ACFE CFE-Fraud-Schemes-and-Financial-Crimes Exam Questions Instant Access

Question 1

Which of the following signs is a red flag that might indicate an entity is operating a securities business without the proper license or registration?

AThe entity's website lists a prospectus for each security.

BThe entity has a history of regulatory filings.

CThe entity has a lack of customer complaints.

DThe entity's promoters have unexplained gaps in their work history.

Answer : D

The correct answer is D because unexplained gaps in a promoter's work history are specifically identified as a red flag that an entity might be operating a securities business without proper licensing or registration. The ACFE material explains that legitimate brokerage firms and broker-dealers must register with the appropriate regulatory authority, meet required standards, and ensure that relevant personnel are properly registered or licensed. Red flags include agents with criminal records, unexplained employment gaps, prior customer complaints, regulatory problems, and questionable credentials. Options A and B are not red flags by themselves because prospectuses and regulatory filings may be associated with legitimate securities activity. Option C is the opposite of a warning sign; customer complaints would be more concerning than a lack of complaints.

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Question 2

Which of the following scenarios is an example of a trade-based money laundering scheme?

AA 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.

BAn importer funnels money through a cash-intensive business to conceal income from illicit activities with legitimate revenue from the front company.

CAn exporter and importer engage in a fraudulent transaction in which the exporter invoices goods to the importer at a price above their market value.

DA 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.

Answer : C

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.

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Question 3

Which of the following is one of the sections on the statement of cash flows?

ACash flows from purchasing activities

BCash flows from financing activities

CCash flows from earnings activities

DCash flows from strategic activities

Answer : B

Rationale for Correct Answer: The statement of cash flows has three standard

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activities

Thus, option B is correct.

Analysis of Incorrect Options:

A -- No section called ''purchasing activities''; such outflows fall under investing or operating.

C -- No section called ''earnings activities''; related cash flows are operating.

D -- ''Strategic activities'' is not a formal category in GAAP or IFRS.

Key Concept: Structure of the statement of cash flows.

Question 4

Baker, an employee of ABC Corporation, was the only employee who had control of the purchasing function for his department. Baker authorized the purchase of supplies that ABC did not need and used these supplies to make improvements to his house. This is an example of what kind of fraud?

APay and return scheme

BPersonal purchases with company funds

CPass-through scheme

DTheft of inventory

Answer : B

Rationale for Correct Answer: This is personal purchases with company funds,

Analysis of Incorrect Options:

A . Pay and return scheme -- Involves overpaying a vendor and pocketing the refund.

C . Pass-through scheme -- Involves using a controlled company to bill the employer at inflated prices.

D . Theft of inventory -- Involves stealing company stock, not purchasing items for personal use.

Key Concept: Fraudulent disbursement -- billing fraud through unauthorized personal purchases.

Question 5

According to a survey, in principal perpetrator cases, males were the primary culprit in a majority of cases, accounting for ___ percent of frauds versus ___ percent for females.

A62 versus 36

B61 versus 39

C62 versus 37

DNone of the above

Answer : C

Rationale for Correct Answer:

ACFE's occupational fraud surveys consistently show that males are more often the primary perpetrators than females, accounting for approximately 62% of cases compared to 37% for females. This is attributed to higher representation of males in positions of authority and access. Therefore, C. 62 versus 37 is correct.

Key Concept:

Demographics of Fraud Perpetrators --- gender-based survey findings.

ACFE Fraud Examiners Manual (2020 International Edition), Fraud Statistics --- Demographics of Offenders.

Question 6

Bid-rigging scheme occurs when:

AAn employee fraudulently assists a vendor in winning a contract through the competitive bidding process.

BAn employee does not assist a vendor in winning a contract through the competitive bidding process.

CAn employee once assists a vendor in winning a contract through a single competitive bidding process.

DAn employee once assists a vendor in winning a contract through a single competitive bidding process.

Answer : A

Rationale for Correct Answer:

Bid-rigging occurs when an employee or official manipulates the competitive bidding process to ensure a specific vendor wins the contract. This may involve sharing confidential information, suppressing competition, or tailoring bid specifications.

Analysis of Incorrect Options:

B . Does not assist -- Opposite of fraud; no scheme.

C/D . Once assists... -- Bid-rigging is systemic, not limited to one occurrence.

Key Concept:

Bid-rigging schemes --- corruption in procurement processes.

ACFE Fraud Examiners Manual (2020 International Edition), Corruption --- Bid-Rigging Schemes.

Question 7

Which of the following measures would be MOST EFFECTIVE in helping a company detect electronic payment tampering fraud?

AAsk all vendors if they have received any duplicate payments.

BInvestigate customer complaints about any payments that were applied to their account later than they expected.

CReview any non-payroll payments made to employees.

DComplete bank reconciliations once a quarter to catch any anomalies in payment amounts and payees.

Answer : C

The correct answer is C. Electronic payment tampering occurs when an employee improperly alters or creates electronic payments, such as ACH payments, wire transfers, or online banking payments. Reviewing non-payroll payments made to employees is highly effective because employees generally should not receive vendor-style electronic disbursements outside normal payroll or approved reimbursement channels. Such payments can indicate that an employee inserted their own bank account, created an unauthorized payee, or diverted electronic funds. Vendor duplicate confirmations are more relevant to duplicate-payment issues. Customer complaints about late account postings relate more to cash receipts or accounts receivable. Quarterly reconciliations are too infrequent for timely detection. The ACFE materials identify electronic payment tampering as a fraudulent disbursement risk requiring strong monitoring and bank controls.

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ACFE Certified Fraud Examiner - Fraud Schemes and Financial Crimes CFE-Fraud-Schemes-and-Financial-Crimes Exam Questions