CFE Fraud Detection & Prevention 3

Question 1

Which element of the Fraud Triangle addresses why a trusted employee might rationalize committing fraud?

Accepted Answer

Rationalization

Answer

Rationalization is the cognitive justification a fraudster uses to excuse dishonest behavior, such as believing they are only 'borrowing' funds.

Question 2

A financial examiner notices that a company's gross margin has increased significantly while its revenue has remained flat. This MOST likely warrants investigation for:

Accepted Answer

Inventory or cost manipulation

Answer

Rising gross margins with flat revenue often indicate understated cost of goods sold, which may result from inventory theft or falsified cost records.

Question 3

Which type of data mining technique groups transactions by similar characteristics to identify unusual clusters?

Accepted Answer

Cluster analysis

Answer

Cluster analysis groups similar data points together, making outliers or unusual groupings—potential fraud indicators—easier to spot.

Question 4

A payroll examiner identifies an employee whose net pay consistently exceeds gross pay. This anomaly MOST likely indicates:

Accepted Answer

Unauthorized payroll adjustments or system manipulation

Answer

Net pay exceeding gross pay is mathematically impossible under normal processing and signals unauthorized overrides or system-level manipulation.

Question 5

Under ACFE guidance, which category accounts for the LARGEST percentage of occupational fraud cases by frequency?

Accepted Answer

Asset misappropriation

Answer

Asset misappropriation, including theft of cash and inventory, is the most common form of occupational fraud, representing the majority of cases.

(CFE) Certified Financial Examiner Practice Test

(CFE) Certified Financial Examiner Practice Test

CFE Fraud Detection & Prevention 3