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

Detailed Explanation:

Rationale for Correct Answer:The matching principle under GAAP requires that revenues and the corresponding expenses incurred to generate those revenues be recorded in the same period. Failing to do so misstates income and violates accrual accounting.

Analysis of Incorrect Options:

B. Revenue and Income statement – The income statement is a report, not an item to be matched.

C. Income statement and Long-term contracts – Long-term contracts follow special rules (percentage of completion, completed contract), not the general matching principle.

D. Capitalized expenses and Liabilities – Not part of the matching principle.

Key Concept:Matching Principle — recording related revenues and expenses in the same period.

Comprehensive and Detailed Explanation (Based on the ACFE Fraud Examiners Manual – Financial Transactions and Fraud Schemes)

In the Identity Theft chapter of the Financial Transactions and Fraud Schemes section, the ACFE Manual explains that there are two primary methods of committing identity theft:

Traditional identity theft

Synthetic identity theft

These are listed under “Methods of Committing Identity Theft” (1.803), immediately followed by “Types of Identity Theft Schemes” (1.804) such as financial identity theft and criminal identity theft.

1. Why the correct answer is Traditional identity theft (Option B)

In traditional identity theft, the perpetrator uses the real, complete identity of another person—such as their name, government identification number, and birthdate—to impersonate that person for fraudulent purposes. This is exactly what is happening in the question:

The fraudster uses a real victim’s name, government identification number, and birthdate to open a credit card account in the victim’s name.

This matches the Manual’s categorization where traditional identity theft involves misuse of actual personal identifying information (PII) belonging to a real individual, rather than fabricating an identity. The Manual then explains that this stolen identity is often used in financial schemes, such as obtaining credit cards, loans, or other financial benefits, which falls under financial identity theft as a type of identity theft scheme.

So, in ACFE terms, the method is traditional identity theft, and the scheme type is financial identity theft (using another person’s identity to obtain credit or other financial benefits).

2. Why the other options are incorrect

Option A – New account identity theft

“New account identity theft” is a descriptive phrase sometimes used in practice to describe opening new credit accounts in another person’s name, but the ACFE Manual’s formal categorization focuses on:

Methods of committing identity theft:

Traditional identity theft

Synthetic identity theft

Types of identity theft schemes:

Financial identity theft

Criminal identity theft

Medical identity theft

Insurance identity theft

Tax identity theft

Employment identity theft

Business identity theft

“New account identity theft” is not one of the defined method categories in the Manual; the described conduct is captured under traditional identity theft (method) and financial identity theft (scheme type). Therefore, this option does not align with the ACFE’s terminology tested on the CFE exam.

Option C – Synthetic identity theft

The Manual distinguishes synthetic identity theft as a different method. Under “Methods of Committing Identity Theft” (1.803), it explains that synthetic identity theft involves combining real elements of identity (for example, a genuine government identification number) with fabricated or unrelated information (such as a made-up name, date of birth, or address) to create a partly fictitious identity.

In the question, the fraudster is not creating a hybrid or composite identity. They are using all of the real victim’s identifying information (name, government ID number, birthdate) and posing directly as that person. That is traditional, not synthetic.

Option D – Criminal identity theft

Under “Types of Identity Theft Schemes” (1.804–1.805), the Manual describes criminal identity theft as a scheme where a fraudster gives someone else’s identifying information to law enforcement or in criminal justice contexts, so that the victim’s identity is attached to the criminal record or charges.

Typical examples include:

Giving another person’s name and identification details when stopped or arrested

Causing warrants or criminal records to be issued in the victim’s name

In the question scenario, the fraudster is not interacting with law enforcement or shifting criminal records to the victim. Instead, they are opening a credit card account, which is a financial use of the stolen identity. Therefore, it fits financial identity theft as a scheme type, but traditional identity theft as the method.

Detailed Explanation:

Rationale for Correct Answer:The accounting definition of assets, as cited by Marshall and in GAAP frameworks, is “probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.” This definition underlies balance sheet recognition of assets.

Analysis of Incorrect Options:

B. Liabilities – Represent probable future sacrifices, not benefits.

C. Credentials – Irrelevant to financial reporting.

D. None of the above – Incorrect since “assets” directly matches.

Key Concept:Definition of Assets under financial accounting frameworks.

Detailed Explanation:

Rationale for Correct Answer:The accounts receivable journal (also called the sales journal) records all sales transactions, whether on credit or cash. It provides a detailed subsidiary record of customer accounts and sales activity.

Analysis of Incorrect Options:

A. Disbursement journal – Records cash outflows, not sales.

C. Accounts payable journal – Records amounts owed to vendors, not sales.

D. General journal – Records miscellaneous entries not suited to specialized journals.

Key Concept:Special journals — sales activity recorded in the accounts receivable journal.

Detailed Explanation:

Rationale for Correct Answer:A ghost employee scheme occurs when fictitious or former employees remain on payroll. Detecting duplicate addresses, Social Security/Government ID numbers, or other anomalies between HR and payroll records is a classic detection method for ghost employees.

Analysis of Incorrect Options:

A. Fraudulent commissions scheme – Relates to sales manipulation, not duplicate personnel records.

B. Falsified hours and salary scheme – Involves timekeeping, not fictitious employees.

C. Expense reimbursement scheme – Concerns fraudulent expense claims, unrelated to payroll records.

Key Concept: Payroll fraud — Ghost Employee scheme.

Detailed Explanation:

Rationale for Correct Answer:Best practice is to minimize collection of sensitive data such as government identification numbers, only obtaining them when legally required. This reduces the risk of identity theft exposure in case of a breach.

Analysis of Incorrect Options:

A. Use government IDs as employee IDs – Increases risk of exposure, not prevention.

B. Audit information practices only when required – Insufficient; audits should be regular and proactive.

C. Use encryption only for external transfers – Encryption should always be applied, not selectively.

Key Concept: Identity theft prevention for businesses.

Detailed Explanation:

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.

Detailed Explanation:

Rationale for Correct Answer: EFT fraud involves the unauthorized transfer of money from victims’ accounts using stolen access credentials. A hacker using stolen log-in details to redirect funds is the textbook example.

Analysis of Incorrect Options:

A – Describes identity theft/credit card fraud, not EFT fraud.

C – Describes skimming of card data, not EFT.

D – Describes payroll fraud, not EFT.

Key Concept: EFT fraud = unauthorized access to electronic banking/payment systems.

Detailed Explanation:

Rationale for Correct Answer:According to the Fraud Examiners Manual (2020 International Edition), offenders can be categorized into types. Absconders are individuals who commit fraud and immediately flee with the proceeds (“take the money and run”). They differ from long-term violators who maintain their frauds for extended periods while concealing them. Thus, the correct answer is A. Absconders.

Analysis of Incorrect Options:

B. Long-term violators – These offenders commit frauds over a long period and often maintain their positions of trust while continuing the scheme.

C. Offender types – Too vague; not a specific classification.

D. None of the above – Incorrect, since “Absconders” directly matches.

Key Concept:Offender Typologies — distinguishing between absconders and long-term violators in occupational fraud.

Detailed Explanation:

Rationale for Correct Answer: The key goals of information security (the CIA triad plus authentication and non-repudiation) are confidentiality, integrity, availability, authentication, and non-repudiation. While accuracy of data is important, it is not formally one of the core security goals.

Analysis of Incorrect Options:

A. Availability – Ensures users can access data when needed.

C. Authentication – Confirms identities before granting access.

D. Non-repudiation – Prevents denial of legitimate transactions.

Key Concept: Information security objectives for fraud prevention.