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

Detailed Explanation:

Rationale for Correct Answer: Management may overstate financial statements to (B) meet performance criteria, (C) trigger bonuses/compensation, or (D) show growth to enhance valuation for sale. However, when seeking to comply with debt covenants , management typically understates liabilities or expenses — not overstates performance. Thus, A is not aligned with overstatement motives.

Analysis of Incorrect Options:

B, C, D – All are recognized motives for overstating business performance.

A. Comply with debt covenants – More linked to manipulation of liabilities (often understatement), not overstatement of revenue.

Key Concept: Motives for overstatement in financial statement fraud.

Rationale for Correct Answer: In occupational fraud, the primary culprit is generally the employee (insider) who abuses their position of trust. By definition, occupational fraud involves someone inside the organization exploiting their role.

Key Concept: Employee perpetrator as the primary fraud actor in occupational fraud schemes.

Why the correct answer is Human Intelligence

The ACFE Fraud Examiners Manual , in the section on fraud examination tools and intelligence gathering , discusses methods of obtaining information from individuals. One of the recognized methods is Human Intelligence (HUMINT) .

The Manual explains that human intelligence gathering involves:

Collecting information directly from people—often through conversation, elicitation, or interviews—sometimes while using a pretext to encourage the target to disclose information.

In this scenario:

Georgina poses as a customer (a pretext),

Contacts an employee of ERO Corp., and

Elicits sensitive information directly from that individual.

This aligns perfectly with the definition of human intelligence gathering —information obtained directly from human sources , often under false pretenses.

Why the other options are incorrect

B. Scavenging – Incorrect

The Manual describes scavenging as:

Obtaining information by searching for discarded documents or materials, such as in trash or recycling bins.

Georgina is not going through discarded materials; she is speaking directly with an employee.

C. Baiting – Incorrect

Baiting typically refers to:

Enticing someone with something of value to trick them into taking an action, often involving malware-infected media or fraudulent offers.

Georgina is not offering anything or luring the employee with incentives.

D. Open-source intelligence – Incorrect

Open-source intelligence (OSINT) refers to gathering information from:

Publicly available sources such as websites, publications, databases, or social media.

Georgina is not using public sources; she is actively eliciting confidential information from a person under false pretenses.

ACFE Manual References

The concepts used in this answer derive from the Fraud Examiners Manual (2020 International Edition), including:

Human intelligence and data collection techniques

Scavenging as an investigative method

Baiting schemes

Open-source intelligence descriptions

The correct answer is C. Reviewing insurance policy applications for irregularities, inconsistencies, and missing information before coverage is granted is an effective preventive control. Many insurance fraud schemes begin at the application or underwriting stage through false statements, omitted risk factors, fictitious policies, or misrepresentations about the insured. Careful pre-issuance review helps identify suspicious information before the insurer assumes risk. Option A is generally impractical and may raise privacy and legal concerns after claim payment. Option B is inappropriate because combining underwriting and claims processing in one person weakens segregation of duties. Option D is also poor practice because information sharing, where lawful and appropriate, can help insurers identify patterns, duplicate claims, and suspicious applicants. Strong underwriting controls are essential to fraud prevention.

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Detailed Explanation:

Rationale for Correct Answer: Skimming involves theft of cash before it is recorded in the books. Examining journal entries for false credits to inventory would detect inventory fraud, not skimming. Therefore, B is not useful for detecting skimming.

Analysis of Incorrect Options:

A – Confirming customer balances can reveal payments that were never posted because they were skimmed.

C – Physical counts may expose discrepancies caused by skimming disguised as inventory shortages.

D – Comparing register totals to actual cash can reveal missing amounts due to skimming.

Key Concept: Skimming detection focuses on reconciling recorded vs. unrecorded cash.

Detailed Explanation:

Rationale for Correct Answer: Conflict of interest cases are difficult to detect because the transactions often appear legitimate on their face. However, they can be prevented more effectively through proactive controls such as disclosure requirements, vendor vetting, and employee training. The Fraud Examiners Manual (2020) emphasizes that prevention mechanisms are more effective than detection when it comes to conflicts of interest.

Analysis of Incorrect Options:

B. False – Incorrect because detection is challenging; prevention is comparatively easier.

Key Concept: Prevention vs. detection in Conflict of Interest schemes .

Detailed Explanation:

Rationale for Correct Answer: Misuse of noncash assets occurs when employees use company assets for personal purposes without authorization. Even though the vehicle was returned undamaged, unauthorized use and concealment by false statements makes it a fraud scheme under asset misappropriation.

Analysis of Incorrect Options:

A – Incorrect; unauthorized use with deception constitutes fraud.

B – Expense reimbursement involves falsified claims for travel/expenses, not vehicle misuse.

D – Financial statement fraud involves misstating accounting entries, unrelated here.

Key Concept: Misuse of company assets (noncash) as part of asset misappropriation.

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.

The correct answer is A. Oona’s conduct is a multiple expense reimbursement scheme because she is attempting to obtain reimbursement for an expense that the company has already paid through the company credit card. In expense reimbursement fraud, multiple reimbursement schemes occur when an employee submits the same expense more than once, or submits an expense paid through one channel as though it was paid personally. This differs from a mischaracterized expense, where a personal cost is falsely described as business-related. It also differs from an overstated expense, where the amount is inflated, and from a fictitious expense, where no expense occurred. The key issue is duplicate recovery of the same lunch expense.

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The correct answer is D. Supervisor authorization of overtime and verification of hours worked are strong preventive controls against payroll fraud, especially falsified hours and salary schemes. Payroll fraud frequently occurs when employees overstate hours, submit unauthorized overtime, manipulate time records, or receive pay for time not worked. Supervisory review creates accountability and provides an independent check before payroll is processed. Option A is improper because payroll preparation and bank reconciliation should be segregated. Option B is not recommended because direct deposit can reduce paycheck theft and distribution risks. Option C is weak because allowing coworkers to collect paychecks can create opportunities for misappropriation. The ACFE materials identify overtime authorization and payroll review as important payroll fraud controls.

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