ACFE CFE - Financial Transactions and Fraud Schemes Exam Dumps & Practice Test Questions
Question 1:
Which of the following statements most accurately describes one of the prevalent identity theft methods?
A. Vishing involves the use of a counterfeit website designed to deceive individuals into providing their confidential information.
B. Shoulder surfing refers to the act of observing someone entering sensitive details like a credit card number on a device.
C. Acquiring sensitive data from discarded mobile phones bought from a second-hand vendor is known as dumpster diving.
D. Baiting is a technique where individuals are tricked into sharing personal or business information through psychological manipulation.
Correct Answer: B
Explanation:
One prevalent identity theft method involves "shoulder surfing," which is the practice of directly observing a person’s screen or actions to collect sensitive data. In the context of identity theft, this typically occurs when someone observes an individual entering sensitive information like a credit card number or PIN on their mobile device or computer in a public space. This method relies on physical proximity to the target and does not require advanced technological tools. It can happen in various locations, such as cafes, airports, or public transport, where people might inadvertently expose their sensitive data to those around them.
While there are other methods of identity theft, such as phishing or vishing (which typically involve electronic or phone-based deception), shoulder surfing is unique in that it is based entirely on human observation rather than technical manipulation. The key risk associated with shoulder surfing is that it can be done without any direct interaction with the victim, making it a relatively simple and low-tech method for identity thieves.
A. Vishing refers to "voice phishing," a technique that involves using phone calls or voicemails to deceive individuals into providing personal information. It is similar to phishing but occurs over the phone, not through counterfeit websites. This makes option A incorrect in relation to the question's focus on identity theft methods.
C. Dumpster diving is a technique used by thieves to sift through discarded items, such as old documents or electronic devices, in search of valuable data. While it can be used to acquire sensitive information from discarded papers or devices, it does not specifically involve acquiring data from mobile phones bought from second-hand vendors, as described in the option. Therefore, option C is incorrect for this context.
D. Baiting involves a form of social engineering where attackers entice victims into downloading malicious software or clicking on deceptive links. The method described in the option refers to psychological manipulation but does not accurately describe the process of manipulating someone into sharing sensitive personal information, as in shoulder surfing. Hence, option D is also incorrect.
By understanding these methods, employees can better protect themselves by being aware of the tactics used by identity thieves. Regularly monitoring accounts, using strong passwords, and avoiding inputting sensitive data in public spaces can reduce the risks of becoming a victim of these identity theft techniques.
Question 2:
Which of the following control practices would be the least effective or not as helpful in detecting or preventing expense reimbursement fraud?
A. Mandating electronic submission of all receipts for verification purposes.
B. Comparing current expenditures with the allocated budget to identify discrepancies.
C. Requiring employees to justify the specific business purpose for each claimed expense.
D. Comparing current expenses with past spending trends to flag inconsistencies.
Correct Answer: B
Explanation:
To prevent and detect fraudulent expense claims, it is essential for organizations to implement control measures that directly target the integrity and accuracy of the expenses being submitted. Among the options provided, comparing current expenditures with the allocated budget (option B) would be the least effective or helpful in preventing or detecting fraud for several reasons.
The primary purpose of comparing expenses with the allocated budget is to ensure that the total expenditure stays within the limits set for a specific department or project. While this control can be useful in managing overall spending and avoiding budget overruns, it is not designed to detect fraudulent claims on individual expenses. Fraudulent activity can still occur even if the total amount is within budget, such as when an employee submits inflated or personal expenses that match the budget category but are not legitimate business-related expenses. For example, an employee might submit a personal dinner under the guise of a business meeting without exceeding the budget allocation, and this would not be flagged by this control.
A. Mandating electronic submission of all receipts is an effective control because it ensures that every expense claim is supported by a receipt, making it easier to verify the authenticity of the expenses. Electronic records also help create an audit trail, making it harder for employees to submit fraudulent claims without detection. This practice helps reduce errors and fraudulent submissions by providing documentation that can be cross-checked against the expense claims.
