial statements because fraudsters may argue that misstatements are “immaterial.” However, deliberate misstatements of any size can be fraudulent. Materiality thus plays a critical role in assessing fraudulent statement cases.

Analysis of Incorrect Options:

B. Misappropriations – Involve theft, but materiality is less central than in reporting fraud.

C. Civil lawsuit – A possible outcome, not the core accounting issue.

D. Quality control – Not related to materiality in fraud.

Key Concept:Materiality in Financial Statement Fraud — even small misstatements may be fraudulent.

Detailed Explanation:

Rationale for Correct Answer:This is False. Accounting is based on the objectivity principle, requiring that records and financial information be supported by objective, verifiable evidence (e.g., invoices, contracts, receipts). Subjective evidence would undermine reliability.

Analysis of Incorrect Options:

A. True – Incorrect, as subjectivity is discouraged in accounting.

B. False – Correct, since accounting relies on objective documentation.

Key Concept:Objectivity principle in accounting.

Detailed Explanation:

Rationale for Correct Answer:

Detailed Explanation:

Rationale for Correct Answer:Fair value is defined as the price an asset would fetch in an orderly transaction between willing market participants. It reflects current market conditions, not historical cost.

Analysis of Incorrect Options:

A. Absolute value – Mathematical concept, not accounting.

C. Cost value – Historical cost, not current market.

D. Material value – Not a recognized accounting term.

Key Concept:Fair Value Measurement under GAAP/IFRS.