CFE-Fraud-Investigations-and-Legal-Issues ACFE Certified Fraud Examiner (CFE) - Fraud Investigations and Legal Issues Free Practice Exam Questions (2026 Updated)

This question tests your knowledge of Domain 1.

In the context of Overview of the Legal System, specifically relating to civil, the question asks about XYZ, BEST.

The correct answer is C: Counterclaim.

This question relates to the legal system framework. Understanding the distinction between different legal systems and processes is crucial for fraud examiners. The correct answer accurately describes the relationship between different legal entities and their jurisdictions.

This question tests your knowledge of Domain 5.

In the context of Money Laundering, specifically relating to front business, the question asks about MOST ACCURATE, using front businesses as a method of laundering money is MOST ACCURATE.

The correct answer is D: A front business that conducts legitimate business can provide cover for delivery and transportation related to illegal activity..

This question addresses money laundering concepts. The correct answer correctly identifies the stage, method, or regulatory framework related to money laundering or anti-money laundering efforts. Understanding these processes is critical for fraud examiners working to detect and prevent financial crimes.

According to the ACFE Fraud Examiners Manual, Law Section, specifically under The Civil Justice System and Decisions and Remedies in Civil Cases , civil courts may grant provisional remedies to protect a plaintiff’s interests before a final judgment is entered. One such remedy is prejudgment attachment.

Prejudgment attachment allows a plaintiff to request that the court seize or freeze a defendant’s assets during the pendency of litigation. The purpose is to prevent the defendant from dissipating, transferring, or concealing assets that might otherwise be used to satisfy a future judgment. Courts typically require the plaintiff to demonstrate a likelihood of success on the merits and a risk that the defendant will dispose of the property before judgment. In many jurisdictions, the plaintiff may also be required to post a bond to protect the defendant against wrongful attachment.

A preservation order generally relates to safeguarding evidence, not freezing assets. Declaratory relief seeks a judicial declaration of rights without necessarily awarding damages or freezing property. A litigation hold is an internal directive to preserve documents and is not a court-issued remedy.

Therefore, to prevent Brenda from spending the embezzled funds before judgment, Luke should seek a prejudgment attachment.

The most likely claim is violation of the duty of care. Directors and officers generally owe fiduciary duties to act with reasonable care, diligence, and prudence in managing corporate affairs. Willa’s problem is inattentiveness: she fell behind on her board duties, and her failure to act likely allowed preventable shareholder losses. That fact pattern concerns failure to exercise adequate oversight and care. The duty of loyalty involves acting in the organization’s best interests and avoiding self-dealing, conflicts of interest, or improper personal benefit. The facts do not indicate that Willa acted for personal gain or against ACME’s interests intentionally. “Duty of transparency” and “duty of responsibility” are not the best fiduciary theories described here. Therefore, option B is correct.

Isla is attempting to create rapport. Introductory questions should help establish trust, cooperation, and communication before the examiner moves into the fact-gathering portion of the interview. The Fraud Examiners Manual describes rapport as a harmonious relationship that fosters cooperation and trust. Asking a simple, friendly question about coffee or tea is casual conversation designed to make Doug comfortable and create common ground. Option A is too broad because the facts do not show she is structuring a questioning pattern. Option B is different; the interview theme states the general purpose of the interview. Option D is incorrect because the question is not meant to distract Doug, but to relax him and encourage open communication.

“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.

CFE interviewing guidance emphasizes that legal considerations can materially affect how interviews are conducted and that employee rights and obligations vary by jurisdiction and by case. In particular, whether a subject has a duty to cooperate (and the extent to which an organization can compel cooperation) can differ across jurisdictions and can also be constrained by contractual rights (e.g., union agreements, employment contracts) and local regulations. Because June’s subject is from a different jurisdiction, the most appropriate preparation step is to verify jurisdiction-specific rules that could limit compulsion or otherwise affect the interview’s legal permissibility and risk profile. Option D directly addresses this core cross-jurisdiction concern: what can legally be required of the subject. Option A is not a CFE-recommended preparatory focus; examiners should adapt to legal and procedural requirements rather than “teach” their own cultural practices to the subject. Option B is inappropriate and contrary to professional interviewing principles (the goal is cooperation, not discomfort). Option C is incorrect because consultation with counsel is not limited to “third jurisdiction” scenarios; the guidance underscores that interview-related legal risks and jurisdictional differences often warrant counsel input. Therefore, D best reflects CFE investigation knowledge for cross-jurisdiction interviewing readiness.

