Pass the ACFE Certified Fraud Examiner CFE-Financial-Transactions-and-Fraud-Schemes Questions and answers with CertsForce

Detailed Explanation:

Rationale for Correct Answer:When cash is stolen, the accounting equation (Assets = Liabilities + Equity) must still balance. Fraudsters may increase a liability (e.g., record fictitious payables) to cover the missing cash. This is a common concealment method.

Analysis of Incorrect Options:

A. Increasing another asset – Would require inflating assets, but this usually affects financial statement fraud, not cash theft concealment.

B. Increasing owners’ equity – Not logical without legitimate earnings or capital contributions.

D. Creating fictitious revenue – Used in financial statement fraud, not in balancing theft concealment.

Key Concept: Concealment methods for asset misappropriation — offsetting missing cash with fictitious liabilities.

Detailed Explanation:

Rationale for Correct Answer:This definition matches corruption, a broad category of occupational fraud in which employees use their influence in business transactions to gain personal benefit, in violation of their duties. Corruption schemes include bribery, conflicts of interest, illegal gratuities, and extortion.

Analysis of Incorrect Options:

A. Conflict of interest – A subtype of corruption, but narrower in scope.

C. Bribery – Also a subtype, but the definition given covers the broader category.

D. Overbilling – A billing scheme under fraudulent disbursements, not corruption.

Key Concept:Corruption as defined in the Fraud Tree.

Detailed Explanation:

Rationale for Correct Answer:By definition, conflict of interest fraud arises when an employee has a hidden financial or ownership interest in another entity with which the employer does business. The fraudster’s loyalty is divided because their interest lies outside of their primary employer.

Analysis of Incorrect Options:

B. False – Incorrect because the essence of conflict of interest is precisely that the fraudster’s interest lies outside their company.

Key Concept: Conflict of Interest (divided loyalty).

Detailed Explanation:

Rationale for Correct Answer:This is unbundling, where services that should be billed under a single comprehensive code are split into multiple components to inflate reimbursement.

Analysis of Incorrect Options:

A. Fictitious services – Charging for services not performed.

B. False diagnosis – Fabricating diagnoses to justify billing.

C. Upcoding – Billing for more expensive services than provided.

Key Concept: Health care billing fraud — unbundling.

Detailed Explanation:

Rationale for Correct Answer: Synthetic identity theft occurs when fraudsters combine real identifiers (e.g., SSN, tax ID) with fictitious details to create a “new” identity. This differs from traditional identity theft, where a real person’s identity is used in full.

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.

Detailed Explanation:

Rationale for Correct Answer:This scheme is known as a Turnaround Sale or Flip. The employee secretly purchases an asset their employer needs and then resells it to the employer at a markup, thereby profiting at the employer’s expense.

Analysis of Incorrect Options:

A. Conflict of interest in sale – Too general; does not describe the flipping mechanism.

C. Unauthorized sale – Not an ACFE fraud category in this context.

D. Written sale of unique assets – Not a recognized scheme.

Key Concept: Conflict of Interest scheme — Turnaround Sales/Flips.

Detailed Explanation:

Rationale for Correct Answer:In double-entry accounting, a debit increases assets and expenses while decreasing liabilities and equity. Debits are entries on the left side of an account.

Analysis of Incorrect Options:

A. Journal Entries – General record of transactions, not the specific effect.

C. Credit – Opposite effect: increases liabilities/equity, decreases assets/expenses.

D. None of all – Incorrect because “debit” is the recognized effect.

Key Concept:Debit rules in double-entry accounting.

Detailed Explanation:

Rationale for Correct Answer:One of the most effective ways to protect proprietary information is educating employees about nondisclosure agreements (NDAs) at onboarding and again during exit. This ensures awareness of confidentiality obligations.

Analysis of Incorrect Options:

A. Changing locks/codes every 3–5 years – Reasonable security but insufficient for safeguarding proprietary information.

B. Classifying data by years of service – Not a sound security practice; access should be based on role and need-to-know.

D. Requiring notes/drafts – Increases risk of information leaks, not protection.

Key Concept: Proprietary information protection.

Detailed Explanation:

Rationale for Correct Answer:Simply holding two jobs without disclosure is not inherently a conflict of interest unless the roles compete, overlap, or present divided loyalties. The other options all describe undisclosed financial or relational interests that conflict with the employer’s best interest.

Analysis of Incorrect Options:

A. Harriet’s stock ownership – Direct financial conflict.

C. Jennifer’s board positions – Competing loyalties between competitors.

D. Ernest hiring his brother – Nepotism without disclosure is a conflict.

Key Concept: Conflict of interest schemes in corruption.

Detailed Explanation:

Rationale for Correct Answer:Conflict of interest cases are difficult to detect because the transactions often appear legitimate on their face. However, they can be prevented more effectively through proactive controls such as disclosure requirements, vendor vetting, and employee training. The Fraud Examiners Manual (2020) emphasizes that prevention mechanisms are more effective than detection when it comes to conflicts of interest.

Analysis of Incorrect Options:

B. False – Incorrect because detection is challenging; prevention is comparatively easier.

Key Concept: Prevention vs. detection in Conflict of Interest schemes.