[ACFE] ACFE - CFE-Financial-Transactions-and-Fraud-Schemes Exam Dumps & Study Guide

Free [ACFE] ACFE - CFE-Financial-Transactions-and-Fraud-Schemes Practice Questions Preview

• Question 1

  Which of the following is a red flag that might indicate the existence of a need recognition scheme?

  • A. The purchasing entity’s materials are being ordered at the optimal reorder point.
  • B. The purchasing entity has a large list of backup suppliers.
  • C. The purchasing entity has unusually high requirements for stock and inventory levels.
  • D. The purchasing entity has few surplus items written off as scrap.

  Correct Answer: C

  Explanation:

  I agree with the suggested answer C. In a need recognition scheme, a corrupt employee conspires with a supplier to convince the victim organization that it needs more goods or services than it actually does. Artificially inflating inventory requirements is a primary method used to justify these unnecessary purchases.

  Reason

  Option C is correct because unusually high requirements for stock and inventory levels are a classic red flag of bid rigging at the need recognition stage. By convincing the company that existing stock is insufficient or that higher par levels are required, the perpetrator creates a 'need' that allows them to steer a contract toward a specific accomplice supplier.

  Why the other options are not as suitable

  • Option A is incorrect because ordering at the optimal reorder point indicates efficient supply chain management and an absence of manipulation.
  • Option B is incorrect because a large list of backup suppliers generally suggests a healthy, competitive procurement environment, whereas fraud schemes often involve narrowing choices to a single preferred vendor.
  • Option D is incorrect because having few items written off as scrap suggests low waste; conversely, a red flag for this scheme would be high levels of scrap or surplus, as items ordered unnecessarily are eventually discarded.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-tree

• Question 2

  Which of the following is NOT a distinguishing feature of a Ponzi scheme?

  • A. Participants attempt to recruit as many new members as possible.
  • B. Previous investors are paid with money from new members.
  • C. Participants believe that they are making a legitimate investment.
  • D. Promoters of Ponzi schemes engage in little or no valid commerce or investments.

  Correct Answer: B

  Explanation:

  I disagree with the Suggested Answer (B) and agree with the Community Vote (A). Option B describes the fundamental mechanism of a Ponzi scheme, making it a distinguishing feature. However, the question asks for what is NOT a feature. Option A describes the core mechanic of a Pyramid scheme, where participants are the primary recruiters, whereas in a Ponzi scheme, the central promoter usually handles the recruitment and the interaction with investors.

  Reason

  Option A is correct because it describes a Pyramid scheme rather than a Ponzi scheme. In a pyramid scheme, the 'product' is the right to recruit others, and participants are highly incentivized to bring in new members themselves to earn commissions. In contrast, Ponzi scheme participants typically believe they have invested in a legitimate financial instrument and usually do not play an active role in recruiting others to sustain their own returns.

  Why the other options are not as suitable

  • Option B is incorrect because paying previous investors with money from new members is the defining characteristic of a Ponzi scheme.
  • Option C is incorrect because in a Ponzi scheme, investors are almost always misled into believing their returns are generated from legitimate business activities or savvy investments.
  • Option D is incorrect because it is a hallmark of Ponzi schemes that there is little to no actual commerce or investment activity occurring behind the scenes; the money is simply recycled.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-glossary
  • https://www.sec.gov/investor/alerts/ponzi.pdf

• Question 3

  Geoffrey, a homeowner, has decided to add a patio to the back of his house. Geoffrey hires a contractor who insists on receiving payment up front so that he can pay for the materials required to complete the construction. The following week, Geoffrey is surprised to learn that the contractor has not arrived and is not answering his phone calls. Geoffrey has MOST LIKELY been victimized by which of the following frauds?

  • A. Deposit scheme
  • B. Scavenger scheme
  • C. Block hustle scheme
  • D. Advance-fee scheme

  Correct Answer: D

  Explanation:

  I agree with the suggested answer and community consensus that the correct option is D. Advance-fee scheme. This classification is accurate because the core of the fraud involves a perpetrator inducing a victim to pay money upfront based on the promise of a future service or benefit that never materializes.

  Reason

  An Advance-fee scheme occurs when a fraudster persuades a victim to pay money in advance for a product, service, or investment that the fraudster has no intention of providing. In this scenario, the contractor’s insistence on payment upfront for materials, followed by his disappearance without performing any work, perfectly aligns with the ACFE definition of this scheme.

  Why the other options are not as suitable

  Deposit scheme (A) is a distracter term; while related to upfront payments, it is not the standard ACFE terminology for this specific type of consumer fraud. Scavenger scheme (B) refers to a secondary fraud where scammers contact victims of previous frauds claiming they can help recover the lost money for a fee. Block hustle scheme (C) typically refers to a street-level scam involving the sale of defective or deceptive merchandise (like 'discount' electronics that turn out to be rocks) rather than service-based contract fraud.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-glossary
  • https://www.fbi.gov/scams-and-safety/common-scams-and-crimes/advance-fee-schemes

• Question 4

  Which of the following is a common red flag of a bid tailoring scheme?

