Free ACFE Certified Fraud Examiner - Fraud Schemes and Financial Crimes CFE-Fraud-Schemes-and-Financial-Crimes Exam Questions

The correct answer is C because comparing claimed travel expenses with known business-trip dates is a targeted way to detect fictitious, overstated, or personal expenses submitted for reimbursement. Expense reimbursement fraud often involves employees claiming expenses that were not actually incurred for business purposes, altering receipts, requesting multiple reimbursements, or mischaracterizing personal costs as business costs. Travel expenses outside approved trip dates are suspicious because they might represent personal travel or fabricated claims. Option A is weak because balances matching historical amounts are not inherently suspicious. Option B is inefficient and HR might not have the necessary transactional evidence. Option D is not a strong fraud indicator because lower expenses are generally less suspicious than excessive or unsupported expenses. The ACFE material emphasizes detailed review and analysis of expense reports.

Rationale for Correct Answer:

The journal is specifically the chronological record of transactions. Each entry captures date, accounts affected, amounts, and explanation, making it the foundational record before posting to the ledger.

Analysis of Incorrect Options:

A . Asset -- Not a record, but a resource.

C . Checkbook -- Only records cash movements, not all transactions.

D . Ledger -- Summarizes accounts, but not in chronological order.

Key Concept:

Chronological recording of transactions via the journal.

ACFE Fraud Examiners Manual (2020 International Edition), Accounting Concepts --- Journal vs. Ledger.

Rationale for Correct Answer:

Common skimming schemes include unrecorded sales, theft of incoming checks, and understating sales/receivables. ''Fraud & Cost'' is not a recognized skimming scheme and appears to be a distractor.

Analysis of Incorrect Options:

A . Unrecorded sales -- A classic skimming method.

C . Theft of checks through the mail -- Another recognized skimming approach (incoming receivables).

D . Understated sales and receivables -- A concealment method within skimming schemes.

B . Fraud & Cost -- Not a scheme classification.

Key Concept:

Skimming schemes vs. unrelated distractors.

ACFE Fraud Examiners Manual (2020 International Edition), Cash Receipts --- Skimming Types.

Rationale for Correct Answer:

In sound internal controls, the person initiating electronic payments should not also be responsible for setting filters or approving transactions. This creates a segregation of duties violation. Therefore, statement D is false.

Analysis of Incorrect Options:

A . Positive pay for ACH -- True; it helps verify transactions.

B . ACH blocks -- Correct; a control against unauthorized debits.

C . Lack of physical evidence -- True; electronic fraud lacks paper trails, making detection harder.

Key Concept: Electronic payment tampering controls.

Rationale for Correct Answer:

A ghost employee scheme occurs when fictitious or former employees remain on payroll. Detecting duplicate addresses, Social Security/Government ID numbers, or other anomalies between HR and payroll records is a classic detection method for ghost employees.

Analysis of Incorrect Options:

A . Fraudulent commissions scheme -- Relates to sales manipulation, not duplicate personnel records.

B . Falsified hours and salary scheme -- Involves timekeeping, not fictitious employees.

C . Expense reimbursement scheme -- Concerns fraudulent expense claims, unrelated to payroll records.

Key Concept: Payroll fraud --- Ghost Employee scheme.

Rationale for Correct Answer: Synthetic identity theft occurs when fraudsters

Analysis of Incorrect Options:

B . Simulated identity theft -- Not a standard fraud classification.

C . Traditional identity theft -- Uses a complete stolen identity, not a hybrid.

D . Criminal identity theft -- Involves using someone else's identity when charged with a crime.

Key Concept: Synthetic identity theft as an evolving form of fraud.