C. Requiring employees to justify the specific business purpose for each claimed expense is a crucial control because it adds an additional layer of scrutiny to each expense claim. Employees must explain why the expense is related to business activities, making it more difficult to claim personal expenses as business-related ones. This practice can help identify discrepancies between the claimed expenses and their actual business purpose, which can flag fraudulent behavior early.
D. Comparing current expenses with past spending trends is an effective practice for detecting anomalies. By reviewing historical data, organizations can identify patterns and flag unusual spending behavior, such as an employee submitting significantly higher expenses than usual for a particular category. This comparison can highlight potential fraud or inflated expenses by revealing inconsistencies over time.
In summary, while comparing expenditures to the allocated budget may help monitor overall spending, it does not address individual fraudulent claims effectively. On the other hand, practices like mandating receipts, requiring justifications, and analyzing spending trends are more targeted toward preventing or detecting fraud in expense reimbursements.
Question 3:
Which of the following items would NOT appear on a company’s balance sheet?
A. Liabilities
B. Cost of Goods Sold
C. Assets
D. Retained Earnings
Correct Answer: B
Explanation:
A company's balance sheet provides a snapshot of its financial position at a specific point in time. It is divided into two main sections: assets and liabilities, with the difference between them representing equity (the owners’ interest in the company). The balance sheet is structured to show a company’s resources (assets) and how those resources are financed, either through debt (liabilities) or equity (retained earnings and other forms of capital).
Cost of Goods Sold (COGS), which is listed in option B, does not appear on the balance sheet. Instead, it is an income statement item that represents the direct costs of producing goods or services sold by a company. These costs include expenses like materials and labor directly tied to the production process. The income statement summarizes the company’s revenues and expenses over a period of time, whereas the balance sheet provides a snapshot of its financial position at a specific point in time. Since COGS reflects operational expenses for a period, it appears on the income statement rather than the balance sheet.
Now, let's look at the other options:
A. Liabilities are a key component of the balance sheet. They represent the company’s obligations, such as debts, accounts payable, or other financial commitments. Liabilities are listed on the right side of the balance sheet and include both short-term liabilities (due within a year) and long-term liabilities (due after a year). Liabilities, along with assets and equity, are part of the balance sheet structure.
C. Assets are the resources a company owns, and they are an essential part of the balance sheet. Assets can be classified as current (e.g., cash, accounts receivable, inventory) or non-current (e.g., property, equipment, intangible assets). Assets are listed on the left side of the balance sheet and represent the economic resources that the company can use to generate future value.
D. Retained Earnings represent the accumulated profits of a company that have not been distributed to shareholders as dividends. These earnings are part of the equity section of the balance sheet. Retained earnings are important because they reflect the company’s historical profitability and are used to finance future growth or pay down liabilities.
In summary, Cost of Goods Sold is the item that does not appear on a balance sheet, as it is part of the income statement, which measures the company’s profitability over a period. The balance sheet, on the other hand, provides a snapshot of a company's assets, liabilities, and equity at a specific point in time.
Question 4:
Which of the following scenarios best illustrates a corruption scheme?
A. A public company deliberately omits regular expenses from financial reports to inflate profits.
B. A government procurement officer awards a large contract to a vendor in exchange for a future job offer.
C. A warehouse supervisor steals tablets from a shipment and resells them to third parties.
D. Two data analysts steal proprietary algorithms from their employer to launch a competing firm.
Correct Answer: B
Explanation:
Corruption schemes in occupational fraud involve an individual using their position of authority to manipulate decisions for personal gain. This often involves unethical behavior, such as accepting bribes or kickbacks, offering favoritism, or abusing their position for personal benefits. In the context of the scenarios presented, option B most accurately illustrates a corruption scheme. Here, a government procurement officer awards a large contract to a vendor in exchange for a future job offer. This situation involves conflict of interest, where the official uses their power to make decisions that benefit them personally (in this case, securing a future job) rather than making impartial, fair decisions in the best interest of their organization or the public. This is a classic example of corruption, as the officer is abusing their position for personal gain.
Now, let’s explore the other scenarios:
A. A public company deliberately omits regular expenses from financial reports to inflate profits represents financial statement manipulation, not corruption. In this case, the company is attempting to mislead investors or stakeholders by falsely reporting better financial performance than actually exists. The primary intent is to manipulate the company’s financial statements for purposes such as boosting stock prices, attracting investment, or avoiding regulatory scrutiny. While this is a form of fraud, it falls under the category of financial statement manipulation, not corruption.
