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

This scenario is an example of punishment. Punishment involves introducing a consequence (in this case, the loss of responsibility for cross-departmental projects) to discourage undesirable behavior. The manager uses this approach to address Devon’s negative attitude and to promote better cooperation with other departments in the future.

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ï‚· Treadway Commission Recommendations:

The National Commission on Fraudulent Financial Reporting (Treadway Commission) issued guidelines to strengthen financial reporting integrity and reduce fraud risks.

One key recommendation was to ensure that the audit committee is well-resourced and has sufficient authority to oversee financial reporting processes effectively.

ï‚· Audit Committee Role:

An adequately empowered audit committee improves oversight, supports the internal audit function, and ensures proper implementation of controls to prevent and detect fraud.

ï‚· Why D is Correct:

This recommendation directly addresses the reduction of fraud probability by enhancing oversight capabilities​​.

Understanding G20/OECD Principles of Corporate Governance:These principles provide a framework to improve corporate governance worldwide. Key elements include board responsibilities, shareholder rights, equitable treatment, and stakeholder roles.

Analysis of Options:

A. Guidance on board structures:This is included in the principles to ensure effective governance and oversight.

C. Framework for corporate governance:Governments are encouraged to create legal and regulatory frameworks supporting corporate governance.

D. Stakeholder importance:Stakeholders' roles in governance are recognized, acknowledging their contribution to sustainable business practices.

B. Stronger protection for foreign shareholders:The principles advocate for equitable treatment of all shareholders, not preferential treatment for any group.

Conclusion:Option B contradicts the principle of equitable treatment, making it the correct answer.

ï‚· Definition of Corporate Governance:

Corporate governance establishes the framework for decision-making and accountability within an organization. It includes roles, rights, and responsibilities of stakeholders such as the board, management, and shareholders.

ï‚· Why D is Correct:

The governance structure formalizes the distribution of roles and ensures clarity in accountability and oversight.

ï‚· Why Other Options are Incorrect:

A:Fraud risk management supports governance but is not its foundation.

B:Governance encompasses more than financial reporting accuracy.

C:Governance practices are essential even when owners are setting strategy​​.

Effect of Documenting Organizational Hierarchies:

Properly documenting hierarchies improves fraud prevention by clarifying responsibilities, ensuring accountability, and establishing clear information flow.

This reduces ambiguity and limits opportunities for fraud.

Why the Statement is False:

Documenting and communicating hierarchies strengthens fraud prevention, rather than hindering it.

Conclusion:The statement is false because clear hierarchies enhance fraud prevention initiatives.

ï‚· COSO Internal Control Framework Components:

The five components are:

Control Environment

Risk Assessment

Control Activities

Information and Communication

Monitoring Activities

ï‚· Why C is Correct:

Independent oversight, while important in governance, is not explicitly listed as one of the five COSO components. It may relate to broader governance structures but is not a core component of the internal control framework.

ï‚· References:

COSO Internal Control–Integrated Framework​​.

Responsibility for Anti-Fraud Program Effectiveness:

Management holds ultimate responsibility for designing, implementing, and maintaining an effective anti-fraud program.

Internal and external auditors, as well as compliance functions, provide oversight and recommendations but are not directly responsible for the program's effectiveness.

Conclusion:Management is ultimately accountable for ensuring the success of the anti-fraud program.

ï‚· CFE Ethical Responsibilities:

As per the ACFE Code of Professional Ethics, fraud examiners must ensure transparency in their professional conduct. They cannot promise confidentiality if the information must be disclosed to management or other authorities as part of the investigation.

ï‚· Why D is Correct:

Agreeing to confidentiality in this situation would breach ethical and legal obligations, especially if the information pertains to fraud or misconduct that the organization needs to address.

ï‚· Why Other Options are Incorrect:

A and B:Attempting to maintain confidentiality is misleading and unprofessional.

C:Taking the request directly to management without clarification could breach trust prematurely​​.