Certified Fraud Examiner (CFE) Exam 2026: Professional
Certification Practice Test — Fraud Prevention, Financial
Transactions, Investigation Techniques, Fraud Schemes & Legal
Elements — 190 Multiple-Choice Questions with Answers & Detailed
Rationales
Section 1: Fraud Schemes and Financial Crimes
(Questions 1–70)
Question 1
A company controller creates a fictitious vendor in the accounts payable system and
approves payments to a personal bank account. Which category of occupational fraud does
this represent?
A. Corruption
B. Asset misappropriation
C. Financial statement fraud
D. Investment fraud
Correct Answer: B
Explanation: Fictitious vendor schemes are a classic asset misappropriation technique
because they involve theft of organizational funds through fraudulent disbursements rather
than financial statement manipulation or corruption.
Question 2
An employee steals incoming customer checks, endorses them with a forged signature, and
deposits them into a personal account. This is best classified as which cash receipts scheme?
,A. Skimming
B. Larceny
C. Fraudulent disbursement
D. Register disbursement
Correct Answer: B
Explanation: Check larceny occurs when an employee steals an incoming check before it is
recorded in the accounting system; skimming involves removing cash before recording.
Question 3
Which of the following is a red flag most commonly associated with billing schemes involving
personal purchases?
A. Vendors with post office box addresses
B. Unusually high volume of small purchases
C. Purchases of items not consistent with the organization's business
D. Consistent use of competitive bidding
Correct Answer: C
Explanation: Personal purchases through company accounts typically involve goods or
services unrelated to business operations, such as electronics, clothing, or personal travel.
Question 4
A payroll clerk adds a ghost employee to the payroll system and directs the paycheck to a
personal account. What control weakness most likely enabled this scheme?
A. Segregation of duties between payroll preparation and distribution
,B. Lack of independent verification of new hire documentation
C. Mandatory vacation policy
D. Regular reconciliation of payroll to human resources records
Correct Answer: B
Explanation: Ghost employee schemes succeed when no one independently verifies that
new employees exist; reconciling payroll against HR records would detect fictitious
employees.
Question 5
Which of the following best describes a "lapping" scheme?
A. Stealing cash receipts and covering the theft with subsequent receipts
B. Overstating revenues by recording fictitious sales
C. Manipulating inventory counts to hide theft
D. Writing off customer balances as uncollectible
Correct Answer: A
Explanation: Lapping involves using a later customer's payment to cover the amount stolen
from an earlier customer, creating a rolling deficit that grows over time.
Question 6
A purchasing manager approves invoices from a vendor owned by a family member without
disclosing the relationship. This scheme is best classified as:
A. Economic extortion
B. Illegal gratuity
, C. Conflict of interest
D. Bribery
Correct Answer: C
Explanation: A conflict of interest exists when an employee has an undisclosed personal or
economic interest in a transaction that could influence their judgment.
Question 7
In a "pay-and-return" scheme, what is the primary mechanism of theft?
A. Submitting invoices for goods never received
B. Manipulating the accounts payable system to issue duplicate payments
C. Requesting a refund check for a legitimate overpayment and intercepting it
D. Creating fictitious credits to customer accounts
Correct Answer: C
Explanation: Pay-and-return schemes involve an employee arranging for a vendor refund
check to be sent, then intercepting and converting that check for personal use.
Question 8
Which financial statement fraud scheme involves recording revenue from sales that never
occurred?
A. Channel stuffing
B. Fictitious revenues
C. Timing differences
D. Improper disclosure
Certification Practice Test — Fraud Prevention, Financial
Transactions, Investigation Techniques, Fraud Schemes & Legal
Elements — 190 Multiple-Choice Questions with Answers & Detailed
Rationales
Section 1: Fraud Schemes and Financial Crimes
(Questions 1–70)
Question 1
A company controller creates a fictitious vendor in the accounts payable system and
approves payments to a personal bank account. Which category of occupational fraud does
this represent?
A. Corruption
B. Asset misappropriation
C. Financial statement fraud
D. Investment fraud
Correct Answer: B
Explanation: Fictitious vendor schemes are a classic asset misappropriation technique
because they involve theft of organizational funds through fraudulent disbursements rather
than financial statement manipulation or corruption.
Question 2
An employee steals incoming customer checks, endorses them with a forged signature, and
deposits them into a personal account. This is best classified as which cash receipts scheme?
,A. Skimming
B. Larceny
C. Fraudulent disbursement
D. Register disbursement
Correct Answer: B
Explanation: Check larceny occurs when an employee steals an incoming check before it is
recorded in the accounting system; skimming involves removing cash before recording.
Question 3
Which of the following is a red flag most commonly associated with billing schemes involving
personal purchases?
A. Vendors with post office box addresses
B. Unusually high volume of small purchases
C. Purchases of items not consistent with the organization's business
D. Consistent use of competitive bidding
Correct Answer: C
Explanation: Personal purchases through company accounts typically involve goods or
services unrelated to business operations, such as electronics, clothing, or personal travel.
Question 4
A payroll clerk adds a ghost employee to the payroll system and directs the paycheck to a
personal account. What control weakness most likely enabled this scheme?
A. Segregation of duties between payroll preparation and distribution
,B. Lack of independent verification of new hire documentation
C. Mandatory vacation policy
D. Regular reconciliation of payroll to human resources records
Correct Answer: B
Explanation: Ghost employee schemes succeed when no one independently verifies that
new employees exist; reconciling payroll against HR records would detect fictitious
employees.
Question 5
Which of the following best describes a "lapping" scheme?
A. Stealing cash receipts and covering the theft with subsequent receipts
B. Overstating revenues by recording fictitious sales
C. Manipulating inventory counts to hide theft
D. Writing off customer balances as uncollectible
Correct Answer: A
Explanation: Lapping involves using a later customer's payment to cover the amount stolen
from an earlier customer, creating a rolling deficit that grows over time.
Question 6
A purchasing manager approves invoices from a vendor owned by a family member without
disclosing the relationship. This scheme is best classified as:
A. Economic extortion
B. Illegal gratuity
, C. Conflict of interest
D. Bribery
Correct Answer: C
Explanation: A conflict of interest exists when an employee has an undisclosed personal or
economic interest in a transaction that could influence their judgment.
Question 7
In a "pay-and-return" scheme, what is the primary mechanism of theft?
A. Submitting invoices for goods never received
B. Manipulating the accounts payable system to issue duplicate payments
C. Requesting a refund check for a legitimate overpayment and intercepting it
D. Creating fictitious credits to customer accounts
Correct Answer: C
Explanation: Pay-and-return schemes involve an employee arranging for a vendor refund
check to be sent, then intercepting and converting that check for personal use.
Question 8
Which financial statement fraud scheme involves recording revenue from sales that never
occurred?
A. Channel stuffing
B. Fictitious revenues
C. Timing differences
D. Improper disclosure