C. A warehouse supervisor steals tablets from a shipment and resells them to third parties is an example of asset misappropriation, which is a form of occupational fraud where an employee steals company property or assets for personal gain. In this case, the warehouse supervisor is taking physical inventory (tablets) and selling it for personal profit. This type of fraud typically involves the theft of tangible assets like cash, goods, or equipment, and it’s a form of employee theft, not corruption.
D. Two data analysts steal proprietary algorithms from their employer to launch a competing firm involves theft of intellectual property, which is a form of fraud, but it doesn’t fit the definition of corruption. These data analysts are stealing valuable company property (the proprietary algorithms) with the intent to use it for their own benefit, possibly starting a competing firm. This scenario falls under asset misappropriation or intellectual property theft, as it involves stealing confidential or proprietary information.
In summary, corruption schemes are typically characterized by the abuse of power or authority to gain personal benefits, often involving bribery, kickbacks, or conflicts of interest. The scenario where the government procurement officer takes a future job offer in exchange for awarding a contract best represents this form of fraud. The other scenarios involve different types of fraud, such as financial statement manipulation and asset misappropriation.
Question 5:
Based on this description, which type of occupational fraud has Green committed?
A. Shell company scheme
B. Pay-and-return scheme
C. Cash larceny scheme
D. Pass-through scheme
Correct Answer: A
Explanation:
The scenario described involves Green, an employee who creates a fake company named Acme Consulting and submits fictitious invoices to ABC Corporation for non-existent consulting services. These invoices are then paid, and the money is deposited into Acme Consulting's bank account, which exists only on paper and has no legitimate business operations. This is a classic example of a shell company scheme.
A shell company scheme occurs when an employee sets up a fictitious company (a shell company) that appears legitimate but has no real operations or services. The employee then submits fraudulent invoices for services or goods that were never actually provided, and the company makes payments to this false entity. Since the shell company doesn’t provide any real products or services, the payments are misappropriated by the employee. This is exactly what Green has done by creating Acme Consulting, which is just a fake company created to funnel money from his employer.
Let’s examine the other options to see why they don’t fit:
B. Pay-and-return scheme involves an employee submitting a fraudulent expense claim for reimbursement, often with the intention of receiving funds that they later return, usually to hide the theft. For example, an employee may submit false expenses and then return a portion of the reimbursement to another person or the company to cover up the fraudulent act. This scheme doesn’t apply to the situation with Green, as the fraud in his case doesn’t involve the return of funds, but rather the creation of a fake company to pocket the payments.
C. Cash larceny scheme involves stealing cash from a company, often by diverting funds directly from the cash registers, bank deposits, or petty cash funds before they are recorded in the company’s accounting system. The fraud involves direct theft of cash, which doesn’t apply to Green’s actions, since the fraud he committed involves fake invoices and a shell company rather than the direct theft of cash from the company.
D. Pass-through scheme is a form of occupational fraud where an employee submits invoices for services or goods that are provided by a third party. However, the employee essentially serves as a middleman, passing the payment on to the third party, often taking a cut of the funds. This is not what is happening in Green’s case, as he is not using a third party to fulfill the invoice; instead, he has created a fake company to collect the entire payment for non-existent services.
In conclusion, the fraudulent actions described in this scenario most closely align with a shell company scheme (option A). Green created a fake company, submitted fraudulent invoices, and received payments for services that were never provided, all of which fit the definition of a shell company scheme.
Question 6:
Which of the following is a recommended practice to safeguard proprietary information from unauthorized disclosure or theft?
A. Maximizing the amount of data stored in the event of a breach to limit exposure.
B. Forming a team to assess which company assets are most vulnerable to competitor theft.
C. Storing devices that contain sensitive information in specialized secure rooms.
D. Restricting all non-employees from entering the company’s premises.
Correct Answer: C
Explanation:
When safeguarding proprietary information, including trade secrets, client records, and business strategies, it is crucial to implement physical and digital security measures that limit unauthorized access and theft. Among the options provided, the best practice is option C, which involves storing devices that contain sensitive information in specialized secure rooms.
