CFE Fraud Prevention and Deterrence Exam Practice Questions

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The CFE (Certified Fraud Examiner) Fraud Prevention and Deterrence exam is a professional certification examination administered by the Association of Certified Fraud Examiners (ACFE). It is designed to test the knowledge, skills, and abilities of individuals seeking to become Certified Fraud Examiners. The new cracked CFE Fraud Prevention and Deterrence exam practice questions are valuable for you to test all the related topics. Free CFE Fraud Prevention and Deterrence exam practice questions are below.

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1. According to Silk and Vogel's research, business leaders rationalize legal violations by asserting that compliance with government regulations is too costly and cuts too heavily into company profits.

True

False

2. Stevens, a Certified Fraud Examiner (CFE), was hired to conduct a fraud examination at ABC Company. His examination did not reveal any conclusive evidence that fraud had occurred or was occurring. Consequently, ABC's management asked Stevens to state in his official examination report that the organization is free of fraud as a means of assuring the board of directors that the company's anti-fraud controls were effective. Under the ACFE Code of Professional Ethics. Stevens is permitted to comply with management's request based on the findings of his examination.

True

False

3. In the area of criminological theory, deterrence is the theory that tries to prevenl crime by using the threat of criminal sanctions.

True

False

4. Susannah Is conducting an external audit of a company In a jurisdiction that is subject to International Standards on Auditing (ISAs). While undertaking her audit procedures, she discovers evidence that senior management has been fraudulently manipulating the financial statements .

Which of the following is Susannah's BEST response to these findings?

Susannah should confront management with her audit findings and try to get a confession.

Susannah should Immediately report her findings to the secunties regulators

Susannah should report her findings to the audit committee of the board of directors.

Susannah should not disclose her findings to any other parties due to client confidentiality.

5. Which of the following is one of the components of the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Enterprise Risk Management―Integrating with Strategy and Performance?

Event avoidance

Risk tolerance

Compliance

Review and revision

6. For its compliance program to be effective, an organization must promote the program through appropriate incentives for compliance.

True

False

7. Which of the following statements is TRUE regarding how fraud examiners should exercise professional skepticism during a fraud examination engagement?

Professional skepticism means beginning all assignments with the belief that something is amiss.

Professional skepticism involves maintaining a mindset that no fraud has occurred

Fraud examiners should form the engagement hypothesis without regard to the available preliminary information.

Fraud examiners should not relax their skeptical attitudes under any circumstances.

8. According to the 2020 Report to the Nations, which of the following is the MOST COMMON method by which frauds are detected?

Internal audit

Confession

Tips

External audit

9. The Committee of Sponsoring Organizations of the Treadway Commission (COSO) defines____________ as "a process, effected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives relating to operations, reporting, and compliance."

Corporate compliance

Fraud risk management

Risk assessment

Internal control

10. Daniela, an independent Certified Fraud Examiner (CFE), was hired by Charles, executive director of a nonprofit organization, to investigate a straightforward embezzlement case. During the investigation, Daniela learns that Charles is involved in an unrelated fraud.

Under the ACFE Code of Professional Ethics. Daniela should:

Tell the nonprofit's board of trustees about Charles

Report Charles to law enforcement

Not disclose the information about Charles.

Resign from the engagement.

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11. During an external audit of an organization's financial statements. Peter, the external auditor, uncovers significant internal control deficiencies at the audit client's organization. He believes these deficiencies could result in a material misstatement of the financial statements .

Which of the following should Peter do with regard to these findings?

Peter should make a public announcement that he is withdrawing from the audit engagement.

Peter should provide a written communication about the findings to those charged with governance.

Peter should report the findings in writing directly to the appropriate regulatory agencies

Peter should discreetly work with senior management to correct the underlying internal control deficiencies.

12. Professional auditing standards suggest that auditors incorporate an "element of predictability" in the selection of auditing procedures to be performed so that they ensure the same areas are tested in the same manner during each audit.

