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

Detailed Explanation:

Rationale for Correct Answer: This is True . After the closing process, expense accounts are reset to zero for the new accounting period. They remain only as part of historical financial statements and supporting records. Because of this, expense accounts can be a target for fraud concealment (fraudulent disbursements), since closed accounts are rarely scrutinized again.

Analysis of Incorrect Options:

B. False – Incorrect, as the closing process does make expense accounts historical.

Key Concept: Expense accounts in fraud concealment — vulnerabilities due to being closed at period end.

The correct answer is C. A Trojan horse is malware that appears to be legitimate, useful, or harmless software but contains hidden malicious code. Once installed or executed, it can damage systems, steal information, create unauthorized access, or perform other harmful actions. Option A describes ransomware, not a worm; ransomware restricts access to systems or files and demands payment. A worm is self-replicating malware that spreads across networks. Option B describes adware more closely than spyware. Spyware secretly monitors and reports user activity or information. Option D also describes spyware rather than ransomware. Professionally, the key distinction is the malware’s function: concealment and deception for Trojan horses, self-replication for worms, surveillance for spyware, and restriction or encryption for ransomware.

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The correct answer is D. For a ghost employee scheme to work, the fictitious or nonworking employee must be entered into the payroll system with sufficient payroll data to generate payment, including wage rate information. The ghost does not need to be a real person; the identity might be fabricated, stolen, or based on a former employee. Payment does not have to be made by direct deposit because checks, payroll cards, or other methods can also be used. The payment also does not need to be delivered to someone outside the victim company; insiders commonly collect or control the payments. The ACFE materials describe ghost employee schemes as payroll fraud involving adding the ghost, collecting timekeeping information, and issuing the paycheck.

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Detailed Explanation:

Rationale for Correct Answer: Expense reimbursement schemes are a common type of fraudulent disbursement. Requiring employees to submit receipts electronically improves controls by ensuring legibility, reducing the chance of altered or duplicate submissions, and creating a digital audit trail. This measure is recommended in the Fraud Examiners Manual as part of strengthening internal controls over reimbursement processes.

Analysis of Incorrect Option:

B. False – Incorrect because electronic receipt submission is indeed a recognized anti-fraud measure.

Key Concept: Fraudulent disbursements prevention through documentation controls.

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: Under accrual-basis accounting , revenues are generally recognized when earned (often upon delivery of goods or services), not necessarily when cash is received. Similarly, expenses are recorded when incurred, not when paid. This provides a more accurate picture of performance and financial position.

Analysis of Incorrect Options:

A – This describes cash-basis accounting , not accrual-basis.

B – Accrual accounting is more complex, not simpler.

C – Focuses on earned revenues and incurred expenses, not immediate cash flow.

Key Concept: Accrual accounting matches revenues with expenses in the period they occur.

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.

The correct answer is D. In a bid manipulation scheme, a procuring employee improperly influences the bidding process to benefit a favored contractor. One common method is restricting or eliminating legitimate competitors so the preferred vendor has a greater chance of winning. Disqualifying bids that were submitted correctly is a direct manipulation of the competitive process because it removes valid bidders without a proper basis. Charging impermissible costs is more closely related to cost mischarging. Using low-quality materials relates to nonconforming goods or services. Opening the bidding process at the designated time is a proper procurement activity, not fraud. The ACFE material explains that bid manipulation occurs when a corrupt procurement employee affects contractor selection by restricting competition.

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Detailed Explanation:

Rationale for Correct Answer: Market division and allocation agreements are a classic bid-rigging scheme in which contractors collude to evade competition by assigning territories, customers, or project types among themselves. This undermines free and open competition.

Analysis of Incorrect Options:

B – Fake contracts are not a recognized collusion tactic in competitive bidding.

C – Publishing solicitations in different outlets does not evade competition.

D – Submitting false invoices is fraud, but it occurs after contract award , not during the bidding process.

Key Concept: Bid rigging and collusion in procurement fraud.

Detailed Explanation:

Rationale for Correct Answer: Economic extortion occurs when someone demands payment or benefit under threat of harm (explicit or implicit). A government official demanding money in exchange for awarding a contract is classic extortion.

Analysis of Incorrect Options:

A – This is a billing scheme (fraudulent disbursement), not extortion.

C – This is a kickback scheme (corruption).

D – This is an illegal gratuity scheme (reward after action).

Key Concept: Types of corruption—extortion vs. bribery vs. gratuities.