Free ACFE CFE-Financial-Transactions-and-Fraud-Schemes Practice Exam with Questions & Answers | Set: 5

Detailed Explanation:

Rationale for Correct Answer: In the procurement cycle, the post-award and administration phase involves the actual performance of contractual duties by the awarded contractor(s) and monitoring by the procuring entity. This is consistent with procurement process descriptions in the Fraud Examiners Manual (2020).

Analysis of Incorrect Options:

B – Needs identification occurs in the presolicitation phase, not solicitation.

C – In presolicitation, the entity defines needs; contractors submit bids during the solicitation phase.

D – The solicitation document is issued during the solicitation phase, not evaluation.

Key Concept: Understanding procurement phases to detect fraud opportunities (e.g., bid rigging, kickbacks).

Detailed Explanation:

Rationale for Correct Answer:Conflict of interest schemes occur when an employee, manager, or agent has an undisclosed personal interest in a transaction that is adverse to their employer. The Fraud Examiners Manual (2020) notes that one of the most common forms is when an employee has a hidden ownership or financial interest in a vendor that does business with the company. This compromises objectivity and creates self-dealing risks.

Analysis of Incorrect Options:

B. Salesman interest – Too narrow and not representative of the standard conflict scheme definition.

C. Purchaser interest – Purchasers are often involved, but the broader definition encompasses all employees.

D. Dealer interest – “Dealership interest” is not a recognized ACFE fraud scheme classification.

Key Concept: Conflict of Interest scheme under Corruption.

Detailed Explanation:

Rationale for Correct Answer:This statement is False. Research in occupational fraud consistently shows that when employees believe there is a strong likelihood of being caught, they are less likely to engage in theft or deviant behavior. Deterrence theory emphasizes that perceived certainty of detection is one of the most effective controls against occupational fraud.

Key Concept:Deterrence through perceived detection.

Detailed Explanation:

Rationale for Correct Answer: Under accrual-basis accounting, revenues are generally recognized when earned (often upon delivery of goods or services), not necessarily when cash is received. Similarly, expenses are recorded when incurred, not when paid. This provides a more accurate picture of performance and financial position.

Analysis of Incorrect Options:

A – This describes cash-basis accounting, not accrual-basis.

B – Accrual accounting is more complex, not simpler.

C – Focuses on earned revenues and incurred expenses, not immediate cash flow.

Key Concept: Accrual accounting matches revenues with expenses in the period they occur.

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: A high percentage of coding outliers (e.g., using higher-paying diagnosis or procedure codes more often than peers) is a red flag of upcoding or fraudulent billing. This signals possible abuse of reimbursement systems.

Analysis of Incorrect Options:

A – Fewer claims would not suggest fraud.

C – Matching documentation is expected, not suspicious.

D – Low profits may indicate inefficiency, not fraud.

Key Concept: Health care fraud detection through data analytics and coding anomalies.

Detailed Explanation:

Rationale for Correct Answer:Cressey’s research on fraud offenders found that most had non-sharable financial problems, which fell into categories such as: (1) violation of ascribed obligations, (2) business reversals, (3) physical isolation, (4) status gaining, and (5) employer-employee relations. “Larceny by fraud” is not a category of non-sharable problem but rather a type of theft scheme. Hence, D is correct.

Analysis of Incorrect Options:

A. Violation of ascribed obligations – Correctly one type of non-sharable problem.

B. Business reversals – Correctly one type of non-sharable problem.

C. Physical isolation – Correctly one type of non-sharable problem.

D. Larceny by fraud – Not a “problem” type; it is a fraud scheme.

Key Concept:Cressey’s non-sharable problems — psychological and situational pressures that contribute to occupational fraud.

Comprehensive and Detailed Explanation

Why the correct answer is: False accounting entry

According to the ACFE Fraud Examiners Manual – Financial Transactions and Fraud Schemes, under Financial Institution Fraud → Types of Embezzlement Schemes, the Manual provides explicit descriptions of relevant banking fraud schemes, including false accounting entries.

The Manual lists False Accounting Entries as a form of embezzlement in which an employee manipulates general ledger accounts or other accounting records to conceal a theft or unauthorized activity:

“False Accounting Entries” are specifically categorized as a type of embezzlement scheme used by dishonest bank employees to hide misappropriated funds.

In this question, the accountant:

Adjusted the bank’s general ledger

With the intent to conceal the theft of customer funds

This aligns exactly with the ACFE definition of false accounting entries, which involve altering legitimate financial records to hide fraudulent actions.

Therefore, the best ACFE-defined description of the scheme is:

→ False accounting entry (Option B)

Why the other options are incorrect

A. Unauthorized withdrawal

The Manual separately defines Unauthorized Withdrawals as a type of embezzlement in which a bank employee directly removes funds from accounts without permission:

“Unauthorized Withdrawals” are listed as a distinct embezzlement scheme involving unapproved removal of customer funds.

However, in this scenario, the defining act is manipulating ledger records, not simply withdrawing funds. The nature of the concealment technique makes false accounting entry the correct classification.

C. Moving money from inactive accounts

The Manual defines:

“Moving Money from Customers’ Dormant or Inactive Accounts” as a scheme in which employees transfer funds from inactive accounts to themselves.

In this question, the stolen funds come from an active customer account, so this option does not apply.

D. Unauthorized disbursement of funds

The Manual includes:

“Unauthorized Disbursement of Funds to Outsiders” as another type of financial institution fraud.

This refers to payments made to external parties without authorization—not to ledger manipulation to hide theft.

Again, the defining characteristic in the scenario is the use of false ledger entries, which makes Option B the most accurate according to ACFE terminology.

Detailed Explanation:

Rationale for Correct Answer:Fair value is defined as the price an asset would fetch in an orderly transaction between willing market participants. It reflects current market conditions, not historical cost.

Analysis of Incorrect Options:

A. Absolute value – Mathematical concept, not accounting.

C. Cost value – Historical cost, not current market.

D. Material value – Not a recognized accounting term.

Key Concept:Fair Value Measurement under GAAP/IFRS.

Detailed Explanation:

Rationale for Correct Answer: Affinity fraud occurs when fraudsters exploit trust within identifiable groups—such as religious, ethnic, or professional communities—making members more susceptible to deception.

Analysis of Incorrect Options:

B – Social control fraud relates to control fraud by institutions, not religious targeting.

C – Bait and switch is a deceptive sales tactic, not specific to religious groups.

D – Advance-fee scams may target anyone, not specifically religious communities.

Key Concept: Affinity fraud as a corruption/exploitation scheme.