CFE Fraud Risk Assessment 2 — Questions and Answers
Question 1: Which element of the Fraud Triangle refers to a perpetrator's ability to rationalize fraudulent behavior as acceptable?
- Pressure
- Opportunity
- Rationalization (Correct answer)
- Motivation
Correct answer: Rationalization
Rationalization is the cognitive process by which a fraudster justifies dishonest acts to themselves, completing the Fraud Triangle.
Question 2: During a fraud risk assessment, which approach involves analyzing data to identify anomalies that may indicate fraud?
- Qualitative risk ranking
- Data analytics (Correct answer)
- Walk-through testing
- Inherent risk mapping
Correct answer: Data analytics
Data analytics involves examining large volumes of transactional data to detect patterns, outliers, or anomalies that could signal fraudulent activity.
Question 3: A fraud risk assessment should be updated most frequently when which of the following occurs?
- Employee headcount increases by 5%
- A significant organizational change such as a merger occurs (Correct answer)
- The annual audit cycle begins
- A new CFE joins the compliance team
Correct answer: A significant organizational change such as a merger occurs
Material organizational changes such as mergers, acquisitions, or restructurings introduce new fraud risks that require the assessment to be revised promptly.
Question 4: Which fraud scheme would most likely be identified by reviewing split purchase orders?
- Payroll ghost employee scheme
- Bid rigging (Correct answer)
- Skimming
- Billing scheme using fictitious vendors
Correct answer: Bid rigging
Split purchase orders are a red flag for bid rigging or circumventing competitive bidding thresholds, allowing purchases to be made without proper approval.
Question 5: Which of the following best describes 'inherent risk' in the context of fraud risk assessment?
- The risk remaining after controls are applied
- The raw risk of fraud existing before any controls are considered (Correct answer)
- The risk that auditors will fail to detect fraud
- The risk introduced by weak internal audit functions
Correct answer: The raw risk of fraud existing before any controls are considered
Inherent risk is the level of fraud risk present in a process or account before considering the effect of any internal controls.
Question 6: Which technique involves walking through a process from beginning to end to identify potential fraud opportunities?
- Risk heat mapping
- Process walk-through (Correct answer)
- Benchmarking
- Fraud brainstorming
Correct answer: Process walk-through
A process walk-through traces a transaction from initiation to recording, helping assessors spot control gaps and fraud opportunities at each step.
Question 7: When prioritizing fraud risks, organizations typically plot likelihood against which other dimension?
- Detection speed
- Cost of investigation
- Potential impact or significance (Correct answer)
- Number of employees involved
Correct answer: Potential impact or significance
Risk matrices plot the likelihood of a fraud scheme occurring against its potential impact, allowing organizations to prioritize high-risk areas for control investment.
CFE Fraud Risk Assessment 2
Which element of the Fraud Triangle refers to a perpetrator's ability to rationalize fraudulent behavior as acceptable?