CFE Fraud Prevention Programs 2 — Questions and Answers
Question 1: Which element is most critical when establishing a tone at the top for fraud prevention?
- Senior management visibly modeling ethical behavior (Correct answer)
- Posting the code of conduct in break rooms
- Hiring an external ethics officer
- Conducting annual fraud training webinars
Correct answer: Senior management visibly modeling ethical behavior
Tone at the top requires senior leaders to demonstrably model the ethical conduct they expect, as employees take behavioral cues from leadership.
Question 2: A hotline caller reports suspicion that a manager is falsifying expense reports. What should the organization do FIRST?
- Terminate the manager immediately pending investigation
- Conduct a preliminary assessment to determine if further investigation is warranted (Correct answer)
- Notify law enforcement before any internal review
- Disclose the allegation publicly to deter future fraud
Correct answer: Conduct a preliminary assessment to determine if further investigation is warranted
A preliminary assessment determines whether the allegation has sufficient merit to warrant a full investigation before taking action.
Question 3: What is the primary goal of job rotation policies in fraud prevention?
- To cross-train employees for operational flexibility
- To reduce employee burnout from repetitive tasks
- To limit the opportunity for any single employee to conceal fraudulent activity (Correct answer)
- To comply with labor union requirements
Correct answer: To limit the opportunity for any single employee to conceal fraudulent activity
Job rotation disrupts long-standing collusion opportunities and makes it harder for employees to perpetuate concealed fraud schemes over time.
Question 4: According to the ACFE, approximately what percentage of occupational frauds are detected by tips?
- About 20%
- About 33%
- About 43% (Correct answer)
- About 60%
Correct answer: About 43%
ACFE research consistently shows tips are the most common fraud detection method, accounting for roughly 43% of detected cases.
Question 5: Which type of control is MOST effective at preventing procurement fraud before it occurs?
- Post-payment audits of vendor invoices
- Mandatory dual approval for purchase orders above a set threshold (Correct answer)
- Monthly bank reconciliations
- Surprise inventory counts
Correct answer: Mandatory dual approval for purchase orders above a set threshold
Requiring dual authorization for purchases above a threshold is a preventive control that stops unauthorized transactions before payment is made.
Question 6: An organization discovers that its anti-fraud controls failed to prevent a $500,000 embezzlement. Which step best improves the control environment going forward?
- Prosecute the perpetrator to signal zero tolerance
- Conduct a root-cause analysis to identify control gaps and remediate them (Correct answer)
- Increase the external audit frequency
- Publish the fraud case details company-wide
Correct answer: Conduct a root-cause analysis to identify control gaps and remediate them
Root-cause analysis identifies the specific control weaknesses that allowed the fraud, enabling targeted remediation to prevent recurrence.
Question 7: What does a 'clawback' provision in executive compensation primarily aim to achieve in fraud prevention?
- Recovering bonuses paid based on fraudulent financial results (Correct answer)
- Limiting total executive pay to industry benchmarks
- Requiring executives to invest their bonuses in company stock
- Ensuring executives receive deferred compensation
Correct answer: Recovering bonuses paid based on fraudulent financial results
Clawback provisions allow organizations to reclaim compensation paid to executives whose bonuses were tied to financial results later found to be fraudulent.
CFE Fraud Prevention Programs 2
Which element is most critical when establishing a tone at the top for fraud prevention?