ACFE CFE-Fraud-Prevention-and-Deterrence - Certified Fraud Examiner - Fraud Prevention and Deterrence Exam

The ACFE manual notes that codes of conduct not only serve as a reference for guiding behavior but also enable enforcement and internal discipline within a profession.

“A code of ethical conduct serves as a reference and benchmark for ethical guidance… [and] facilitates practical enforcement and internal discipline throughout a profession.”

ï‚· Purpose of Fraud Risk Assessment:

Fraud risk assessment aims to identify vulnerabilities and evaluate the organization's exposure to fraud risks. It does not specifically provide an estimate of fraud losses.

ï‚· Why D is Correct:

Estimating fraud losses is not a standard objective of fraud risk assessments; rather, they focus on identifying and mitigating risks.

ï‚· Why Other Options are Correct:

A: Employee behavior is a critical factor in fraud risk.

B: Fraud awareness is a key outcome of the assessment.

C: High-risk designations indicate vulnerability, not confirmed fraud​​.

ï‚· Fraud Prevention Methods:

Prevention strategies often focus on education, awareness, and robust controls rather than covert methods. While covert audits can detect fraud, they are not primarily preventive.

ï‚· Why D is False:

Covert audits are reactive and focused on identifying existing fraud, not preventing it.

ï‚· Why Other Options are True:

A, B, and C accurately describe key aspects of fraud prevention, such as the importance of perception of detection and the challenges of detecting fraud​​.

Routine activities theory identifies three main elements necessary for crime: a motivated offender, a suitable target, and the absence of capable guardians. The lack of accountability for misdeeds is not part of this theory, as it focuses on situational factors that facilitate criminal opportunities rather than broader social or institutional factors.

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ï‚· ACFE Code of Professional Ethics:

The ACFE Code of Ethics prohibits fraud examiners from making absolute statements about the absence of fraud. Fraud cannot be definitively ruled out based on an examination's findings.

ï‚· Why B is Correct:

Stevens cannot state that the organization is "free of fraud," as fraud detection is inherently limited by the scope and methods of the examination. Such a statement could mislead stakeholders and compromise ethical standards​​.

Impact of Specialized Departments on Fraud Risk:While specialization improves operational efficiency, it can also create silos, reducing oversight and coordination. This fragmentation may increase the overall fraud risk.

Key Considerations:

Fraud often occurs in areas where controls and communication are weak. Specialized departments may inadvertently facilitate fraud by isolating information.

Cross-departmental collaboration and centralized controls are essential to mitigate these risks.

Conclusion:The existence of many specialized departments increases the risk of fraud if not properly managed.

Impact of Reporting to Law Enforcement:

Reporting fraud incidents to law enforcement demonstrates a zero-tolerance approach, acting as a deterrent to potential fraudsters.

It also ensures that perpetrators face legal consequences, discouraging others from engaging in fraudulent activities.

Prevention Mechanism:

The public nature of such actions signals organizational commitment to ethics and integrity, enhancing its reputation and strengthening internal controls.

Supporting References:

ACFE guidelines advocate for reporting fraud to appropriate authorities as part of an effective fraud prevention strategy​​.

According to the ACFE Manual, in public-sector audits conducted under INTOSAI standards, “government auditors might not have the same level of discretion as private auditors to withdraw from engagements when fraud is detected.” INTOSAI standards focus more on reporting and public transparency rather than withdrawal.