Online CFE- Fraud-Schemes-and-Financial-Crimes Questions Video

Detailed Explanation:

Rationale for Correct Answer: When cash is stolen, the accounting equation (Assets = Liabilities + Equity) must still balance. Fraudsters may increase a liability (e.g., record fictitious payables) to cover the missing cash. This is a common concealment method.

Analysis of Incorrect Options:

A. Increasing another asset – Would require inflating assets, but this usually affects financial statement fraud, not cash theft concealment.

B. Increasing owners’ equity – Not logical without legitimate earnings or capital contributions.

D. Creating fictitious revenue – Used in financial statement fraud, not in balancing theft concealment.

Key Concept: Concealment methods for asset misappropriation — offsetting missing cash with fictitious liabilities .

Detailed Explanation:

Rationale for Correct Answer: This definition matches corruption , a broad category of occupational fraud in which employees use their influence in business transactions to gain personal benefit, in violation of their duties. Corruption schemes include bribery, conflicts of interest, illegal gratuities, and extortion.

Analysis of Incorrect Options:

A. Conflict of interest – A subtype of corruption, but narrower in scope.

C. Bribery – Also a subtype, but the definition given covers the broader category.

D. Overbilling – A billing scheme under fraudulent disbursements, not corruption.

Key Concept: Corruption as defined in the Fraud Tree.

Detailed Explanation:

Rationale for Correct Answer: Insurer health care fraud occurs when the insurance company itself engages in deception for financial gain. Submitting inflated cost data to regulators in order to justify rate increases is a direct example of insurer fraud.

Analysis of Incorrect Options:

A. Intermediary verifying claims – Proper procedure, not fraud.

C. Passing on negotiated rates – Legitimate practice.

D. Denying incomplete claims – May be harsh, but not fraudulent.

Key Concept: Insurer fraud vs. provider or claimant fraud .

Detailed Explanation:

Rationale for Correct Answer: Net realizable value (NRV) is the estimated selling price of an asset in the ordinary course of business, minus any costs of completion, disposal, or transportation. This is often applied in valuing accounts receivable and inventory.

Analysis of Incorrect Options:

B. Going concern – Assumption of business continuity, not asset valuation.

C. Cost – Historical cost, not future realizable value.

D. Fair value – Current market-based measure, not net proceeds after costs.

Key Concept: Net realizable value — valuation method for receivables and inventory.