CFE-Fraud-Schemes-and-Financial-Crimes Free Certification Exam Material from ActualTorrent with 355 Questions
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NEW QUESTION # 12
The taxing authority in a country allows companies to subtract the cost of production from their gross sales to determine taxable income. A business owner operating in that country purchases materials from a local supplier and pays the supplier to alter the receipt to show a higher price than was paid. When the business owner submits the company's tax information to the taxing authority, they submit the altered receipt to reduce their tax burden. The business owner is MOST LIKELY committing which of the following schemes?
- A. An excise tax evasion scheme
- B. A falsified tax deduction scheme
- C. A failure to declare income scheme
- D. A tax credit deferral scheme
Answer: B
Explanation:
The correct answer is C. The business owner is committing a falsified tax deduction scheme by fraudulently inflating production costs to reduce taxable income. Deductions are legitimate only when they accurately reflect allowable expenses. Here, the owner paid the supplier to alter the receipt so that the company appears to have incurred a higher deductible cost than it actually did. This false documentation reduces reported taxable income and therefore lowers the tax liability improperly. Option A is incorrect because the facts do not involve excise taxes on a specific class of goods. Option B is incorrect because the owner is not omitting income; they are overstating expenses. Option D is not applicable because the scheme involves deductions, not tax credits.
NEW QUESTION # 13
Which of the following statements regarding financial statement disclosures is TRUE?
- A. Management must disclose potential losses from ongoing litigation even when it is unlikely that the related liability will result in a future obligation.
- B. Changes in accounting principles must be disclosed in the financial statements.
- C. Events occurring after the close of the reporting period that might significantly affect the financial statements do not need to be disclosed.
- D. All information relating to the company must be disclosed in the financial statements, regardless of materiality.
Answer: B
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: Per generally accepted accounting principles, changes in accounting principles must be disclosed in the financial statements to ensure comparability and transparency. The ACFE notes that disclosures are critical to prevent misleading users of financial statements.
* Analysis of Incorrect Options:
* A. Subsequent events - Material subsequent events must be disclosed; this statement is false.
* B. Contingent losses - Only probable and reasonably estimable losses must be disclosed. If unlikely, no disclosure is required.
* C. All information - Only material information requires disclosure.
* Key Concept: Disclosure requirements in financial reporting .
Reference: ACFE Fraud Examiners Manual (2020) , Financial Statement Fraud: Accounting Principles and Disclosures .
NEW QUESTION # 14
Jonathan, a Certified Fraud Examiner (CFE), is tasked with identifying potential indicators of intrusion into his employer's computer network. Which of the following might indicate that the organization's network has been compromised or accessed without authorization?
- A. Network users are prompted to install unfamiliar software onto their computers.
- B. When logging into the computer network, employees receive a reminder to change their log-in passwords before they expire.
- C. The network is receiving data from a country where one of the organization's suppliers is located.
- D. Users are denied access to network files they do not typically use in their organizational role.
Answer: A
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: Being prompted to install unfamiliar software is a red flag for malware or unauthorized access, often indicating that attackers are attempting to establish persistence in the system. This is a classic indicator of a compromised network.
* Analysis of Incorrect Options:
* A - Standard security measure, not a red flag.
* C - Data from supplier countries is normal if consistent with business operations.
* D - Access denial to files outside a user's role is a normal access control, not an intrusion sign.
* Key Concept: Cyberfraud detection - identifying intrusion indicators.
Reference: ACFE Manual, Fraud Prevention and Deterrence - Cybersecurity Threats .
NEW QUESTION # 15
According to Marshall, ______ are probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.
- A. None of the above
- B. Assets
- C. Liabilities
- D. Credentials
Answer: B
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: The accounting definition of assets , as cited by Marshall and in GAAP frameworks, is "probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events." This definition underlies balance sheet recognition of assets.
* Analysis of Incorrect Options:
* B. Liabilities - Represent probable future sacrifices, not benefits.
* C. Credentials - Irrelevant to financial reporting.
* D. None of the above - Incorrect since "assets" directly matches.
* Key Concept: Definition of Assets under financial accounting frameworks.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Accounting Concepts section - Definitions of Assets and Liabilities .
NEW QUESTION # 16
Persuasive evidence of an arrangement does not exist when:
- A. Capitalized expenses and Liabilities will not be up to satisfied level.
- B. Revenue and corresponding expenses don't match each other.
- C. Timings not meet properly.
- D. No written or verbal agreement exists.
