Certified Fraud Examiner (CFE) MCQ Flashcards

Which of the following describes a 'pass-through' scheme in the context of vendor fraud?

Answer: A fraudster buys goods at market price and resells them to the victim company at an inflated price

In a pass-through scheme, an intermediary entity buys goods or services at normal cost and resells them to the victim company at an inflated price, pocketing the difference.

Which of the following financial statement fraud techniques involves recording revenue before it has been earned?

Answer: Premature revenue recognition

Premature revenue recognition records revenue before the earnings process is complete, violating accrual accounting principles and overstating current-period income.

A fraud examiner discovers that a suspect wired $500,000 in illicit proceeds through three different banks before depositing the funds in a legitimate investment account. This process most likely constitutes:

Answer: Layering

Layering is the second stage of money laundering, involving complex transactions through multiple accounts or entities to obscure the audit trail.

Which of the following best describes 'channel stuffing' as a form of financial statement fraud?

Answer: Shipping excess inventory to distributors near period end to inflate sales, often with an understanding that it can be returned

Channel stuffing artificially inflates sales figures by pushing excess product into the distribution channel, often with side agreements allowing returns.

Which of the following rights must be given to a suspect who is being interrogated in a custodial setting by law enforcement, per Miranda v. Arizona?

Answer: The right to remain silent and the right to an attorney

Miranda warnings require law enforcement to inform custodial suspects of their right to remain silent and their right to legal counsel before interrogation.

When an organization implements a mandatory vacation policy, which fraud risk does it primarily mitigate?

Answer: Frauds that require continuous concealment by the perpetrator

Mandatory vacations force someone else to perform the absent employee's duties, which often exposes schemes that require ongoing manual concealment such as lapping.

Which of the following is an example of 'structuring' (also known as smurfing) in a money laundering context?

Answer: Breaking large cash deposits into multiple smaller deposits to avoid currency transaction reporting requirements

Structuring involves deliberately breaking large cash amounts into smaller transactions to stay below the $10,000 threshold that triggers a Currency Transaction Report.