A secure room is a physically protected area that restricts access to only authorized personnel. Devices such as computers, servers, or storage devices that hold sensitive data should be stored in these areas to prevent unauthorized access. The room can be secured with features like keycard access, biometric scanning, video surveillance, and alarm systems. This approach ensures that the physical security of devices containing confidential data is prioritized, protecting against theft, tampering, or accidental exposure. It is a critical part of an overall data security strategy.
Let’s examine why the other options are less effective:
A. Maximizing the amount of data stored in the event of a breach to limit exposure is not a sound security measure. In fact, storing excessive amounts of data increases the exposure risk. If sensitive information is compromised, having more data increases the potential for broader damage. The best practice would be to minimize the amount of sensitive data stored or implement robust encryption and access controls, so that even if a breach occurs, the data is protected.
B. Forming a team to assess which company assets are most vulnerable to competitor theft is an important step in a broader risk assessment process. However, while identifying vulnerable assets is valuable, it is more of a preventive measure and not a direct safeguard. The focus should also be on taking action to protect those vulnerable assets by implementing security measures like encryption, secure access policies, and physical protections, rather than just forming a team to assess vulnerabilities.
D. Restricting all non-employees from entering the company’s premises is a general security measure that can be important in preventing unauthorized access to sensitive areas. However, it may not be sufficient on its own. Employees may also pose a risk to proprietary information, so it's essential to implement additional controls, such as role-based access to sensitive data and monitoring of internal activities. Restricting non-employees is a good measure but does not address all the potential risks, especially those from within the organization.
In conclusion, storing devices containing sensitive information in secure rooms (option C) is the most effective practice to prevent unauthorized disclosure or theft of proprietary data. It combines physical and procedural safeguards, ensuring that sensitive data is protected from theft or unauthorized access. Other measures, like assessing vulnerabilities and restricting access, also play important roles but are not as directly effective in safeguarding the data itself.
Question 7:
Which of the following is the most concerning red flag that could suggest potential health care provider fraud?
A. A consistently low rate of outlier codes used in billing.
B. Profit margins that are significantly lower compared to similar providers in the region.
C. Missing supporting documentation for claims being reviewed.
D. Supporting documentation that matches the claim in question perfectly.
Correct Answer: C
Explanation:
When conducting an audit to detect fraudulent activities in health care, one of the most concerning red flags is missing supporting documentation for claims being reviewed (option C). Proper documentation is critical to validate the legitimacy of claims submitted to insurers or government programs. When claims are submitted without the necessary documentation (such as patient records, treatment plans, and other supporting evidence), it raises significant concerns that the claims may be fabricated, overinflated, or otherwise fraudulent.
In the health care industry, fraud can take many forms, such as billing for services not rendered, upcoding, or submitting duplicate claims. Missing documentation can make it difficult to verify the accuracy of the billing and could indicate that the health care provider is attempting to conceal improper activities. The absence of appropriate records undermines the validity of the claims and can be a clear indicator of fraud.
Now, let’s break down the other options to see why they are less concerning:
A. A consistently low rate of outlier codes used in billing: While outlier codes (codes used to describe unusual or rare procedures) might seem like a potential fraud indicator if used excessively, a consistently low rate of outlier codes does not inherently suggest fraudulent behavior. In fact, it could suggest that the provider is billing in a more conservative or standard manner. It's the overuse or misuse of outlier codes that would be a more significant red flag, rather than their consistent underuse.
B. Profit margins that are significantly lower compared to similar providers in the region: Profit margins can be influenced by a variety of factors, including business strategy, patient population, and operating efficiency. A low profit margin may not necessarily indicate fraud—it could be due to legitimate business reasons, such as higher operational costs or a focus on serving more underinsured or Medicaid patients. Comparing profit margins across providers is useful for benchmarking, but it is not a direct indicator of fraud without other suspicious behaviors being present.
