ACFE CFE-Investigation Certified Fraud Examiner (CFE) - Investigation Exam Practice Test

The Fraud Examiners Manual notes:

“Fraud examiners are often tasked with tracing illicit transactions… For example, a victim of fraud might want a tracing search to facilitate the recovery of criminal proceeds”.

The Fraud Examiners Manual advises that fraud examiners should preserve and organize evidence, and one of the key steps is to establish a document database early. This allows examiners to track documents, index them, and link them to findings. Dusting for fingerprints, leaving originals behind, or organizing solely in chronological order are not standard best practices .

CFE interview guidance identifies verbal behaviors that often appear when an interviewee is being deceptive. A strong indicator is answering with a question rather than providing a direct denial. When asked directly about misconduct, truthful respondents commonly give a straightforward “no” and may add clarifying facts. Deceptive respondents sometimes deflect, buy time, or attempt to regain control by replying with a question such as, “Why would I do something like that?” This response avoids the substance of the allegation and shifts the burden back to the interviewer, potentially probing how much evidence the interviewer has. While Options A, B, and D are denials (and any denial could be untrue), the CFE materials specifically flag “answering with a question” as a frequent deceptive tactic because it functions as diversion and can indicate discomfort with issuing a clear denial. Therefore, among the choices presented, Option C is most consistent with a deceptive verbal response pattern described in CFE interview methodology.

The best practices for signed statements include:

Adding omitted facts as an addendum.

Preparing separate statements for unrelated offenses.

Having witnesses to the signing.

But:

“The signed statement should be reduced to a short and concise written statement. The interviewer should prepare the statement and present it to the confessor for his signature” .

Thus, requiring the suspect to handwrite the entire statement is not a best practice.

The Fraud Examiners Manual lists specific queries for accounts payable analysis, including:

“Review recurring monthly expenses and compare to posted/paid invoices.”.

While comparing book vs. tax depreciation applies to asset management (not A/P), and identifying paycheck anomalies applies to payroll (not A/P), the most effective A/P-specific test is the recurring expense comparison. Hence, C is correct.

When the objective is asset recovery through civil legal action, the practical value of litigation depends heavily on collectability—whether a favorable judgment can be satisfied. CFE guidance on tracing and asset recovery highlights that tracing engagements are commonly undertaken specifically to determine whether a potential defendant can pay a court-ordered sum if judgment is entered, and to locate assets that can be used to satisfy a judgment. If the defendant is judgment-proof or has insufficient reachable assets, the legal action might be economically irrational even if liability is strong. While statute of limitations (D) is legally important, the question asks what is most important before moving forward with a recovery action; from an investigative and recovery perspective, the threshold question is whether there are assets to recover or a realistic path to enforcement. Past arrests (B) do not answer the recovery feasibility question. Option C misframes the decision: legal actions proceed based on evidence and counsel’s assessment, but recoverability often drives whether to invest in litigation. Therefore, assessing whether the defendant has sufficient money or property to satisfy a judgment is the most important preliminary question.

Court records are frequently used in fraud investigations. Both the Prep Guide and the Manual agree that the court clerk’s office (court authorities) is the original and most reliable source of certified and accurate records.

Although commercial services and online databases exist, the manuals emphasize that reliability and certification are best ensured by going directly to the court where the case was filed.

Thus, the statement is True.

The Fraud Examiners Manual and CFE Prep Guide explain that tracing loan proceeds is a key investigative tool, but its scope is limited. Specifically, it helps determine:

if proceeds were deposited into hidden accounts,

if hidden accounts were used for loan payments, and

if loans were secured by hidden assets or unknown witnesses.

However, the manuals do not state that tracing loan proceeds can identify internal control weaknesses. That is a different aspect of fraud examination, often addressed through audit procedures or control assessments.

Thus, option D is NOT true.

