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

According to ISA 240, the auditor is required to communicate identified fraud involving management to those charged with governance.

“When fraud involving senior management is identified or suspected, the auditor shall communicate these findings directly to those charged with governance.”

 Due Diligence in High-Corruption Risk Transactions:

When operating in high-risk environments, enhanced due diligence is critical. This includes evaluating payment methods, transaction patterns, and the customer ' s reputation.

 Why A is Correct:

Analyzing purchasing patterns and payment methods helps identify red flags such as unusual payment terms or volumes inconsistent with Green’s business profile.

 Why Other Options are Incorrect:

B: Due diligence is necessary regardless of payment terms.

C: Enhanced due diligence for high-risk countries does not constitute discrimination.

D: Ignoring due diligence poses significant compliance and reputational risks.

 References:

ACFE guidance on due diligence and anti-corruption practices in global commerce​​.

Simple organizational structures often suffer from lack of segregation of duties and fewer levels of oversight. According to the ACFE Manual:

“A simple or poorly designed structure can inhibit accountability and effective oversight. Lack of defined roles and responsibilities can increase the likelihood that fraud will go undetected.”

Comprehensive and Detailed in Depth Explanation:

A key element of vendor due diligence is ensuring that third-party vendors have robust ethics and compliance programs. This helps align values, mitigate fraud risks, and establish clear expectations. While audits and questionnaires are good practices, they are not always mandatory or feasible before engagement. Moreover, transparency in seeking vendor information (unlike in A) is a norm in legitimate vetting practices.

The Fraud Prevention Programs chapter states that management’s handling of known fraud incidents is an important part of the organization’s anti-fraud program. The manual explains that a company must make clear it has zero tolerance for fraud and that failing to punish perpetrators consistently makes the fraud prevention program less effective, if not useless. It further notes that having a public record of the incident can be important and specifically says that reporting known incidents of fraud to law enforcement can be an effective step in making the organization’s zero-tolerance stance clear. This approach reinforces deterrence, demonstrates seriousness, and supports consistent consequences. Therefore, among the listed choices, reporting known incidents of fraud to law enforcement is the most effective response.

Behavioral Studies by B.F. Skinner:

Punishment may temporarily suppress undesired behavior but does not address the root cause or provide alternative positive behaviors.

Once punishment ceases, the behavior often resurfaces.

Analysis of Options:

A. Increase in behavior:This contradicts findings; punishment reduces behavior temporarily.

B. No effect:Punishment does affect behavior but typically in the short term.

D. Permanent suppression:Rarely achieved without reinforcement of alternative behaviors.

Conclusion:Punishment results in temporary suppression of undesired behavior.

Responsibilities of an External Auditor:

When significant internal control deficiencies are discovered, the auditor is required to report them to senior management and, where appropriate, the audit committee.

The purpose is to ensure that the organization is informed of the risks and can take corrective actions.

Analysis of Other Options:

A. Suspend the audit:Not required under auditing standards.

B. Report to law enforcement:Only if fraud or illegal activities are confirmed, which is not implied here.

D. Correct deficiencies independently:This is beyond the auditor ' s scope of responsibilities.

Conclusion:The correct response is to provide a written communication about the findings to senior management.

Analysis of Each Option:

A. Green ' s conduct:Including unrelated deficiencies violates the principle of relevance and focus in reporting. It may lead to confusion or breach professional diligence.

B. Stephanie ' s conduct:Delegating tasks without oversight or review violates the ACFE Code ' s requirement for due diligence.

C. Susan ' s conduct:Failing to seek client authorization before disclosing records (even under a court order) breaches confidentiality provisions unless explicitly required by law.

Key Ethical Considerations:

CFEs must adhere to principles of confidentiality, diligence, and focus in their work.

Failing to follow these standards compromises the integrity and credibility of their practice.

Conclusion:All the described scenarios involve violations of the ACFE Code of Professional Ethics.

Tips have consistently been the leading method for detecting occupational fraud, as confirmed by ACFE research:

“Figure 9 shows that the leading detection methods are tips, internal audit, and management review. This finding is not surprising as these have been the three most common means of detecting occupational fraud in every edition of the report since 2010.”