D. Supporting documentation that matches the claim in question perfectly: This may seem like a positive sign at first, but it can actually be concerning. If the supporting documentation matches the claim perfectly, it might indicate that the documentation was fabricated or altered to make the claim appear legitimate. Fraudulent providers may intentionally create false documentation to support a claim and ensure it aligns perfectly with the details of the submitted charges. A perfectly matching document could signal suspicious activity, especially if no discrepancies or inconsistencies exist where they would be expected (e.g., variations in handwriting, dates, or signatures).
In conclusion, missing supporting documentation (option C) is the most concerning red flag in this case because it directly undermines the legitimacy of the claims being reviewed. Without appropriate documentation, there is no way to verify the authenticity of the services billed, which raises the risk of fraud. While other options may point to inefficiencies or potential issues, they do not directly indicate fraudulent behavior as clearly as missing documentation does.
Question 8:
Which of the following actions is the strongest indication that the company’s network may have been compromised?
A. Operating system updates are applied automatically to fix known vulnerabilities.
B. Employees are restricted from accessing files outside of their job scope.
C. Employees are prompted to change their passwords before expiration.
D. The network is transmitting an unusually high amount of data to international locations.
Correct Answer: D
Explanation:
Among the options provided, the strongest indication that the company’s network may have been compromised is D, where the network is transmitting an unusually high amount of data to international locations. This could be a sign that malicious activity is occurring on the network, such as data exfiltration or theft of sensitive information. Cybercriminals often attempt to extract large amounts of data from a compromised system and send it to external servers, sometimes located in foreign countries to evade detection. Such unusual data transfers are a red flag of potential unauthorized access or a data breach.
In this case, network monitoring tools and anomaly detection systems should be able to flag unusual outbound data traffic, especially if it occurs to international locations. When data flows outside normal network usage patterns, it can signal that an attacker has gained access and is attempting to steal confidential information, such as customer data, intellectual property, or company trade secrets.
Let’s explore why the other options are less indicative of a compromised network:
A. Operating system updates are applied automatically to fix known vulnerabilities: While applying operating system updates automatically is an important security practice, it is not an indicator that the system has been compromised. In fact, regular updates help patch known vulnerabilities and prevent potential attacks. Automatic updates are a preventive measure and do not directly signal that an attack is happening. They are part of good cybersecurity hygiene to reduce the likelihood of a compromise, rather than a sign that one has already occurred.
B. Employees are restricted from accessing files outside of their job scope: Restricting employees from accessing files outside their job scope is a best practice for data protection and role-based access control (RBAC). However, this action alone does not suggest that the network has been compromised. It is a security control designed to limit the damage that could occur if an employee’s account is compromised, but it doesn't indicate any ongoing unauthorized activity. Limiting access based on job roles is a proactive measure, not necessarily a response to a security breach.
C. Employees are prompted to change their passwords before expiration: Prompting employees to change passwords before expiration is a routine security measure and is part of good password management practices. While requiring frequent password changes helps to maintain account security, it does not directly indicate that a network has been compromised. This action is proactive, ensuring that passwords are regularly updated, which can mitigate risks but does not suggest that there is an ongoing breach.
In summary, the strongest indication that a network may have been compromised is unusual data transmissions to international locations (option D). This suggests the possibility of data exfiltration and could point to a breach of the network where an attacker is attempting to steal sensitive information. The other actions listed are important preventive measures and do not directly signal a network compromise.
Question 9:
Which of the following best describes the analysis technique being used?
A. A technique for examining the correlation between two different financial statement values.
B. A technique for comparing the performance of a parent company with that of its subsidiaries.
C. A method for analyzing financial statement components as percentages of a specified base amount to understand their relative contribution.
D. A method to analyze the percentage changes in individual financial statement items across periods.
Correct Answer: C
Explanation:
The technique described in the question, where each line item on the income statement and balance sheet is expressed as a percentage of a key value like total sales or assets, is known as common-size analysis. This is a method used to analyze financial statements by expressing each component as a percentage of a base amount to better understand its relative contribution to the overall financial performance. For example, each expense on an income statement might be shown as a percentage of total revenue, or each asset on a balance sheet might be expressed as a percentage of total assets. This allows the financial analyst to compare different line items across companies or periods and gain insights into the financial structure, efficiency, and profitability of the organization.
