Pass the ACFE Certified Fraud Examiner CFE-Fraud-Prevention-and-Deterrence Questions and answers with CertsForce

 Diane Vaughan ' s Theory on Organizational Crime:

Vaughan argued that organizational environments prone to crime exhibit a " normalization of deviance, " often influenced by management decisions that misalign employee incentives with organizational objectives.

 Why C is Correct:

Misaligned goals create conflicting priorities, increasing the likelihood of unethical behavior to meet individual or team objectives.

 Why Other Options are Incorrect:

A:Challenging the status quo promotes innovation and ethical accountability.

B:Social functions fostering loyalty do not inherently encourage crime​​.

Impact of Specialized Departments on Fraud Risk:While specialization improves operational efficiency, it can also create silos, reducing oversight and coordination. This fragmentation may increase the overall fraud risk.

Key Considerations:

Fraud often occurs in areas where controls and communication are weak. Specialized departments may inadvertently facilitate fraud by isolating information.

Cross-departmental collaboration and centralized controls are essential to mitigate these risks.

Conclusion:The existence of many specialized departments increases the risk of fraud if not properly managed.

The ACFE manual states:

“Employees should be trained to recognize and report signs such as unexplained lifestyle changes or behavioral red flags, and they should be informed that management will be watching for such indicators.”

ISA 240 and Auditors ' Responsibilities:

ISA 240 clarifies that the responsibility for establishing and maintaining internal controls rests with the organization ' s management, not the auditors.

Auditors are responsible for evaluating the adequacy of internal controls and assessing fraud risks during an audit.

Why B is Correct:

Management is accountable for designing anti-fraud controls, while auditors provide oversight and recommendations based on their assessments.

Management is ultimately responsible for ensuring the effectiveness of the organization’s anti-fraudprogram. They set the tone at the top, establish internal controls, and ensure that the necessary resources and oversight mechanisms are in place to prevent and detect fraud. Other stakeholders, such as auditors and compliance officers, provide support but do not bear ultimate responsibility.

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 Professional Auditing Standards Requirement:

Standards such as the International Standards on Auditing (ISA) and Generally Accepted Auditing Standards (GAAS) require auditors to include elements of unpredictability in their audit procedures to reduce the risk of fraud.

 Purpose of Unpredictability:

By varying the scope, timing, and extent of audits, auditors prevent potential fraudsters from anticipating audit procedures and adjusting their behavior.

 Why A is Correct:

This aligns with established auditing principles to enhance fraud detection and maintain audit integrity​​.

According to the ACFE Manual, in public-sector audits conducted under INTOSAI standards, “government auditors might not have the same level of discretion as private auditors to withdraw from engagements when fraud is detected.” INTOSAI standards focus more on reporting and public transparency rather than withdrawal.

The Fraud Risk Management chapter summarizes the components of COSO ERM 2017 and explains that review and revision concerns how well ERM capabilities and practices have increased value over time and how they will continue to drive value for the organization. The manual quotes this concept directly when discussing review and revision. This component is concerned with assessing substantial changes, reviewing risk and performance, and improving ERM practices as circumstances evolve. It is therefore the part of the framework most closely associated with continual reassessment and enhancement over time. Governance and culture, by contrast, address tone, oversight, and ethical values, while strategy and objective-setting concern alignment with mission and performance goals. Thus, option B is the correct answer according to the manual’s presentation of COSO ERM.

 Internal Auditors ' Role in Fraud Risk Management:

Internal auditors evaluate management’s commitment to overseeing and addressing fraud risks as part of their assurance role.

 Why A is Correct:

Oversight of fraud risk management is a management responsibility, and internal auditors assess whether this responsibility is effectively retained and executed.

 Why Other Options are Incorrect:

B:Reporting to regulators is not a core responsibility of internal auditors.

C:Internal auditors provide evaluation, not direct oversight.

D:Attesting financial statement accuracy is the responsibility of external auditors, not internal auditors​​.