CFE Practice Questions 2 — Questions and Answers
Question 1: Under the ACFE's Fraud Tree, which category does expense reimbursement fraud fall under?
- Corruption
- Financial Statement Fraud
- Asset Misappropriation (Correct answer)
- Money Laundering
Correct answer: Asset Misappropriation
Expense reimbursement fraud is a form of asset misappropriation under the fraudulent disbursements branch.
Question 2: A shell company scheme is best described as:
- Creating fictitious financial statements to inflate revenue
- Submitting invoices from a fictitious vendor controlled by the fraudster (Correct answer)
- Skimming cash before it is recorded in company books
- Falsifying bank reconciliations to conceal missing funds
Correct answer: Submitting invoices from a fictitious vendor controlled by the fraudster
A shell company scheme involves creating a fake vendor entity to submit fraudulent invoices and divert payments.
Question 3: Which analytical technique compares an organization's financial ratios to industry benchmarks to identify anomalies?
- Vertical analysis
- Horizontal analysis
- Ratio analysis (Correct answer)
- Regression analysis
Correct answer: Ratio analysis
Ratio analysis compares financial metrics to industry norms or historical data to identify potential fraud indicators.
Question 4: The Foreign Corrupt Practices Act (FCPA) primarily prohibits U.S. companies from:
- Bribing domestic government officials
- Bribing foreign government officials to obtain business (Correct answer)
- Engaging in money laundering across borders
- Falsifying financial statements filed with the SEC
Correct answer: Bribing foreign government officials to obtain business
The FCPA prohibits U.S. persons and companies from paying bribes to foreign officials to obtain or retain business.
Question 5: Which element is NOT required to prove occupational fraud in a civil case?
- A false representation was made
- The victim relied on the misrepresentation
- The perpetrator had a prior criminal record (Correct answer)
- The victim suffered damages
Correct answer: The perpetrator had a prior criminal record
Prior criminal history is not a required element of civil fraud; the elements focus on the act, reliance, and resulting harm.
Question 6: When a fraudster intercepts an incoming check and deposits it into their own account, this is called:
- Lapping
- Check tampering
- Stolen checks (Correct answer)
- Forged endorsement scheme
Correct answer: Stolen checks
Stolen check schemes occur when an employee intercepts checks payable to the employer and converts them for personal use.
Question 7: Which of the following best defines a 'red flag' in fraud examination?
- Conclusive proof that fraud has occurred
- A legal standard for arresting a suspect
- An indicator that suggests fraud may be present but does not prove it (Correct answer)
- A confirmed instance of asset misappropriation
Correct answer: An indicator that suggests fraud may be present but does not prove it
A red flag is a warning sign or indicator that may suggest fraud but requires further investigation to confirm.
CFE Practice Questions 2
Under the ACFE's Fraud Tree, which category does expense reimbursement fraud fall under?