  • A. Changes in contract specifications from previous proposals are explained in detail.
  • B. The procuring entity rebids contracts because fewer than the minimum number of bids are received.
  • C. Numerous bidders respond to the procuring entity’s bid requests.
  • D. There are unusually broad specifications for the type of goods being procured.

  Correct Answer: D

  Explanation:

  I disagree with the Community Vote (B) and agree with the Suggested Answer (D). Bid tailoring typically involves manipulating specifications to be either too narrow (to favor one vendor) or too broad (to allow a pre-selected unqualified vendor to qualify), whereas rebidding due to low participation is more characteristic of bid pooling or bid suppression schemes.

  Reason

  Option D is correct because bid tailoring involves manipulating the technical specifications or requirements of a contract. While many people think only of 'narrow' specs, unusually broad specifications are a significant red flag because they can be used to qualify a preferred vendor who otherwise lacks the specialized expertise required for the project, or to hide the true nature of the work until after the contract is awarded.

  Why the other options are not as suitable

  • Option A is incorrect because detailed explanations for changes in specifications usually indicate transparency and proper internal controls, which is the opposite of a fraud red flag.
  • Option B is incorrect because while a low number of bids can occur in tailoring, rebidding due to a lack of minimum bids is more commonly associated with bid suppression or complementary bidding, where competitors conspire to stay out of the process.
  • Option C is incorrect because a large number of bidders indicates healthy competition, whereas bid tailoring aims to limit competition or steer it toward a specific outcome.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-glossary

• Question 5

  Which of the following is FALSE concerning methods corporate spies generally use to steal information from other organizations?

  • A. Spies often create counterfeit employee badges to gain entrance into a target company.
  • B. Spies often gain direct access to a target company by obtaining employment as a security officer or a member of the janitorial crew.
  • C. When spies use technical surveillance to obtain information about target companies, they gather documentary evidence that can be found through open sources.
  • D. When spies use social engineering, they manipulate people into handing over secret information through the use of trickery, persuasion, threats, or cajolery.

  Correct Answer: A

  Explanation:

  I disagree with the Suggested Answer of A and agree with the Community Vote of C. Option C is demonstrably false because technical surveillance is used to capture private, non-public communications and data, whereas open-source intelligence (OSINT) refers to information already available to the public.

  Reason

  Option C is the correct choice because it is a false statement. Technical surveillance involves the use of devices like bugs, wiretaps, or hidden cameras to intercept confidential information that is specifically not available through open sources. The statement incorrectly conflates two distinct methods of intelligence gathering.

  Why the other options are not as suitable

  • Option A is true because corporate spies commonly use misrepresentation or counterfeit credentials to bypass physical security.
  • Option B is true because taking low-level positions like janitorial or security staff provides spies with legitimate after-hours access to sensitive areas and documents.
  • Option D is true because social engineering relies on psychological manipulation (trickery, persuasion, or threats) to convince employees to divulge proprietary information.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-glossary
  • https://www.acfe.com/training-events-and-products/online-self-study-cpe/corporate-espionage

• Question 6

  Which of the following is an example of a cash larceny scheme?

  • A. Michael is a cashier at a clothing store. He rings up a fictitious return of a $50 sweater and takes $50 from the cash register.
  • B. Scott rings a “no sale” transaction at his cash register, opens the drawer, and takes a $100 bill.
  • C. Anne buys a $500 table from a resale shop. Olive, the cashier, rings up a $400 sale on the register and steals the excess $100.
  • D. Laura pretends to ring up a sale when Amy makes a purchase, but instead she pockets Amy’s cash and gives her the merchandise without recording the sale.

  Correct Answer: A

  Explanation:

  I disagree with the Suggested Answer (A) and agree with the Community Vote (B). According to ACFE standards, Cash Larceny involves the theft of an employer's funds after they have already been recorded in the accounting system (on-book). Option B represents a theft from the register without a valid offsetting entry, whereas Option A involves a fraudulent disbursement scheme.

  Reason

  Option B is the correct example of Cash Larceny. In this scenario, Scott opens the register and takes cash. Because the cash was already part of the register's expected balance and no fraudulent entry (like a return or void) was made to cover the theft, the register will be out of balance. This is the definition of larceny—taking cash that is already on the books.

  Why the other options are not as suitable

  • Option A is a Fraudulent Disbursement scheme, specifically a Fictitious Refund. While cash is taken, it is 'covered' by a false entry in the system to keep the books in balance.
  • Option C is a Skimming scheme (specifically understating sales), where the theft occurs before the full amount is ever recorded on the books.
  • Option D is also a Skimming scheme (specifically unrecorded sales), as the sale is never entered into the register at all, making it an 'off-book' fraud.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-tree

• Question 7

  Which of the following is NOT one of the information security goals that should be achieved to secure an e-commerce system for uses and account holders?

