CFE Question of the Day: Statute of Limitations and Concealment

Quiz Yazan Ibrahim
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CFE exam practice question — CFE Question of the Day: Statute of Limitations and Concealment

CFE exam practice question: daily practice for the Certified Fraud Examiner (CFE) exam — domain: Law.

Question

An internal investigator uncovers credible evidence that a former accounting manager secretly altered records to embezzle funds six years ago. The state's criminal fraud statute has a five-year limitations period. Under widely accepted legal principles regarding concealed fraud, when does the statute of limitations typically begin to run?

  • A. When the victim discovered the fraud or reasonably should have discovered it using due diligence (discovery rule/tolling for concealment).
  • B. On the date the deceptive act was completed, regardless of later discovery.
  • C. When the external auditor issued its report for the year in which the fraud occurred.
  • D. When the company first reported the loss to its insurance carrier.
Show the answer and explanation

Correct answer: A. When the victim discovered the fraud or reasonably should have discovered it using due diligence (discovery rule/tolling for concealment).

The best answer is the discovery rule: where a wrongdoer actively conceals misconduct, many courts toll the statute of limitations until the injury is discovered or would have been discovered with reasonable diligence. This prevents defendants from benefiting from concealment. Option two is incorrect because using the act date as the fixed start ignores concealment and is often not applied in fraud cases. Option three is wrong because an auditor's report timing does not control statutory tolling. Option four is incorrect because reporting to an insurer is a business decision and does not generally determine when the criminal statute begins to run.

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