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

Detailed Explanation:

Rationale for Correct Answer: Address similarity reports are used to identify fraudulent disbursements by flagging payments sent to multiple vendors or payees at the same address. This helps detect fictitious payees or shell companies set up by fraudsters.

Analysis of Incorrect Options:

A. Duplicate payment lists – Detects duplicate disbursements, not necessarily fictitious payees.

C. Exception reports – Flag unusual transactions, but not specifically address similarities.

D. Electronic confirmations – Used to verify balances or transactions, not detect fictitious vendors.

Key Concept: Detection of fraudulent disbursements .

Detailed Explanation:

Rationale for Correct Answer: This statement is True . Fraud examiners often analyze purchases by vendor to detect schemes where a single vendor receives disproportionately favorable treatment. This may indicate kickbacks, conflicts of interest, or vendor collusion schemes.

Analysis of Incorrect Options:

B. False – Incorrect, as vendor analysis is a valid tool to identify such schemes.

Key Concept: Purchases by vendor analysis as a fraud detection method.

Detailed Explanation:

Rationale for Correct Answer: The most basic skimming scheme is when an employee completes a legitimate sale, collects payment, but never records the transaction. The stolen cash is never entered in the books, making it an “off-book” fraud.

Analysis of Incorrect Options:

B & D – Describe purchasing scenarios, irrelevant to skimming.

C – Records the sale, meaning the transaction enters the books (not skimming).

Key Concept: Unrecorded Sales as the simplest form of skimming.

Detailed Explanation:

Rationale for Correct Answer: Fraudsters may solicit bids from fictitious suppliers (phony vendors) to create the illusion of competition. This ensures that the favored vendor wins while maintaining the appearance of a legitimate competitive bidding process.

Analysis of Incorrect Options:

B. Solicit transactions from fictitious vendors – Incorrect phrasing; bids, not transactions, are solicited.

C. Solicit bid-splitting… – Bid-splitting is a different fraud scheme, not part of solicitation.

D. None of the above – Incorrect, since A is accurate.

Key Concept: Phony bid solicitation as a corruption tactic in procurement.

Timothy is a victim of a pig butchering scheme. This scam combines long-term relationship manipulation with fraudulent investment activity, commonly involving cryptocurrency. The fraudster builds trust over weeks or months, moves the victim to a private messaging channel, and encourages investments through a fake platform. The victim often sees apparent gains, but the trading platform is controlled by the fraudster or does not exist. Once the victim attempts to withdraw funds, the fraudster disappears or demands more money. This is not a Ponzi scheme because the facts do not involve paying old investors with new investor funds. It is not a pump-and-dump because no market manipulation of a traded security is described. It is broader than a simple advance-fee scheme.

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Detailed Explanation:

Rationale for Correct Answer: The accounting framework a company must follow depends on the jurisdiction in which it is publicly traded . For example, U.S.-listed companies must follow GAAP, while companies in the EU must use IFRS. Some countries allow or require IFRS, others mandate local GAAP.

Analysis of Incorrect Options:

B – Incorrect; some jurisdictions have their own national GAAP not tied to U.S. GAAP or IFRS.

C – Incorrect; international operations do not mandate IFRS—jurisdictional rules apply.

D – Incorrect; U.S. GAAP is rules-based, IFRS is principles-based (the reverse of what’s stated).

Key Concept: Financial reporting standards are jurisdiction-driven.

Detailed Explanation:

Rationale for Correct Answer: This statement is True . Asset misappropriations reduce the organization’s assets. In double-entry accounting, a decrease in assets without a corresponding decrease in liabilities results in a reduction of owner’s equity. Therefore, fraud not only depletes assets but also indirectly reduces equity.

Analysis of Incorrect Options:

B. False – Incorrect because asset theft clearly reduces net assets and thereby equity.

Key Concept: Impact of Asset Misappropriation on the accounting equation: Assets = Liabilities + Equity.

Detailed Explanation:

Rationale for Correct Answer: Larceny by fraud (often termed “theft by deception”) occurs when someone unlawfully obtains another’s property by deception rather than by direct taking. As defined in fraud examination principles, deception can involve: (1) creating or reinforcing a false impression, (2) failing to correct a false impression, or (3) failing to disclose material facts such as liens or adverse claims. Because all three scenarios represent deceptive means to unlawfully take property, the correct answer is D. All of the above .

Analysis of Incorrect Options:

A, B, C each describe valid examples of fraud by deception but individually do not fully capture the concept.

D encompasses the totality of recognized deceptive practices under larceny by fraud.

Key Concept: Fraud by deception as an element of theft and misappropriation.

The ACFE Fraud Examiners Manual (2020 International Edition) , under the section on Information Security in Electronic Commerce Systems , describes the three primary security goals that must be achieved to protect users and account holders:

Confidentiality

Integrity

Availability

These three goals form the cornerstone of information system protection and are often referred to as the CIA triad .

1. Confidentiality

Confidentiality ensures that sensitive information is accessible only to authorized individuals. The Manual highlights that e-commerce systems must protect customers’ personal and financial data from unauthorized access.

2. Integrity

Integrity requires that the information in the system is accurate and has not been improperly altered. This prevents fraudulent manipulation of records, transactions, and account balances.

3. Availability

Availability ensures that systems and data are accessible to authorized users when needed. This includes preventing disruptions caused by system failures, denial-of-service attacks, or internal sabotage.

These three goals are explicitly documented in the ACFE Manual as essential security requirements for safeguarding electronic financial systems.

Why Option C is the Correct Answer

“Penetrability of data” is NOT an information security goal.

In fact, it is the opposite of what an information security framework seeks to achieve. No section of the ACFE Manual identifies "penetrability" as a required or legitimate objective. Instead, systems should be resistant to penetration attempts.

Thus, Option C does not belong to the CIA model or any ACFE-described security framework.

ACFE Manual Reference

These concepts are covered in the Financial Transactions and Fraud Schemes section discussing information security objectives for e-commerce environments, which identifies confidentiality, integrity, and availability as the foundational goals of secure systems.

Detailed Explanation:

Rationale for Correct Answer: Cost mischarging occurs when costs are charged to improper accounts or contracts. The best way to detect it is through analytical review —comparing direct vs. indirect labor account totals across periods to identify unusual shifts or spikes.

Analysis of Incorrect Options:

A. Reviewing inspection/testing reports – Effective for detecting defective/substituted goods, not mischarging.

C. Inspecting packaging – Identifies product substitution, not accounting mischarges.

D. Examining change orders – Useful for contract fraud, but not direct mischarging.

Key Concept: Cost mischarging detection through analytical procedures .