Answer: D
Explanation:
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.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Financial Statement Fraud - Revenue Recognition Standards (SAB 104) .
NEW QUESTION # 17
Which of the following scenarios is an example of a trade-based money laundering scheme?
- A. An exporter and importer engage in a fraudulent transaction in which the exporter invoices goods to the importer at a price above their market value.
- B. A public official embezzles government funds from Country A and transfers them to a foreign account in Country B in small increments to avoid the reporting threshold.
- C. A fraudster purchases rare items on an online gaming platform using illicit funds and then sells the items to an accomplice who pays the fraudster with legitimate money.
- D. An importer funnels money through a cash-intensive business to conceal income from illicit activities with legitimate revenue from the front company.
Answer: A
Explanation:
The correct answer is C. Trade-based money laundering uses international trade transactions to disguise or move illicit value. A common method is misinvoicing, where colluding importers and exporters overstate or understate the price, quantity, or quality of goods. When goods are invoiced above market value, value can be transferred from the importer to the exporter under the appearance of a legitimate commercial payment.
Option A involves laundering through virtual or digital assets, not trade-based laundering. Option B describes use of a front business, particularly a cash-intensive business, to mix illegal proceeds with legitimate revenue.
Option D describes structuring or smurfing through small transfers. The international invoice manipulation in option C is the strongest example of trade-based money laundering.
NEW QUESTION # 18
When an employee processes a fictitious refund of goods, the amount of cash in the register does not balance with the register log.
- A. False
- B. True
Answer: A
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: In a false refund scheme , the fraudster enters a fictitious refund into the register system, making it appear that merchandise was returned. The register log reflects the fraudulent refund, so the cash on hand does balance with the adjusted log. Thus, the mismatch described in the question does not occur.
* Analysis of Incorrect Option:
* A. True - Incorrect because the log and cash are manipulated to match, concealing the theft.
* Key Concept: Cash register fraud (false refunds vs. false voids).
Reference: ACFE Manual, Cash Receipts - Refund and Void Schemes .
NEW QUESTION # 19
A fraudster creates a fictitious identity by combining a person's real government identification number with a fabricated name and birthdate. This scheme can BEST be described as:
- A. Criminal identity theft
- B. Simulated identity theft
- C. Synthetic identity theft
- D. Traditional identity theft
Answer: C
Explanation:
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.
Reference: ACFE Manual, Fraud Prevention and Deterrence - Identity Theft .
NEW QUESTION # 20
Which of the following scenarios describes a card skimming or shimming scheme?
- A. A store clerk encourages a customer to tap their card on a contactless device for payment and reprints the receipt after the customer has left.
- B. After receiving a batch of corporate credit cards, an accounting employee takes a photo of the cards to sell the payment information on the dark web.
- C. After processing a customer's payment for a meal, a server returns with the receipt but keeps the payment card, hoping that the customer does not notice.
- D. An individual attaches a device and small camera to an automated teller machine, which allows them to scan and record customers' payment card information.
Answer: D
Explanation:
Option A describes a card skimming or shimming scheme. Skimming involves using a hidden device to capture payment card information, often from a magnetic stripe, while shimming commonly involves a device inserted into a card reader to capture chip-card data. A small camera can also be used to record PIN entry.
Automated teller machines and point-of-sale terminals are common targets because customers insert or swipe cards and enter authentication data. Option B involves theft or sale of card information but not skimming or shimming through a reader. Option C describes physical card theft or retention. Option D does not clearly show capture of card credentials. The ACFE material discusses ATM fraud, including skimming and shimming, as financial institution fraud risks.
NEW QUESTION # 21
According to accounting principles, ________ and ________ should be recorded or matched in the same accounting period; failing to do so violates the matching principle of GAAP.
- A. Capitalized expenses and Liabilities
- B. Revenue and Income statement
- C. Income statement and Long-term contracts
- D. Revenue and corresponding expenses
Answer: D
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: The matching principle under GAAP requires that revenues and the corresponding expenses incurred to generate those revenues be recorded in the same period. Failing to do so misstates income and violates accrual accounting.
* Analysis of Incorrect Options:
* B. Revenue and Income statement - The income statement is a report, not an item to be matched.
* C. Income statement and Long-term contracts - Long-term contracts follow special rules (percentage of completion, completed contract), not the general matching principle.
* D. Capitalized expenses and Liabilities - Not part of the matching principle.
* Key Concept: Matching Principle - recording related revenues and expenses in the same period.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Accounting Concepts - Accrual Accounting and Matching Principle .
