CFE-Fraud-Prevention-and-Deterrence Exam Dumps - ACFE Certified Fraud Examiner Questions and Answers

 Definition of Corporate Governance:

Corporate governance establishes the framework for decision-making and accountability within an organization. It includes roles, rights, and responsibilities of stakeholders such as the board, management, and shareholders.

 Why D is Correct:

The governance structure formalizes the distribution of roles and ensures clarity in accountability and oversight.

 Why Other Options are Incorrect:

A: Fraud risk management supports governance but is not its foundation.

B: Governance encompasses more than financial reporting accuracy.

C: Governance practices are essential even when owners are setting strategy​​.

Objectives of a Fraud Risk Management Program:

A. Proactively identifying fraud risks: A fundamental goal is to identify and assess potential fraud risks to implement preventative measures.

B. Limiting the damage caused by fraud occurrences: Programs should have mechanisms in place to detect and respond to fraud promptly to minimize harm.

C. Punishing fraud perpetrators: Punishment serves as both a deterrent and a means of reinforcing the organization's commitment to ethical behavior.

Comprehensive Objective Coverage:

Effective fraud risk management includes preventative, detective, and corrective measures.

Conclusion:All the listed objectives are essential components of a fraud risk management program.

References:ACFE guidelines on designing and implementing fraud risk management programs​​.

G20/OECD Principles Overview:

The G20/OECD Principles of Corporate Governance are international guidelines aimed at enhancing economic efficiency and promoting stable financial systems.

Equitable Treatment of Shareholders:

The principles stress fairness and the protection of all shareholders' rights, particularly minority shareholders, ensuring they are treated equally.

Why D is Correct:

Equitable treatment is a fundamental tenet of the Principles, which strive to maintain trust and integrity in governance practices across jurisdictions​​.

References for All Questions:

ACFE Fraud Examination Standards​​.

ISA Standards and International Corporate Governance Best Practices​​.

G20/OECD Principles of Corporate Governance​.

Purpose of Fraud Risk Assessment:

The goal is to identify vulnerabilities to fraud and implement preventive measures, not to wait for conclusive evidence of fraud before designating high-risk areas.

Proactive Identification:

High-risk areas are identified based on susceptibility to fraud (e.g., lack of controls, high cash transactions), even if no fraud has been detected. This approach allows organizations to act preemptively.

Improving Fraud Awareness:

Employee education and behavior monitoring are integral components of the assessment process to reduce fraud risks.

Incorrect Assumption in D:

Waiting for conclusive evidence contradicts the proactive nature of fraud risk assessment and undermines its preventative function​​.

References for All Questions:

ACFE Code of Professional Ethics​​.

Auditor Essentials on fraud prevention and deterrence principles​.

COSO and risk assessment frameworks in internal controls​​.

 Responsibilities of the Board of Directors:

The board is primarily responsible for oversight, governance, and ensuring the organization operates in the best interest of stakeholders. Key responsibilities include:

Acting as intermediaries between shareholders and management.

Safeguarding resources and assets.

Assessing management’s strategies and decisions.

 Why C is Correct:

Directing employees is a management responsibility, not a board function. The board focuses on oversight rather than operational execution.

 References:

ACFE governance principles emphasize the separation of oversight and operational roles​​.

Due Diligence for Large Orders on Credit:

Before extending credit, it is critical to assess the financial stability of the new customer to mitigate credit risk.

Examining net worth provides a direct measure of ABC’s ability to fulfill financial obligations.

Analysis of Other Options:

A. Corruption risk countries: Due diligence should be applied universally, not selectively.

B. No verification needed: Verification is essential, especially for new customers.

D. Same due diligence for all customers: While consistency is important, the level of due diligence may vary based on transaction specifics.

Conclusion:Examining ABC's net worth is a necessary step in the due diligence process.

References:ACFE guidelines on credit risk assessment and due diligence​​.

Rational choice theory posits that crime is a deliberate and rational decision made by individuals who weigh the costs and benefits of their actions. Perpetrators commit crimes when they believe the potential benefits outweigh the risks. This theory also supports deterrence measures that increase the perceived risks or reduce the benefits of committing crimes, thereby discouraging rational actors from engaging in fraudulent behavior.

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Internal Audit Reporting Responsibilities:

Internal audit must maintain open communication with senior management and the board to ensure appropriate handling of fraud-related issues.

Establishing reporting protocols in advance ensures timely and consistent responses when fraud occurs.

Analysis of Other Options:

B. Periodic reporting is optional: Reporting fraud risks is a required responsibility.

C. Non-disclosure: Fails to fulfill the role of internal audit in governance and accountability.

D. No communication with the board: Misrepresents the internal audit's role in fraud oversight.

Conclusion:Discussing reporting protocols proactively with senior management and the board is the correct approach.

References:ACFE guidelines and internal audit reporting standards​​.

 Responsibility of Auditors:

Under International Standards on Auditing (ISA) 240, auditors are required to investigate any indications of fraud, regardless of the materiality of the misstatement.

Evidence of intentional misstatements indicates the potential for broader fraudulent activity, necessitating a reassessment of audit procedures.

 Importance of Fraud Indicators:

Even if the misstatement does not exceed the materiality threshold, it represents a significant risk factor that could compromise the reliability of the financial statements.

 Why B is Correct:

Adjusting audit procedures ensures that the audit team addresses the broader implications of the fraud risk while maintaining professional skepticism and compliance with auditing standards​​.

Three General Approaches to Controlling Corporate Crime:

Government Intervention: Strong regulations and enforcement to ensure accountability.

Voluntary Corporate Changes: Encouraging ethical practices through organizational policies.

Consumer Action: Pressure from consumers demanding corporate responsibility.

Why D is Incorrect:

Media blacklisting is not a formal or systematic approach to controlling corporate crime. It is a consequence rather than a preventive or corrective measure.

References:

ACFE and corporate governance frameworks emphasize formal mechanisms like government intervention and organizational self-regulation​​.