Certified Fraud Examiner (CFE) Practice Exam 1
Questions and correct Answers (Verified Answers)
with Rationales 2025
Domain Coverage: Financial Transactions and Fraud Schemes | Law | Investigation | Fraud
Prevention and Deterrence
Question 1: (Fraud Prevention and Deterrence)
Which of the following is considered a fraud risk factor under the fraud
triangle?
A. Strict regulatory oversight
B. Effective internal controls
C. Rationalization
D. Independent audit committees
Correct Answer: C. Rationalization
Rationale: Rationalization is one of the three components of the fraud
triangle (along with pressure and opportunity). It refers to how the
fraudster justifies unethical behavior.
,Question 2: (Investigation)
Which method is most effective for tracing the flow of illicit funds
through multiple bank accounts?
A. Vertical analysis
B. LexisNexis database search
C. Bank statement analysis
D. Horizontal analysis
Correct Answer: C. Bank statement analysis
Rationale: Bank statement analysis helps identify the movement of
funds and potential laundering activity, especially when tracing
complex transactions.
Question 3: (Law)
Which of the following is an element of fraud in most legal systems?
A. Age of the victim
B. Jurisdictional diversity
C. Intentional misrepresentation
D. Ignorance of the defendant
Correct Answer: C. Intentional misrepresentation
Rationale: Fraud generally requires an intentional act to deceive
another party for personal or financial gain.
, Question 4: (Financial Transactions and Fraud Schemes)
In a billing scheme, the perpetrator usually:
A. Alters physical inventory counts
B. Submits false invoices to the employer
C. Skims cash from daily sales
D. Creates ghost employees
Correct Answer: B. Submits false invoices to the employer
Rationale: Billing schemes involve the creation of fraudulent vendor
invoices, causing the company to pay for goods or services not
received.
Question 5: (Fraud Prevention and Deterrence)
What is the most effective fraud deterrent in organizations?
A. Annual audits
B. Anonymous complaints
C. A strong ethical culture and tone at the top
D. Detailed expense reports
Correct Answer: C. A strong ethical culture and tone at the top
Rationale: Leadership’s ethical behavior sets the standard for the
organization and helps prevent fraud.
Questions and correct Answers (Verified Answers)
with Rationales 2025
Domain Coverage: Financial Transactions and Fraud Schemes | Law | Investigation | Fraud
Prevention and Deterrence
Question 1: (Fraud Prevention and Deterrence)
Which of the following is considered a fraud risk factor under the fraud
triangle?
A. Strict regulatory oversight
B. Effective internal controls
C. Rationalization
D. Independent audit committees
Correct Answer: C. Rationalization
Rationale: Rationalization is one of the three components of the fraud
triangle (along with pressure and opportunity). It refers to how the
fraudster justifies unethical behavior.
,Question 2: (Investigation)
Which method is most effective for tracing the flow of illicit funds
through multiple bank accounts?
A. Vertical analysis
B. LexisNexis database search
C. Bank statement analysis
D. Horizontal analysis
Correct Answer: C. Bank statement analysis
Rationale: Bank statement analysis helps identify the movement of
funds and potential laundering activity, especially when tracing
complex transactions.
Question 3: (Law)
Which of the following is an element of fraud in most legal systems?
A. Age of the victim
B. Jurisdictional diversity
C. Intentional misrepresentation
D. Ignorance of the defendant
Correct Answer: C. Intentional misrepresentation
Rationale: Fraud generally requires an intentional act to deceive
another party for personal or financial gain.
, Question 4: (Financial Transactions and Fraud Schemes)
In a billing scheme, the perpetrator usually:
A. Alters physical inventory counts
B. Submits false invoices to the employer
C. Skims cash from daily sales
D. Creates ghost employees
Correct Answer: B. Submits false invoices to the employer
Rationale: Billing schemes involve the creation of fraudulent vendor
invoices, causing the company to pay for goods or services not
received.
Question 5: (Fraud Prevention and Deterrence)
What is the most effective fraud deterrent in organizations?
A. Annual audits
B. Anonymous complaints
C. A strong ethical culture and tone at the top
D. Detailed expense reports
Correct Answer: C. A strong ethical culture and tone at the top
Rationale: Leadership’s ethical behavior sets the standard for the
organization and helps prevent fraud.
