Free Practice Questions for ACFE CFE-Fraud-Schemes-and-Financial-Crimes Exam

Detailed Explanation:

Rationale for Correct Answer: Check fraud is prevalent partly because the equipment needed (scanners, printers, software) is relatively inexpensive and widely available , lowering the barrier to entry.

Analysis of Incorrect Options:

A – False; many check fraud perpetrators are never caught.

C – False; penalties are often not severe, and enforcement may be inconsistent.

D – Incorrect, since B is a true statement.

Key Concept: Nature and accessibility of check fraud schemes.

The correct answer is A. Restricting inventory access to authorized personnel is a basic preventive control against theft of inventory and other assets. Limiting physical access reduces opportunities for employees or outsiders to remove goods without authorization. Option B is weak because concentrating receiving and distribution duties in one person reduces segregation of duties and increases concealment risk. Option C is also improper because purchasing personnel should not independently perform physical inventory counts; independent counts help detect theft and manipulation. Option D is incorrect because documents should be prenumbered and controlled, not nonconsecutive, so missing or altered forms can be detected. The ACFE materials discuss inventory theft prevention through access controls, proper documentation, segregation of duties, and independent inventory counts.

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The correct answer is C. Government and public sector organizations might need to conduct and respond to fraud risk assessments more frequently because their risks can change with political priorities, public programs, emergency funding, legislative mandates, and changing public expectations. Public entities are accountable to citizens, regulators, oversight bodies, and funding authorities. Option A is incorrect because the absence of shareholders does not permit higher fraud tolerance; public stewardship often requires strong accountability. Option B is inaccurate because public sector priorities can shift quickly based on laws, budgets, and government initiatives. Option D is also incorrect because public organizations usually have less autonomy than private entities due to statutory requirements, public scrutiny, procurement rules, and oversight obligations. Fraud risk assessment should therefore be dynamic and responsive.

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The correct answer is A. David is committing a lapping scheme. Lapping occurs when an employee steals one customer’s payment and conceals the theft by applying a later payment from another customer to the first customer’s account. The employee must then continue shifting later payments to earlier accounts to keep the shortage hidden. This creates a rolling concealment pattern that can continue until discovered through customer complaints, account confirmations, delayed postings, or independent reconciliation. Padding, substitution, and duplication are not the standard ACFE classifications for this receivables concealment method. Because David is using later customer payments to cover earlier stolen receipts, his conduct fits the classic definition of lapping under cash receipts fraud schemes.

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The correct answer is D. Traditional identity theft involves using the real identifying information of another person to impersonate that individual. Here, the fraudster uses another person’s actual name and picture to create a social media profile, meaning the fraudster is posing directly as a real person rather than creating a hybrid or fictitious identity. Synthetic identity theft combines real and fabricated information to create a new identity, which is not described here. Criminal identity theft involves using another person’s identity in a law enforcement or criminal justice context. New account identity theft is not the best ACFE category for this question because the facts emphasize impersonation using real identity information. The ACFE materials distinguish traditional identity theft from synthetic and criminal identity theft.

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Detailed Explanation:

Rationale for Correct Answer: While asset misappropriation schemes are usually committed by lower-level employees, financial statement fraud is most often committed by senior management . This is because executives have the authority to override controls, direct accounting policies, and influence financial reporting for personal gain (bonuses, stock prices, or to conceal poor performance).

Analysis of Incorrect Options:

A. Organized criminals – May commit fraud, but financial statement fraud specifically requires authority over reporting.

B. Mid and lower-level employees – Lack sufficient authority to materially alter financial statements.

D. All of the above – Incorrect, as financial statement fraud is overwhelmingly associated with senior management.

Key Concept: Management override — financial statement fraud perpetrated by those with the authority to manipulate reports.

The correct answer is B. When a debtor organization intends to continue as a going concern, effective insolvency practice may permit existing management to remain involved, subject to oversight by an independent insolvency representative. This approach balances operational continuity with creditor protection, transparency, and accountability. Exclusive control by secured creditors is inappropriate because insolvency proceedings must consider the legal framework and the rights of all affected parties. Creditors may have participation rights, but they do not automatically manage the organization. Mandatory shared governance between management and creditors is also not the best statement of the World Bank Principles. Professionally, the independent representative’s role is to supervise, preserve value, investigate improper transactions, and protect the integrity of the process.

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Detailed Explanation:

Rationale for Correct Answer: Cash larceny is the theft of cash after it has been recorded in the company’s books. Skimming, in contrast, is theft of cash before recording .

Analysis of Incorrect Options:

B & D – Both describe forms of skimming (unrecorded or understated sales).

C – Kickback scheme is corruption, not cash theft.

Key Concept: Distinguishing cash larceny (on-book theft) from skimming (off-book theft).

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 D because cash larceny involves stealing cash after it has already been recorded in the organization’s accounting records. Julia processes transactions as usual, meaning the sales and cash should already be reflected in the register records, and then she removes $100. Option A is closer to skimming because the payment is stolen before being reported. Option B is also skimming because Petra records only part of the sale and steals the unrecorded portion. Option C involves deleting the register log, which suggests an attempt to prevent the transactions from remaining recorded. The ACFE materials distinguish cash larceny from skimming based on whether the stolen funds were recorded before theft.

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