1000 Flashcards Certified Fraud Examiner (CFE) Exam
The accounting equation states that Assets = ________ + ________.
Liabilities + Owner's (Shareholders') Equity. Any imbalance indicates an accounting error or
potentially fraudulent recording.
An accounts payable clerk changes a vendor's bank account information to their personal
account before payment is issued. What fraud scheme occurred?
This is electronic payment tampering through vendor account manipulation. Legitimate
company payments are redirected to the fraudster's personal bank account.
An accounts payable employee duplicates an approved invoice and processes payment twice,
depositing the second payment into a fraudulent account. What fraud scheme is involved?
This is a duplicate payment billing scheme, where the organization unknowingly pays the same
obligation more than once due to manipulated documentation.
Admission-seeking interviews should rely primarily on threats and intimidation to obtain
confessions. Explain your answer.
False. Coercive tactics may produce unreliable statements, violate legal standards, damage
credibility, and jeopardize admissibility. Ethical interviewing emphasizes truthful, voluntary
admissions.
After a legitimate burglary, the homeowner includes expensive jewelry that was never stolen.
Which fraud scheme is illustrated?
This is Claim Inflation (Padding the Claim) because legitimate losses are intentionally
exaggerated with fictitious items.
After several months of online communication, a romantic partner requests emergency funds
for medical treatment overseas. What fraud scheme should investigators suspect?
Romance Fraud, which exploits emotional attachment to manipulate victims into transferring
money.
An anonymous hotline report is supported by unusual accounting entries and unexplained
vendor payments. Does predication likely exist?
Yes. While an anonymous tip alone may not always be sufficient, when combined with
objective evidence such as suspicious accounting transactions, it generally provides adequate
predication to begin a fraud examination.
An applicant inflates annual income to qualify for a personal loan. Which fraud occurred?
Loan application fraud through income misrepresentation.
An ATM has a hidden card reader attached. Which identity theft method is used?
Card skimming.
Page 1 of 117
,1000 Flashcards Certified Fraud Examiner (CFE) Exam
Attackers encrypt company files and threaten to publish confidential customer records unless
payment is made. What malware attack occurred?
This is Double Extortion Ransomware, involving both data encryption and threats to publicly
disclose stolen information.
The balance sheet reports financial position at a ________ point in time.
Specific point in time. Unlike the income statement, it does not cover a reporting period.
Bankruptcy proceedings are generally supervised by a __________.
Court or Bankruptcy Court.
A bankruptcy trustee represents only the debtor's interests. Explain your answer.
False. A trustee serves as a fiduciary for the bankruptcy estate, protecting the interests of
creditors while ensuring compliance with bankruptcy laws and court orders.
Before a confidential merger announcement becomes public, an executive purchases shares
expecting the stock price to increase. Which securities fraud scheme exists?
Insider Trading, because trading occurred using material nonpublic information unavailable to
the investing public.
Before filing bankruptcy, a debtor secretly transfers expensive artwork to a relative without
disclosing the transfer. What fraud scheme may exist?
Concealment of Assets and potentially a fraudulent transfer, because property was intentionally
moved to prevent creditor recovery.
Being asked to pay taxes or processing fees before receiving lottery winnings is a common
__________ fraud indicator.
Advance-fee or lottery scam indicator.
The best defense against phishing is employee ________ and user ________.
Awareness; Verification.
Billing schemes generally involve ________, ________, or ________ invoices.
Fictitious; Inflated; Duplicate. These are the three primary invoice characteristics examined
during fraud investigations.
Billing separately for laboratory tests that should be submitted as one bundled procedure is
called __________.
Unbundling.
Page 2 of 117
,1000 Flashcards Certified Fraud Examiner (CFE) Exam
A bookkeeper receives a customer's mailed payment, destroys the check, and removes the
customer's invoice from the accounting system. What fraud scheme is this?
This is receivables skimming, involving theft of customer payments before they are officially
recorded and deposited into the company's bank account.
Borrowing cash from a bank appears under which section?
Financing Activities, because it changes the company's capital structure through debt financing.
The burden of proof in most criminal fraud cases is __________.
Beyond a reasonable doubt.
A caller claims to be from a bank requesting your PIN. Fraud type?
Vishing attack designed to steal credentials.
A caller falsely claims to be a grandchild needing emergency bail money and pressures an
elderly victim to send funds immediately. What type of fraud is involved?
This is the Grandparent Scam, a common form of elder fraud relying on impersonation,
urgency, and emotional manipulation.
Can charitable donations be used to conceal bribery? Explain.
Yes. Donations made to organizations controlled by decision-makers, family members, or
political associates may function as indirect bribes if intended to influence official actions or
business decisions.
Can corruption occur even if the company receives the goods or services it paid for? Explain.
Yes. Corruption focuses on the employee's abuse of authority rather than whether goods were
delivered. Even if products or services are received, decisions influenced by secret payments
or undisclosed personal interests violate fiduciary duties and often result in inflated prices, poor
quality, or unfair vendor selection.
