[ACFE] CFE - Module 1: Fin Trans & Fraud Exam Dumps & Study Guide

Free [ACFE] CFE - Module 1: Fin Trans & Fraud 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:

  The AI agrees with the suggested answer.
  The suggested answer is C: The purchasing entity has unusually high requirements for stock and inventory levels.
  Reasoning: Unusually high stock and inventory requirements can indicate a need recognition scheme where someone is manipulating the perceived needs to order excessive items. This inflates demand and can be a red flag for fraudulent activity.
  Reasons for eliminating other options:

  • A: Ordering at the optimal reorder point is a sign of good inventory management, not fraud.
  • B: Having a list of backup suppliers is a prudent business practice to ensure supply chain resilience.
  • D: Few surplus items written off as scrap might indicate efficient inventory management, though it could also hide other issues, it's less directly indicative of a need recognition scheme than unusually high inventory levels.

• 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:

  The suggested answer is incorrect.
  The correct answer is A. Participants attempt to recruit as many new members as possible..
  Reason: While recruitment can accelerate a Ponzi scheme, it's not a *distinguishing* feature. Many legitimate multi-level marketing (MLM) companies also rely on recruitment. The core characteristic of a Ponzi scheme is using new investor money to pay existing investors.
  Why other options are incorrect:

  • B is a core feature: Paying previous investors with money from new members is the defining characteristic of a Ponzi scheme.
  • C is a core feature: Participants generally believe they are making a legitimate investment, at least initially. Deception is key to the scheme's success.
  • D is a core feature: Lack of genuine investment or commerce is a hallmark of a Ponzi scheme, as the returns are not generated from actual profits.

  Therefore, option A is the only one that isn't necessarily present in a Ponzi scheme.

  A distinguishing feature sets something apart from other similar things. Ponzi schemes are defined by paying earlier investors with the investments of later investors. While many Ponzi schemes involve recruitment of new investors, this is not a distinguishing feature because legitimate investment opportunities can also involve recruitment or referrals.

  Based on the definition of Ponzi scheme from SEC, it uses new investors' money to pay prior investors; some schemes involve the recruitment of new investors but that is not always required.

  Distinguishing features of a Ponzi scheme

  • High investment returns with little or no risk.
  • Overly consistent returns.
  • Unregistered investments.
  • Unlicensed sellers.
  • Secretive and/or complex strategies.
  • Difficulty receiving payments.

  Therefore, the statement that doesn't fit is A, Participants attempt to recruit as many new members as possible.

  Recruiting new member isn't a distinguishing feature, as many legitimate investments involve recruitment and referrals, the statement that doesn't fit is A.

  The AI disagrees with the suggested answer.

• 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:

  The AI agrees with the suggested answer of D, Advance-fee scheme.
  The primary reason for this choice is that Geoffrey paid the contractor an upfront fee (deposit) for materials, and the contractor subsequently disappeared without providing the service. This aligns perfectly with the definition of an advance-fee scheme, where victims are induced to pay money upfront with the promise of goods, services, or other benefits, which are never delivered.
  Let's analyze why the other options are less likely:

  • A. Deposit scheme: While the scenario involves a deposit, "deposit scheme" isn't a recognized or well-defined term in fraud examination. Advance-fee scheme is the more accurate and encompassing term.
  • B. Scavenger scheme: A scavenger scheme typically involves exploiting discarded or undervalued assets, which doesn't fit Geoffrey's situation.
  • C. Block hustle scheme: The definition of the Block hustle scheme, is a confidence trick in which victims are conned into paying money for a supposed opportunity to purchase goods at a discount price. This does not fit into the scenario.

  Therefore, advance-fee scheme is the most appropriate answer.
  

  Here are some resources that support this reasoning:

  • Advance Fee Fraud, https://www.ic3.gov/Content/BEC.aspx

• 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: Access the full guide to see detailed AI explanations and community consensus.

• 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:

  The AI recommends that the suggested answer of A is incorrect, and that the correct answer is C.
  
  Reasoning:
  The question asks for the FALSE statement regarding methods of corporate espionage. Let's analyze each option:

  • A: Spies often create counterfeit employee badges to gain entrance into a target company. This is a known tactic used in corporate espionage to gain unauthorized access.
  • B: Spies often gain direct access to a target company by obtaining employment as a security officer or a member of the janitorial crew. This is also a recognized method, allowing spies insider access and opportunities.
  • C: When spies use technical surveillance to obtain information about target companies, they gather documentary evidence that can be found through open sources. This statement is FALSE. Technical surveillance involves methods like wiretapping, bugging, and hacking to obtain confidential information that is NOT available through open sources. Open-source information is publicly available, and technical surveillance aims to bypass such readily available data.
  • D: When spies use social engineering, they manipulate people into handing over secret information through the use of trickery, persuasion, threats, or cajolery. This is a correct description of social engineering tactics used in espionage. Social Engineering is a manipulation technique that exploits human error to gain private information, access, or valuables.

  
  Why other options are incorrect:
  Options A, B, and D describe valid and recognized methods employed in corporate espionage. Option C is the only statement that contradicts the true nature of technical surveillance, as it incorrectly suggests that it involves gathering publicly available information. The core purpose of technical surveillance is to obtain data that is NOT openly accessible. Technical surveillance is covert and targets private information, thus making option C the false statement.

