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

Detailed Explanation:

Rationale for Correct Answer:Bribery prevention policies often include:

Reporting gifts (disclosure of items received from vendors),

Discounts (rules about vendor concessions),

Business meetings (clear rules on vendor-sponsored events).Resource diversions is not a standard bribery prevention policy but a form of fraud.

Analysis of Incorrect Options:

A, B, C – Legitimate examples of prevention policies.

D. Resource diversions – Not a preventive measure.

Key Concept:Anti-bribery policies — clear rules on gifts, discounts, and vendor relationships.

Detailed Explanation:

Rationale for Correct Answer: A kickback scheme occurs when vendors make payments to employees of a purchasing organization in exchange for steering business their way. Here, Bob steered contracts to Oak Company and received a percentage of profits, a textbook kickback arrangement.

Analysis of Incorrect Options:

B. Illegal gratuity scheme – Involves rewards after a decision, without a prior agreement. Here, the agreement was prearranged.

C. Diversion scheme – Refers to diversion of assets, not procurement favoritism.

D. Economic extortion scheme – Involves coercion of the vendor; this was voluntary bribery.

Key Concept: Bribery and kickbacks as forms of corruption.

Detailed Explanation:

Rationale for Correct Answer: Horizontal analysis evaluates financial statement items over multiple periods, highlighting percentage changes from one period to another. This helps detect unusual trends or anomalies.

Analysis of Incorrect Options:

A – Describes vertical analysis (common-size statements).

B – Describes ratio analysis.

D – Describes benchmarking/comparative analysis across companies.

Key Concept: Analytical procedures – horizontal vs. vertical and ratio analysis.

Detailed Explanation:

Rationale for Correct Answer: Fraudsters conceal inventory shrinkage through multiple methods, including unrecorded sales, false write-offs, or manipulating perpetual records. The ACFE manual notes that concealment is a common theme in inventory fraud. Hence, all of the above are valid.

Analysis of Incorrect Options:

A, B, C – Each is correct individually, but the most comprehensive answer is D.

Key Concept: Concealment methods for inventory theft.

Detailed Explanation:

Rationale for Correct Answer:Disclosure is required whenever individuals in positions of trust are indicted or otherwise compromised. Transparency ensures stakeholders are aware of potential conflicts or risks.

Analysis of Incorrect Options:

A. Conflict of interest – A scheme, not the corrective measure.

B. Turnaround sale or flip – Specific scheme, irrelevant here.

D. Resource diversion – A fraud method, not a governance requirement.

Key Concept: Importance of Disclosure in preventing or responding to conflicts of interest.

Detailed Explanation:

Rationale for Correct Answer: Otto’s act combines misappropriation of customer funds with concealment via false accounting entries. Per the Fraud Examiners Manual, concealment through altering records is a hallmark of accounting fraud schemes tied to asset misappropriation.

Analysis of Incorrect Options:

A – Unauthorized disbursement typically refers to fraudulent payments like check tampering, not customer withdrawals.

B – Dormant account fraud targets unused/inactive accounts; the victim here is an active but inattentive customer.

D – Unauthorized withdrawal is part of the theft, but the defining element is the falsified ledger concealment, making C more precise.

Key Concept: Asset misappropriation with concealment through false accounting.

Detailed Explanation:

Rationale for Correct Answer: The described scheme is lapping, a classic accounts receivable fraud. It involves covering up stolen payments by applying subsequent receipts from other customers to hide the shortage.

Analysis of Incorrect Options:

A. Padding – Usually refers to overstating expense reimbursements, not AR fraud.

C. Substitution – Refers to replacing missing assets with others, not AR manipulation.

D. Daisy chain – Not a recognized fraud concealment method in this context.

Key Concept: Skimming concealment techniques – lapping of receivables.

Detailed Explanation:

Rationale for Correct Answer: Illegal pyramid schemes rely on continual recruitment of new members. Early participants are paid from the investments of later recruits, meaning later participants almost always lose money. This matches option B.

Analysis of Incorrect Options:

A – Not true; pyramid-shaped hierarchies exist in legitimate organizations.

C – The goal isn’t product sales but rather recruitment; products, if present, are often incidental.

D – Incorrect because B is true.

Key Concept: Ponzi and pyramid schemes – payment to early investors with later investors’ funds.

Detailed Explanation:

Rationale for Correct Answer:By double-entry accounting rules, every accounting entry affects at least two accounts (debit and credit). Fraudulent entries must also follow this rule, meaning manipulation will show up in at least two categories on the financial statements.

Analysis of Incorrect Options:

A. One – Impossible in double-entry accounting.

C. More than two – Possible, but not always; the minimum is two.

D. None of above – Incorrect since “at least two” is correct.

Key Concept:Double-entry accounting ensures at least two accounts are affected in every transaction, including fraudulent ones.

Detailed Explanation:

Rationale for Correct Answer:Cressey’s research on fraud offenders found that most had non-sharable financial problems, which fell into categories such as: (1) violation of ascribed obligations, (2) business reversals, (3) physical isolation, (4) status gaining, and (5) employer-employee relations. “Larceny by fraud” is not a category of non-sharable problem but rather a type of theft scheme. Hence, D is correct.

Analysis of Incorrect Options:

A. Violation of ascribed obligations – Correctly one type of non-sharable problem.

B. Business reversals – Correctly one type of non-sharable problem.

C. Physical isolation – Correctly one type of non-sharable problem.

D. Larceny by fraud – Not a “problem” type; it is a fraud scheme.

Key Concept:Cressey’s non-sharable problems — psychological and situational pressures that contribute to occupational fraud.