CFE Practice Questions 4 ā Questions and Answers
Question 1: Which document analysis technique involves examining the pressure indentations on paper beneath a written document?
- Infrared luminescence
- ESDA (Electrostatic Detection Apparatus) (Correct answer)
- Thin layer chromatography
- Spectrographic analysis
Correct answer: ESDA (Electrostatic Detection Apparatus)
ESDA detects latent impressions on paper caused by writing pressure, useful for detecting altered or forged documents.
Question 2: Benford's Law is most useful in fraud examination for:
- Detecting fictitious vendors in a payables ledger
- Identifying unusual patterns in naturally occurring numerical data sets (Correct answer)
- Calculating the expected return on a fraudulent investment
- Establishing the timeline of a fraud scheme
Correct answer: Identifying unusual patterns in naturally occurring numerical data sets
Benford's Law predicts the frequency distribution of leading digits in legitimate data sets, and deviations may indicate manipulation.
Question 3: The 'fraud triangle' theory attributes occupational fraud to three conditions. Which of the following is NOT one of them?
- Perceived pressure
- Opportunity
- Rationalization
- Greed (Correct answer)
Correct answer: Greed
The fraud triangle consists of perceived pressure, opportunity, and rationalizationāgreed is not one of the three elements.
Question 4: During an investigation, an examiner discovers that a purchasing manager approved invoices from a vendor owned by their spouse. This is an example of:
- Bribery
- Conflicts of interest (Correct answer)
- Economic extortion
- Bid rigging
Correct answer: Conflicts of interest
A conflict of interest exists when an employee has an undisclosed personal stake in a transaction that influences their business decisions.
Question 5: Which statement about the False Claims Act is accurate?
- It only applies to healthcare fraud cases
- It allows private citizens to file suit on behalf of the government and share in any recovery (Correct answer)
- It imposes criminal penalties exclusively for false tax filings
- It was enacted specifically to combat financial statement fraud
Correct answer: It allows private citizens to file suit on behalf of the government and share in any recovery
The False Claims Act's qui tam provisions allow whistleblowers (relators) to sue on the government's behalf and receive a portion of the recovered funds.
Question 6: An auditor who discovers an employee has been forging checks is legally obligated to:
- Immediately report the matter to law enforcement
- Follow the organization's internal escalation and reporting procedures (Correct answer)
- Confront the employee directly before reporting
- File a Suspicious Activity Report with FinCEN
Correct answer: Follow the organization's internal escalation and reporting procedures
CFEs should follow the client organization's established protocols for escalating fraud findings unless otherwise required by law.
Question 7: Which type of corruption scheme involves a vendor paying a company employee for confidential bid information?
- Bribery
- Economic extortion
- Bid rigging (Correct answer)
- Illegal gratuity
Correct answer: Bid rigging
Bid rigging occurs when competitors collude or insiders provide inside information to give a vendor an unfair advantage in a competitive bidding process.
CFE Practice Questions 4
Which document analysis technique involves examining the pressure indentations on paper beneath a written document?