  
  

  Citations:

  • Social Engineering Definition, https://www.techtarget.com/searchsecurity/definition/social-engineering

• 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:

  The AI suggests that the answer is B. Scott rings a “no sale” transaction at his cash register, opens the drawer, and takes a $100 bill.
  
  Reason: Cash larceny is defined as the taking of cash after it has already been recorded in the company's books. In this scenario, the cash is stolen from the register. This fits the definition precisely.
  
  Reason for not choosing other answers:

  • A: Michael is committing a fraudulent disbursement by creating a fictitious return. This is not larceny since the money is taken as part of a false transaction.
  • C: Olive is engaging in skimming, where the money is taken before it is recorded. She only records $400 of the $500 sale and pockets the difference.
  • D: Laura is also engaging in skimming. She pockets Amy’s cash before recording the sale, which is the definition of skimming.

  Citations:

  • Association of Certified Fraud Examiners, Fraud Examiners Manual.
  • Investopedia, Larceny, https://www.investopedia.com/terms/l/larceny.asp

• 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:

  The AI agrees with the suggested answer.
  The suggested answer is B (Materiality of data).
  The reason for choosing this answer is that materiality is an accounting concept, not a direct information security goal. Information security focuses on protecting the confidentiality, integrity, and availability (CIA triad) of data.
  The other options (Availability, Confidentiality, and Integrity) are all core principles of information security.

  • Availability ensures that authorized users have timely and reliable access to information.
  • Confidentiality ensures that sensitive information is protected from unauthorized disclosure.
  • Integrity ensures that information is accurate and complete, and protected from unauthorized modification.

  Materiality, on the other hand, is an accounting concept that refers to the significance of an omission or misstatement in financial statements. While data accuracy (related to integrity) is important, materiality itself is not a primary information security goal.

• 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:

  The AI agrees with the suggested answer.
  
  The suggested answer is B (A pay and return scheme).
  
  Reasoning: Jones intentionally sent a check to the wrong vendor and then intercepted the returned check for personal gain. This aligns with the definition of a pay and return scheme, where an employee causes an overpayment or payment to the wrong vendor and then intercepts the refund.
  
  Reasons for eliminating other options:
  

  • A. A shell company scheme involves creating a fake company to receive fraudulent payments. This is not what happened in the scenario.
  • C. An altered payee scheme involves changing the payee name on a check, which is not the method used by Jones.
  • D. A pass-through scheme usually involves the fraudster purchasing goods or services through their own entity and reselling them to their employer at an inflated price, or marking up the cost. This does not fit the described scenario.

• Question 9

  Which of the following is the MOST LIKELY result of a financial statement fraud scheme?

  • A. Understated assets
  • B. Overstated liabilities
  • C. Overstated revenues
  • D. Understated equity

  Correct Answer: B

  Explanation:

  The AI suggests that the most likely result of a financial statement fraud scheme is C. Overstated revenues.
  
  Reasoning:
  The primary motive behind financial statement fraud is typically to portray a company as more financially sound and profitable than it actually is. Overstating revenues is a common method to achieve this goal, as it directly inflates earnings and improves key financial ratios, thereby misleading investors and creditors. This aligns with the most voted answer in the discussion.
  
  Reasons for not choosing other options:

  • A. Understated assets: While some fraud schemes might involve hiding or undervaluing assets, this is less common than overstating revenues as a primary tactic to inflate perceived profitability.
  • B. Overstated liabilities: Overstating liabilities would make a company appear *less* profitable, which contradicts the typical motive of financial statement fraud.
  • D. Understated equity: Understating equity, while potentially part of a broader fraud, is not as direct a method as overstating revenues to create a false impression of profitability.

  Citations:

  • Financial Statement Fraud: Prevention and Detection, https://www.acfe.com/fraud-resources/financial-statement-fraud
  • What is Financial Statement Fraud?, https://www.imanet.org/insights-and-trends/management-accounting-practices/what-is-financial-statement-fraud

• Question 10

  Which of the following scenarios is an example of an electronic extortion scheme?

  • A. A vendor rewards a purchasing employee with tickets for a professional sports team’s game after the employee directs business to the vendor.
  • B. An employee receives a payment for directing excess business to a vendor.
  • C. A purchasing employee and vendor agree to bill the company for services never rendered.
  • D. A politician threatens to shut down a business if it does not pay a bribe.

  Correct Answer: D

  Explanation:

  The suggested answer, D, is correct.
  Electronic extortion involves using electronic means (like the internet or email) to threaten someone in order to obtain something of value, typically money or information. In the given scenarios, the most fitting example of extortion is option D, where a politician threatens to shut down a business unless they receive a bribe.
  The reason for choosing D is because it directly aligns with the definition of extortion: using threats to coerce someone into providing something of value. In this case, the threat is shutting down the business, and the value sought is a bribe.
  The reasons for not choosing the other answers are as follows:
  A and B describe scenarios of bribery or kickbacks, where a vendor rewards or compensates an employee for directing business their way. While unethical, these do not involve the element of threat or coercion that defines extortion.
  C describes a billing scheme, specifically a type of fraud where a company is billed for services that were never provided. This is a form of theft, but it doesn't involve explicit threats to obtain something.