CFE-Financial-Transactions-and-Fraud-Schemes Questions Bank

Detailed Explanation:

Rationale for Correct Answer:In a fraudulent purchase scheme, the company legitimately purchases assets, but the fraudster diverts or misappropriates them after acquisition. The purchase itself is real, but the use of the assets is fraudulent.

Analysis of Incorrect Options:

A. Inventory larceny scheme – Direct theft without purchase.

B. Asset receiving scheme – Not a recognized fraud scheme.

D. Falsify shipping – Involves falsifying shipment records, not post-purchase misappropriation.

Key Concept:Fraudulent purchases — assets are bought legitimately but stolen afterward.

Detailed Explanation:

Rationale for Correct Answer: In the procurement cycle, the post-award and administration phase involves the actual performance of contractual duties by the awarded contractor(s) and monitoring by the procuring entity. This is consistent with procurement process descriptions in the Fraud Examiners Manual (2020).

Analysis of Incorrect Options:

B – Needs identification occurs in the presolicitation phase, not solicitation.

C – In presolicitation, the entity defines needs; contractors submit bids during the solicitation phase.

D – The solicitation document is issued during the solicitation phase, not evaluation.

Key Concept: Understanding procurement phases to detect fraud opportunities (e.g., bid rigging, kickbacks).

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.

Comprehensive and Detailed Explanation (Based on the ACFE Fraud Examiners Manual – Financial Transactions and Fraud Schemes)

In the Identity Theft chapter of the Financial Transactions and Fraud Schemes section, the ACFE Manual explains that there are two primary methods of committing identity theft:

Traditional identity theft

Synthetic identity theft

These are listed under “Methods of Committing Identity Theft” (1.803), immediately followed by “Types of Identity Theft Schemes” (1.804) such as financial identity theft and criminal identity theft.

1. Why the correct answer is Traditional identity theft (Option B)

In traditional identity theft, the perpetrator uses the real, complete identity of another person—such as their name, government identification number, and birthdate—to impersonate that person for fraudulent purposes. This is exactly what is happening in the question:

The fraudster uses a real victim’s name, government identification number, and birthdate to open a credit card account in the victim’s name.

This matches the Manual’s categorization where traditional identity theft involves misuse of actual personal identifying information (PII) belonging to a real individual, rather than fabricating an identity. The Manual then explains that this stolen identity is often used in financial schemes, such as obtaining credit cards, loans, or other financial benefits, which falls under financial identity theft as a type of identity theft scheme.

So, in ACFE terms, the method is traditional identity theft, and the scheme type is financial identity theft (using another person’s identity to obtain credit or other financial benefits).

2. Why the other options are incorrect

Option A – New account identity theft

“New account identity theft” is a descriptive phrase sometimes used in practice to describe opening new credit accounts in another person’s name, but the ACFE Manual’s formal categorization focuses on:

Methods of committing identity theft:

Traditional identity theft

Synthetic identity theft

Types of identity theft schemes:

Financial identity theft

Criminal identity theft

Medical identity theft

Insurance identity theft

Tax identity theft

Employment identity theft

Business identity theft

“New account identity theft” is not one of the defined method categories in the Manual; the described conduct is captured under traditional identity theft (method) and financial identity theft (scheme type). Therefore, this option does not align with the ACFE’s terminology tested on the CFE exam.

Option C – Synthetic identity theft

The Manual distinguishes synthetic identity theft as a different method. Under “Methods of Committing Identity Theft” (1.803), it explains that synthetic identity theft involves combining real elements of identity (for example, a genuine government identification number) with fabricated or unrelated information (such as a made-up name, date of birth, or address) to create a partly fictitious identity.

In the question, the fraudster is not creating a hybrid or composite identity. They are using all of the real victim’s identifying information (name, government ID number, birthdate) and posing directly as that person. That is traditional, not synthetic.

Option D – Criminal identity theft

Under “Types of Identity Theft Schemes” (1.804–1.805), the Manual describes criminal identity theft as a scheme where a fraudster gives someone else’s identifying information to law enforcement or in criminal justice contexts, so that the victim’s identity is attached to the criminal record or charges.

Typical examples include:

Giving another person’s name and identification details when stopped or arrested

Causing warrants or criminal records to be issued in the victim’s name

In the question scenario, the fraudster is not interacting with law enforcement or shifting criminal records to the victim. Instead, they are opening a credit card account, which is a financial use of the stolen identity. Therefore, it fits financial identity theft as a scheme type, but traditional identity theft as the method.