Anita’s question is a closed question because it calls for a narrow, specific answer rather than a broad narrative. “How many years have you been working as a contractor in this city?” asks for a number or short factual response. Open questions invite broader explanations and are often useful when the examiner wants the respondent to provide a narrative. A leading question suggests the answer or assumes facts not yet established. A complex question combines multiple subjects or requires multiple answers. Anita’s question is simple, factual, and limited in scope, so it is best classified as closed. Closed questions can be useful in interviews when the examiner needs precise background details or confirmation of specific facts.

This question tests your knowledge of Domain 9.

In the context of Civil Actions, specifically relating to alternative dispute, the question asks about MOST ACCURATE, the different types of alternative dispute resolution ' .

The correct answer is C: The decisions reached in all arbitrations are always binding.

This question focuses on civil action processes. The correct answer accurately describes civil litigation procedures, evidence preservation, or remedies available to fraud victims. Civil recovery is often an important component of fraud resolution.

The most relevant factor is whether the social media page or profile is publicly available. Fraud examiners may generally search and extract information from a subject’s page if it is open to the public. However, privacy settings and privacy laws limit what information may be accessed. Examiners should avoid pretexting, password cracking, social engineering, or other unethical means to access restricted material. Platform ownership and the likelihood of finding incriminating evidence do not determine legality. The type of content might affect relevance, but legality turns primarily on whether the information was lawfully available to the public or obtained through proper legal process. Therefore, option B is the best answer.

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.

“When searching for an individual, the fraud examiner should obtain a past address of the subject, and search activities should begin with that information”.

Therefore, saying a past address is “of no help” is incorrect.

The Fraud Examiners Manual clarifies:

“The recommendations section is optional, and there might be instances where the fraud examiner wishes to discuss remedial measures or specific recommendations in a separate document”.

The Prep guide also states: “A written report might include a section for recommendations”.Thus, it is not required in every report.

This question tests your knowledge of Domain 11.

In the context of Testifying, specifically relating to expert witness, testimony, the question asks about examinations of expert witnesses in most inquisitorial jurisdictions is accurate.

The correct answer is B: Both the parties and the judge may question an expert ' s credibility..

This question relates to expert witness testimony. The correct answer accurately describes the role, qualifications, or techniques for effective expert testimony. Fraud examiners often serve as expert witnesses and must understand these principles. In adversarial systems, opposing parties present their cases before a neutral judge or jury, while in inquisitorial systems, judges take a more active role in investigating cases. Expert witnesses provide specialized knowledge to help the fact finder understand complex issues. Their testimony must be relevant, reliable, and based on sufficient facts or data.

According to the ACFE Fraud Examiners Manual, Law Section, specifically under Basic Principles of Evidence and Admissibility of Evidence , relevant evidence is defined as evidence having any tendency to make a fact that is of consequence to the determination of the action more or less probable than it would be without the evidence. This definition focuses on the logical relationship between the evidence and a disputed issue in the case.

Relevance is a foundational requirement for admissibility. If evidence does not bear on a material fact in dispute, it is generally inadmissible because it does not assist the trier of fact in resolving the matter. The threshold for relevance is relatively low; the evidence need only slightly increase or decrease the probability of a consequential fact.

Circumstantial evidence refers to indirect evidence that requires inference to connect it to a conclusion of fact, while testimonial evidence consists of statements made by a witness under oath. Demonstrative evidence includes physical objects, models, or visual aids used to illustrate testimony. Although these are types or forms of evidence, they are not definitions of the concept described in the question.

Therefore, the correct term for evidence that makes a disputed fact more or less likely is relevant evidence.

“Alibis generally can be diffused by displaying physical evidence… evidence should be displayed one piece at a time, in reverse order of importance”【16:2014 International Fraud Examiners Manual.pdf†L11-L14】.

The Prep Guide warns: “The proper technique is not to lay it all out at once” .

Thus, showing everything at once is the least effective.

“The interviewer generally should indicate his name and company, but he should avoid stating his title. In general, the more informal the interview, the more relaxed the respondent”.

Introducing oneself only by name and company (not title like CFE or auditor) avoids intimidation and builds cooperation.

A financial record showing that an asset has disappeared or has been diverted into an unknown account is a strong red flag of illicit transactions. Tracing illicit transactions focuses on identifying how funds or assets moved from their source to their final disposition, including whether assets were hidden, transferred, converted, or diverted. Option B suggests unexplained movement or concealment, which is directly relevant to asset tracing. Option A is not necessarily suspicious because low ATM activity might simply reflect normal banking habits. Option C is too vague because withdrawals for inconsistent amounts can occur for legitimate reasons. Option D is unclear and does not identify a recognized red flag unless the bearer instruments themselves are tied to concealment. Therefore, option B is the best answer.

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.