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

Detailed Explanation:

Rationale for Correct Answer:The correct answer is A. Larceny. As defined in the Fraud Examiners Manual (2020 International Edition), larceny is the unlawful taking of another’s property with intent to permanently deprive the owner of its use or possession. Essential elements include: (1) the wrongful taking or carrying away of property, (2) without the consent of the owner, and (3) with felonious intent (i.e., intent to steal). This aligns directly with the definition provided in the question.

Analysis of Incorrect Options (Distractors):

B. Abuse – Abuse typically refers to the improper use of authority or resources (e.g., excessive expense claims, misuse of assets), but it is not a legal term describing theft by taking.

C. Fiduciary – Fiduciary describes a relationship of trust or duty to act for another’s benefit, not the act of theft.

D. None of the above – Incorrect because “larceny” precisely matches the elements described.

Key Concept:The definition and elements of larceny, which is a foundational legal concept for distinguishing among asset misappropriation schemes such as larceny vs. skimming.

Detailed Explanation:

Rationale for Correct Answer: A major red flag of a Ponzi scheme is when the promoter has custody and control over investor funds with little to no independent oversight. This centralization allows them to use new investor money to pay old investors while concealing losses.

Analysis of Incorrect Options:

A – Ponzi operators usually pressure investors to reinvest, not take payouts, to keep funds circulating.

C – Schemes often involve overly complex or secretive strategies, not simple ones.

D – Realistic fluctuations based on markets suggest legitimate investing, not a Ponzi scheme (which typically reports steady, unrealistic returns).

Key Concept: Ponzi schemes rely on lack of oversight, unrealistic returns, and control of funds by promoters.

Detailed Explanation:

Rationale for Correct Answer:Net realizable value (NRV) is the estimated selling price of an asset in the ordinary course of business, minus any costs of completion, disposal, or transportation. This is often applied in valuing accounts receivable and inventory.

Analysis of Incorrect Options:

B. Going concern – Assumption of business continuity, not asset valuation.

C. Cost – Historical cost, not future realizable value.

D. Fair value – Current market-based measure, not net proceeds after costs.

Key Concept:Net realizable value — valuation method for receivables and inventory.

Detailed Explanation:

Rationale for Correct Answer:Cost mischarging occurs when costs are charged to improper accounts or contracts. The best way to detect it is through analytical review—comparing direct vs. indirect labor account totals across periods to identify unusual shifts or spikes.

Analysis of Incorrect Options:

A. Reviewing inspection/testing reports – Effective for detecting defective/substituted goods, not mischarging.

C. Inspecting packaging – Identifies product substitution, not accounting mischarges.

D. Examining change orders – Useful for contract fraud, but not direct mischarging.

Key Concept: Cost mischarging detection through analytical procedures.

Detailed Explanation:

Rationale for Correct Answer: A ghost employee scheme occurs when someone (real or fictitious) is added to payroll, and paychecks are diverted to the fraudster. The key requirement is that the “ghost” is listed on payroll records.

Analysis of Incorrect Options:

A – The ghost may be fictitious or a real former employee.

B – Employment classification is irrelevant.

C – A ghost could be a current, terminated, or entirely fictitious employee.

Key Concept: Payroll fraud – ghost employee schemes.

Detailed Explanation:

Rationale for Correct Answer:When employees steal incoming checks and deposit them into interest-bearing accounts, they may be (1) converting the stolen checks, (2) temporarily concealing the fraud, and (3) executing a form of short-term skimming. All options apply, making D. All of the above correct.

Analysis of Incorrect Options:Each of A, B, and C alone captures part of the practice, but only D reflects the full scope.

Key Concept:Check theft and temporary placement in personal accounts as part of skimming concealment.

Detailed Explanation:

Rationale for Correct Answer:The most basic skimming scheme is when an employee completes a legitimate sale, collects payment, but never records the transaction. The stolen cash is never entered in the books, making it an “off-book” fraud.

Analysis of Incorrect Options:

B & D – Describe purchasing scenarios, irrelevant to skimming.

C – Records the sale, meaning the transaction enters the books (not skimming).

Key Concept:Unrecorded Sales as the simplest form of skimming.

Detailed Explanation:

Rationale for Correct Answer:The term Employee deviance refers to conduct that is harmful both to the organization and to the employee engaging in it. This encompasses a broad set of behaviors, including fraud, theft, abuse, and violations of organizational norms. While employee theft and fraud are subsets, deviance is the umbrella concept.

Analysis of Incorrect Options:

B. Employee theft – Specific to stealing from the employer, not the broader definition of detrimental conduct.

C. Employee fraud – Specific to deceptive practices, not all deviant acts.

D. All of the above – Incorrect, since the definition most accurately matches “Employee deviance.”

Key Concept:Employee Deviance — broader behavioral category that includes fraud, theft, and other misconduct.

Detailed Explanation:

Rationale for Correct Answer:This statement is False. Every bribe involves two willing parties: one who offers and one who accepts the illicit payment. If one party is not making or accepting the payment, the transaction cannot be classified as a bribe.

Analysis of Incorrect Options:

A. True – Incorrect because both sides are complicit in bribery.

Key Concept:Bribery requires two-sided participation.

Detailed Explanation:

Rationale for Correct Answer:Supplies are recorded as expenses because they are expected to be consumed within one year. Unlike long-lived assets, supplies do not provide benefits beyond the short term and therefore are expensed rather than capitalized.

Analysis of Incorrect Options:

B. Expenses – The accounting treatment, not the category of item.

C. Assets – Supplies are assets when purchased, but they become expenses upon consumption.

D. Equity – Represents ownership interest, unrelated here.

Key Concept:Short-term asset consumption and expense recognition.