CFE EXAMINATION TEST SCRIPT 2026
COMPLETE QUESTIONS AND CORRECT
ANSWERS
◉ Missing or Altered documentation
Answer: is a red flag for any type of fraud scheme, and it is a
particular concern for loan fraud. While it is true that many loan files
have missing documents, it is important to determine if the
documents have been misplaced or were never received. A waiver of
certain documents is one common way for lenders to conceal fraud
schemes.
◉ Fraud in financial statements
Answer: takes the form of overstated assets or revenue and
understated liabilities and expenses. Overstating assets or revenue
falsely reflects a financially stronger company by inclusion of
fictitious asset costs or artificial revenues. Understated liabilities
and expenses are shown through exclusion of costs or financial
obligations. Both methods result in increased equity and net worth
for the company. This overstatement and/or understatement results
in increased earnings per share or partnership profit interests or a
more stable representation of the company's financial situation.
generally takes the form of overstated assets or revenue and
understated liabilities and expenses.
,◉ The solicitation phase of procurements
Answer: involves the bid solicitation, bid preparation, and bid
submission. During this phase, the procuring entity prepares the
solicitation document, provides notices of solicitation, and issues the
solicitation document. After the procuring entity issues the
solicitation document, the bidders prepare and submit their bids or
proposals.
◉ Account takeover fraud
Answer: occurs when a fraudster surreptitiously takes control of a
payment account. Targeted accounts can include credit cards,
banking, brokerage, or any type of online retail account (e.g.,
Amazon).
Because consumers often use the same username and password for
multiple accounts, hackers commonly create code that can run
credentials obtained from a data breach at one company to see if
they are valid at another.
Consumers should opt for multifactor authentication when
available, request notification of account access or changes when
offered, and regularly check any online accounts that hold payment
information.
◉ balance sheet, or statement of financial position
Answer: shows a snapshot of a company's financial situation at a
specific point in time, generally the last day of the accounting period.
It is an expansion of the accounting equation, Assets = Liabilities +
,Owners' Equity. That is, it lists a company's assets on one side and
its liabilities and owners' equity on the other side. Assets are the
resources owned by a company. Generally, assets are presented in
order of liquidity (i.e., how soon they are expected to be converted to
cash).
Generally, in a financial statement fraud scheme, this is manipulated
to appear stronger by overstating assets and/or understating
liabilities.
◉ Bid Tailoring Schemes
Answer: occur during the pre-solicitation phase. In these schemes,
an employee with procurement responsibilities, often in collusion
with a contractor, drafts bid specifications in a way that gives an
unfair advantage to a certain contractor.
Some common red flags of bid tailoring include:
- Weak controls over the bidding process
- Only one or a few bidders respond to bid requests
- Contract is not rebid even though fewer than the minimum number
of bids are received
- Similarity between specifications and the winning contractor's
product or services
- Bid specifications and statements of work are tailored to fit the
products or capabilities of a single contractor
- Unusual or unreasonably narrow or broad specifications for the
type of goods or services being procured
, - Requests for bid submissions do not provide clear bid submission
information (e.g., no clear time, place, or manner of submitting bids)
- Unexplained changes in contract specifications from previous
proposals or similar items
- High number of competitive awards to one supplier
- Socialization or personal contacts among contracting personnel
and bidders
- Specifications developed by or in consultation with a contractor
who is permitted to compete in the procurement
- High number of change orders for one supplier
◉ Employment Identity Theft
Answer: a fraudster impersonates another person to secure a job.
◉ Fictitious or fabricated revenues
Answer: involve the recording of sales of goods or services that did
not occur. Fictitious sales most often involve fake customers but can
also involve legitimate customers. Recording the sales revenue is
easy, but the challenge for the fraudster is how to balance the other
side of the entry. A credit to revenue increases the revenue account,
but the corresponding debit in a legitimate sales transaction
typically either goes to cash or accounts receivable. Since no cash is
received in a fictitious revenue scheme, increasing accounts
receivable is the easiest way to get away with completing the entry.
