CFE-Financial-Transactions-and-Fraud-Schemes Exam Dumps - ACFE Certified Fraud Examiner Questions and Answers

Detailed Explanation:

Rationale for Correct Answer:The correct answer is A. Fiduciary Capacity. According to the Fraud Examiners Manual (2020 International Edition), a fiduciary relationship exists when a person is entrusted with the property or affairs of another and is obligated to act in the best interest of that person, rather than for their own benefit. Fiduciary capacity is a key legal concept in fraud examinations, particularly in cases involving breaches of trust, embezzlement, or misappropriation.

Analysis of Incorrect Options (Distractors):

B. Embezzlement – Embezzlement is the wrongful appropriation of assets by a person entrusted with them. While it often arises from a fiduciary relationship, it describes the act of theft, not the capacity in which the person acts.

C. Conversion – Conversion refers to the unauthorized use or control over another’s property, a civil wrong, but it does not describe the relationship of acting on another’s behalf.

D. None of the above – Incorrect, since “fiduciary capacity” directly fits the definition in the question.

Key Concept:Understanding fiduciary duty and fiduciary capacity, which form the legal foundation for identifying when a person has a duty to act on behalf of another, often forming the basis for fraud-related legal claims.

Detailed Explanation:

Rationale for Correct Answer: Departures from GAAP may be justified if compliance produces misleading results, if the transaction is immaterial, or if the costs exceed benefits. However, simply departing from GAAP because assets would be understated and liabilities overstated is not an acceptable reason; GAAP requires faithful representation even if results are unfavorable.

Analysis of Incorrect Options:

A – Cost-benefit considerations are valid grounds in practice.

C – Materiality is a recognized exception to strict GAAP application.

D – Preventing misleading statements is a valid justification.

Key Concept: GAAP exceptions are limited to cost-benefit, immateriality, and preventing misleading reporting.

Detailed Explanation:

Rationale for Correct Answer:The term Employee deviance refers to conduct that is harmful both to the organization and to the employee engaging in it. This encompasses a broad set of behaviors, including fraud, theft, abuse, and violations of organizational norms. While employee theft and fraud are subsets, deviance is the umbrella concept.

Analysis of Incorrect Options:

B. Employee theft – Specific to stealing from the employer, not the broader definition of detrimental conduct.

C. Employee fraud – Specific to deceptive practices, not all deviant acts.

D. All of the above – Incorrect, since the definition most accurately matches “Employee deviance.”

Key Concept:Employee Deviance — broader behavioral category that includes fraud, theft, and other misconduct.

Detailed Explanation:

Rationale for Correct Answer: This scheme is a business email compromise (BEC), also known as CEO fraud. Fraudsters impersonate high-ranking executives to trick employees into transferring money or disclosing confidential information.

Analysis of Incorrect Options:

A. Reverse social engineering – Involves the fraudster posing as a helper and then exploiting the victim, not impersonating executives.

B. Executive email attack – A generic term, but the ACFE recognizes BEC as the precise classification.

C. Electronic piggybacking – Refers to unauthorized access through another user’s session, not impersonation.

Key Concept: Social engineering and cyber-enabled fraud – BEC schemes.

Detailed Explanation:

Rationale for Correct Answer: By definition, financial statement fraud is intentional. Errors or accidents in reporting are not fraud; they are mistakes. Fraud requires deliberate misrepresentation to deceive users of financial statements.

Analysis of Incorrect Option:

A. True – Incorrect because it includes “accidental” misstatements, which fall outside fraud.

Key Concept: Intentional misstatement is the defining element of financial statement fraud.

Detailed Explanation:

Rationale for Correct Answer: In the procurement cycle, the post-award and administration phase involves the actual performance of contractual duties by the awarded contractor(s) and monitoring by the procuring entity. This is consistent with procurement process descriptions in the Fraud Examiners Manual (2020).

Analysis of Incorrect Options:

B – Needs identification occurs in the presolicitation phase, not solicitation.

C – In presolicitation, the entity defines needs; contractors submit bids during the solicitation phase.

D – The solicitation document is issued during the solicitation phase, not evaluation.

Key Concept: Understanding procurement phases to detect fraud opportunities (e.g., bid rigging, kickbacks).

Detailed Explanation:

Rationale for Correct Answer:The accounting cycle is the complete process of recording transactions, adjusting the books, preparing trial balances, and producing financial statements. Journal entries are part of the process, but the entire structured sequence is called the accounting cycle.

Analysis of Incorrect Options:

A. Journal Entries – Steps within the cycle, not the entire process.

C. Financial statement – Output of the cycle, not the process itself.

D. None of all – Incorrect since the accounting cycle is the correct term.

Key Concept:Accounting Cycle — structured process of recording and adjusting transactions.

Detailed Explanation:

Rationale for Correct Answer: Cash larceny is the theft of cash after it has been recorded in the company’s books. Skimming, in contrast, is theft of cash before recording.

Analysis of Incorrect Options:

B & D – Both describe forms of skimming (unrecorded or understated sales).

C – Kickback scheme is corruption, not cash theft.

Key Concept: Distinguishing cash larceny (on-book theft) from skimming (off-book theft).

Detailed Explanation:

Rationale for Correct Answer: Administrative security controls involve policies, procedures, and practices designed to manage the overall security environment—such as awareness training, audits, data classification, and enforcement of policies. These controls focus on governance rather than direct system configuration.

Analysis of Incorrect Options:

A. Technical security controls – These are automated safeguards (e.g., firewalls, encryption).

B. Logical access controls – Restrict access to systems through passwords, tokens, or biometrics.

D. Physical access controls – Restrict physical access (e.g., locks, guards, CCTV).

Key Concept: Layers of security controls (administrative, technical, physical).

Detailed Explanation:

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

Cash flows from operating activities

Cash flows from investing activities

Cash flows from financing activitiesThus, 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.