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

Detailed Explanation:

Rationale for Correct Answer: The ACFE emphasizes four cornerstone internal controls to prevent inventory fraud:

Proper documentation (accurate, prenumbered records),

Segregation of duties (custody, recordkeeping, and authorization separated),

Independent checks (reconciliations and audits), and

Physical safeguards (locks, cameras, restricted access).

Analysis of Incorrect Options:

B. Inventory control – Too general; physical safeguards are the key preventive measure.

C. Physical padding – Not a recognized control.

D. Prenumbered affiliations – Misworded; prenumbered documents are part of proper documentation.

Key Concept: Internal control framework for preventing inventory fraud.

The correct answer is B. A fictitious payee scheme occurs when an insurance insider directs payments to a fabricated or unauthorized recipient and then misappropriates the funds. In this scenario, the agent changes the beneficiary to a made-up person and authorizes distribution of policy proceeds, enabling the agent to abscond with the money. The fraudulent feature is the creation or use of a false payee, not a false death. A false information scheme is broader and does not specifically describe the payment diversion. A fictitious death scheme would involve falsely claiming that the insured died. “False heir scheme” is not the best ACFE category. The ACFE insurance fraud materials identify fictitious payees as an agent or broker fraud method.

Card-not-present fraud occurs when payment card information is used without the physical card being presented, commonly in online transactions. Comparing IP addresses for internet orders with those used in previous orders by the same customer is the most effective detection measure listed because it helps identify unusual access patterns. If an order is placed from an unfamiliar or suspicious IP address inconsistent with the customer’s historical activity, it can indicate unauthorized use of stolen card data. Small orders from new accounts might be suspicious but are less reliable alone. Declining rush shipping is not a typical fraud indicator, and purchasing several unique items is not necessarily suspicious. The ACFE materials identify payment card fraud and card-not-present transactions as key payment fraud risks.

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Detailed Explanation:

Rationale for Correct Answer: The matching principle under GAAP requires that revenues and the corresponding expenses incurred to generate those revenues be recorded in the same period. Failing to do so misstates income and violates accrual accounting.

Analysis of Incorrect Options:

B. Revenue and Income statement – The income statement is a report, not an item to be matched.

C. Income statement and Long-term contracts – Long-term contracts follow special rules (percentage of completion, completed contract), not the general matching principle.

D. Capitalized expenses and Liabilities – Not part of the matching principle.

Key Concept: Matching Principle — recording related revenues and expenses in the same period.

Detailed Explanation:

Rationale for Correct Answer: Insider cyberfraud thrives in environments where monitoring is weak . If access logs are not reviewed , malicious activity can go undetected, enabling fraud.

Analysis of Incorrect Options:

B. Programs run during business day – Normal IT operations, not a fraud risk.

C. Restricted access – This is a preventive control, not a facilitator.

D. Separation of duties – Strong control, prevents insider fraud.

Key Concept: Conditions facilitating insider cyberfraud .

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: 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 .

Detailed Explanation:

Rationale for Correct Answer: A ghost employee scheme occurs when fictitious or former employees remain on payroll. Detecting duplicate addresses, Social Security/Government ID numbers, or other anomalies between HR and payroll records is a classic detection method for ghost employees.

Analysis of Incorrect Options:

A. Fraudulent commissions scheme – Relates to sales manipulation, not duplicate personnel records.

B. Falsified hours and salary scheme – Involves timekeeping, not fictitious employees.

C. Expense reimbursement scheme – Concerns fraudulent expense claims, unrelated to payroll records.

Key Concept: Payroll fraud — Ghost Employee scheme .

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: This statement is False . Shrinkage is a general term for unaccounted-for inventory losses, and it can indeed result from theft, errors, damage, or waste . To say shrinkage does not result from theft is misleading because theft is one of its primary causes.

Analysis of Incorrect Options:

A. True – Incorrect, as theft is often a major contributor to shrinkage.

B. False – Correct, since shrinkage can include theft.

Key Concept: Shrinkage includes theft as a cause of unexplained inventory loss.