The correct answer is D. Front businesses are attractive for money laundering because they allow illegal proceeds to be mixed with legitimate revenue, especially where cash sales are common and expenses are variable. Bars, restaurants, nightclubs, and similar businesses can make it difficult to reconcile actual customer activity with reported revenue and operating costs. This makes it easier to overstate revenues, inflate expenses, or insert illicit funds into the business records. Option A is inaccurate because money launderers might pay taxes on falsely reported income to make the funds appear legitimate. Option B is incorrect because a front may show high income despite low visible customer activity. Option C is too narrow and inaccurate because these businesses often involve variable purchases and pricing.

Rationale for Correct Answer:

The ACFE describes occupational fraud and abuse as an expense of doing business because organizations inevitably face losses from it, just as they incur other operating costs. This framing emphasizes the importance of prevention and detection to minimize this ''expense.''

Analysis of Incorrect Options:

A . Equity -- Residual ownership interest, not relevant here.

B . Balance sheet -- A report, not a cost.

D . Financial record -- Too vague.

Key Concept:

Occupational Fraud as a Cost of Business.

ACFE Fraud Examiners Manual (2020 International Edition), Fraud Theory --- Fraud as a Cost of Doing Business.

Rationale for Correct Answer:

Forced reconciliation occurs when fraudsters alter the perpetual inventory records to conceal shrinkage. By adjusting the records, they make the books appear consistent with the physical count, hiding theft or loss.

Analysis of Incorrect Options:

A -- Too vague; does not specify perpetual records.

B -- Incorrect; inventory is concealed, not shrinkage records.

D -- Write-offs are a different concealment method.

Key Concept:

Forced reconciliations as a concealment method in inventory fraud.

ACFE Fraud Examiners Manual (2020 International Edition), Inventory and Other Assets --- Concealment of Shrinkage.

The correct answer is B. Skimming involves stealing cash before it is recorded in the organization's accounting system. Separating the duties of collecting cash and accessing or posting to the accounts receivable journal is an effective preventive control because it prevents one employee from both taking funds and manipulating records to conceal the theft. Job rotation can help, but it is less direct. Comparing sales records to cash received and reviewing deposit timing are more detective than preventive in nature. The strongest control is segregation of duties between custody of cash and recordkeeping authority. The ACFE cash receipts materials emphasize receipt-level controls, general controls, and separation of duties as primary measures for preventing skimming schemes.

Rationale for Correct Answer: In a false refund scheme, the fraudster enters a

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 C. New account fraud often involves opening accounts with false, stolen, or synthetic identities. The most effective preventive measure listed is to verify the customer's identity through reliable third-party credit reporting agencies and customer identification services. These sources can help confirm identity details, detect inconsistencies, identify suspicious histories, and reduce reliance on documents that might be forged. Employer recommendation letters are not standard or reliable identity controls. Small cash deposits are not automatically suspicious and might be normal for many customers. Sending communications to all previous residences is inefficient and unlikely to be the strongest verification method. The ACFE financial institution fraud materials identify new account fraud schemes and emphasize customer identification controls as a prevention method.

Rationale for Correct Answer: This is personal purchases with company funds,

Analysis of Incorrect Options:

A . Pay and return scheme -- Involves overpaying a vendor and pocketing the refund.

C . Pass-through scheme -- Involves using a controlled company to bill the employer at inflated prices.

D . Theft of inventory -- Involves stealing company stock, not purchasing items for personal use.

Key Concept: Fraudulent disbursement -- billing fraud through unauthorized personal purchases.

Rationale for Correct Answer: Skimming involves theft of cash before it is recorded

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.

Rationale for Correct Answer:

Competitive intelligence refers to the legal and ethical gathering of publicly available information about competitors. It is a legitimate business practice and differs from corporate espionage, which involves illegal or covert methods.

Analysis of Incorrect Options:

B . Government-sanctioned espionage -- This describes intelligence operations, not business practice.

C . Identical to espionage -- False; competitive intelligence is legal, espionage is illegal.

D . Illegal covert methods -- That is espionage, not competitive intelligence.

Key Concept: Competitive intelligence vs. corporate espionage.