CFE-Fraud-Schemes-and-Financial-Crimes ACFE Certified Fraud Examiner -Fraud Schemes and Financial Crimes Free Practice Exam Questions (2026 Updated)

Detailed Explanation:

Rationale for Correct Answer: ACFE’s occupational fraud surveys consistently show that males are more often the primary perpetrators than females , accounting for approximately 62% of cases compared to 37% for females . This is attributed to higher representation of males in positions of authority and access. Therefore, C. 62 versus 37 is correct.

Key Concept: Demographics of Fraud Perpetrators — gender-based survey findings.

The correct answer is C. Multifactor authentication is an effective preventive control for electronic funds transfer fraud because it requires users to verify their identity through more than one authentication factor before initiating or approving payments. This reduces the risk that stolen usernames, passwords, or account credentials alone will allow unauthorized transfers through EBPP or P2P systems. Option A is unsafe because sending PINs, usernames, and passwords together increases exposure if the communication is intercepted. Option B is also poor practice because sensitive credentials should be encrypted. Option D weakens segregation of duties by allowing one employee to control both PIN issuance and access device information. The ACFE materials emphasize authentication, access controls, and segregation of duties in preventing EFT fraud.

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Detailed Explanation:

Rationale for Correct Answer: Being prompted to install unfamiliar software is a red flag for malware or unauthorized access, often indicating that attackers are attempting to establish persistence in the system. This is a classic indicator of a compromised network.

Analysis of Incorrect Options:

A – Standard security measure, not a red flag.

C – Data from supplier countries is normal if consistent with business operations.

D – Access denial to files outside a user’s role is a normal access control, not an intrusion sign.

Key Concept: Cyberfraud detection – identifying intrusion indicators.

Detailed Explanation:

Rationale for Correct Answer: Human intelligence (HUMINT) involves gathering information directly from people, often through deception, elicitation, or impersonation. Georgina’s posing as a customer to obtain confidential details fits this method.

Analysis of Incorrect Options:

B. Baiting – A social engineering tactic using false promises (e.g., malware disguised as freebies).

C. Scavenging – Collecting discarded information (e.g., dumpster diving).

D. Open-source intelligence – Gathering data from public records, news, or websites, not through elicitation.

Key Concept: Methods of competitive intelligence and social engineering.

Detailed Explanation:

Rationale for Correct Answer: Supplies are recorded as expenses because they are expected to be consumed within one year. Unlike long-lived assets, supplies do not provide benefits beyond the short term and therefore are expensed rather than capitalized.

Analysis of Incorrect Options:

B. Expenses – The accounting treatment, not the category of item.

C. Assets – Supplies are assets when purchased, but they become expenses upon consumption.

D. Equity – Represents ownership interest, unrelated here.

Key Concept: Short-term asset consumption and expense recognition.

Detailed Explanation:

Rationale for Correct Answer: Skimming involves the theft of cash before it is recorded in the accounting system. Since sales are never recorded, reconciling sales to receipts will not detect skimming—it can only detect larceny (theft after recording).

Analysis of Incorrect Options:

A. True – Incorrect because no discrepancy exists in the records (the sale itself is omitted).

Key Concept: Distinction between skimming (off-book theft) and cash larceny (on-book theft).

Detailed Explanation:

Rationale for Correct Answer: John created a completely false expense claim for a meal that he did not personally pay for. This is a fictitious expense reimbursement scheme , where employees invent expenses and submit them for reimbursement.

Analysis of Incorrect Options:

A. Mischaracterized expense – Legitimate expenses claimed as business when they are personal. Not applicable here.

C. Multiple reimbursement – Involves submitting the same receipt more than once. Not the case here.

D. Overstated expense – Inflating a legitimate expense, which is not what John did.

Key Concept: Expense reimbursement fraud — fictitious expenses .

Detailed Explanation:

Rationale for Correct Answer: The accounting framework a company must follow depends on the jurisdiction in which it is publicly traded . For example, U.S.-listed companies must follow GAAP, while companies in the EU must use IFRS. Some countries allow or require IFRS, others mandate local GAAP.

Analysis of Incorrect Options:

B – Incorrect; some jurisdictions have their own national GAAP not tied to U.S. GAAP or IFRS.

C – Incorrect; international operations do not mandate IFRS—jurisdictional rules apply.

D – Incorrect; U.S. GAAP is rules-based, IFRS is principles-based (the reverse of what’s stated).

Key Concept: Financial reporting standards are jurisdiction-driven.

The correct answer is A because an unusually high number of reimbursement claims can indicate provider fraud, overutilization, fictitious services, inflated billings, or other abusive billing activity. Health care fraud detection often relies on identifying abnormal patterns compared with similar providers, patient populations, or expected service levels. A consistently low percentage of coding outliers is not, by itself, suspicious. Producing adequate supporting documentation is generally a positive sign, although the documents should still be tested for authenticity. Creating medical records during or soon after the patient visit is proper practice because records should be timely and accurate. The ACFE health care fraud material identifies provider fraud and red flags of provider fraud as important detection areas, especially where billing volume or claim patterns appear abnormal.