  • A. Availability of data
  • B. Materiality of data
  • C. Confidentiality of data
  • D. Integrity of data

  Correct Answer: B

  Explanation:

  I agree with the suggested answer and the community consensus. In the context of the ACFE Fraud Examiners Manual, information security for e-commerce is built upon the CIA triad (Confidentiality, Integrity, and Availability) plus non-repudiation, whereas materiality is an auditing and accounting concept.

  Reason

  Materiality of data (Option B) is the correct choice for a 'NOT' question because it is a threshold used in financial reporting and auditing to determine if an omission or misstatement would influence a reader's judgment. It is not a technical security goal for protecting e-commerce systems or account holders.

  Why the other options are not as suitable

  • Option A) is a core security goal ensuring that systems and data are accessible to authorized users when needed. Confidentiality of data (
  • Option C) is a core security goal ensuring that sensitive information is not disclosed to unauthorized individuals. Integrity of data (
  • Option D) is a core security goal ensuring that information remains accurate and has not been altered by unauthorized parties.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-examiners-manual

• Question 8

  Jones is an accounts payable clerk at Smith Company. He intentionally sent the wrong vendor a check for some supplies. He then called the vendor, explained his “mistake”, and requested that the vendor mail back the check. Jones then intercepted the returned check and deposited it in his own account. What type of scheme did he commit?

  • A. A shell company scheme
  • B. A pay and return scheme
  • C. An altered payee scheme
  • D. A pass-through scheme

  Correct Answer: B

  Explanation:

  I agree with the community and suggested answer B. The scenario described is a classic textbook example of a pay-and-return scheme, which falls under the category of billing schemes in the ACFE Fraud Tree.

  Reason

  In a pay-and-return scheme, an employee with disbursement authority or access to the accounts payable process intentionally causes the company to overpay a vendor or send a payment to the wrong vendor. The employee then contacts the vendor to request a refund and intercepts that returned check for their personal use. This matches Jones's actions exactly: he sent a check to the wrong vendor, requested it back, and deposited the return in his own account.

  Why the other options are not as suitable

  A. A shell company scheme is incorrect because it involves the fraudster creating a fictitious entity to bill the employer for goods or services never received. C. An altered payee scheme is a form of check tampering where the fraudster intercepts a prepared check and changes the name of the payee to themselves or an accomplice; in this scenario, the payee was correct (the wrong vendor), but the check itself was later stolen. D. A pass-through scheme is a specific type of shell company scheme where the fraudster buys goods from a real vendor and resells them to the employer at an inflated price, keeping the difference.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-tree

• Question 9

  Which of the following is the MOST ACCURATE statement about the different types of malware?

  • A. A worm is a type of software that, while not definitely malicious, has a suspicious or potentially unwanted aspect to it.
  • B. Ransomware is a malicious self-replicating computer program that penetrates operating systems to spread malicious code to other computers.
  • C. Spyware is software that collects and reports information about a computer user without the user’s knowledge or consent.
  • D. A Trojan horse is a software program that, while not definitely malicious, monitors and logs the keys pressed on a system’s keyboard.

  Correct Answer: C

  Explanation:

  I agree with the suggested answer C. It provides the most technically accurate definition of Spyware as recognized by the ACFE, whereas the other options describe specific malware types using incorrect or mismatched definitions.

  Reason

  Option C is correct because Spyware is specifically designed to infiltrate a system to monitor user activity and gather data—such as login credentials, personal information, or browsing habits—without the user's authorization or awareness.

  Why the other options are not as suitable

  • Option A is incorrect because a Worm is defined by its ability to self-replicate and spread independently across networks; the description provided better matches a Potentially Unwanted Program (PUP).
  • Option B is incorrect because the description provided defines a Worm, not Ransomware; Ransomware is software that encrypts files and demands a payment for their release.
  • Option D is incorrect because a Trojan horse is a malicious program disguised as legitimate software to trick users into executing it, not merely a keyboard logger (though a Trojan may carry a keylogger as its payload).

  Citations

  • https://www.acfe.com/fraud-resources/fraud-glossary
  • https://www.ftc.gov/business-guidance/small-businesses/cybersecurity/malware

• Question 10

  To help prevent fraudulent billing schemes, it is recommended that companies combine the purchasing and payment functions.

  • A. True
  • B. False

  Correct Answer: B

  Explanation:

  I agree with the community consensus that the correct answer is B (False). Combining purchasing and payment functions is a significant internal control weakness that facilitates, rather than prevents, fraudulent billing schemes.

  Reason

  In the context of the ACFE Fraud Examiners Manual, the segregation of duties is a fundamental control to prevent fraud. Purchasing (authorization/ordering) and payment (disbursement) must be kept separate so that no single individual has the power to initiate a fake purchase and then authorize a payment to themselves or a shell company. Separating these functions ensures a system of checks and balances where one person's work serves as a verification of another's.

  Why the other options are not as suitable

  • Option A (True) is incorrect because combining these functions creates a toxic combination of duties. If one person handles both purchasing and payment, they can easily circumvent controls by creating shell companies, submitting fictitious invoices, or altering vendor master files without oversight, leading to undetected billing schemes.

  Citations

  • https://www.acfe.com/fraud-resources/fraud-free-resources