This technique helps to make financial comparisons easier, especially when comparing companies of different sizes or when analyzing the same company over time. It provides a clear picture of how individual components of the financial statements contribute to the overall financial health of the company.
Let’s now review the other options to understand why they do not describe the technique being used:
A. A technique for examining the correlation between two different financial statement values: This describes a correlation analysis, which typically looks at how two financial values (such as revenue and expenses) move in relation to each other. It’s more focused on identifying relationships or correlations between different variables, rather than expressing line items as percentages of a base amount. This is not the method described in the question.
B. A technique for comparing the performance of a parent company with that of its subsidiaries: This would likely refer to a consolidation analysis or a comparative analysis between the parent company and its subsidiaries. This technique focuses on assessing the performance of different entities within a group, rather than analyzing financial components as percentages of a base amount.
D. A method to analyze the percentage changes in individual financial statement items across periods: This refers to a trend analysis or horizontal analysis, where the focus is on comparing the changes in financial statement items over time. This technique helps assess growth or decline trends but doesn’t focus on expressing items as percentages of a base value, as common-size analysis does.
In conclusion, the correct answer is C, as the described method involves analyzing financial statement components as percentages of a specified base amount (such as total sales or assets), which allows for a better understanding of their relative contribution to the company’s overall performance. This is the essence of common-size analysis, making it the most accurate choice.
Question 10:
Which of the following would be most effective in identifying potential payroll fraud?
A. Implementing random audits of payroll records to detect discrepancies.
B. Allowing employees to submit their time reports without oversight or approval.
C. Relying solely on the payroll system’s automated functions to flag errors.
D. Encouraging employees to report suspected payroll fraud anonymously.
Correct Answer: A
Explanation:
The most effective method for identifying potential payroll fraud is A, implementing random audits of payroll records to detect discrepancies. Random audits are a powerful tool for uncovering fraudulent activity in payroll systems. They involve reviewing payroll records without prior notice to the employees involved, making it more difficult for those committing fraud to hide their activities. The randomness of the audits ensures that no one can predict when they will be checked, reducing the chances that fraudulent activities, such as manipulating hours worked or submitting false time reports, will go undetected. Audits can uncover discrepancies between time worked and actual pay, revealing potential fraud patterns that might otherwise be overlooked.
In addition, random audits ensure that any irregularities can be detected across the entire payroll process, including timesheets, bonuses, and overtime claims, which are common areas for fraud. By continuously performing these audits, a company can not only catch fraudulent activities early but also discourage employees from attempting to manipulate the system, knowing that there is a possibility of being caught at any time.
Let’s review the other options to see why they are less effective:
B. Allowing employees to submit their time reports without oversight or approval: This option significantly increases the likelihood of payroll fraud. Without oversight or approval, employees could easily manipulate their time reports, submit false information, or claim hours they did not work. Lack of supervision makes it easier for fraudulent activities to occur undetected, which is the opposite of what the company aims to achieve by preventing payroll fraud.
C. Relying solely on the payroll system’s automated functions to flag errors: While automated systems can help identify obvious errors, they are not foolproof in detecting all forms of fraud. Automated systems might miss subtle manipulations such as collusion, systematic overtime fraud, or the submission of inflated time entries that may not raise red flags within the system. Relying only on automation without human intervention or random audits is inadequate for identifying more sophisticated fraud schemes, as some fraudulent activities may bypass the system’s error flags.
D. Encouraging employees to report suspected payroll fraud anonymously: While this measure can be useful for identifying fraudulent activities that may be difficult to detect through normal auditing methods, it relies heavily on employees’ willingness to report fraud. Not all employees may feel comfortable reporting fraud, and some may not be aware of the full scope of fraudulent activities taking place. Though useful, this measure alone is not as proactive or comprehensive as random audits, which can directly uncover fraudulent actions without relying on employee reporting.
In conclusion, implementing random audits of payroll records (option A) is the most effective method for identifying payroll fraud because it directly targets discrepancies and irregularities, helping to detect fraudulent activities before they escalate. It is a proactive approach that, when combined with other measures, such as encouraging anonymous reporting or using automated functions, can create a robust system to detect and deter payroll fraud.