NEW QUESTION # 22
Which of the following statements about change order abuse is MOST ACCURATE?
- A. Change order abuse is a scheme typically committed by sole-source vendors.
- B. Change order abuse generally results in procuring entities paying the winning contractor less than the amount of the accepted bid.
- C. Change order abuse usually involves collusion among several contractors.
- D. Change order abuse often causes the procuring entity to lose the advantages offered by the competitive bidding process.
Answer: D
Explanation:
The correct answer is C. Change order abuse occurs after a contract has been awarded, when a contractor improperly increases the price, expands the work, or modifies contract terms through change orders. A corrupt contractor might submit a low bid to win the award and later recover profits through unnecessary or inflated change orders. This defeats the benefit of competitive bidding because the procuring entity no longer receives the price or terms that justified the original award. Option A is incorrect because the scheme usually increases, not decreases, the amount paid. Option B is too narrow because change order abuse can occur in competitive contracts. Option D is incorrect because the scheme often involves collusion between contractor and procurement personnel, not necessarily several contractors.
NEW QUESTION # 23
Which of the following statements about skimming is CORRECT?
- A. Skimming schemes involve stolen customer payments that were not recorded.
- B. Skimming schemes are generally less difficult to detect than cash larceny schemes.
- C. Skimming schemes involve the theft of cash sales but not accounts receivable payments.
- D. Skimming schemes are considered on-book frauds because they leave an audit trail.
Answer: A
Explanation:
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.
Reference: ACFE Manual, Cash Receipts - Skimming Schemes .
NEW QUESTION # 24
Inventory shrinkage is the unaccounted-for reduction in the company's inventory that does not result from theft.
- A. False
- B. True
Answer: A
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: This statement is False . Shrinkage is a general term for unaccounted- for inventory losses, and it can indeed result from theft, errors, damage, or waste . To say shrinkage does not result from theft is misleading because theft is one of its primary causes.
* Analysis of Incorrect Options:
* A. True - Incorrect, as theft is often a major contributor to shrinkage.
* B. False - Correct, since shrinkage can include theft.
* Key Concept: Shrinkage includes theft as a cause of unexplained inventory loss.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Inventory and Other Assets - Definition and Causes of Shrinkage .
NEW QUESTION # 25
Placing any restriction in the solicitation documents that tend to restrict competition is called prebid solicitation.
- A. False
- B. True
Answer: A
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: This is False . Placing restrictions in solicitation documents that limit competition is a solicitation phase corruption scheme , not "prebid solicitation." The correct terminology is restrictive specifications or fraudulent solicitation practices .
* Analysis of Incorrect Options:
* A. True - Incorrect, as "prebid solicitation" is not the proper term.
* Key Concept: Restrictive solicitation practices limit competition unfairly.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Corruption - Solicitation Phase Schemes .
NEW QUESTION # 26
In which phase of the competitive bidding process do fraudsters attempt to influence the selection of a contractor by restricting the pool of competitors from whom bids are sought?
- A. False specification
- B. Need recognition
- C. Solicitation
- D. Submission
Answer: C
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: During the solicitation phase , corrupt employees may attempt to eliminate legitimate competitors by restricting the list of vendors invited to bid. This unfairly favors a particular supplier, often in exchange for bribes or kickbacks.
* Analysis of Incorrect Options:
* A. Need recognition - Involves creating false or unnecessary demand, not restricting bidders.
* C. False specification - Relates to vague or tailored specifications, not bid solicitation.
* D. Submission - Occurs after solicitation when vendors submit bids.
* Key Concept: Solicitation phase schemes - restricting competition.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Corruption - Procurement and Bid-Rigging Schemes .
NEW QUESTION # 27
A fraud examiner is attempting to determine whether an online retailer's customers have committed card-not- present (CNP) payment card fraud schemes. Which of the following measures would be MOST EFFECTIVE in detecting this type of fraud?
- A. Examine orders in which customers declined rush or overnight shipping for their purchases.
- B. Review orders in which a customer purchased several unique items during a single transaction.
- C. Compare IP addresses for internet orders with those from previous orders placed by the same customer.
- D. Check for small orders placed from newly created customer accounts that do not have a purchase history.
Answer: C
Explanation:
Card-not-present fraud occurs when payment card information is used without the physical card being presented, commonly in online transactions. Comparing IP addresses for internet orders with those used in previous orders by the same customer is the most effective detection measure listed because it helps identify unusual access patterns. If an order is placed from an unfamiliar or suspicious IP address inconsistent with the customer's historical activity, it can indicate unauthorized use of stolen card data. Small orders from new accounts might be suspicious but are less reliable alone. Declining rush shipping is not a typical fraud indicator, and purchasing several unique items is not necessarily suspicious. The ACFE materials identify payment card fraud and card-not-present transactions as key payment fraud risks.
