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

Detailed Explanation:

Rationale for Correct Answer:The “outside the accounting system” approach occurs when perpetrators simply fabricate financial statements without regard to actual accounting records. Fraudsters may create entirely false reports using external tools (typewriters, spreadsheets, word processors).

Analysis of Incorrect Options:

A. Organized accounting – Not a fraud classification.

B. Playing the accounting – Uses the real accounting system but manipulates entries.

C. Beating accounting – Refers to overriding controls but within the system.

D. Outside accounting system – Correct, as it involves entirely fabricated statements.

Key Concept:Outside-the-books fraud — fabricated financial reports not tied to accounting records.

Detailed Explanation:

Rationale for Correct Answer:Liabilities are defined as obligations to transfer assets or provide services to other entities in the future as a result of past transactions. They represent what the organization owes, distinguishing them from assets.

Analysis of Incorrect Options:

A. Supplies – Assets consumed within a year, not obligations.

B. Expenses – Costs incurred, but not necessarily amounts owed.

C. Assets – Resources owned, not obligations.

Key Concept:Definition of Liabilities in accounting.

Detailed Explanation:

Rationale for Correct Answer: Expense reimbursement schemes are a common type of fraudulent disbursement. Requiring employees to submit receipts electronically improves controls by ensuring legibility, reducing the chance of altered or duplicate submissions, and creating a digital audit trail. This measure is recommended in the Fraud Examiners Manual as part of strengthening internal controls over reimbursement processes.

Analysis of Incorrect Option:

B. False – Incorrect because electronic receipt submission is indeed a recognized anti-fraud measure.

Key Concept: Fraudulent disbursements prevention through documentation controls.

Detailed Explanation:

Rationale for Correct Answer: Check fraud is prevalent partly because the equipment needed (scanners, printers, software) is relatively inexpensive and widely available, lowering the barrier to entry.

Analysis of Incorrect Options:

A – False; many check fraud perpetrators are never caught.

C – False; penalties are often not severe, and enforcement may be inconsistent.

D – Incorrect, since B is a true statement.

Key Concept: Nature and accessibility of check fraud schemes.

Detailed Explanation:

Rationale for Correct Answer: This is a false sale scheme, in which an employee processes fictitious transactions (such as false refunds, voids, or no-sales) to conceal theft of merchandise. Here, Brenda pretends to conduct a sale but records no payment.

Analysis of Incorrect Options:

A. Register disbursement scheme – Involves fraudulent refunds or disbursements of cash, not merchandise theft.

C. Purchasing and receiving scheme – Refers to inventory fraud during procurement, not point-of-sale theft.

D. Skimming scheme – Involves theft of cash before it enters accounting records, not merchandise theft.

Key Concept: Cash receipts and register manipulation schemes.

Detailed Explanation:

Rationale for Correct Answer:The correct answer is A. Larceny. As defined in the Fraud Examiners Manual (2020 International Edition), larceny is the unlawful taking of another’s property with intent to permanently deprive the owner of its use or possession. Essential elements include: (1) the wrongful taking or carrying away of property, (2) without the consent of the owner, and (3) with felonious intent (i.e., intent to steal). This aligns directly with the definition provided in the question.

Analysis of Incorrect Options (Distractors):

B. Abuse – Abuse typically refers to the improper use of authority or resources (e.g., excessive expense claims, misuse of assets), but it is not a legal term describing theft by taking.

C. Fiduciary – Fiduciary describes a relationship of trust or duty to act for another’s benefit, not the act of theft.

D. None of the above – Incorrect because “larceny” precisely matches the elements described.

Key Concept:The definition and elements of larceny, which is a foundational legal concept for distinguishing among asset misappropriation schemes such as larceny vs. skimming.

Detailed Explanation:

Rationale for Correct Answer: One of the strongest internal controls against fraudulent billing schemes (such as shell companies, inflated invoices, and kickbacks) is to require competitive bidding. This ensures transparency, reduces favoritism, and makes it harder for employees and vendors to collude.

Analysis of Incorrect Options:

A – Fraud tips are valuable, but routing them only through supervisors may suppress reporting; hotlines are more effective.

B – Combining purchasing and payment increases fraud risk by reducing segregation of duties.

D – Outsourcing negotiations does not directly prevent billing fraud.

Key Concept: Internal controls and segregation of duties in preventing billing schemes.

Detailed Explanation:

Rationale for Correct Answer:Tangible assets are those that can be physically perceived (touched, seen, etc.) and appraised (assigned a measurable value). Examples include buildings, land, equipment, and inventory. Both characteristics are correct, making C the best choice.

Analysis of Incorrect Options:

A. Capable of being perceived – True, but incomplete.

B. Capable of being appraised – True, but incomplete.

D. Neither A nor B – Incorrect since both statements are accurate.

Key Concept:Tangible Assets — physical and measurable property owned by a business.