Fraud IQ Test

Test your anti-fraud IQ by answering practice questions covering material from the CFE Exam.

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IQ #1 - Javier, a forensic document examiner, determines that a document that purports to be the original writing of a famous author created fifty years ago is actually made from paper created no more than two years ago. Which of the following best describes the document?
  1. An anachronism
  2. An indented writing
  3. An auto forgery
  4. None of the above
View Answer
Anachronisms are items located at a time when they could not have existed or occurred. Generally, exposing anachronisms in fraudulent historical documents requires the expertise of investigators, historical experts, scientific laboratories, and forensic document examiners. For example, accurate handwriting comparisons are rarely possible in the absence of adequate contemporaneous genuine writings of the purported author. In such cases, the experts examine the materials used to produce the documents, such as paper, ink, printing, adhesives and seals, bindings, and covers.
Often, to add credibility to forged documents, fraudsters backdate them. To determine whether contemporary documents were backdated, experts usually rely on diligent investigation and forensic document examiners.
Correct Answer: (A)

IQ #2 - Scott, a fraud examiner, is concerned that employees are abusing their expense accounts and are spending more than the $30 per day allowed for meals. Which of the following is the most appropriate data analysis function for locating meal expenses greater than $30?
  1. Duplicate search
  2. Gap testing
  3. Multi-file processing
  4. Compliance verification
View Answer
Compliance verification determines whether company policies are met by employee transactions. If a company limits the amount of its reimbursements, the software can check to see that this limit is being observed. Many times, fraud examiners can find early indications of fraud by testing detail data for values above or below specified amounts. For example, when employees are out of town, do they adhere to company policy of spending no more than $30 per day for meals? To start, fraud examiners can look at all expense report data and select those with daily meal expenses exceeding $30. With the information returned from this simple query, there is a starting point for suspecting fraud. Compliance verification determines whether company policies are met by employee transactions. Correct Answer: (D)

IQ #3 - The records of a wire transfer identify the amount of the wire, where it was sent, and the date it was sent, but they do not identify who sent the wire.
  1. True
  2. False
View Answer
The records of a wire transfer identify who sent the wire, where it was sent, the date it was sent, and its amount.
Correct Answer: (B)


IQ #1 - Which of the following is an indirect method of proving illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income?
  1. Net-worth method of analysis
  2. Regression analysis
  3. Bank deposit method of analysis
  4. Fundamental analysis
View Answer
The net-worth method (or comparative net-worth analysis) is used to prove illicit income circumstantially by showing that a person’s assets or expenditures for a given period exceed that which can be accounted for from known or admitted legitimate sources of income. Fraud examiners should use the net-worth method when several of the subject’s assets or liabilities have changed during the period under examination and when the target’s financial records are not available.
Correct Answer: (A)

IQ #2 - Green believes that Blue, a fraud suspect, has purchased hidden personal property through suspicious financing. Which of the following sources, if available, would most likely contain information that Green could use to locate Blue’s possible hidden assets?
  1. Registrar of voters
  2. Records of secured transactions
  3. Health department records
  4. Surveyor office records
View Answer
Records of secured transactions in which the debtor(s) owes a stated value to a secured party or parties can provide valuable information. They can help identify personal property that an individual or business has financed. These records typically include the debtor’s name and address, the name and address of the secured party, the filing date, the filing number, the filing type, and the type of collateral pledged as security. Moreover, these records might include documents such as tax liens, notices of secured interest in personal property, bank notes and drafts (including funds transfers between banks), letters of credit, and securities exchanges. Correct Answer: (B)

IQ #3 - If the accused becomes withdrawn after his alibis have been diffused, the interviewer’s best course of action is to remain silent until the accused makes a confession.
  1. True
  2. False
View Answer
After the interviewer diffuses the accused’s alibis, the accused often becomes quiet and withdrawn. Some people in this situation might cry. If this occurs, the interviewer must be comforting. The interviewer should not remain silent or discourage the accused from showing emotion. Generally, such reactions indicate that the accused is considering whether to confess.
At this point in the interview, the interviewer should present an alternative question. The alternative question forces the accused to make one of two choices, both of which constitute a benchmark admission (i.e., an answer that implies guilt). Regardless of whether the accused answers yes or no, he will make a culpable statement, or benchmark admission. Once the benchmark admission is made, the subject has made a subconscious decision to confess.
Correct Answer: (B)


