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

Detailed Explanation:

Rationale for Correct Answer: Conducting vendor background checks before adding them to the master file is a strong preventive control against shell companies, conflicts of interest, and vendor collusion. It helps ensure vendor legitimacy before business begins.

Analysis of Incorrect Options:

B – Too broad; monitoring should focus on practical red flags, not “all schemes.”

C – Violates segregation of duties, increasing fraud risk.

D – Monitoring should be ongoing, not limited to once a year.

Key Concept: Procurement fraud prevention through vendor due diligence and segregation of duties.

Detailed Explanation:

Rationale for Correct Answer: In a need recognition scheme, an employee creates or exaggerates a need for goods or services to benefit a favored supplier. One red flag is that materials are ordered prematurely or not at the optimal reorder point, suggesting that purchases are being manipulated to benefit a corrupt vendor rather than based on actual business needs.

Analysis of Incorrect Options:

A – A large list of suppliers suggests competition, not fraud.

C – A need met by various suppliers does not indicate fraud.

D – Low requirements for stock may reflect lean inventory management, not fraud.

Key Concept: Corruption – need recognition schemes and red flags.

Detailed Explanation:

Rationale for Correct Answer:Technical security controls include software- and hardware-based measures such as application security, firewalls, and encryption. Application security protects against vulnerabilities in the programs employees use.

Analysis of Incorrect Options:

B. Human audits – Administrative control, not technical.

C. Penetration testing – A detective measure/test, not a control itself.

D. Data security – A broad goal, not a specific technical control.

Key Concept: Technical security controls for preventing cyberfraud.

Detailed Explanation:

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.

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.

Detailed Explanation:

Rationale for Correct Answer: Corporate spies do use social engineering, but their primary methods include surveillance, infiltration (e.g., posing as employees), and technical monitoring. The statement in option C is false because searching desks/workstations is a tactic, but it is not the primary method.

Analysis of Incorrect Options:

A – True; fake badges are a common infiltration tactic.

B – True; low-level jobs provide physical access.

D – True; technical surveillance is a recognized method.

Key Concept: Methods of corporate espionage.

Detailed Explanation:

Rationale for Correct Answer:Bribery is specifically defined as offering, giving, receiving, or soliciting anything of value to influence an official act or business decision. It is one of the four primary corruption categories.

Analysis of Incorrect Options:

A. Corruption – Broader category; bribery is one part of it.

B. Diverting business to vendors – A conflict of interest scheme, not bribery.

D. Lacking approval authority – Refers to control weaknesses, not corruption.

Key Concept:Bribery definition and its role in corruption.

Detailed Explanation:

Rationale for Correct Answer:According to SAB 104, revenue recognition requires persuasive evidence of an arrangement. This does not exist if there is no written contract, purchase order, or verbal agreement supporting the transaction.

Analysis of Incorrect Options:

A. Revenue and expenses don’t match – Violates matching principle, not persuasive evidence.

C. Timings not meet properly – Refers to delivery/performance, not evidence of arrangement.

D. Capitalized expenses and liabilities – Irrelevant to revenue recognition.

Key Concept:Revenue recognition requirement: Persuasive evidence of an arrangement.

Detailed Explanation:

Rationale for Correct Answer: The statement of cash flows has three standard sections:

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activitiesThus, option B is correct.

Analysis of Incorrect Options:

A – No section called “purchasing activities”; such outflows fall under investing or operating.

C – No section called “earnings activities”; related cash flows are operating.

D – “Strategic activities” is not a formal category in GAAP or IFRS.

Key Concept: Structure of the statement of cash flows.

Detailed Explanation:

Rationale for Correct Answer:The conservatism principle in accounting means that financial statements should not overstate assets or income and should anticipate possible losses. Thus, the amounts shown should be at least as much as reflected, if not more. This ensures users are not misled by overly optimistic figures.

Analysis of Incorrect Options:

A. Fraudulent statement – Involves intentional misrepresentation, not a principle of accounting.

B. Misappropriations – Theft of assets, unrelated to valuation principles.

D. Matching – Refers to aligning expenses with related revenues, not conservatism.

Key Concept:Conservatism principle — caution in financial reporting.