The Fraud Examiners Manual clearly states:

“Accessing information set to private could result in claims under privacy laws. Thus, information on social media sites that is restricted by privacy settings could result in liability for fraud examiners due to violation of users’ privacy rights.”

Therefore, D is correct

The Fraud Examiners Manual specifies that admission-seeking interviews should only be conducted when:

“There is a reasonable probability that the respondent has committed the act in question.

All other reasonable investigative steps have been completed.

The interviewer can reasonably control the place, time, and subject matter of the interview.”

There is no requirement that the examiner must be sure no one else was involved. Therefore, C is correct.

Digital forensics guidance stresses:

If the computer is off, do not turn it on, because booting will alter files and timestamps.

If the computer is on and volatile data is needed (e.g., RAM), a formally trained examiner may collect it live. Otherwise, simply unplugging the system (hard shutdown) preserves volatile evidence better than a graceful shutdown.

Thus, if the evidence exists only in volatile data and the system is running, Nobles may collect it via the normal interface.

✅ Answer: A. If Lucas's computer is running, Nobles may retrieve data… if the evidence exists only in volatile data

Best practices when working with confidential informants include documenting payments and identities in ways that protect anonymity but avoid risks. The Fraud Examiners Manual and CFE Prep emphasize avoiding cash payments because they reduce transparency and create audit trail problems. Paying in cash is therefore NOT considered a best practice, whereas using initials, obtaining receipts, and documenting informant information in reports can be acceptable methods.

“Electronic payment records can be valuable in tracing investigations… they can reveal, among other things, assets the subject has purchased”.

They can also reveal loans, real estate taxes, and business locations, but not directly whether Lottie is “skimming” funds.

When introducing themselves, fraud examiners should avoid titles like investigator or Certified Fraud Examiner that might raise suspicion or defensiveness. The Manual recommends using neutral titles such as auditor because it is less threatening and more acceptable in an organizational setting.

Complex questions:

“consist of a series of interrelated questions… too complicated to be easily understood, cover more than one subject, or require more than one answer”.

The question asked by Delta (“Were you aware that the signature was forged, and why didn’t you tell anyone earlier?”) covers two issues, making it complex.

Both the Manual and CFE Prep guides emphasize that deleted files are recoverable until overwritten. Once overwritten, the original data cannot be retrieved:

“Deleted files are recoverable until they are overwritten because data is not erased… until overwritten. So, deleted files that have been overwritten generally are not recoverable.”

Other file types (deleted shortcuts, hidden files, etc.) can often be recovered, but overwritten files are lost permanently.

Both the Manual and CFE Prep guides emphasize that forensic imaging is essential because:

“Forensic analysis should not be performed on suspect devices directly because doing so can alter or damage digital evidence, and imaging… allows a fraud examiner to view and analyse… without altering the original data in any way”.

A forensic image is an exact, sector-by-sector copy of the drive. Thus, imaging preserves evidence integrity.

The Fraud Examiners Manual lists required steps before seizing evidence:

Obtain legal authority.

Review privacy issues.

Ensure software/hardware are validated.

Document surroundings, inspect for traps, image drives, etc.

There is no requirement to assemble a team exclusively of outside experts.

Before seizing evidence in a digital forensic investigation, the 2014 International Fraud Examiners Manual outlines several critical steps:

Obtain legal authority / review orders:

“Before obtaining evidence, ensure that there is legal authority to seize evidence and review the data associated with the evidence. This might require obtaining a warrant in a criminal matter or ensuring that internal policies authorise seizure for an internal investigation.”

Determine privacy issues:

“Before the fraud examiner can seize evidence, he must take certain steps to help ensure that the evidence will be admissible: He must determine whether there are any privacy interests in the item(s) to be searched… In every case where it becomes necessary to seize a computer or other device capable of storing digital evidence, the investigator should consult with legal counsel.”

Use only trained professionals/software:

“It is important to allow a trained examiner to conduct a proper seizure and examination of digital evidence to help ensure that the information can be used in a legal proceeding.”