IQ #1 - Nathan, a Certified Fraud Examiner, has obtained an oral confession from Gabriel, a fraud suspect. Nathan wants to probe Gabriel for additional details. Which of the following is the most appropriate question Nathan should ask Gabriel to find out if there are any remaining proceeds that can be used to reduce losses?
  1. "Did you spend everything?"
  2. "What do you have left?"
  3. "Is there anything left?"
  4. "It’s all gone, isn’t it?"
View Answer
In appropriate situations, the interviewer should find out whether there are unspent or available assets that the confessor can use to reduce losses. The interviewer should ask the accused "What’s left?" rather than asking "Is there anything left?"
Correct Answer: (B)

IQ #2 - Which of the following types of records for a personal bank account would most likely contain the account holder’s name, address, telephone number, and government identification number?
  1. Deposit slip
  2. ATM withdrawal slip
  3. Signature card
  4. Canceled check
View Answer
To open a personal account, the individual opening the account must provide a signature card, or similar document, evidencing a contract between the customer and bank. The signature card is a source of valuable information. Although its form varies, the card usually contains the person’s name, address, telephone number, identification number, amount of opening deposit (and possibly the source of opening deposit), and security data (e.g., mother’s maiden name). The person’s identification information might be significant, especially if the depositor used an alias. Also, a fraud examiner might be able to trace the opening deposit through the bank’s records to disclose a source of income. Correct Answer: (C)

IQ #3 - Tobias, a Certified Fraud Examiner, is conducting an admission-seeking interview of Frederik, a fraud suspect. Tobias has a great deal of documentary evidence that he plans on using to diffuse Frederik's alibis. The proper technique for using the evidence is for Tobias to display it all at once so that Frederik will be demoralized by the overwhelming amount of evidence.
  1. True
  2. False
View Answer
One technique for diffusing alibis is to display the evidence. It is common for most guilty people to overestimate the amount of physical evidence. The interviewer should try to reinforce this notion in the way the evidence is presented to the accused. The physical evidence—usually documents in fraud matters—generally should be displayed one piece at a time, in reverse order of importance. In this way, the accused does not immediately know the full extent of the evidence. When the accused no longer denies culpability, the interviewer should stop displaying evidence.
Each time a document or piece of evidence is presented to the accused, the interviewer should note its significance. During this phase, the accused is still trying to determine how to react to being caught. The interviewer should, therefore, expect that the accused will attempt to lie his way out of the situation. Like denials, the interviewer should stop the alibis and other falsehoods before they are fully articulated.
Correct Answer: (B)


IQ #1 - Which of the following is NOT a characteristic that asset hiders generally look for in the financial vehicles they use to conceal assets?
  1. Security
  2. Accessibility
  3. Liquidity
  4. Transparency
View Answer
Generally, asset hiders look to conceal their assets with financial vehicles that have certain characteristics. For one thing, asset hiders want products that are liquid (i.e., items that can be purchased and sold in a short period of time). Moreover, asset hiders want products that are difficult to trace or are untraceable. With such instruments, asset hiders can break or obscure many links between the initial receipt of the assets and their final disposition. Asset hiders also look for products that are secure and accessible.
Correct Answer: (D)

IQ #2 - Which of the following is a step in the general process for tracing illicit transactions?
  1. Building a financial profile
  2. Establishing reporting protocols
  3. Selecting a response team
  4. Implementing litigation hold procedures
View Answer
Although the procedures performed during a tracing investigation vary depending on the circumstances, an actual investigation to trace transactions generally should involve the following elements:

1. Collect information.
2. Profile the subject (i.e., assemble the personal—financial and behavioral—profile).
3. Review information for leads and prioritize leads.
4. Trace the illicit transactions.

Correct Answer: (A)

IQ #3 - When determining a subject's net worth for asset-tracing purposes, all assets should be valued at current market value to eliminate any question about estimates.
  1. True
  2. False
View Answer
When computing a subject's net worth, these issues should be considered:
*All assets should be valued at cost, not fair market value. Subsequent appreciation or depreciation of assets should be ignored.
*The amount of funds available to the subject from legitimate sources should be estimated or computed generously.
*The subject should be interviewed to identify all alleged sources of funds and to negate defenses that he might raise later.
Correct Answer: (B)


IQ #1 - During a U.S. criminal trial involving allegations of corruption, the prosecution introduces a diagram illustrating the organizational structure of a company allegedly involved in the corruption. The diagram is an example of:
  1. Direct evidence
  2. Real evidence
  3. Demonstrative evidence
  4. Documentary evidence
View Answer
There are three basic forms, as distinguished from types, of evidence: testimonial, real, and demonstrative. Testimonial evidence refers to the oral statements made by witnesses under oath. Real evidence refers to physical objects that played a part in the issues being litigated. Demonstrative evidence is a tangible item that illustrates some material proposition (e.g., a map, chart, or summary). Demonstrative evidence differs from real evidence in that demonstrative evidence was not part of the underlying event; it was created specifically for the trial. Its purpose is to provide a visual aid for the fact finder. Nonetheless, demonstrative evidence is evidence and can be considered by the fact finder in reaching a verdict. Correct Answer: (C)

