Free ACFE CFE-Financial-Transactions-and-Fraud-Schemes Practice Exam with Questions & Answers | Set: 4

Detailed Explanation:

Rationale for Correct Answer: Skimming is the theft of incoming cash before it is recorded in the books. Since the payment is never recorded, no audit trail exists, making it an “off-book” scheme.

Analysis of Incorrect Options:

A – Incorrect; skimming can involve both sales and receivable payments.

C – Incorrect; skimming is off-book, not on-book.

D – Incorrect; skimming is typically harder to detect than larceny, since there is no record.

Key Concept: Skimming vs. larceny – off-book theft of cash receipts.

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:ACFE’s occupational fraud surveys consistently show that males are more often the primary perpetrators than females, accounting for approximately 62% of cases compared to 37% for females. This is attributed to higher representation of males in positions of authority and access. Therefore, C. 62 versus 37 is correct.

Key Concept:Demographics of Fraud Perpetrators — gender-based survey findings.

Detailed Explanation:

Rationale for Correct Answer:The phases of the bidding process include:

Presolicitation (need recognition/specification stage),

Solicitation (inviting bids),

Submission (vendors submit bids).There is no standard phase called Postsolicitation.

Analysis of Incorrect Options:

A. Presolicitation – Valid phase.

C. Solicitation – Valid phase.

D. Submission – Valid phase.

B. Postsolicitation – Not recognized as a formal bidding stage.

Key Concept:Bidding process phases — presolicitation, solicitation, submission.

Detailed Explanation:

Rationale for Correct Answer:The balance sheet provides a snapshot of a company’s financial position at a specific date. It shows assets, liabilities, and equity, allowing stakeholders to assess book value and solvency.

Analysis of Incorrect Options:

A. Equity – A component of the balance sheet, not the full report.

C. Income statement – Shows performance over a period, not book worth at a date.

D. Financial record – Too general.

Key Concept:Balance Sheet as a tool for determining book worth at a point in time.

Detailed Explanation:

Rationale for Correct Answer: Illegal pyramid schemes rely on continual recruitment of new members. Early participants are paid from the investments of later recruits, meaning later participants almost always lose money. This matches option B.

Analysis of Incorrect Options:

A – Not true; pyramid-shaped hierarchies exist in legitimate organizations.

C – The goal isn’t product sales but rather recruitment; products, if present, are often incidental.

D – Incorrect because B is true.

Key Concept: Ponzi and pyramid schemes – payment to early investors with later investors’ funds.

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: An air loan is a mortgage fraud scheme where the borrower and sometimes insiders create completely fictitious properties or borrowers. Here, the nonexistent property and loan proceeds being pocketed fits this definition.

Analysis of Incorrect Options:

A. Property flopping – Involves short sales and undervaluing distressed property.

C. Phantom lien – False liens filed to collect fraudulent claims on real estate.

D. Daisy chain – Involves multiple property transactions between conspirators to inflate value.

Key Concept: Loan fraud schemes – fictitious property loans (air loans).

Detailed Explanation:

Rationale for Correct Answer: Blank plastic cards are a common basis for counterfeit card production. Fraudsters encode stolen magnetic stripe or chip data onto blank cards.

Analysis of Incorrect Options:

A – False; holograms are designed to be difficult to reproduce.

B – False; high-speed printers and embossers make counterfeiting easier, not harder.

D – Incorrect, since A and B are false.

Key Concept: Counterfeit card fraud methods.

Detailed Explanation:

Rationale for Correct Answer: Misuse of noncash assets occurs when employees use company assets for personal purposes without authorization. Even though the vehicle was returned undamaged, unauthorized use and concealment by false statements makes it a fraud scheme under asset misappropriation.

Analysis of Incorrect Options:

A – Incorrect; unauthorized use with deception constitutes fraud.

B – Expense reimbursement involves falsified claims for travel/expenses, not vehicle misuse.

D – Financial statement fraud involves misstating accounting entries, unrelated here.

Key Concept: Misuse of company assets (noncash) as part of asset misappropriation.