✅ These are all valid required steps.

In contrast, the idea that the team must be composed only of outside digital forensic experts is NOT a required step. The Manual stresses flexibility in team composition:

“Some organisations have their own in-house personnel… while others might prefer the use of an outside examiner. Sometimes retrieving digital data is as easy as searching the target computer’s hard drive, but other times retrieval requires a thorough knowledge of computers.”

Thus, requiring only outside experts is not a standard step, since investigations may use internal, external, or a mix of specialists depending on the situation.

The Manual emphasizes that interviews should be held where the respondent feels comfortable and secure, not threatened:

“When possible, the interview should be held in a venue where the subject will feel comfortable and secure”.

Holding it in an uncomfortable setting is counterproductive and contrary to best practices.

When dealing with potentially hostile or volatile interviewees, fraud examiners are advised not to give much advance notice. This reduces the chance that the subject will prepare evasive or combative responses. The Fraud Examiners Manual emphasizes minimizing preparation time for resistant interviewees to ensure more candid responses.

“Internal sources will sometimes be the only resource for certain types of documents—such as… employee personnel files—unless the fraud examiner has the subject’s consent or a legal order”.

External searches may reveal addresses, assets, or competitor ownership, but personnel files require internal/non-public access.

The Fraud Examiners Manual stresses that fraud examiners must never promise unconditional confidentiality, because findings often must be disclosed to management, auditors, or authorities. They can only offer “qualified confidentiality” (best efforts to protect identity, but with necessary limits). Therefore, option A is the most appropriate response.

The manuals explain that in verbal confessions, subjects often underestimate the amounts to minimize guilt, not overestimate. The process involves moving from accusation to benchmark admission, handling lies tactfully, and obtaining details by chronology, transaction, or event. Thus, option B is NOT true.

“Opinions or conclusions concerning the guilt or innocence of a fraud suspect is outside the scope of a fraud examination and should never be included in a report”.

Functions of a fraud examination report include presenting evidence, corroborating facts, and supporting credibility. Communicating the examiner’s qualifications to provide opinions is not a function.

Therefore, option D is not a function of a fraud examination report.

The 2014 International Fraud Examiners Manual provides examples of data analysis for accounts payable:

“Examples of data analysis queries that can be performed to help detect fraud through examination of accounts payable include:

• Audit paid invoices for manual comparison with actual invoices.

• Summarise large invoices by amount, vendor, etc.

• Identify debits to expense accounts outside of set default accounts.

• Reconcile cheque registers to disbursements by vendor invoice.”

While other functions apply to payroll or asset management, the most effective function for accounts payable fraud detection is to summarize large invoices by amount and vendor.

Guidance on reports:

“A fraud examination report should be accurate, clear, and impartial. The fraud examiner should avoid technical jargon where possible and write in plain language so that readers without specialized knowledge can understand”.

Reports should only include relevant, factual findings—not every detail or opinion.

So, the most accurate statement is that jargon should be avoided.

The Fraud Examiners Manual states:

“Interviewers are encouraged to formulate their questions in a way that will not bring about a strong emotional reaction… emotive words of all types should be avoided during the introductory phase. Such words put people on the defensive”.

Thus, statement C is NOT true.

Textual analytics is described as:

“a method of using software to extract usable information from unstructured text data… to reveal patterns, sentiments, and relationships indicative of fraud… Textual analytics provides the ability to uncover additional warning signs of rogue employee behavior”.

Its purpose is not to find direct admissions but to identify indicators and patterns.

The recommended questioning order is:

“As a general rule, questioning should proceed from the general to the specific; that is, it is best to seek general information before seeking details”.

This ensures the respondent provides a free narrative before narrowing down to specifics.

The Fraud Examiners Manual explains:

“Each transaction on a blockchain ledger is recorded with a cryptographic address… by analyzing these addresses, fraud examiners can sometimes establish patterns and connections that identify users or link them to criminal activity”.