IQ #2 - Baron is currently being prosecuted for financial statement fraud for allegedly intentionally over-reporting earnings. Although Baron did over-report income, he did not do so on purpose. Under these facts, which of the following defenses, if any, would likely benefit Baron as a defense?
  1. Mistake
  2. Ignorance
  3. Duress
  4. None of the above
View Answer
A defense is an assertion by a defendant in a criminal or civil suit that seeks to explain away guilt or civil liability for damages. The facts indicate that Baron lacked the intent to over-report earnings, and that his doing so was a mistake. In some situations, mistake may be used as a defense.

Other common defenses in criminal cases include: alibi, consent, de minimis infraction (trivial), duress, entrapment, ignorance, mistake, insanity, necessity, protection of property, self-defense, public duty, legal impossibility, and protection of others. Also pertinent in the matter of defense are questions involving statutes of limitations, proper venue, and proper jurisdiction.
Correct Answer: (A)

IQ #3 - White is an expert testifying in a complicated securities fraud case in the United States. In preparing her report, White relied to a large extent on Publication A, a market analysis report that is commonly used by experts in her field. The judge has declared that Publication A cannot be admitted into evidence in the trial at hand. This means any testimony White has that is based on Publication A is also excluded.
  1. True
  2. False
View Answer
Rule 703 of the U.S. Federal Rules of Evidence says that an expert may testify based on facts that are disclosed at or before the hearing in which the expert testifies. The facts need not themselves be admissible in evidence as long as they are of a type reasonably relied upon by experts in a particular field. This rule allows an expert to employ data usually used by experts in the field, though the data itself may not be admissible. For example, an expert may rely on a table of interest rates taken from a Department of Commerce publication even if the table is not admissible. Similarly, an accountant serving as an expert witness may rely on private sources in forming an opinion if such sources normally are relied upon by accountants. Correct Answer: (B)


IQ #1 - Anna works as a cashier in an antiques store. Since the merchandise lacks barcodes, she has to enter the prices manually. One customer purchased a piece of furniture that cost $250 and paid in cash. Anna recorded the sale at $200 and pocketed the $50 bill. What type of fraud did Anna commit?
  1. An unrecorded sales (skimming) scheme
  2. An understated sales (skimming) scheme
  3. A cash larceny scheme
  4. Lapping of receivables
View Answer
Understated sales schemes are commonly undertaken by employees who work at the cash register. In a typical scheme, an employee enters a sales total that is lower than the amount actually paid by the customer. The employee skims the difference between the actual purchase price of the item and the sales figure recorded on the register. In this case, the item was sold for $250, but Anna rang up the sale of a $200 item and skimmed the excess $50.
Rather than reduce the price of an item, an employee might record the sale of fewer items. If 100 units are sold, for instance, an employee might only record the sale of 50 units and skim the excess receipts. Correct Answer: (B)

IQ #2 -Julia, a fraud examiner, is performing tests to look for potential asset misappropriation schemes at her company. One of her routine tests is to compare the payroll records to the human resources files. What type of fraud scheme is she most likely looking for when performing this test?
  1. A ghost employee scheme
  2. A check tampering scheme
  3. A falsified hours and wages scheme
  4. A fraudulent commissions scheme
View Answer
Comparing personnel records maintained by the human resources department to payroll data can be useful in detecting ghost employee schemes. The term ghost employee refers to someone on the payroll who does not actually work for the victim company. Through the falsification of personnel or payroll records, a fraudster causes paychecks to be generated to a non-employee, or ghost. For example, comparing employee names, addresses, government-issued identifications, and bank account numbers can determine if there are any unexpected duplicates or discrepancies that would indicate a ghost on the payroll. Correct Answer: (A)

IQ #3 - To help detect cash larceny, the person responsible for collecting incoming cash should also prepare the bank deposits.
  1. True
  2. False
View Answer
The primary means of preventing cash fraud is separation of duties. Whenever one individual has control over the entire accounting transaction (e.g., authorization, recording, and custody), the opportunity is present for cash fraud. Each of the following duties/responsibilities should be separated:
  • Cash receipts
  • Bank deposits
  • Bank reconciliation
  • Cash disbursements
If one person has the authority to collect the cash, deposit the receipts, record that collection, and disburse company funds, the risk is high that fraud can occur. Correct Answer: (B)