Fraud Prevention & Deterrence Flashcards

According to the ACFE, how does organizational size typically affect fraud losses?

Answer: Smaller organizations tend to suffer larger median losses relative to revenue

Smaller organizations tend to have weaker internal controls and thus suffer proportionally larger losses relative to their size, even though total dollar losses may be smaller.

Which fraud prevention measure specifically targets the 'pressure' element of the fraud triangle?

Answer: Employee assistance programs (EAPs)

Employee assistance programs address financial, personal, or addiction pressures that may drive employees to commit fraud, directly targeting the pressure element.

A vendor master file review is BEST described as which type of anti-fraud control?

Answer: Detective

Reviewing the vendor master file helps detect fictitious vendors, duplicate entries, or unauthorized changes that may indicate accounts payable fraud after the fact.

The 'diamond model' of fraud extends the fraud triangle by adding which fourth element?

Answer: Capability

David Wolfe and Dana Hermanson added 'capability'—the fraudster's skills, position, and ability to execute and conceal fraud—as a fourth element to the diamond model.

Which governance structure is MOST effective at overseeing fraud risk management?

Answer: An audit committee composed of independent directors

An independent audit committee provides objective oversight of fraud risk because its members are not part of management and have no operational conflicts of interest.

When fraud is discovered, what should an organization do FIRST before taking any further action?

Answer: Consult legal counsel and secure evidence

Consulting legal counsel and securing evidence ensures proper handling that preserves the organization's legal options and prevents inadvertent destruction of evidence.

Which of the following BEST describes a 'zero-tolerance' fraud policy?

Answer: No fraud, regardless of amount, is overlooked or handled informally

A zero-tolerance policy means every instance of fraud is formally investigated and sanctioned consistently, regardless of the dollar amount or the perpetrator's position.