Certified Fraud Examiner (CFE) Practice Exam 2
Questions and Correct answers are in bold. Each
includes a rationale.
SECTION 1: Fraud Prevention and Deterrence
1. Which of the following best defines the fraud triangle?
A. Pressure, rationalization, concealment
B. Pressure, opportunity, rationalization
C. Opportunity, intention, reward
D. Concealment, deception, gain
Rationale: The fraud triangle includes pressure (motivation to commit fraud),
opportunity (the ability to commit fraud), and rationalization (justifying the act).
2. Which is a common example of a red flag indicating possible employee fraud?
A. Taking extended lunch breaks
B. Asking for time off
C. Living beyond one’s means
D. Offering suggestions to improve internal controls
Rationale: Sudden wealth or lifestyle beyond known income often indicates
possible illicit financial activity.
,3. Which internal control is considered the most effective in preventing asset
misappropriation?
A. Increasing salaries
B. Installing security cameras
C. Segregation of duties
D. Encouraging employee loyalty
Rationale: Segregation of duties ensures no single person is responsible for all
aspects of a transaction, reducing fraud risk.
SECTION 2: Financial Transactions and Fraud Schemes
4. What is the primary fraud scheme involved in check tampering?
A. Forging or altering checks
B. Embezzling petty cash
C. Recording fictitious expenses
D. Skimming revenue
Rationale: Check tampering typically involves forging, altering, or issuing
unauthorized checks.
5. Which of the following is an example of a billing scheme?
A. Employee stealing inventory
B. Creating a fake vendor to issue false invoices
C. Manipulating financial statements
D. Processing duplicate checks
, Rationale: A billing scheme involves fraudulent disbursements, often using
fictitious vendors or inflated invoices.
6. Which of the following best describes "lapping"?
A. Failing to deposit cash
B. Creating false time cards
C. Using receipts from one customer to cover another’s account
D. Understating liabilities
Rationale: Lapping occurs when receipts from one account are misapplied to
cover theft from another, usually to hide embezzlement.
SECTION 3: Investigation
7. What is the primary objective of a fraud investigation interview?
A. To intimidate the suspect
B. To obtain factual information
C. To notify the suspect of termination
D. To record an official confession
Rationale: The main goal of investigative interviews is to gather relevant,
accurate, and useful information.
8. What is a key characteristic of a well-conducted admission-seeking interview?
A. Threatening legal action
B. Maintaining a calm, respectful tone
Questions and Correct answers are in bold. Each
includes a rationale.
SECTION 1: Fraud Prevention and Deterrence
1. Which of the following best defines the fraud triangle?
A. Pressure, rationalization, concealment
B. Pressure, opportunity, rationalization
C. Opportunity, intention, reward
D. Concealment, deception, gain
Rationale: The fraud triangle includes pressure (motivation to commit fraud),
opportunity (the ability to commit fraud), and rationalization (justifying the act).
2. Which is a common example of a red flag indicating possible employee fraud?
A. Taking extended lunch breaks
B. Asking for time off
C. Living beyond one’s means
D. Offering suggestions to improve internal controls
Rationale: Sudden wealth or lifestyle beyond known income often indicates
possible illicit financial activity.
,3. Which internal control is considered the most effective in preventing asset
misappropriation?
A. Increasing salaries
B. Installing security cameras
C. Segregation of duties
D. Encouraging employee loyalty
Rationale: Segregation of duties ensures no single person is responsible for all
aspects of a transaction, reducing fraud risk.
SECTION 2: Financial Transactions and Fraud Schemes
4. What is the primary fraud scheme involved in check tampering?
A. Forging or altering checks
B. Embezzling petty cash
C. Recording fictitious expenses
D. Skimming revenue
Rationale: Check tampering typically involves forging, altering, or issuing
unauthorized checks.
5. Which of the following is an example of a billing scheme?
A. Employee stealing inventory
B. Creating a fake vendor to issue false invoices
C. Manipulating financial statements
D. Processing duplicate checks
, Rationale: A billing scheme involves fraudulent disbursements, often using
fictitious vendors or inflated invoices.
6. Which of the following best describes "lapping"?
A. Failing to deposit cash
B. Creating false time cards
C. Using receipts from one customer to cover another’s account
D. Understating liabilities
Rationale: Lapping occurs when receipts from one account are misapplied to
cover theft from another, usually to hide embezzlement.
SECTION 3: Investigation
7. What is the primary objective of a fraud investigation interview?
A. To intimidate the suspect
B. To obtain factual information
C. To notify the suspect of termination
D. To record an official confession
Rationale: The main goal of investigative interviews is to gather relevant,
accurate, and useful information.
8. What is a key characteristic of a well-conducted admission-seeking interview?
A. Threatening legal action
B. Maintaining a calm, respectful tone
