Free Certified Fraud Examiner (CFE) MCQ Questions and Answers — Questions and Answers
Question 1: What does a fraud risk assessment try to do most?
- To punish employees who engage in fraudulent activity
- To detect fraudulent activity that has already occurred
- To identify areas of the organization that are susceptible to fraud (Correct answer)
Correct answer: To identify areas of the organization that are susceptible to fraud
Explanation: <br> The main purpose of a fraud risk assessment is to find places in an organization where fraud could happen. It means looking at the internal control systems, policies, and procedures to stop fraud and determining possible weaknesses and risks.
Question 2: Which of the following is an example of a red flag on a financial statement?
- A consistent increase in sales revenue over several quarters
- A large number of bank reconciliations have not been completed (Correct answer)
- A low rate of employee turnover
Correct answer: A large number of bank reconciliations have not been completed
Explanation: <br> In a financial statement, a red flag is something like many unfinished bank reconciliations. It suggests that there may be fraud involving cash or bank accounts, which may need to be looked into further.
Question 3: Which of the following is a common form of financial statement fraud?
- Stealing inventory from the warehouse
- Overstating expenses to reduce taxes (Correct answer)
- Diverting cash receipts to a personal account
Correct answer: Overstating expenses to reduce taxes
Explanation: <br> One common type of financial statement fraud is overstating expenses to lower taxes. It involves making up expenses or making expenses that don't exist to lower taxable income.
Question 4: Which of these is an example of preventive control?
- Segregation of duties between employees (Correct answer)
- An internal audit of financial statements
- A surprise cash count by a supervisor
Correct answer: Segregation of duties between employees
Explanation: <br> Having different employees do different jobs is an example of preventive control. It means giving other jobs to additional employees so that no one has too much control over a certain process or transaction.
Question 5: Why is a fraud investigation done in the first place?
- To recover losses resulting from fraudulent activity
- To determine if fraud has occurred (Correct answer)
- To punish individuals who have engaged in fraudulent activity
Correct answer: To determine if fraud has occurred
Explanation: <br> The main goal of a fraud investigation is to find out if fraud has happened. This could mean gathering evidence, talking to people, and looking at financial records to determine the fraud size and type.
Question 6: Which of the following is common for looking at data during a fraud investigation?
- Cluster analysis
- Frequency analysis (Correct answer)
- Regression analysis
- T-test analysis
Correct answer: Frequency analysis
Explanation: <br> During a fraud investigation, one of the most common ways to look at data is through frequency analysis. It involves looking for patterns or oddities in how often transactions happen, how much they cost, or other things that could be signs of fraud.
Question 7: Which of the following is an example of a way to keep fraud from happening?
- Mandatory vacation policy
- Surprise audits (Correct answer)
- Employee background checks
- Separation of duties
Correct answer: Surprise audits
Explanation: <br> Surprise audits are an example of control designed to detect fraud. They involve auditing or reviewing financial records, processes, or transactions regularly without informing employees or other stakeholders beforehand.
Free Certified Fraud Examiner (CFE) MCQ Questions and Answers
What does a fraud risk assessment try to do most?