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

Detailed Explanation:

Rationale for Correct Answer: New account fraud occurs when fraudsters open accounts with false or stolen identities to exploit financial institutions before controls detect suspicious activity. Mobile deposits are particularly vulnerable because criminals can use counterfeit or altered images to deposit fraudulent checks quickly. This aligns with the Fraud Examiners Manual (2020) discussion of high-risk delivery channels for new account fraud.

Analysis of Incorrect Options:

A. Established accounts – Incorrect; fraud risk is higher in new accounts due to limited history and weaker controls.

C. Six months definition – Not an ACFE standard; there is no fixed six-month definition.

D. ATMs rarely targeted – Incorrect; ATMs are frequently exploited in new account fraud schemes.

Key Concept: New account fraud in identity theft and corruption-related schemes.

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: This statement is False . Research in occupational fraud consistently shows that when employees believe there is a strong likelihood of being caught, they are less likely to engage in theft or deviant behavior. Deterrence theory emphasizes that perceived certainty of detection is one of the most effective controls against occupational fraud.

Key Concept: Deterrence through perceived detection .

Detailed Explanation:

Rationale for Correct Answer: The described scheme is lapping , a classic accounts receivable fraud. It involves covering up stolen payments by applying subsequent receipts from other customers to hide the shortage.

Analysis of Incorrect Options:

A. Padding – Usually refers to overstating expense reimbursements, not AR fraud.

C. Substitution – Refers to replacing missing assets with others, not AR manipulation.

D. Daisy chain – Not a recognized fraud concealment method in this context.

Key Concept: Skimming concealment techniques – lapping of receivables.

The correct answer is A. Baker used the company’s purchasing function to acquire goods for his personal benefit, making the scheme a personal purchase with company funds. This type of billing scheme occurs when an employee causes the organization to pay for goods or services that are not for legitimate business use. The fact that Baker ordered unnecessary supplies and used them to improve his house shows a personal benefit disguised as a business purchase. A pass-through scheme involves an intermediary company used to resell goods or services at inflated prices. A pay-and-return scheme involves overpaying a vendor and diverting the refund. Theft of inventory is less precise because Baker fraudulently caused the company to purchase the items.

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Detailed Explanation:

Rationale for Correct Answer: Ponzi schemes differ from pyramid schemes. In Ponzi schemes, investors are paid returns from funds contributed by later investors, not based on recruiting new investors. Recruiting-based payouts are a characteristic of pyramid schemes , not Ponzi schemes.

Analysis of Incorrect Options:

A. Legitimate investment belief – True; victims believe the investment is genuine.

B. High returns promised – Classic Ponzi hallmark.

D. Minimal valid commerce – Ponzi promoters often fake or exaggerate legitimate investments.

Key Concept: Difference between Ponzi schemes and pyramid schemes .

Detailed Explanation:

Rationale for Correct Answer: In a false refund scheme , the fraudster enters a fictitious refund into the register system, making it appear that merchandise was returned. The register log reflects the fraudulent refund, so the cash on hand does balance with the adjusted log. Thus, the mismatch described in the question does not occur.

Analysis of Incorrect Option:

A. True – Incorrect because the log and cash are manipulated to match, concealing the theft.

Key Concept: Cash register fraud (false refunds vs. false voids).

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: This is a tech-support scam , in which fraudsters trick victims into believing their computers are infected and then charge fees for unnecessary or fake repairs. The scam often targets elderly victims.

Analysis of Incorrect Options:

A. Pharming – Redirects users to fake websites, not fake support calls.

B. Bait and switch – Advertising deception, not fraudulent computer support.

D. Smishing – Fraud via SMS text messages, not on-screen computer popups.

Key Concept: Consumer fraud schemes — tech-support scams.

Shoulder surfing is the practice of obtaining personal or confidential information by watching or listening while a victim uses or discloses it. Common examples include observing someone enter a PIN, password, access code, or account number, or overhearing a person provide sensitive details during a conversation. Option A is inaccurate because impersonating a bank or financial institution to obtain confidential information is closer to phishing or vishing, not baiting. Option B is inaccurate because pharming redirects users to fraudulent websites, while searching used devices is a discarded-device or data-recovery risk. Option D describes dumpster diving, not phishing. The ACFE identity theft materials distinguish these methods because recognizing the specific technique is important for prevention, investigation, and victim response.

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