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

ï‚· Components of COSO Enterprise Risk Management (ERM):

The COSO ERM framework emphasizes the integration of risk management with strategy and performance, comprising the following components:

Governance and culture.

Strategy and objective-setting.

Performance.

Review and revision.

Information, communication, and reporting.

ï‚· Why D is Correct:

Governance and culture set the foundation for an organization’s risk management practices by establishing oversight, ethical values, and the operating structure.

ï‚· Why Other Options are Incorrect:

A (Independent monitoring): Monitoring is part of internal control, not specifically ERM.

B (Operating environment): Not a COSO ERM component.

C (Risk tolerance): A concept within ERM but not a standalone component​​.

ï‚· Fraud Risk Reduction Objectives:

Inherent fraud risk: The risk present before any controls are applied.

Residual fraud risk: The remaining risk after controls have been implemented.

ï‚· Why D is Correct:

The goal of anti-fraud controls is to minimize residual risk to acceptable levels, recognizing that complete elimination of risk is unattainable.

ï‚· Why Other Options are Incorrect:

A and C: It is impractical to completely eliminate inherent or residual fraud risks.

B: Residual risk should be lower than inherent risk, but controls aim for significant reduction​

ACFE Code of Professional Ethics Overview:

The Code explicitly prohibits unethical behavior, undisclosed conflicts of interest, and illegal activities. However, drawing evidence-based conclusions is encouraged as part of professional practice.

Why B is Correct:

Drawing conclusions based on evidence is central to the fraud examination process and is explicitly supported by ACFE standards.

Why Other Options are Prohibited:

A, C, and D: Engaging in unethical, conflicting, or illegal activities violates ACFE ethical guidelines​​.

References for All Questions:

ACFE Fraud Examination Guide and Code of Professional Ethics​​.

Best practices for fraud risk assessment and reporting​​.

Reporting standards and ethics in fraud examination​​.

Integrity in Fraud Examination:

Integrity involves critical thinking, independence, and prioritizing ethical principles over personal gain. Healthy debate and differences of opinion are integral to maintaining objectivity.

Why Option D is Incorrect:

Avoiding differences of opinion contradicts the need for professional skepticism and robust analysis in fraud examination.

Conclusion:Integrity does not require the avoidance of differences of opinion, making D the correct answer.

References:ACFE Code of Professional Ethics and fraud examination standards​​.

Findings from the 2020 Report to the Nations:

A. Complaints about management: Not the most common red flag; lifestyle changes, such as living beyond means, are more common.

B. Gender of fraudsters: The report consistently shows that men commit more occupational frauds than women.

C. Median losses by executives vs. staff: Losses caused by executives are significantly higher.

D. Past offenses: Most fraudsters do not have a prior fraud-related disciplinary history.

Conclusion:Option B aligns with the findings of the 2020 Report to the Nations.

References:2020 ACFE Report to the Nations​​.

International Standards on Auditing (ISAs) Requirements:

ISAs require auditors to communicate suspected or confirmed fraud to "those charged with governance" of the organization, as they have the responsibility for oversight.

ISA 240, “The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements,” mandates that findings be reported to appropriate governance bodies before considering further actions.

Confidentiality and Legal Obligations:

Auditors must maintain confidentiality unless legal or regulatory frameworks require disclosure to authorities. Immediate reporting to law enforcement (option B) may breach confidentiality without proper internal escalation.

Why Option D is Correct:

Reporting to governance ensures proper internal actions are taken and protects the integrity of the audit process. It allows the organization to address the issue before external involvement if required.

References:

ISA 240 and the ACFE guidelines on professional auditor conduct​​.

ï‚· Definition of Professional Skepticism:

Professional skepticism requires maintaining a questioning mindset and critically assessing evidence throughout the fraud examination process.

ï‚· Why D is Correct:

Professional skepticism ensures that fraud examiners remain vigilant and rely on evidence to conclude whether fraud has occurred or not. It is dispelled only when sufficient evidence supports a clear conclusion.

ï‚· Why Other Options are Incorrect:

A: While skepticism is critical, it does not mean refusing to acknowledge credible evidence.

B: Assuming no fraud occurred contradicts the principle of skepticism.

C: Hypotheses should consider the nature of the assignment and available information​​.

ï‚· Corruption and Fraud Risks:

Corruption involves abuse of power for personal or organizational gain and includes bribery, kickbacks, and aiding vendor fraud.

ï‚· Why B is Correct:

Espionage by competitors is not typically classified as corruption, as it does not directly involve abuse of internal authority or a relationship of trust. It is instead an external threat.

ï‚· Other Options:

A, C, and D are classical examples of corruption-related fraud risks​​.