CFE Fraud Detection & Prevention 2

Question 1

Which analytical technique involves comparing a company's financial ratios to industry benchmarks to identify potential fraud?

Accepted Answer

Ratio analysis

Answer

Ratio analysis compares key financial metrics against industry norms, helping examiners spot anomalies that may indicate fraud.

Question 2

An employee submits expense reports every Friday for exactly $49.99. What fraud scheme does this pattern most likely suggest?

Accepted Answer

Structuring to avoid approval thresholds

Answer

Submitting amounts just below a common approval threshold (often $50) is a classic structuring tactic to avoid managerial review.

Question 3

Which internal control is MOST effective at preventing fictitious vendor schemes?

Accepted Answer

Segregation of duties between vendor approval and payment processing

Answer

Separating vendor creation from payment authorization prevents a single employee from both adding a fictitious vendor and approving payments to it.

Question 4

Benford's Law is MOST useful for detecting fraud in which type of data?

Accepted Answer

Naturally occurring financial transaction amounts

Answer

Benford's Law predicts leading-digit frequency in naturally occurring numerical data; deviations in transaction amounts can signal manipulation.

Question 5

A company discovers that its accounts receivable aging report shows several large balances written off shortly after quarter-end. This is MOST consistent with:

Accepted Answer

Revenue recognition fraud

Answer

Recording fictitious revenue to inflate quarter-end results, then writing off the fake receivables, is a hallmark of revenue recognition fraud.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Fraud Detection & Prevention 2