ACFE Updated CFE-Financial-Transactions-and-Fraud-Schemes Exam Questions and Answers by everley

Detailed Explanation:

Rationale for Correct Answer:This scheme is known as a Turnaround Sale or Flip. The employee secretly purchases an asset their employer needs and then resells it to the employer at a markup, thereby profiting at the employer’s expense.

Analysis of Incorrect Options:

A. Conflict of interest in sale – Too general; does not describe the flipping mechanism.

C. Unauthorized sale – Not an ACFE fraud category in this context.

D. Written sale of unique assets – Not a recognized scheme.

Key Concept: Conflict of Interest scheme — Turnaround Sales/Flips.

Detailed Explanation:

Rationale for Correct Answer:According to ACFE’s Report to the Nations and the Fraud Examiners Manual, tips are the most common method of detecting corruption cases. Employees, vendors, or customers often report suspicious activity via hotlines or whistleblowing mechanisms.

Analysis of Incorrect Options:

A. Internal audits – Helpful but less common as the initial detection method.

B. Internal controls – Preventive, not the primary detection source.

D. By accident – Can occur, but far less common than tips.

Key Concept:Tips/whistleblowing as the primary detection method for corruption.

Detailed Explanation:

Rationale for Correct Answer: Smishing (SMS phishing) uses fraudulent text messages to trick victims into clicking malicious links or revealing credentials. This matches Cynthia’s scenario.

Analysis of Incorrect Options:

A. Vishing – Voice phishing by phone call, not text message.

C. Catfishing – Fake online persona in social contexts, not financial fraud via text.

D. Pharming – Redirecting users to fake websites via DNS manipulation, not text messages.

Key Concept: Social engineering methods—email (phishing), phone (vishing), text (smishing).

Detailed Explanation:

Rationale for Correct Answer:Materiality is most often associated with fraudulent financial statements because fraudsters may argue that misstatements are “immaterial.” However, deliberate misstatements of any size can be fraudulent. Materiality thus plays a critical role in assessing fraudulent statement cases.

Analysis of Incorrect Options:

B. Misappropriations – Involve theft, but materiality is less central than in reporting fraud.

C. Civil lawsuit – A possible outcome, not the core accounting issue.

D. Quality control – Not related to materiality in fraud.

Key Concept:Materiality in Financial Statement Fraud — even small misstatements may be fraudulent.