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

The correct answer is D. The FATF Recommendations establish international standards for combating money laundering, terrorist financing, and related threats. They recommend that countries criminalize money laundering, supervise financial institutions and high-risk professions, require suspicious transaction reporting, and maintain mechanisms for analyzing and disseminating financial intelligence. A financial intelligence unit receives and analyzes suspicious transaction reports and other AML-related information. Option A is incorrect because FATF does not require a universal three-year sentence for every conviction. Option B is too extreme and does not reflect the FATF framework. Option C is not a general FATF requirement; customer due diligence and monitoring focus on risk, transactions, and beneficial ownership, not mandatory review of public social media profiles.

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The correct answer is A because the FATF Recommendations provide that financial institutions and designated nonfinancial businesses and professions should report covered cash transactions that exceed the jurisdiction’s designated threshold. Dealers in precious metals and stones, such as businesses selling gold jewelry, are commonly treated as higher-risk entities for anti-money laundering purposes. A domestic cash purchase above the threshold would therefore require reporting. Options B and C are below the designated threshold, so they do not meet the reporting requirement based on amount. Option D involves a food purchase, which is not the type of covered high-risk transaction described in the FATF large cash transaction guidance. The key issue is both the covered business type and the threshold amount.

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Detailed Explanation:

Rationale for Correct Answer: Skimming involves the theft of cash before it is recorded in the accounting system. Since sales are never recorded, reconciling sales to receipts will not detect skimming—it can only detect larceny (theft after recording).

Analysis of Incorrect Options:

A. True – Incorrect because no discrepancy exists in the records (the sale itself is omitted).

Key Concept: Distinction between skimming (off-book theft) and cash larceny (on-book theft).

The correct answer is C. Trade-based money laundering uses international trade transactions to disguise or move illicit value. A common method is misinvoicing, where colluding importers and exporters overstate or understate the price, quantity, or quality of goods. When goods are invoiced above market value, value can be transferred from the importer to the exporter under the appearance of a legitimate commercial payment. Option A involves laundering through virtual or digital assets, not trade-based laundering. Option B describes use of a front business, particularly a cash-intensive business, to mix illegal proceeds with legitimate revenue. Option D describes structuring or smurfing through small transfers. The international invoice manipulation in option C is the strongest example of trade-based money laundering.

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Detailed Explanation:

Rationale for Correct Answer: Expenses appear on the income statement , not the balance sheet. The balance sheet includes assets, liabilities, and owners’ equity, representing the accounting equation.

Analysis of Incorrect Options:

A, B, D – All appear on the balance sheet.

Key Concept: Distinction between financial statements: balance sheet vs. income statement.

Detailed Explanation:

Rationale for Correct Answer: Corruption schemes involve the misuse of influence in business transactions for personal benefit, often through bribery, kickbacks, or conflicts of interest. In this case, the procurement agent accepts an improper benefit (use of a beach house) in exchange for contract favoritism, which is a classic bribery scheme.

Analysis of Incorrect Options:

A – Theft of confidential information = asset misappropriation/intellectual property theft , not corruption.

C – Excluding laptops from records = inventory theft , not corruption.

D – Omitting costs = financial statement fraud .

Key Concept: Bribery as a form of corruption.

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.

The red flag is that Fran has made multiple insurance claims in the past. Prior claims history can indicate a pattern of suspicious or repeated losses, especially when a new claim involves valuable property. Receipts and photographs generally support a claim rather than create suspicion by themselves, although they should still be verified for authenticity. Including bulky items in a fire loss claim is not automatically suspicious because fires can destroy many types of property, including large household goods. The ACFE insurance fraud materials identify red flags as indicators requiring further review, not proof of fraud. Fran’s repeated claim history would justify closer examination of the claim details, supporting documentation, timing, policy coverage, and any prior loss patterns.

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The correct answer is D. Self-regulatory organizations are industry-based bodies that perform certain oversight functions under the supervision of securities regulators in some jurisdictions. Their duties can include monitoring member firms, examining trading operations, enforcing industry rules, and supporting market integrity. Option A is inaccurate because SROs are not simply governmental entities, although they may operate under statutory recognition or regulatory oversight. Option B is too absolute because SROs may participate in dispute resolution or arbitration in some jurisdictions. Option C is also overstated because SRO authority generally focuses on members and regulated market participants, not securities-related allegations within all private companies. The ACFE materials recognize self-regulation as part of the securities regulatory framework, subject to oversight and standards of fairness and confidentiality.

Detailed Explanation:

Rationale for Correct Answer: Departures from GAAP may be justified if compliance produces misleading results, if the transaction is immaterial, or if the costs exceed benefits. However, simply departing from GAAP because assets would be understated and liabilities overstated is not an acceptable reason ; GAAP requires faithful representation even if results are unfavorable.

Analysis of Incorrect Options:

A – Cost-benefit considerations are valid grounds in practice.

C – Materiality is a recognized exception to strict GAAP application.

D – Preventing misleading statements is a valid justification.

Key Concept: GAAP exceptions are limited to cost-benefit, immateriality, and preventing misleading reporting .