Dmitri confesses his terrible secret, which is that the money is actually the money he stole from Katerina. (This makes sense if you've been keeping track of the fact that none of the characters can ever specifically state how much money Dmitri throws around.)
On his first spree with Grushenka a month ago, he had only spent 1,500 roubles, not 3,000, as legend had it. He had saved the other half of the money, sewn up in a bit of cloth and hung like an "amulet" around his neck before he had left for Mokroye, thinking he might need money to marry Grushenka if she accepted him.
The prosecutor and the district attorney are skeptical. They ask him where the cloth is, and Dmitri doesn't know exactly – he just remembers tearing it up in the town square. They ask him where he got the cloth, and he guesses that he might have stolen his landlady's bonnet.
By this point, Dmitri realizes that he is lost. After a short break, they decide to proceed to interrogate the witnesses.