The manual explains:

“Link analysis is very effective for identifying indirect relationships… and is particularly useful when conducting a money laundering investigation because it can track the placement, layering, and integration of money” .

Therefore, statement A is false, making it the correct choice.

The Fraud Examiners Manual explains that rather than drafting an exhaustive list of questions, the interviewer should:

“formulate a brief outline of key points to discuss during the interview”.

This helps organize thoughts while allowing flexibility.

When a suspect becomes withdrawn or emotional after alibis are diffused:

“The interviewer should not remain silent or discourage the accused from showing emotion. Such reactions often indicate consideration of confession. At this point, the interviewer should present an alternative question and continue reinforcing guilt with evidence”.

Thus, Scarlett should continue presenting evidence.

“Once a denial is uttered, it becomes extremely difficult for the accused to change his response, because doing so would be an admission that he lied. Therefore, the interviewer must prevent an outright denial, thereby making it easier for the subject to confess”.

“One of the most effective techniques to stop or interrupt a denial is through a delaying tactic… the interviewer should attempt to delay the outright denial; he should not argue with the accused”.

Thus, Charles should interrupt with a delaying tactic.

A memorandum recording a whistleblower tip is a written record. The Fraud Examiners Manual defines documentary evidence as evidence “presented in the form of documents such as memoranda, contracts, emails, or other records”. Testimonial evidence comes from oral statements; here, the memorandum itself is the evidence, so it is documentary.

Both the CFE Prep Guide and the Fraud Examiners Manual state that every fraud examination must be conducted under the assumption that litigation will result. This ensures that evidence is collected and preserved properly, in compliance with legal standards:

“Each fraud examination should begin with the proposition that the case will end in litigation… If the fraud examiner assumes that litigation will occur, he will conduct the examination in accordance with the proper rules of evidence”.

This principle protects the integrity of the examination and ensures admissibility of evidence if the matter proceeds to court.

The Fraud Examiners Manual explains that before obtaining or cleansing data, the first step in using data analysis is the planning phase. This includes understanding the data, articulating objectives, and building a profile of potential frauds. Without this, examiners risk inefficient analysis and overlooking key fraud risks.

✅ Answer: C. Build a profile of potential frauds

Benford’s Law applies to naturally occurring sets of numbers such as invoice amounts, expense reports, and transaction data. The Fraud Examiners Manual shows Benford’s Law tests applied to vendor payments to detect anomalies like duplicate or inflated invoices. Telephone numbers, employee IDs, and bank account numbers are assigned numbers and do not follow Benford’s distribution, so they are unsuitable for this test.

Observing signs of wealth (sports car, home remodeling) may raise suspicion, but by itself it does not provide sufficient predication to accuse or notify management of fraud. The proper next step is to conduct discreet inquiries to determine if further evidence exists before escalating.

Pretexting is defined as impersonating someone else or making false/misleading statements to obtain information. Many jurisdictions specifically prohibit pretexting against financial institutions, which includes pretending to be a customer to access their bank account information.

CFE admission-seeking guidance explains that once a suspect begins providing detailed information about the offense, the interviewer should transition to obtaining a verbal confession and then “probe gently” for additional details—preferably details only the subject would know. As part of confirming the general details of the offense during the verbal confession, the interviewer should obtain key baseline facts such as estimates of amounts involved, identification of other parties involved, and the location of physical evidence. Among the choices, a general estimate of the amount of money involved (A) is explicitly aligned with what the CFE guidance expects the interviewer to gather during the verbal admission stage because it helps establish scope and supports later corroboration and restitution analysis. Option B is less fitting because the emphasis is on what the suspect can reliably provide (their own actions and knowledge), not “facts known to others.” Option C attempts to build a defense narrative rather than obtain factual admission details. Option D may be useful for remediation later, but it is not a primary objective during the verbal confession stage.