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The correct answer is D. Self-regulatory organizations are industry-based bodies that perform certain oversight functions under the supervision of securities regulators in some jurisdictions. Their duties can include monitoring member firms, examining trading operations, enforcing industry rules, and supporting market integrity. Option A is inaccurate because SROs are not simply governmental entities, although they may operate under statutory recognition or regulatory oversight. Option B is too absolute because SROs may participate in dispute resolution or arbitration in some jurisdictions. Option C is also overstated because SRO authority generally focuses on members and regulated market participants, not securities-related allegations within all private companies. The ACFE materials recognize self-regulation as part of the securities regulatory framework, subject to oversight and standards of fairness and confidentiality.

The correct answer is A. Fictitious revenue schemes involve recording sales that did not actually occur. Because no real customer owes money for the fake sale, the related accounts receivable often remain unpaid and become long overdue. A rising amount of old or uncollectible receivables can therefore be a red flag that revenue was fabricated to inflate income. Option B is less direct because companies might fail to write off bad receivables for several reasons, including improper allowance estimates. Option C is inconsistent with many fictitious revenue schemes because fake credit sales commonly increase receivables. Option D, receivables paid only a few days late, does not strongly indicate fictitious sales. The ACFE materials identify fictitious revenues and accounts receivable anomalies as common financial statement fraud indicators.

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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: Donald Cressey’s fraud triangle identifies three conditions that lead to occupational fraud: (1) Pressure (financial or other), (2) Opportunity (ability to commit without detection), and (3) Rationalization (justification by the perpetrator to make the act acceptable in their own mind). Thus, the third leg is Rationalization .

Analysis of Incorrect Options:

A. Violation – Not part of the fraud triangle.

B. Isolation – Not a recognized component of the model.

D. None of the above – Incorrect because rationalization is explicitly the correct answer.

Key Concept: Fraud Triangle — Opportunity, Pressure, Rationalization .

The correct answer is B. A paper property scheme involves an insurance claim for property that exists only “on paper,” meaning the claimed property never actually existed or was never owned by the claimant. The question describes a claim for destroyed items, such as a boat or expensive equipment, that did not exist. This differs from a staged theft, where an actual event is falsely created or arranged to appear like a theft. It also differs from an inflated theft or inflated inventory scheme, where property might exist but the claimant exaggerates the quantity, quality, or value of the loss. The ACFE insurance fraud material identifies property schemes, including phony or inflated thefts and paper boats, as property and casualty insurance fraud methods.

Detailed Explanation:

Rationale for Correct Answer: W. Steve Albrecht’s Fraud Scale introduced the relationship between pressure, opportunity, and integrity. He and his colleagues identified 81 red flags or behavioral indicators of occupational fraud and abuse based on these three dimensions. Therefore, the correct answer is A. 81 .

Analysis of Incorrect Options:

B. 82 / C. 83 / D. 84 – Distractors; none match the number identified in the fraud scale research.

Key Concept: Fraud Scale — Red Flags of occupational fraud.

Detailed Explanation:

Rationale for Correct Answer: Accruals represent expenses that have been incurred but not yet paid. Under the accrual basis of accounting, these must be recognized in the same period as the related revenues or obligations. Common examples include accrued wages and accrued interest.

Analysis of Incorrect Options:

B. Depreciations – Allocation of asset cost, not unpaid expenses.

C. Expenses – A broader term, but not specific to unpaid obligations.

D. Financial record – Too vague.

Key Concept: Accruals under the accrual basis of accounting.

Detailed Explanation:

Rationale for Correct Answer: Prepaid debit and gift cards are attractive because they allow fraudsters to convert stolen credit card funds into cash or easily launder illicit funds . They are widely available and accepted both in person and online, making option A correct.

Analysis of Incorrect Options:

B. Only from financial institutions – False; cards are sold at retail stores and online.

C. Not accepted online – False; they are accepted by most online retailers.

D. All of the above – Incorrect since B and C are false.

Key Concept: Prepaid card fraud as part of asset misappropriation and identity theft schemes.

Detailed Explanation:

Rationale for Correct Answer: Bribery prevention policies often include:

Reporting gifts (disclosure of items received from vendors),

Discounts (rules about vendor concessions),

Business meetings (clear rules on vendor-sponsored events). Resource diversions is not a standard bribery prevention policy but a form of fraud.

Analysis of Incorrect Options:

A, B, C – Legitimate examples of prevention policies.

D. Resource diversions – Not a preventive measure.

Key Concept: Anti-bribery policies — clear rules on gifts, discounts, and vendor relationships.

Detailed Explanation:

Rationale for Correct Answer: Conflict of interest cases are difficult to detect because the transactions often appear legitimate on their face. However, they can be prevented more effectively through proactive controls such as disclosure requirements, vendor vetting, and employee training. The Fraud Examiners Manual (2020) emphasizes that prevention mechanisms are more effective than detection when it comes to conflicts of interest.

Analysis of Incorrect Options:

B. False – Incorrect because detection is challenging; prevention is comparatively easier.

Key Concept: Prevention vs. detection in Conflict of Interest schemes .