Can intentionally understating liabilities improve a company's debt-to-equity ratio? Explain.
Yes. Omitting liabilities lowers total debt while leaving equity artificially high, making leverage
appear lower than reality. This is a common financial statement fraud used to satisfy lender
requirements.
Can inventory shortages indicate cash skimming? Explain.
Yes. When inventory decreases without corresponding recorded sales, investigators should
consider the possibility of unrecorded sales combined with cash skimming.
Page 3 of 117
, 1000 Flashcards Certified Fraud Examiner (CFE) Exam
Can revenue recognition be fraudulent even if customers eventually pay? Explain.
Yes. Recording revenue in the wrong accounting period violates revenue recognition principles,
even if payment is ultimately received. Timing manipulation still misleads users regarding
financial performance.
Can social media be a competitive intelligence source?
Yes. Employee posts, company updates, and recruitment activities may reveal useful business
information.
Can technology completely eliminate inventory fraud? Explain.
No. Technology improves detection and monitoring but cannot eliminate fraud. Employees may
collude, manipulate system inputs, override controls, or exploit weaknesses in inventory
processes. Strong governance and internal controls remain essential.
Can unusually high inventory turnover indicate fraud? Explain.
Yes. While high turnover may indicate efficient operations, it may also result from inventory
theft, understated inventory balances, inaccurate inventory records, or intentional
understatement of ending inventory. Investigators should examine supporting evidence before
drawing conclusions.
A car wash reports unusually high daily cash receipts that significantly exceed industry norms
despite limited customer traffic. What laundering method should investigators suspect?
Possible use of a front business to disguise criminal proceeds by combining illegal cash with
reported business revenue.
Cash decreases by $300,000 while equipment increases by $300,000. Has total assets
changed?
No. One asset decreases while another asset increases by the same amount. Total assets
remain unchanged because only the composition of assets changes.
Cash flow activities are classified into ________, ________, and ________.
Operating, Investing, Financing.
A cashier enters false "No Sale" transactions throughout the day while stealing cash. What red
flag does this create?
Excessive No Sale transactions are a common indicator of possible cash skimming because
they may allow the cash drawer to open without recording legitimate sales.
A cashier processes a fake refund after the customer leaves and keeps the refunded cash.
Identify the fraud scheme.
This is cash larceny concealed through a fraudulent refund transaction. The accounting records
are manipulated to explain the missing cash.
Page 4 of 117
The accounting equation states that Assets = ________ + ________.
Liabilities + Owner's (Shareholders') Equity. Any imbalance indicates an accounting error or
potentially fraudulent recording.
An accounts payable clerk changes a vendor's bank account information to their personal
account before payment is issued. What fraud scheme occurred?
This is electronic payment tampering through vendor account manipulation. Legitimate
company payments are redirected to the fraudster's personal bank account.
An accounts payable employee duplicates an approved invoice and processes payment twice,
depositing the second payment into a fraudulent account. What fraud scheme is involved?
This is a duplicate payment billing scheme, where the organization unknowingly pays the same
obligation more than once due to manipulated documentation.
Admission-seeking interviews should rely primarily on threats and intimidation to obtain
confessions. Explain your answer.
False. Coercive tactics may produce unreliable statements, violate legal standards, damage
credibility, and jeopardize admissibility. Ethical interviewing emphasizes truthful, voluntary
admissions.
After a legitimate burglary, the homeowner includes expensive jewelry that was never stolen.
Which fraud scheme is illustrated?
This is Claim Inflation (Padding the Claim) because legitimate losses are intentionally
exaggerated with fictitious items.
After several months of online communication, a romantic partner requests emergency funds
for medical treatment overseas. What fraud scheme should investigators suspect?
Romance Fraud, which exploits emotional attachment to manipulate victims into transferring
money.
An anonymous hotline report is supported by unusual accounting entries and unexplained
vendor payments. Does predication likely exist?
Yes. While an anonymous tip alone may not always be sufficient, when combined with
objective evidence such as suspicious accounting transactions, it generally provides adequate
predication to begin a fraud examination.
An applicant inflates annual income to qualify for a personal loan. Which fraud occurred?
Loan application fraud through income misrepresentation.
An ATM has a hidden card reader attached. Which identity theft method is used?
Card skimming.
Page 1 of 117
,1000 Flashcards Certified Fraud Examiner (CFE) Exam
Attackers encrypt company files and threaten to publish confidential customer records unless
payment is made. What malware attack occurred?
This is Double Extortion Ransomware, involving both data encryption and threats to publicly
disclose stolen information.
The balance sheet reports financial position at a ________ point in time.
Specific point in time. Unlike the income statement, it does not cover a reporting period.
Bankruptcy proceedings are generally supervised by a __________.
Court or Bankruptcy Court.
A bankruptcy trustee represents only the debtor's interests. Explain your answer.
