CFE Fraud Detection & Prevention 3 ā Questions and Answers
Question 1: Which element of the Fraud Triangle addresses why a trusted employee might rationalize committing fraud?
- Pressure
- Opportunity
- Rationalization (Correct answer)
- Motivation
Correct answer: Rationalization
Rationalization is the cognitive justification a fraudster uses to excuse dishonest behavior, such as believing they are only 'borrowing' funds.
Question 2: A financial examiner notices that a company's gross margin has increased significantly while its revenue has remained flat. This MOST likely warrants investigation for:
- Accounts payable fraud
- Inventory or cost manipulation (Correct answer)
- Payroll fraud
- Revenue skimming
Correct answer: Inventory or cost manipulation
Rising gross margins with flat revenue often indicate understated cost of goods sold, which may result from inventory theft or falsified cost records.
Question 3: Which type of data mining technique groups transactions by similar characteristics to identify unusual clusters?
- Stratification
- Duplicate testing
- Cluster analysis (Correct answer)
- Gap testing
Correct answer: Cluster analysis
Cluster analysis groups similar data points together, making outliers or unusual groupingsāpotential fraud indicatorsāeasier to spot.
Question 4: A payroll examiner identifies an employee whose net pay consistently exceeds gross pay. This anomaly MOST likely indicates:
- Overtime fraud
- Ghost employee scheme
- Unauthorized payroll adjustments or system manipulation (Correct answer)
- Benefit plan fraud
Correct answer: Unauthorized payroll adjustments or system manipulation
Net pay exceeding gross pay is mathematically impossible under normal processing and signals unauthorized overrides or system-level manipulation.
Question 5: Under ACFE guidance, which category accounts for the LARGEST percentage of occupational fraud cases by frequency?
- Financial statement fraud
- Corruption
- Asset misappropriation (Correct answer)
- Cybercrime
Correct answer: Asset misappropriation
Asset misappropriation, including theft of cash and inventory, is the most common form of occupational fraud, representing the majority of cases.
Question 6: Which anti-fraud control has been shown to have the GREATEST impact on reducing fraud losses according to ACFE research?
- External audits
- Hotlines
- Internal audit departments (Correct answer)
- Surprise audits
Correct answer: Internal audit departments
ACFE research consistently shows that organizations with internal audit functions detect fraud faster and suffer lower median losses.
Question 7: A 'fictitious refund' scheme in retail environments is BEST prevented by which control?
- Dual authorization for all refunds above a set threshold (Correct answer)
- Weekly reconciliation of sales totals
- Requiring customer receipts for all purchases
- Daily cash drawer counts
Correct answer: Dual authorization for all refunds above a set threshold
Requiring a second approver for refunds above a threshold prevents employees from issuing fraudulent refunds to themselves or accomplices.
CFE Fraud Detection & Prevention 3
Which element of the Fraud Triangle addresses why a trusted employee might rationalize committing fraud?