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ACFE CFE-Fraud-Investigations-and-Legal-Issues Exam - Topic 4 Question 6 Discussion

In which of the following scenarios would the expenditures method be the MOST APPROPRIATE method of establishing a subject's sources of income using circumstantial proof?
C) The subject spends illicit income on consumables, such as travel and entertainment, that would not cause an increase in net worth.
A) It is suspected that the subject might not be able to legitimately afford the vacation home they just purchased.
B) It is suspected that the subject has accumulated wealth and acquired assets or paid down debts with illicit proceeds.
D) The subject's identified expenses are much lower than their reported sources of legitimate income.

ACFE CFE-Fraud-Investigations-and-Legal-Issues Exam - Topic 4 Question 6 Discussion

Actual exam question for ACFE's CFE-Fraud-Investigations-and-Legal-Issues exam
Question #: 6
Topic #: 4
[All CFE-Fraud-Investigations-and-Legal-Issues Questions]

In which of the following scenarios would the expenditures method be the MOST APPROPRIATE method of establishing a subject's sources of income using circumstantial proof?

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Suggested Answer: C

The expenditures method is most appropriate when the subject spends illicit income on consumables that do not create lasting assets or increase net worth. Examples include travel, entertainment, food, lodging, clothing, and other lifestyle expenses. If the fraud examiner used the net-worth or asset method, those expenses might not appear as asset increases because the money has already been consumed. The expenditures method focuses on whether the subject's spending exceeds known legitimate sources of income. Option A points more toward lifestyle or net-worth concerns. Option B suggests the asset method because assets were acquired or debts were paid down. Option D is not the correct situation. Therefore, when illicit funds are spent on consumables, option C is correct.


by Barrie at Jun 26, 2026, 06:28 PM

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Milly
4 days ago
But what about A? It raises questions about affordability.
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Alease
9 days ago
I agree, D highlights the income gap.
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Gennie
15 days ago
It shows a clear discrepancy.
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Nana
20 days ago
Why D?
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Gennie
25 days ago
I think option D is the best choice.
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Rosalind
1 month ago
I’m not convinced this method is reliable for all scenarios.
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Ty
1 month ago
Wait, how does that even work for option D?
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Eladia
1 month ago
Totally agree, especially with option C!
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Rose
2 months ago
Really? I thought income sources were more important.
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Gaynell
2 months ago
Expenditures method is great for tracking spending habits.
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Tamesha
2 months ago
I practiced a similar question where the expenditures method was highlighted for cases of hidden income, so I lean towards option B, but I’m not completely confident.
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Jamal
2 months ago
I feel like option A could also be a good fit because if someone buys a vacation home, we might need to look at their spending to see if it makes sense with their income.
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Shelton
2 months ago
I'm not entirely sure, but I remember something about using expenditures when there's a big discrepancy between income and spending, which might relate to option D.
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Rusty
2 months ago
I think the expenditures method is best for option C since it focuses on how the subject spends their money rather than just what they claim to earn.
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