The Fraud Examiners Manual states:

“Duplicate testing is used to identify transactions with duplicate values in specified fields … fields such as cheque numbers, invoice numbers, and government identification numbers … searching for duplicates within these fields can help the fraud examiner find anomalies that merit further examination”.

This directly addresses Tony’s need to ensure no two invoices have the same number.

The Fraud Examiners Manual makes clear that covert operations are extraordinary measures that require high skill and planning and should be used only when no other practical method is available. They carry significant risks, including embarrassment, liability, and even injury or death. Therefore, covert operations should not be the first resort but instead follow conventional evidence-gathering efforts.

Best practice is to conduct interviews individually. The Manual states:

“When conducting interviews, witnesses should be interviewed separately. Interviewing multiple witnesses together risks contamination of testimony and reduced reliability of responses”.

The organizational filings with the government of the jurisdiction in which the company is incorporated

Organizational filings (e.g., articles of incorporation) are generally public records and include ownership information, initial shareholders, and the location of the principal office.

“Once a suspect utters a denial, it becomes extremely difficult… therefore, the interviewer must prevent an outright denial. Fraud examiners can use several techniques to stop or interrupt denials, including delays, repeated interruptions, and reasoning”.

Thus, the correct answer is D.

The manual and CFE Prep list the main limitations:

Coverage varies by jurisdiction.

Searches are limited in area.

Records are often abstracts.

Information may be inaccurate or outdated.

Searches can be erratic.

Nowhere is “difficulty in finding database companies” mentioned.

The 2014 International Fraud Examiners Manual explains:

“Often, the most important evidence exists only in the form of volatile data (e.g., RAM)… If the evidence that a formally trained computer investigator needs to collect exists only in the form of volatile data stored in volatile computer memory such as RAM, and the data is expected to disappear when the computer is shut down, he should collect the data live from the suspect computer.”

Also,

“If the computer is off, leave it off… Booting up a system can alter its files… Accordingly, turning a system on could damage and taint any evidence.”

Thus, the most accurate statement is D — live data collection may be performed directly if volatile data is required.

The Fraud Examiners Manual notes:

“Management of an organisation should ensure that the organisation has a proper and effective document retention policy in place… An effective policy requires clear retention protocols… and should be immobilised due to a pending investigation or foreseeable litigation.”

Thus, the existence of a document retention policy is a critical factor in deciding how to dispose of evidence.

Explanation with Extracts = The 2014 Fraud Examiners Manual states:

“The EU Data Protection Directive … regulates the processing, using, and transferring of personal data within the European Union, and it places limits on transmitting personal data to non-EU countries”.

Therefore, a U.S.-based examiner handling HR data of an EU employee must comply with EU GDPR requirements.

Phone records are classified as nonpublic records. The Fraud Examiners Manual explains that personal telephone and mobile records usually require consent, subpoena, or warrant to access. Public records, by contrast, include real property ownership and corporate filings. Therefore, B is correct.

When a respondent says “I’m too busy,” it can be diffused by stressing “the interview will be short, the interviewer is already there, the project is important, [and] the interview will not be difficult”.

Thus, stressing brevity is the recommended reaction.

“Introductory questions should be designed to establish rapport… the interviewer must establish some common ground with the respondent before he begins the fact-gathering portion of the interview. Interviewers usually establish rapport by spending a few minutes with the respondent in an informal dialogue”.

Thus, Vishal’s small talk about ties and sports is rapport-building.

The Manual defines leading questions as those that contain or suggest the answer:

“Leading questions… are framed in a way that evokes a specific reply… most commonly used to confirm facts already known… Example: ‘You got promoted, right?’”

Nathaniel’s question, “When were you promoted to manager?” presumes the promotion occurred. This leads the subject by suggesting a fact that may not be true. It is not open (does not invite free narration), not complex (it asks one thing), and not closed (doesn’t call for yes/no but presumes an answer).