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

Detailed Explanation:

Rationale for Correct Answer:Journal entries record business activity, and credits increase equity (while debits reduce equity). Thus, journal entries and credits are the mechanisms that directly affect the equity account.

Analysis of Incorrect Options:

A. Journal Entries & Debit – Debits decrease equity, not increase.

B. Journal Entries & Transactions – Transactions are general; credits specify the effect.

D. None of all – Incorrect since option C is correct.

Key Concept:Equity changes recorded through journal entries and credits.

Detailed Explanation:

Rationale for Correct Answer:Common skimming schemes include unrecorded sales, theft of incoming checks, and understating sales/receivables. “Fraud & Cost” is not a recognized skimming scheme and appears to be a distractor.

Analysis of Incorrect Options:

A. Unrecorded sales – A classic skimming method.

C. Theft of checks through the mail – Another recognized skimming approach (incoming receivables).

D. Understated sales and receivables – A concealment method within skimming schemes.

B. Fraud & Cost – Not a scheme classification.

Key Concept:Skimming schemes vs. unrelated distractors.

Detailed Explanation:

Rationale for Correct Answer: An air loan is a mortgage fraud scheme where the borrower and sometimes insiders create completely fictitious properties or borrowers. Here, the nonexistent property and loan proceeds being pocketed fits this definition.

Analysis of Incorrect Options:

A. Property flopping – Involves short sales and undervaluing distressed property.

C. Phantom lien – False liens filed to collect fraudulent claims on real estate.

D. Daisy chain – Involves multiple property transactions between conspirators to inflate value.

Key Concept: Loan fraud schemes – fictitious property loans (air loans).

Detailed Explanation:

Rationale for Correct Answer:Supplies are recorded as expenses because they are expected to be consumed within one year. Unlike long-lived assets, supplies do not provide benefits beyond the short term and therefore are expensed rather than capitalized.

Analysis of Incorrect Options:

B. Expenses – The accounting treatment, not the category of item.

C. Assets – Supplies are assets when purchased, but they become expenses upon consumption.

D. Equity – Represents ownership interest, unrelated here.

Key Concept:Short-term asset consumption and expense recognition.

Detailed Explanation:

Rationale for Correct Answer: Corruption schemes involve the misuse of influence in business transactions for personal benefit, often through bribery, kickbacks, or conflicts of interest. In this case, the procurement agent accepts an improper benefit (use of a beach house) in exchange for contract favoritism, which is a classic bribery scheme.

Analysis of Incorrect Options:

A – Theft of confidential information = asset misappropriation/intellectual property theft, not corruption.

C – Excluding laptops from records = inventory theft, not corruption.

D – Omitting costs = financial statement fraud.

Key Concept: Bribery as a form of corruption.

Detailed Explanation:

Rationale for Correct Answer:The ACFE describes occupational fraud and abuse as an expense of doing business because organizations inevitably face losses from it, just as they incur other operating costs. This framing emphasizes the importance of prevention and detection to minimize this “expense.”

Analysis of Incorrect Options:

A. Equity – Residual ownership interest, not relevant here.

B. Balance sheet – A report, not a cost.

D. Financial record – Too vague.

Key Concept:Occupational Fraud as a Cost of Business.

Detailed Explanation:

Rationale for Correct Answer:Skimming involves the theft of cash before it is recorded in the accounting system. Since sales are never recorded, reconciling sales to receipts will not detect skimming—it can only detect larceny (theft after recording).

Analysis of Incorrect Options:

A. True – Incorrect because no discrepancy exists in the records (the sale itself is omitted).

Key Concept: Distinction between skimming (off-book theft) and cash larceny (on-book theft).

Comprehensive and Detailed Explanation

Definition of Upcoding (ACFE Manual Reference)

The ACFE Manual identifies upcoding as a type of health care billing fraud in which the provider submits a claim for a more expensive or more complex service than what was actually provided.

Although the exact term “upcoding” appears within the health care fraud discussions, the broader category is part of Financial Transactions and Fraud Schemes concerning fraudulent billing practices. The manual describes fraud schemes in which the perpetrator:

Bills for services not provided,

Bills for more expensive services than were actually delivered, or

Uses codes that misrepresent the level or nature of medical procedures.

Upcoding specifically involves:

Billing for a higher-cost procedure than what was actually performed, by using a code representing a more expensive service.

Why Option D Is Correct

Dr. Raul advised a patient with a small fracture to use crutches, but he submitted a claim using a code indicating that he placed a cast on the patient.

Actual service: Advice and crutches

Billed service: Application of a cast (more expensive procedure)

This is a textbook example of upcoding, as the provider is using a higher-cost CPT code to obtain greater reimbursement than the service warrants.

Why the Other Options Are Incorrect

Option A – Not Upcoding

Cindy receives a payment to undergo an unnecessary procedure, which is then billed fraudulently.

This is medically unnecessary services fraud, not upcoding.

Option B – Not Upcoding

Dr. Loomis uses three procedure codes instead of one.

This is an example of unbundling, which involves billing separate codes for procedures that should be billed as a single package.

Option C – Not Upcoding

Landon inflates the amount of a medical bill he wants reimbursed.

This is billing inflation or overstatement, but not misrepresentation via coding.

ACFE Manual Supporting Reference

The Manual’s section on fraudulent billing schemes discusses cases where perpetrators misrepresent medical procedures, including using false or inflated codes to obtain higher reimbursements.

Detailed Explanation:

Rationale for Correct Answer:One of the most effective ways to protect proprietary information is educating employees about nondisclosure agreements (NDAs) at onboarding and again during exit. This ensures awareness of confidentiality obligations.

Analysis of Incorrect Options:

A. Changing locks/codes every 3–5 years – Reasonable security but insufficient for safeguarding proprietary information.

B. Classifying data by years of service – Not a sound security practice; access should be based on role and need-to-know.

D. Requiring notes/drafts – Increases risk of information leaks, not protection.

Key Concept: Proprietary information protection.

Detailed Explanation:

Rationale for Correct Answer:This statement is True. Asset misappropriations reduce the organization’s assets. In double-entry accounting, a decrease in assets without a corresponding decrease in liabilities results in a reduction of owner’s equity. Therefore, fraud not only depletes assets but also indirectly reduces equity.

Analysis of Incorrect Options:

B. False – Incorrect because asset theft clearly reduces net assets and thereby equity.

Key Concept:Impact of Asset Misappropriation on the accounting equation: Assets = Liabilities + Equity.