False. A trustee serves as a fiduciary for the bankruptcy estate, protecting the interests of
creditors while ensuring compliance with bankruptcy laws and court orders.
Before a confidential merger announcement becomes public, an executive purchases shares
expecting the stock price to increase. Which securities fraud scheme exists?
Insider Trading, because trading occurred using material nonpublic information unavailable to
the investing public.
Before filing bankruptcy, a debtor secretly transfers expensive artwork to a relative without
disclosing the transfer. What fraud scheme may exist?
Concealment of Assets and potentially a fraudulent transfer, because property was intentionally
moved to prevent creditor recovery.
Being asked to pay taxes or processing fees before receiving lottery winnings is a common
__________ fraud indicator.
Advance-fee or lottery scam indicator.
The best defense against phishing is employee ________ and user ________.
Awareness; Verification.
Billing schemes generally involve ________, ________, or ________ invoices.
Fictitious; Inflated; Duplicate. These are the three primary invoice characteristics examined
during fraud investigations.
Billing separately for laboratory tests that should be submitted as one bundled procedure is
called __________.
Unbundling.
Page 2 of 117
,1000 Flashcards Certified Fraud Examiner (CFE) Exam
A bookkeeper receives a customer's mailed payment, destroys the check, and removes the
customer's invoice from the accounting system. What fraud scheme is this?
This is receivables skimming, involving theft of customer payments before they are officially
recorded and deposited into the company's bank account.
Borrowing cash from a bank appears under which section?
Financing Activities, because it changes the company's capital structure through debt financing.
The burden of proof in most criminal fraud cases is __________.
Beyond a reasonable doubt.
A caller claims to be from a bank requesting your PIN. Fraud type?
Vishing attack designed to steal credentials.
A caller falsely claims to be a grandchild needing emergency bail money and pressures an
elderly victim to send funds immediately. What type of fraud is involved?
This is the Grandparent Scam, a common form of elder fraud relying on impersonation,
urgency, and emotional manipulation.
Can charitable donations be used to conceal bribery? Explain.
Yes. Donations made to organizations controlled by decision-makers, family members, or
political associates may function as indirect bribes if intended to influence official actions or
business decisions.
Can corruption occur even if the company receives the goods or services it paid for? Explain.
Yes. Corruption focuses on the employee's abuse of authority rather than whether goods were
delivered. Even if products or services are received, decisions influenced by secret payments
or undisclosed personal interests violate fiduciary duties and often result in inflated prices, poor
quality, or unfair vendor selection.
Can intentionally understating liabilities improve a company's debt-to-equity ratio? Explain.
Yes. Omitting liabilities lowers total debt while leaving equity artificially high, making leverage
appear lower than reality. This is a common financial statement fraud used to satisfy lender
requirements.
Can inventory shortages indicate cash skimming? Explain.
Yes. When inventory decreases without corresponding recorded sales, investigators should
consider the possibility of unrecorded sales combined with cash skimming.
Page 3 of 117
, 1000 Flashcards Certified Fraud Examiner (CFE) Exam
Can revenue recognition be fraudulent even if customers eventually pay? Explain.
Yes. Recording revenue in the wrong accounting period violates revenue recognition principles,
even if payment is ultimately received. Timing manipulation still misleads users regarding
financial performance.
Can social media be a competitive intelligence source?
Yes. Employee posts, company updates, and recruitment activities may reveal useful business
information.
Can technology completely eliminate inventory fraud? Explain.
No. Technology improves detection and monitoring but cannot eliminate fraud. Employees may
collude, manipulate system inputs, override controls, or exploit weaknesses in inventory
processes. Strong governance and internal controls remain essential.
Can unusually high inventory turnover indicate fraud? Explain.
Yes. While high turnover may indicate efficient operations, it may also result from inventory
theft, understated inventory balances, inaccurate inventory records, or intentional
understatement of ending inventory. Investigators should examine supporting evidence before
drawing conclusions.
A car wash reports unusually high daily cash receipts that significantly exceed industry norms
despite limited customer traffic. What laundering method should investigators suspect?
Possible use of a front business to disguise criminal proceeds by combining illegal cash with
reported business revenue.
Cash decreases by $300,000 while equipment increases by $300,000. Has total assets
changed?
No. One asset decreases while another asset increases by the same amount. Total assets
remain unchanged because only the composition of assets changes.
Cash flow activities are classified into ________, ________, and ________.
Operating, Investing, Financing.
A cashier enters false "No Sale" transactions throughout the day while stealing cash. What red
flag does this create?
Excessive No Sale transactions are a common indicator of possible cash skimming because
they may allow the cash drawer to open without recording legitimate sales.
A cashier processes a fake refund after the customer leaves and keeps the refunded cash.
Identify the fraud scheme.
This is cash larceny concealed through a fraudulent refund transaction. The accounting records
are manipulated to explain the missing cash.
Page 4 of 117
