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

ISO 31000:2018 emphasizes that effective risk management must be integrated into all activities across the organization—not just high-risk ones.

“An effective and efficient risk management program... is integrated into all organizational activities, is structured and comprehensive, and is customized and proportionate to the organization’s operations and objectives.”

Fraud Risk Management Program Requirements:

Effective fraud risk management programs ensure transparency, consistency, and fairness.

Sanctions for noncompliance should be transparent and communicated to demonstrate a commitment to accountability.

Analysis of Options:

A. Mechanisms for breaches:Necessary to address compliance issues.

B. Consistent and firm punishment:Ensures a deterrent effect.

D. Designated compliance monitors:Vital for program enforcement.

C. Enacted privately:This is false because transparency is essential to maintain trust and deter similar actions.

Conclusion:Option C is false as formal sanctions should be communicated appropriately to promote deterrence and accountability.

ACFE research highlights that an unwillingness to share duties is one of the most common red flags exhibited by fraud perpetrators. This behavior often indicates a desire to conceal fraudulent activities.Most fraudsters do not have prior convictions, and frauds committed by executives tend to cause higher losses compared to those committed by staff-level employees.

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 Corruption and Fraud Risks:

Corruption involves abuse of power for personal or organizational gain and includes bribery, kickbacks, and aiding vendor fraud.

 Why B is Correct:

Espionage by competitors is not typically classified as corruption, as it does not directly involve abuse of internal authority or a relationship of trust. It is instead an external threat.

 Other Options:

A, C, and D are classical examples of corruption-related fraud risks​​.

The “Review and Revision” component is focused on evaluating how ERM practices contribute to organizational value and adapting them accordingly.

“As part of its ERM activities, the organization should review how well the ERM capabilities and practices have increased value over time and how they will continue to drive value.”

Effect of Documenting Organizational Hierarchies:

Properly documenting hierarchies improves fraud prevention by clarifying responsibilities, ensuring accountability, and establishing clear information flow.

This reduces ambiguity and limits opportunities for fraud.

Why the Statement is False:

Documenting and communicating hierarchies strengthens fraud prevention, rather than hindering it.

Conclusion:The statement is false because clear hierarchies enhance fraud prevention initiatives.

Fraud Response Responsibilities:

Management is responsible for responding to fraud because they oversee the organization's operations, culture, and compliance frameworks.

Other parties, such as internal auditors and the audit committee, provide oversight and recommendations but do not directly implement responses.

Conclusion:Management has the ultimate responsibility for responding appropriately to fraud.

COSO Definition of Internal Control:

COSO defines internal control as a process executed by an entity’s board, management, and personnel to provide reasonable assurance about achieving objectives in operations, reporting, and compliance.

Analysis of Options:

A. Corporate compliance:Corporate compliance focuses on adhering to laws and regulations, not the broader operational objectives.

B. Fraud risk management:This is a component of internal control, not its definition.

C. Risk assessment:This is a step within the internal control process but not the overarching process.

D. Internal control:Matches the COSO definition accurately.

Conclusion:Internal control is the correct answer as defined by COSO.

 Research Findings by Silk and Vogel:

Their research highlights that business leaders often justify non-compliance with regulations by arguing that adhering to such rules significantly increases operational costs and reduces profitability.

 Rationalization in Legal Violations:

This rationalization is consistent with the fraud triangle concept, where rationalization serves as a justification for unethical or illegal actions.

 Why A is Correct:

This accurately represents a common justification for regulatory non-compliance as documented in fraud and compliance research​​.

Modern Criminological Studies on White-Collar Crime:Studies highlight that white-collar crimes are often influenced by situational factors rather than inherent criminal traits. The availability of organizational opportunities to commit fraud plays a crucial role.

Analysis of Options:

A. Cultural ties:Less significant in white-collar crime.

B. Criminal history:White-collar criminals often have no prior criminal records.

D. Social class:While white-collar crime is associated with higher social classes, the determinant factor is the opportunity presented within an organization.

C. Organizational opportunity:This aligns with the fraud triangle concept, where opportunity is a primary driver.

Conclusion:Organizational opportunity is the determinant aspect of white-collar crime.