However, accounts receivable stay on the books as an asset until
COMPLETE QUESTIONS AND CORRECT
ANSWERS
◉ Missing or Altered documentation
Answer: is a red flag for any type of fraud scheme, and it is a
particular concern for loan fraud. While it is true that many loan files
have missing documents, it is important to determine if the
documents have been misplaced or were never received. A waiver of
certain documents is one common way for lenders to conceal fraud
schemes.
◉ Fraud in financial statements
Answer: takes the form of overstated assets or revenue and
understated liabilities and expenses. Overstating assets or revenue
falsely reflects a financially stronger company by inclusion of
fictitious asset costs or artificial revenues. Understated liabilities
and expenses are shown through exclusion of costs or financial
obligations. Both methods result in increased equity and net worth
for the company. This overstatement and/or understatement results
in increased earnings per share or partnership profit interests or a
more stable representation of the company's financial situation.
generally takes the form of overstated assets or revenue and
understated liabilities and expenses.
,◉ The solicitation phase of procurements
Answer: involves the bid solicitation, bid preparation, and bid
submission. During this phase, the procuring entity prepares the
solicitation document, provides notices of solicitation, and issues the
solicitation document. After the procuring entity issues the
solicitation document, the bidders prepare and submit their bids or
proposals.
◉ Account takeover fraud
Answer: occurs when a fraudster surreptitiously takes control of a
payment account. Targeted accounts can include credit cards,
banking, brokerage, or any type of online retail account (e.g.,
Amazon).
Because consumers often use the same username and password for
multiple accounts, hackers commonly create code that can run
credentials obtained from a data breach at one company to see if
they are valid at another.
Consumers should opt for multifactor authentication when
available, request notification of account access or changes when
offered, and regularly check any online accounts that hold payment
information.
◉ balance sheet, or statement of financial position
Answer: shows a snapshot of a company's financial situation at a
specific point in time, generally the last day of the accounting period.
It is an expansion of the accounting equation, Assets = Liabilities +
,Owners' Equity. That is, it lists a company's assets on one side and
its liabilities and owners' equity on the other side. Assets are the
resources owned by a company. Generally, assets are presented in
order of liquidity (i.e., how soon they are expected to be converted to
cash).
Generally, in a financial statement fraud scheme, this is manipulated
to appear stronger by overstating assets and/or understating
liabilities.
◉ Bid Tailoring Schemes
Answer: occur during the pre-solicitation phase. In these schemes,
an employee with procurement responsibilities, often in collusion
with a contractor, drafts bid specifications in a way that gives an
unfair advantage to a certain contractor.
Some common red flags of bid tailoring include:
- Weak controls over the bidding process
- Only one or a few bidders respond to bid requests
- Contract is not rebid even though fewer than the minimum number
of bids are received
- Similarity between specifications and the winning contractor's
product or services
- Bid specifications and statements of work are tailored to fit the
products or capabilities of a single contractor
- Unusual or unreasonably narrow or broad specifications for the
type of goods or services being procured
, - Requests for bid submissions do not provide clear bid submission
information (e.g., no clear time, place, or manner of submitting bids)
- Unexplained changes in contract specifications from previous
proposals or similar items
- High number of competitive awards to one supplier
- Socialization or personal contacts among contracting personnel
and bidders
- Specifications developed by or in consultation with a contractor
who is permitted to compete in the procurement
- High number of change orders for one supplier
◉ Employment Identity Theft
Answer: a fraudster impersonates another person to secure a job.
◉ Fictitious or fabricated revenues
Answer: involve the recording of sales of goods or services that did
not occur. Fictitious sales most often involve fake customers but can
also involve legitimate customers. Recording the sales revenue is
easy, but the challenge for the fraudster is how to balance the other
side of the entry. A credit to revenue increases the revenue account,
but the corresponding debit in a legitimate sales transaction
typically either goes to cash or accounts receivable. Since no cash is
received in a fictitious revenue scheme, increasing accounts
receivable is the easiest way to get away with completing the entry.
However, accounts receivable stay on the books as an asset until
