ACFE CFE-Fraud-Schemes-and-Financial-Crimes - Certified Fraud Examiner -Fraud Schemes and Financial Crimes

The correct answer is B. A fictitious payee scheme occurs when an insurance insider directs payments to a fabricated or unauthorized recipient and then misappropriates the funds. In this scenario, the agent changes the beneficiary to a made-up person and authorizes distribution of policy proceeds, enabling the agent to abscond with the money. The fraudulent feature is the creation or use of a false payee, not a false death. A false information scheme is broader and does not specifically describe the payment diversion. A fictitious death scheme would involve falsely claiming that the insured died. “False heir scheme” is not the best ACFE category. The ACFE insurance fraud materials identify fictitious payees as an agent or broker fraud method.

The correct answer is B. Skimming involves stealing cash before it is recorded in the organization’s accounting system. Separating the duties of collecting cash and accessing or posting to the accounts receivable journal is an effective preventive control because it prevents one employee from both taking funds and manipulating records to conceal the theft. Job rotation can help, but it is less direct. Comparing sales records to cash received and reviewing deposit timing are more detective than preventive in nature. The strongest control is segregation of duties between custody of cash and recordkeeping authority. The ACFE cash receipts materials emphasize receipt-level controls, general controls, and separation of duties as primary measures for preventing skimming schemes.

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Detailed Explanation:

Rationale for Correct Answer: A conflict of interest occurs when an employee secretly has a personal or financial stake in a transaction, and that interest compromises their duty of loyalty to the employer. This is one of the four categories of corruption under the ACFE Fraud Tree.

Analysis of Incorrect Options:

B. Illegal sale – Not a fraud classification.

C. Unauthorized purchase – Could describe asset misuse, not corruption.

D. Financial disclosure – Relates to reporting, not the fraud itself.

Key Concept: Conflict of interest schemes as a category of corruption.

Detailed Explanation:

Rationale for Correct Answer: Otto’s act combines misappropriation of customer funds with concealment via false accounting entries . Per the Fraud Examiners Manual , concealment through altering records is a hallmark of accounting fraud schemes tied to asset misappropriation.

Analysis of Incorrect Options:

A – Unauthorized disbursement typically refers to fraudulent payments like check tampering, not customer withdrawals.

B – Dormant account fraud targets unused/inactive accounts; the victim here is an active but inattentive customer.

D – Unauthorized withdrawal is part of the theft, but the defining element is the falsified ledger concealment, making C more precise.

Key Concept: Asset misappropriation with concealment through false accounting.

Detailed Explanation:

Rationale for Correct Answer: New account fraud occurs when fraudsters open accounts with false or stolen identities to exploit financial institutions before controls detect suspicious activity. Mobile deposits are particularly vulnerable because criminals can use counterfeit or altered images to deposit fraudulent checks quickly. This aligns with the Fraud Examiners Manual (2020) discussion of high-risk delivery channels for new account fraud.

Analysis of Incorrect Options:

A. Established accounts – Incorrect; fraud risk is higher in new accounts due to limited history and weaker controls.

C. Six months definition – Not an ACFE standard; there is no fixed six-month definition.

D. ATMs rarely targeted – Incorrect; ATMs are frequently exploited in new account fraud schemes.

Key Concept: New account fraud in identity theft and corruption-related schemes.

Detailed Explanation:

Rationale for Correct Answer: In collusive bidding , contractors coordinate to submit artificially high or uniform bids , with the appearance of competition. If all contractors submit bids that are consistently low relative to norms, it may indicate collusion to fix prices and share markets.

Analysis of Incorrect Options:

A – More competitors reduces collusion risk, not increases it.

C – Declining prices with new competition is expected in free markets.

D – Not subcontracting is not a standard collusion red flag.

Key Concept: Procurement fraud red flags – bid rigging and collusion.

Detailed Explanation:

Rationale for Correct Answer: Economic extortion occurs when someone demands payment or benefit under threat of harm (explicit or implicit). A government official demanding money in exchange for awarding a contract is classic extortion.

Analysis of Incorrect Options:

A – This is a billing scheme (fraudulent disbursement), not extortion.

C – This is a kickback scheme (corruption).

D – This is an illegal gratuity scheme (reward after action).

Key Concept: Types of corruption—extortion vs. bribery vs. gratuities.

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: In fictitious revenue schemes , sales are recorded that never occurred. Because no actual customers exist, there will be no late or overdue accounts receivable. The Fraud Examiners Manual (2020) notes that unusually clean receivables aging reports—i.e., no overdue balances—can be a red flag of revenue manipulation.

Analysis of Incorrect Option:

B. False – Incorrect; the absence of overdue receivables is indeed suspicious and aligns with fictitious revenue fraud.

Key Concept: Financial statement fraud red flags — fictitious revenues.

Detailed Explanation:

Rationale for Correct Answer: Irregular, low-value, or unpredictable revenue sources such as parking fees, late charges, or vending machine sales are prime skimming targets. Because they are difficult to estimate or reconcile precisely, theft of these funds is less likely to be detected quickly.

Analysis of Incorrect Options:

B. Recorded sales – These are already in the books and easier to reconcile.

C. Internal audits – A control mechanism, not a target.

D. Register manipulations – A method, not the revenue source itself.

Key Concept: Vulnerable revenue streams as skimming targets.