CFE Certified Fraud Examiner (CFE) MCQ 3 — Questions and Answers
Question 1: An employee steals cash before it is recorded in the company's accounting system. This is an example of which fraud scheme?
- Lapping
- Skimming (Correct answer)
- Cash larceny
- Kiting
Correct answer: Skimming
Skimming is an off-book fraud where cash is stolen before it is recorded in the accounting system, making it harder to detect.
Question 2: In occupational fraud, which department most commonly perpetrates billing schemes?
- Human resources
- Accounts payable (Correct answer)
- Information technology
- Internal audit
Correct answer: Accounts payable
Accounts payable employees have access to the payment process, making them the most common perpetrators of billing schemes.
Question 3: The Foreign Corrupt Practices Act (FCPA) prohibits U.S. companies from doing which of the following?
- Competing with foreign state-owned enterprises
- Bribing foreign government officials to obtain business (Correct answer)
- Importing goods from sanctioned countries
- Hiring foreign nationals as employees
Correct answer: Bribing foreign government officials to obtain business
The FCPA makes it illegal for U.S. persons and companies to bribe foreign government officials to obtain or retain business.
Question 4: Which of the following best describes 'lapping' in the context of accounts receivable fraud?
- Overstating the number of units sold
- Concealing a cash theft by misapplying subsequent customer payments (Correct answer)
- Recording fictitious sales near period end
- Understating accounts receivable balances
Correct answer: Concealing a cash theft by misapplying subsequent customer payments
Lapping conceals theft of a customer's payment by applying a later customer's payment to the first account, creating a perpetual cover-up chain.
Question 5: Which of the following is a PRIMARY objective of a fraud risk assessment?
- Detecting ongoing fraud schemes
- Identifying inherent fraud risks and evaluating controls (Correct answer)
- Prosecuting perpetrators of fraud
- Calculating the financial losses from past frauds
Correct answer: Identifying inherent fraud risks and evaluating controls
A fraud risk assessment aims to identify where fraud could occur and evaluate the effectiveness of existing controls to mitigate those risks.
Question 6: Under which evidentiary rule would a fraud examiner's interview notes most likely be protected from opposing counsel's discovery in a U.S. civil case?
- Attorney-client privilege
- Work product doctrine (Correct answer)
- Hearsay rule
- Best evidence rule
Correct answer: Work product doctrine
The work product doctrine protects documents and notes prepared by or at the direction of an attorney in anticipation of litigation from opposing discovery.
Question 7: Which ratio is most useful for detecting potential inventory fraud that inflates reported profits?
- Current ratio
- Debt-to-equity ratio
- Gross margin ratio (Correct answer)
- Return on equity
Correct answer: Gross margin ratio
An unusually high or fluctuating gross margin ratio can signal inventory overstatement, since inflating inventory reduces cost of goods sold and boosts reported margins.
CFE Certified Fraud Examiner (CFE) MCQ 3
An employee steals cash before it is recorded in the company's accounting system.
This is an example of which fraud scheme?