CFE-Financial-Transactions-and-Fraud-Schemes Exam Dumps - Certified Fraud Examiner - Financial Transactions and Fraud Schemes Exam

Detailed Explanation:

Rationale for Correct Answer:Conflict of interest schemes occur when an employee, manager, or agent has an undisclosed personal interest in a transaction that is adverse to their employer. The Fraud Examiners Manual (2020) notes that one of the most common forms is when an employee has a hidden ownership or financial interest in a vendor that does business with the company. This compromises objectivity and creates self-dealing risks.

Analysis of Incorrect Options:

B. Salesman interest – Too narrow and not representative of the standard conflict scheme definition.

C. Purchaser interest – Purchasers are often involved, but the broader definition encompasses all employees.

D. Dealer interest – “Dealership interest” is not a recognized ACFE fraud scheme classification.

Key Concept: Conflict of Interest scheme under Corruption.

Detailed Explanation:

Rationale for Correct Answer: Illegal pyramid schemes rely on continual recruitment of new members. Early participants are paid from the investments of later recruits, meaning later participants almost always lose money. This matches option B.

Analysis of Incorrect Options:

A – Not true; pyramid-shaped hierarchies exist in legitimate organizations.

C – The goal isn’t product sales but rather recruitment; products, if present, are often incidental.

D – Incorrect because B is true.

Key Concept: Ponzi and pyramid schemes – payment to early investors with later investors’ funds.

Detailed Explanation:

Rationale for Correct Answer: Corporate spies do use social engineering, but their primary methods include surveillance, infiltration (e.g., posing as employees), and technical monitoring. The statement in option C is false because searching desks/workstations is a tactic, but it is not the primary method.

Analysis of Incorrect Options:

A – True; fake badges are a common infiltration tactic.

B – True; low-level jobs provide physical access.

D – True; technical surveillance is a recognized method.

Key Concept: Methods of corporate espionage.

Detailed Explanation:

Rationale for Correct Answer:Studies by the ACFE consistently show that inventory and equipment are the most commonly misappropriated noncash assets. They are highly liquid, valuable, and often difficult to monitor without strong controls.

Analysis of Incorrect Options:

A. Interest & Collusion – Not physical assets.

C. Inventory & Purchase – Purchase is a process, not a physical asset.

D. Sales & Equipment – Sales are transactions, not assets.

Key Concept:Noncash asset misappropriation — inventory and equipment are the primary targets.

Detailed Explanation:

Rationale for Correct Answer:This statement is True. Fraud examiners often analyze purchases by vendor to detect schemes where a single vendor receives disproportionately favorable treatment. This may indicate kickbacks, conflicts of interest, or vendor collusion schemes.

Analysis of Incorrect Options:

B. False – Incorrect, as vendor analysis is a valid tool to identify such schemes.

Key Concept:Purchases by vendor analysis as a fraud detection method.

Detailed Explanation:

Rationale for Correct Answer:The conservatism principle in accounting means that financial statements should not overstate assets or income and should anticipate possible losses. Thus, the amounts shown should be at least as much as reflected, if not more. This ensures users are not misled by overly optimistic figures.

Analysis of Incorrect Options:

A. Fraudulent statement – Involves intentional misrepresentation, not a principle of accounting.

B. Misappropriations – Theft of assets, unrelated to valuation principles.

D. Matching – Refers to aligning expenses with related revenues, not conservatism.

Key Concept:Conservatism principle — caution in financial reporting.

Detailed Explanation:

Rationale for Correct Answer:Under anti-bribery laws and fraud examination principles, the offer of a payment itself may constitute a bribe, regardless of whether money changes hands. Intent to improperly influence is enough to establish bribery.

Analysis of Incorrect Options:

B. Corruption in payment – Too vague, not a legal element.

C. Kickback payment – Requires an actual payment; not just an offer.

D. Overbilling in payment – A disbursement scheme, not a bribe.

Key Concept:Bribery offense can occur upon the offer alone.

Detailed Explanation:

Rationale for Correct Answer: Market division and allocation agreements are a classic bid-rigging scheme in which contractors collude to evade competition by assigning territories, customers, or project types among themselves. This undermines free and open competition.

Analysis of Incorrect Options:

B – Fake contracts are not a recognized collusion tactic in competitive bidding.

C – Publishing solicitations in different outlets does not evade competition.

D – Submitting false invoices is fraud, but it occurs after contract award, not during the bidding process.

Key Concept: Bid rigging and collusion in procurement fraud.