Certified Fraud Examiner Practice 2025 - Free Practice Questions and Study Guide

The indirect method is typically used to identify fraud through circumstantial evidence. This approach does not rely on direct proof of wrongdoing but instead infers illicit activity based on the patterns and anomalies observed in financial data or behaviors. For example, significant discrepancies in financial records, unusual behavior by an employee, or inconsistencies in accounting practices may be considered as circumstantial evidence suggesting that fraudulent activity might be occurring.

The indirect method includes techniques such as ratio analysis and trend analysis, which can highlight areas of concern that warrant further investigation. This method leverages the concept of logical deduction, where the circumstantial evidence points toward the possibility of fraud without providing definitive proof. By assembling a series of indicators that suggest fraudulent behavior, investigators can build a case for further inquiry.

In contrast, the direct method involves the presentation of direct evidence of fraud, such as eyewitness accounts or confessions, which clearly establishes the occurrence of fraudulent behavior without needing inference.