CFE Conducting Investigations 3 — Questions and Answers
Question 1: In fraud investigations, the term 'chain of custody' refers to:
- The hierarchy of management involved in approving transactions
- The documented chronological record of evidence handling from collection to court (Correct answer)
- The sequence of financial approvals required for large purchases
- The organizational reporting structure of the investigation team
Correct answer: The documented chronological record of evidence handling from collection to court
Chain of custody documents every person who handled the evidence, ensuring its integrity and admissibility in legal proceedings.
Question 2: A fraud examiner conducting a cognitive interview would MOST likely ask the subject to:
- Answer only yes or no questions to prevent elaboration
- Recall events in reverse chronological order to stimulate memory (Correct answer)
- Sign a written statement before any verbal questioning
- Read from a prepared list of questions without deviation
Correct answer: Recall events in reverse chronological order to stimulate memory
The cognitive interview technique includes recalling events in different orders (including reverse) to enhance memory retrieval.
Question 3: Which of the following BEST describes a 'pretext' in the context of fraud investigations?
- A preliminary analysis conducted before the formal investigation begins
- Misrepresenting one's identity or purpose to gather information (Correct answer)
- A written summary of findings presented before the final report
- A legal privilege protecting investigative communications
Correct answer: Misrepresenting one's identity or purpose to gather information
A pretext involves using a false identity or pretense to obtain information, which raises significant legal and ethical concerns.
Question 4: When interviewing a subject who invokes their Fifth Amendment right against self-incrimination in an internal investigation, the fraud examiner should:
- Cease all questioning immediately and close the investigation
- Continue questioning on unrelated topics while respecting the invocation
- Consult legal counsel and document the invocation (Correct answer)
- Threaten termination to compel the subject to answer
Correct answer: Consult legal counsel and document the invocation
Consulting legal counsel and documenting the invocation is the appropriate response to protect the investigation and the organization's legal position.
Question 5: A net worth analysis in a fraud investigation is primarily used to:
- Determine the replacement cost of stolen assets
- Identify unexplained increases in a subject's wealth beyond known income (Correct answer)
- Calculate the organization's financial loss from fraud
- Assess the market value of seized property
Correct answer: Identify unexplained increases in a subject's wealth beyond known income
Net worth analysis compares a subject's assets and liabilities over time to identify wealth increases that cannot be explained by legitimate income.
Question 6: Which of the following is an example of direct evidence in a fraud case?
- A witness testifying they personally saw the suspect alter a check (Correct answer)
- Bank records showing unusual transaction patterns
- An analysis proving that the suspect had opportunity to commit fraud
- Surveillance footage showing the suspect near the accounting department
Correct answer: A witness testifying they personally saw the suspect alter a check
Direct evidence proves a fact without requiring any inference, such as eyewitness testimony of the act itself.
Question 7: During a financial statement fraud investigation, an examiner identifies that revenue appears to be significantly overstated. The MOST appropriate analytical technique to use initially would be:
- Horizontal analysis comparing revenue trends over multiple periods (Correct answer)
- Vertical analysis of a single year's income statement
- Ratio analysis comparing accounts payable to total liabilities
- Cash flow analysis comparing beginning and ending balances
Correct answer: Horizontal analysis comparing revenue trends over multiple periods
Horizontal analysis across multiple periods reveals unusual trends or anomalies in revenue recognition that may indicate manipulation.
CFE Conducting Investigations 3
In fraud investigations, the term 'chain of custody' refers to: