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

Detailed Explanation:

Rationale for Correct Answer: In the procurement cycle, the post-award and administration phase involves the actual performance of contractual duties by the awarded contractor(s) and monitoring by the procuring entity. This is consistent with procurement process descriptions in the Fraud Examiners Manual (2020).

Analysis of Incorrect Options:

B – Needs identification occurs in the presolicitation phase, not solicitation.

C – In presolicitation, the entity defines needs; contractors submit bids during the solicitation phase.

D – The solicitation document is issued during the solicitation phase, not evaluation.

Key Concept: Understanding procurement phases to detect fraud opportunities (e.g., bid rigging, kickbacks).

Detailed Explanation:

Rationale for Correct Answer:Cash larceny involves the theft of incoming cash after it has been recorded. Strong segregation of duties is critical to prevent concealment. By separating cash deposit responsibilities from bank reconciliation duties, one employee cannot both steal funds and cover their tracks.

Analysis of Incorrect Options:

A. Restricting substitution – Weakens controls; job rotation and cross-training help prevent fraud.

C. Same register use – Reduces accountability, making theft harder to trace.

D. Surprise cash counts – Strong detective control, but not as preventive as segregation of duties.

Key Concept: Preventing cash larceny through segregation of duties.

Rationale for Correct Answer:Sampling is a fraud examination technique that enables investigators to review a subset of documents rather than all records. Properly designed sampling provides reasonable assurance and allows focus on anomalies or red flags.

Key Concept:Sampling in fraud examination and audit testing.

Detailed Explanation:

Rationale for Correct Answer:Studies by the ACFE consistently show that inventory and equipment are the most commonly misappropriated noncash assets. They are highly liquid, valuable, and often difficult to monitor without strong controls.

Analysis of Incorrect Options:

A. Interest & Collusion – Not physical assets.

C. Inventory & Purchase – Purchase is a process, not a physical asset.

D. Sales & Equipment – Sales are transactions, not assets.

Key Concept:Noncash asset misappropriation — inventory and equipment are the primary targets.

Detailed Explanation:

Rationale for Correct Answer:For fraud to exist, several legal elements must be established. These include: (1) a material false statement made by the perpetrator, (2) knowledge of the falsity of that statement (scienter or intent to deceive), and (3) reliance on the false statement by the victim, resulting in harm or damages. The Fraud Examiners Manual (2020 International Edition) explains that all elements must be present for a fraud case to be sustained. Thus, the correct answer is D. All of the above.

Analysis of Incorrect Options (Distractors):

A. A material false statement – A false statement alone is insufficient unless there is intent to deceive and victim reliance.

B. Knowledge that the statement was false when it was uttered – Intent is critical, but without the victim’s reliance and damages, fraud is incomplete.

C. Reliance on the false statement by the victim – Victim reliance is necessary, but without a knowingly false statement and intent, fraud cannot be proven.

Key Concept:The essential legal elements of fraud.

Detailed Explanation:

Rationale for Correct Answer:Forced reconciliation occurs when fraudsters alter the perpetual inventory records to conceal shrinkage. By adjusting the records, they make the books appear consistent with the physical count, hiding theft or loss.

Analysis of Incorrect Options:

A – Too vague; does not specify perpetual records.

B – Incorrect; inventory is concealed, not shrinkage records.

D – Write-offs are a different concealment method.

Key Concept:Forced reconciliations as a concealment method in inventory fraud.

Detailed Explanation:

Rationale for Correct Answer:Baiting is a social engineering tactic where fraudsters leave infected flash drives or storage media in public areas, hoping victims will plug them in, unknowingly installing malware. This is an accurate description.

Analysis of Incorrect Options:

A. Pharming – Involves redirecting users from legitimate websites to fraudulent ones, not mail redirection.

B. Dumpster diving – Searching physical trash for sensitive information, not computers from resellers.

C. Shoulder surfing – Observing someone’s screen or keystrokes, not access exploitation.

Key Concept: Identity theft techniques.

Detailed Explanation:

Rationale for Correct Answer:This statement is True. ACFE research shows that external audits, while valuable, are generally not effective at detecting fraud quickly. Organizations with only external audits often experience higher median losses and longer-lasting schemes compared to those with stronger internal controls and fraud-specific detection mechanisms. External audits are not designed to catch fraud; their focus is on financial statement accuracy.

Key Concept:Effectiveness of External Audits in fraud detection versus prevention and internal controls.

Detailed Explanation:

Rationale for Correct Answer:In sound internal controls, the person initiating electronic payments should not also be responsible for setting filters or approving transactions. This creates a segregation of duties violation. Therefore, statement D is false.

Analysis of Incorrect Options:

A. Positive pay for ACH – True; it helps verify transactions.

B. ACH blocks – Correct; a control against unauthorized debits.

C. Lack of physical evidence – True; electronic fraud lacks paper trails, making detection harder.

Key Concept: Electronic payment tampering controls.

Detailed Explanation:

Rationale for Correct Answer:Trend analysis is one of the most effective ways to detect omitted credits. By analyzing patterns in revenue, expenses, or balances over time, discrepancies such as missing credits become apparent. Forensic examiners rely on comparative financial analysis to identify anomalies that suggest manipulation.

Analysis of Incorrect Options:

A. Forced Balance – Describes concealment, not detection.

C. Expense account – Accounts can be manipulated but are not detection methods.

D. None of all – Incorrect, since trend analysis is correct.

Key Concept:Analytical procedures (trend analysis) in fraud detection.