NEW QUESTION # 28
Which of the following are not basic types of non-sharable problems?
- A. Physical isolation
- B. Business reversals
- C. Violation of ascribed obligations
- D. Larceny by fraud
Answer: D
Explanation:
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.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Fraud Theory - Cressey's Hypothesis and Non-sharable Problems .
NEW QUESTION # 29
The difference between assets and liabilities is called:
- A. Expense
- B. Income statement
- C. Equity
- D. Revenue
Answer: C
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: By definition, Equity (or net assets) represents the residual interest in the assets of an entity after deducting liabilities. This aligns with the basic accounting equation: Assets
= Liabilities + Equity . Thus, the difference between assets and liabilities is Equity .
* Analysis of Incorrect Options:
* B. Expense - A cost incurred in earning revenue, not residual interest.
* C. Revenue - Inflows from operations, not assets minus liabilities.
* D. Income statement - A financial report, not a balance sheet component.
* Key Concept: Equity as residual interest in the accounting equation.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Accounting Concepts - Assets, Liabilities, and Equity .
NEW QUESTION # 30
__________ inventory and other assets is a relatively common way for fraudsters to remove assets from the books before or after they are stolen.
- A. Altered
- B. Write-offs
- C. Perpetual
- D. False shipping slip
Answer: B
Explanation:
Detailed Explanation:
* Rationale for Correct Answer: Fraudsters often use write-offs to remove stolen inventory or assets from the books. By recording items as obsolete, damaged, or uncollectible, they eliminate them from records, concealing theft.
* Analysis of Incorrect Options:
* A. Altered - Too broad, not a standard concealment term.
* B. Perpetual - A system, not a concealment method.
* C. False shipping slip - Used to divert assets, not write them off.
* Key Concept: Write-offs as a method of concealing noncash asset theft.
Reference: ACFE Fraud Examiners Manual (2020 International Edition) , Inventory and Other Assets - Concealment Techniques (Write-offs) .
NEW QUESTION # 31
Margarette sends a text message to Arlo that appears to come from Arlo's doctor's office asking him to make a payment on an overdue bill. When Arlo clicks on the payment link, it takes him to a payment portal that Margarette controls, and she is able to steal his credit card information. Margarette has perpetrated which of the following schemes?
- A. Quishing
- B. Vishing
- C. Pharming
- D. Smishing
Answer: D
Explanation:
The correct answer is D. Smishing is phishing conducted through SMS or text messages. Margarette sends a fraudulent text that appears to come from Arlo's doctor's office and includes a payment link to a fake portal she controls. The purpose is to trick Arlo into entering payment card information, which she then steals.
Quishing uses QR codes to direct victims to fraudulent sites. Pharming redirects users from legitimate websites to fraudulent ones, often through technical manipulation of domain name resolution or device settings. Vishing uses voice calls or voicemail to obtain sensitive information. Because the fraudulent communication is a text message and the goal is to steal payment information, the scheme is smishing.
NEW QUESTION # 32
A contractor visits Lindsay's home and informs her that she has a damaged roof. The contractor offers roofing services and quotes Lindsay a price. Which of the following is the BEST action Lindsay can take to prevent being victimized by a potential consumer fraud scheme?
- A. Require the contractor to provide the phone number of a reference who can attest to the quality of their services.
- B. Verify that the contractor has a valid license by contacting the licensing agency for confirmation.
- C. Ask the contractor how many roofs they have repaired in the past to ascertain how much experience they have.
- D. Agree to the contractor's services orally to avoid being bound by contract terms if the work is unsatisfactory.
Answer: B
Explanation:
The best answer is B. A consumer approached by a contractor should independently verify the contractor's license or registration with the proper licensing agency before agreeing to work. Home repair and contractor scams often involve unsolicited offers, false claims of urgent repairs, inflated prices, poor workmanship, or unlicensed contractors. Oral agreements are risky because they provide little evidence of the work, price, warranties, or rights of cancellation. References can be useful, but a phone number supplied by the contractor might be fake or controlled by an accomplice. Asking about experience is also insufficient because the contractor can misrepresent it. Independent verification with the licensing authority is stronger because it confirms whether the contractor meets professional and regulatory requirements.
NEW QUESTION # 33
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