Free Practice Questions for ACFE CFE-Fraud-Prevention-and-Deterrence Exam

Hierarchy of Ethical Guidance Sources:

A. Contract law:Provides legal guidance on business agreements.

C. ACFE Code of Professional Ethics:Offers specific ethical standards for fraud examiners.

D. Philosophical principles:Offer foundational guidance on ethics.

B. Family and friends:While valuable for personal advice, they are the lowest reference point in determining professional ethics.

Conclusion:Guidance from family and friends is the lowest level of reference for determining ethical actions.

Reinforcing an Anti-Fraud Culture:A strong ethical tone at the top is crucial to reducing fraud risk. Employees must feel empowered to report concerns without fear of retaliation.

Analysis of Options:

A. Using a checklist:While useful, it is not sufficient alone to instill an anti-fraud culture.

C. Separate ethics policies:A unified ethical standard for all employees fosters trust and consistency.

B. Safe environment for challenges:This is the most effective method as it promotes transparency, accountability, and whistleblowing.

Conclusion:Creating a safe and open environment for employees to challenge management's decisions is the most impactful action.

 Definition of Organizational Crime:

Organizational crime refers to illegal actions committed by a corporation or individuals acting on behalf of the organization to benefit the corporation or its leaders.

Examples include antitrust violations, environmental crimes, and fraudulent financial reporting.

 Why B is Correct:

A price-fixing scheme involves collusion among companies to manipulate prices, a clear example of organizational crime designed to benefit the involved corporations.

 Why Other Options are Incorrect:

Options A, C, and D represent individual crimes for personal gain, not organizational crimes​​.

 Professional Auditing Standards:

Standards such as ISA and GAAS emphasize the need for "unpredictability" in audit procedures to prevent fraudulent actors from anticipating audit actions.

 Why B is Correct:

Predictability undermines the effectiveness of audits by allowing individuals to manipulate activities in areas repeatedly tested in the same way.

 References:

ISA standards on fraud risk highlight the importance of incorporating unpredictability in audit approaches​​.

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.

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The G20/OECD Principles include:

“Guidance regarding board responsibilities, including establishing appropriate board structures, assigning clear responsibilities, and ensuring board accountability.”

 Auditor's Responsibility Under ISA Standards:

ISA 265 requires auditors to communicate significant deficiencies in internal control to those charged with governance in writing.

This ensures proper corrective actions are taken and maintains transparency in the audit process.

 Why B is Correct:

Written communication to governance authorities is the appropriate course of action to address control deficiencies without breaching confidentiality or overstepping regulatory boundaries.

 References:

ISA 265, “Communicating Deficiencies in Internal Control,” supports this approach​​.