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

Detailed Explanation:

Rationale for Correct Answer: Bid-rigging occurs when an employee or official manipulates the competitive bidding process to ensure a specific vendor wins the contract. This may involve sharing confidential information, suppressing competition, or tailoring bid specifications.

Analysis of Incorrect Options:

B. Does not assist – Opposite of fraud; no scheme.

C/D. Once assists… – Bid-rigging is systemic, not limited to one occurrence.

Key Concept: Bid-rigging schemes — corruption in procurement processes.

The correct answer is C. Multifactor authentication is an effective preventive control for electronic funds transfer fraud because it requires users to verify their identity through more than one authentication factor before initiating or approving payments. This reduces the risk that stolen usernames, passwords, or account credentials alone will allow unauthorized transfers through EBPP or P2P systems. Option A is unsafe because sending PINs, usernames, and passwords together increases exposure if the communication is intercepted. Option B is also poor practice because sensitive credentials should be encrypted. Option D weakens segregation of duties by allowing one employee to control both PIN issuance and access device information. The ACFE materials emphasize authentication, access controls, and segregation of duties in preventing EFT fraud.

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Comprehensive and Detailed Explanation

Definition of Upcoding (ACFE Manual Reference)

The ACFE Manual identifies upcoding as a type of health care billing fraud in which the provider submits a claim for a more expensive or more complex service than what was actually provided.

Although the exact term “upcoding” appears within the health care fraud discussions, the broader category is part of Financial Transactions and Fraud Schemes concerning fraudulent billing practices . The manual describes fraud schemes in which the perpetrator:

Bills for services not provided ,

Bills for more expensive services than were actually delivered, or

Uses codes that misrepresent the level or nature of medical procedures.

Upcoding specifically involves:

Billing for a higher-cost procedure than what was actually performed, by using a code representing a more expensive service.

Why Option D Is Correct

Dr. Raul advised a patient with a small fracture to use crutches, but he submitted a claim using a code indicating that he placed a cast on the patient.

Actual service: Advice and crutches

Billed service: Application of a cast (more expensive procedure)

This is a textbook example of upcoding , as the provider is using a higher-cost CPT code to obtain greater reimbursement than the service warrants.

Why the Other Options Are Incorrect

Option A – Not Upcoding

Cindy receives a payment to undergo an unnecessary procedure , which is then billed fraudulently.

This is medically unnecessary services fraud , not upcoding.

Option B – Not Upcoding

Dr. Loomis uses three procedure codes instead of one .

This is an example of unbundling , which involves billing separate codes for procedures that should be billed as a single package.

Option C – Not Upcoding

Landon inflates the amount of a medical bill he wants reimbursed.

This is billing inflation or overstatement , but not misrepresentation via coding.

ACFE Manual Supporting Reference

The Manual’s section on fraudulent billing schemes discusses cases where perpetrators misrepresent medical procedures , including using false or inflated codes to obtain higher reimbursements.

Detailed Explanation:

Rationale for Correct Answer: This is True . Fraudulent financial reporting often involves manipulating depreciation. By lowering or delaying depreciation expense, companies can inflate profits and overstate asset values. This is a common method of financial statement fraud related to earnings management.

Analysis of Incorrect Options:

B. False – Incorrect, as understatement of depreciation clearly inflates reported profits.

Key Concept: Depreciation Manipulation in Financial Statement Fraud .

Detailed Explanation:

Rationale for Correct Answer: Intangible assets are long-lived assets that lack physical substance and differ from property, plant, and equipment. Examples include goodwill, patents, trademarks, and copyrights. They provide long-term benefits but cannot be physically touched.

Analysis of Incorrect Options:

A. Tangible Assets – These have physical form (e.g., equipment, land).

C. Forced Assets – Not an accounting category.

D. None of the above – Incorrect since intangible assets match the definition.

Key Concept: Classification of Assets — tangible vs. intangible.

Detailed Explanation:

Rationale for Correct Answer: Cash larceny involves stealing cash after it has been recorded. Reconciling register totals against actual drawer cash can reveal shortages, making option C the best detection method.

Analysis of Incorrect Options:

A – Weakens segregation of duties and increases fraud risk.

B – Impractical; cross-training is often necessary.

D – Cashiers counting their own registers weakens independent verification and may conceal theft.

Key Concept: Detecting cash larceny through reconciliation controls.

Detailed Explanation:

Rationale for Correct Answer: Bid pooling occurs when vendors collude to divide contracts among themselves. They agree in advance who will submit the lowest bid for certain contracts, ensuring each participant gets a share of the business.

Analysis of Incorrect Options:

A. Bid opening – The formal process of opening bids, not fraud.

B. Fictitious bidding – Not a standard fraud term.

D. Bid log – A record of submitted bids, not a scheme.

Key Concept: Bid pooling — collusion among vendors in bid-rigging schemes.

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: Physical inventory counts involve actually counting items on hand and comparing them to book records. These counts can reveal theft, errors, or shrinkage when discrepancies are identified.

Analysis of Incorrect Options:

A. Perpetual inventory counts – The system tracks expected balances but cannot independently confirm theft.

C. Concealment inventory counts – Not a recognized term.

D. None of the above – Incorrect, since physical counts do aid detection.

Key Concept: Physical inventory counts as a fraud detection tool.

Detailed Explanation:

Rationale for Correct Answer: According to the ACFE Fraud Tree, cash-related asset misappropriation schemes fall into three categories: Skimming (off-book theft), Cash Larceny (on-book theft), and Fraudulent Disbursements (bogus outflows such as billing, payroll, and check tampering) .

Analysis of Incorrect Options:

B. Fraud analysis, skimming, and cash misappropriations – “Fraud analysis” and “cash misappropriations” are not fraud tree categories.

C. Cash larceny, cash distribution, and fraudulent disbursements – “Cash distribution” is not a fraud tree category.

D. Cash distribution, skimming, and fraud analysis – Includes non-fraud tree terms.

Key Concept: Fraud Tree — Cash Schemes: Skimming, Cash Larceny, Fraudulent Disbursements.