Free ACFE CFE-Financial-Transactions-and-Fraud-Schemes Practice Exam with Questions & Answers | Set: 2

Detailed Explanation:

Rationale for Correct Answer:In fictitious revenue schemes, sales are recorded that never occurred. Because no actual customers exist, there will be no late or overdue accounts receivable. The Fraud Examiners Manual (2020) notes that unusually clean receivables aging reports—i.e., no overdue balances—can be a red flag of revenue manipulation.

Analysis of Incorrect Option:

B. False – Incorrect; the absence of overdue receivables is indeed suspicious and aligns with fictitious revenue fraud.

Key Concept: Financial statement fraud red flags — fictitious revenues.

Detailed Explanation:

Rationale for Correct Answer:Revenue recognition requires that delivery has occurred or services have been rendered. If installation, testing, and customer acceptance have not occurred (A), or if a written order exists but with a right of return (B), delivery is not considered complete. Both scenarios prevent proper revenue recognition. Hence, the correct answer is C. Both A & B.

Analysis of Incorrect Options:

A – Correct condition, but incomplete.

B – Correct condition, but incomplete.

D. Neither A nor B – Incorrect, as both conditions do prevent recognition.

Key Concept:Revenue recognition fraud risks — recognizing revenue prematurely.

Detailed Explanation:

Rationale for Correct Answer: Corruption schemes involve the misuse of influence in business transactions for personal benefit, often through bribery, kickbacks, or conflicts of interest. In this case, the procurement agent accepts an improper benefit (use of a beach house) in exchange for contract favoritism, which is a classic bribery scheme.

Analysis of Incorrect Options:

A – Theft of confidential information = asset misappropriation/intellectual property theft, not corruption.

C – Excluding laptops from records = inventory theft, not corruption.

D – Omitting costs = financial statement fraud.

Key Concept: Bribery as a form of corruption.

Detailed Explanation:

Rationale for Correct Answer:Prenumbering and controlling shipping documents is a strong preventive measure against inventory theft because it ensures all inventory leaving the warehouse is properly authorized and tracked.

Analysis of Incorrect Options:

A. Same person for requisition and receiving – Violates segregation of duties.

B. Purchasing supervisor counting inventory – Creates conflict; inventory should be counted by independent staff.

D. Same person for shipping and scrap – Increases fraud risk.

Key Concept: Inventory theft prevention — control over documentation.

Detailed Explanation:

Rationale for Correct Answer: Skimming involves theft of cash before it is recorded in the books. Examining journal entries for false credits to inventory would detect inventory fraud, not skimming. Therefore, B is not useful for detecting skimming.

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.

Detailed Explanation:

Rationale for Correct Answer: Finding personal checks in the cash register is unusual, but it does not specifically indicate a register disbursement scheme (such as false refunds or voids). The other options are classic red flags for such schemes.

Analysis of Incorrect Options:

A – Missing transaction numbers suggest manipulation.

C – Excessive voids near approval limits indicate fraud concealment.

D – Allowing cashiers to void their own sales creates opportunity for abuse.

Key Concept: Register disbursement schemes and their red flags.

Detailed Explanation:

Rationale for Correct Answer:Insurer health care fraud occurs when the insurance company itself engages in deception for financial gain. Submitting inflated cost data to regulators in order to justify rate increases is a direct example of insurer fraud.

Analysis of Incorrect Options:

A. Intermediary verifying claims – Proper procedure, not fraud.

C. Passing on negotiated rates – Legitimate practice.

D. Denying incomplete claims – May be harsh, but not fraudulent.

Key Concept: Insurer fraud vs. provider or claimant fraud.

Detailed Explanation:

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.

Detailed Explanation:

Rationale for Correct Answer:Upcoding occurs when a provider bills for a higher level of service than what was actually provided. Billing a 15-minute visit as a 60-minute visit is a classic upcoding scheme.

Analysis of Incorrect Options:

A. Name brand prescription – Not upcoding; this is prescribing choice, not billing fraud.

B. Multiple codes instead of one – This is unbundling, not upcoding.

D. Changing service date – This is falsifying service dates, not upcoding.

Key Concept: Health care billing fraud — upcoding vs. unbundling.

Detailed Explanation:

Rationale for Correct Answer: A ghost employee scheme occurs when someone (real or fictitious) is added to payroll, and paychecks are diverted to the fraudster. The key requirement is that the “ghost” is listed on payroll records.

Analysis of Incorrect Options:

A – The ghost may be fictitious or a real former employee.

B – Employment classification is irrelevant.

C – A ghost could be a current, terminated, or entirely fictitious employee.

Key Concept: Payroll fraud – ghost employee schemes.