Exactprep CFE- Fraud-Schemes-and-Financial-Crimes Questions

Detailed Explanation:

Rationale for Correct Answer: Under GAAP, revenue is recognized when it is realized or realizable and earned . This requires that the earnings process be substantially complete, and payment be reasonably assured.

Analysis of Incorrect Options:

B. Fictitious and Earned – Fictitious revenues are fraud, not recognized revenue.

C. Realized and Evidenced – Evidence supports recognition, but “earned” is the proper standard.

D. All of the above – Incorrect, since only option A is correct.

Key Concept: Revenue recognition principle — realized/realizable and earned.

The correct answer is C because periodic audits of expense reports help deter and detect reimbursement fraud. Expense reimbursement schemes can involve mischaracterized expenses, overstated expenses, fictitious expenses, altered receipts, multiple reimbursements, or claims for another employee’s expenses. Telling employees that expense reports are subject to audit reinforces accountability and increases the perceived risk of detection. Option A weakens controls because all reimbursement claims should require adequate support, not only selected categories. Option B can increase risk because cash advances create another source of funds requiring control and reconciliation. Option D removes supervisory review, which is a key preventive control. The ACFE material identifies detailed expense reports, supporting documentation, review, and audit procedures as important controls.

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Detailed Explanation:

Rationale for Correct Answer: Fraudsters typically change the contact information (e.g., phone number, email) to prevent the true account holder from receiving alerts about suspicious activity. Leaving the contact information unchanged would risk detection. Thus, option B is NOT a common fraudster tactic.

Analysis of Incorrect Options:

A – True; fraudsters steal funds or make purchases.

C – True; known as “credential stuffing” or account chaining.

D – True; phishing is a primary way to obtain credentials.

Key Concept: Cyber-enabled fraud – account takeover schemes.

Detailed Explanation:

Rationale for Correct Answer: Ponzi schemes differ from pyramid schemes. In Ponzi schemes, investors are paid returns from funds contributed by later investors, not based on recruiting new investors. Recruiting-based payouts are a characteristic of pyramid schemes , not Ponzi schemes.

Analysis of Incorrect Options:

A. Legitimate investment belief – True; victims believe the investment is genuine.

B. High returns promised – Classic Ponzi hallmark.

D. Minimal valid commerce – Ponzi promoters often fake or exaggerate legitimate investments.

Key Concept: Difference between Ponzi schemes and pyramid schemes .