Free ACFE CFE-Fraud-Prevention-and-Deterrence Practice Exam with Questions & Answers | Set: 7

The Treadway Commission emphasizes improving internal controls, which include strengthening the internal audit function. Providing adequate resources and authority to the internal audit function ensures that it operates independently and effectively, which is critical for preventing and detecting fraud. The internal audit function can evaluate financial reporting systems, detect irregularities, and provide valuable recommendations for improvement. This recommendation aligns with the goal of reducing fraud and ensuring reliable financial reporting.

​

====

Fraud risk can arise from both internal and external sources. Internal fraud risks involve employees, management, or others inside the organization abusing their access or authority. Embezzling customer payments, adding ghost employees to payroll, and reporting revenue in the wrong period are primarily internal risks because they usually require insider access to company funds, payroll systems, or accounting records. Collusion between contractors, however, is external because the misconduct is carried out by outside parties that do business with or affect the organization. Contractor collusion can include bid rigging, price fixing, market allocation, or coordinated efforts to manipulate procurement outcomes. Although employees might sometimes participate, the risk described in the answer choice is best classified as an external fraud risk. Therefore, option D is correct.

Proactive Fraud Auditing Procedures:

Analytical reviews are effective for identifying large or unusual trends and anomalies, not necessarily small frauds.

Other tools, such as detailed transaction testing, are better suited for uncovering small frauds.

Analysis of Other Options:

A. Element of surprise:A key feature of fraud audits.

C. Fraud assessment questioning:Valid as part of the audit process.

D. Management’s intentions:Proactive procedures signal a strong stance against fraud.

Conclusion:Option B is false because analytical reviews are better at detecting significant anomalies rather than small frauds.

CFEs must act ethically and responsibly when handling sensitive information. Eliece should inform Jewel that she will try to maintain confidentiality but must adhere to professional and ethical obligations, which may require disclosing the information to appropriate parties such as her employer or relevant authorities. This balanced response encourages transparency while maintaining ethical standards.

====

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.”

A comprehensive ethics program should have structure, ownership, communication, training, monitoring, and enforcement. The CFE Fraud Prevention and Deterrence material identifies several components of an effective ethics program, including a designated ethics official, an ethics task force or committee, ethics training, reporting mechanisms, ethical behavior rewards and sanctions, and periodic evaluation. Option A is therefore correct. Option B is too restrictive because ethics policies and related expectations often need to be communicated to relevant external stakeholders, such as vendors or agents. Option C is incorrect because the program should consider how key stakeholders define success and ethical conduct. Option D is also wrong because sanctions for unethical behavior should be clear and consistently applied. Therefore, option A reflects a best practice.

Comprehensive and Detailed in Depth Explanation:

The G20/OECD Principles emphasize the importance of full disclosure, including timely, accurate, and transparent mechanisms to maintain investor confidence and market integrity. While they support the equal treatment of shareholders, not members of the governing body (rejecting B), and call for corporate—not government—governance responsibilities (rejecting C). Protecting management’s rights (A) is not a governance principle focus.

Behaviorist Theories on Reinforcement:

Positive reinforcement is the most effective way to encourage desired behavior by providing rewards for compliance.

Analysis of Options:

B. Public criticism:May create resentment and decrease morale.

C. Loss of paid time off:A punitive measure that may not motivate improvement.

D. Demotion:Effective for extreme cases but harsh and potentially counterproductive for minor errors.

Conclusion:Offering a bonus for perfect reconciliation aligns with behaviorist principles of positive reinforcement.