True

False

13. Consistently punishing perpetrators can be an effective fraud prevention mechanism

True

False

14. Which of the following statements is FALSE regarding an organization's fraud risk management program?

The program must include mechanisms to monitor and identify breaches in compliance.

The responsibility of handling suspected incidents of noncompliance should be delegated to someone outside of the company.

Formal sanctions for intentional noncompliance should be well-publicized throughout the company

There should be measures in place to address failures in the design or operation of anti-fraud controls, as well as fraud occurrences

15. Jones, an accounting manager for a software company, wants to improve her team's adherence to the company's formal accounting policies and procedures and reduce the number of process exceptions they experience.

According to behaviorist theories, which of the following options would be the most effective way for Jones to condition her staff to follow the company's formal accounting processes?

Demote employees who do not adhere to the expected processes.

Publicly call out and criticize employees who deviate from the formal processes.

Offer a bonus to anyone who experiences no process exceptions for ninety days-

Take away a day of paid time off for each process exception.

16. During the course of a fraud examination. While, an employee of the ABC Corp.. approaches Blue, a Certified Fraud Examiner (CFE), and tells Blue that she wishes to furnish information in confidence.

Blue also is employed by the ABC Corp. Blue should:

Tell White that she will try to keep the information as confidential as possible

Agree that the information will be held in confidence, even though Blue knows it will not be

Take White's request straight to ABC Corp.'s management

Not agree to the request for confidentiality

17. Which of the following criminological theories states that individuals make a conscious decision to commit a crime and that crime can be deterred by reducing opportunities for criminal activity and increasing an individual's personal risk of being caught and punished?

Routine activities theory

Differential association theory

Rational choice theory

Social conflict theory

18. Which of the following is NOT included in G20/OECD Principles of Corporate Governance (the Principles)?

Guidance regarding appropriate board structures, responsibilities, and procedures

Support for establishing stronger protection for foreign shareholders than for domestic shareholders

A request that governments have in place an appropriate framework to support good corporate governance practices

Recognition of the importance of the role of stakeholders in corporate governance

19. Having specialized departments within a company often increases the overall risk ot traud by the organization.

True

False

20. Which of the following would MOST LIKELY be a violation of the ACFE Code of Professional Ethics?

Green a CFE, uncovered several material internal control deficiencies unrelated to the financial statement fraud he was investigating. In his final report to management. Green included information about the deficiencies even though they were unrelated to the situation he was hired to investigate.

Stephanie, a CFE, accepted a fraud examination assignment and then instructed a lower-level employee to assess the company's cash records for signs of fraud. She took his word when he said there was no evidence of wrongdoing and ended up failing to uncover a very costly fraud scheme.

Susan, a CFE, was hired by a client to conduct a fraud examination but found nothing amiss A year later, she received a legal order from the local prosecutor's office to provide the client's file. Susan complied with the court order, even though she did not have the client's authorization to do so.

All of the above are violations

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21. Which of the following is a best practice to ensure a successful fraud reporting program?

The company should communicate that fraud, waste, and abuse are more likely to occur in large organizations than small ones.

The company should require employees with information about potential fraud to report it directly and only to their immediate supervisor.

Employees are held accountable for reporting tips that are not able to be substantiated

Employees should be informed that, to the extent possible, their names will not be disclosed.

22. Which of the following is NOT explicitly prohibited by the ACFE Code of Professional Ethics?

Acting in a way that could be deemed unethical by the industry

Drawing conclusions based upon evidence

Participating in an activity where there is an undisclosed conflict of interest

Engaging in behavior that is against the law

23. Management at ABC Corp. is assessing the company's ethical tone and how it affects the organization's fraud risk. To most effectively reinforce an anti-fraud culture, management should:

Use a checklist of initiatives to make sure all the elements of a strong tone at the top are in place

Create an environment in which employees feel safe challenging management's decisions

implement two separate sets of ethics policies, one for management and one for employees

All of the above

24. The availability of suitable targets, absence of capable guardians, and presence of motivated offenders are the three most important elements that influence crime according to which of the following criminological theories?

Conditioning theory

Routine activities theory

Rational choice theory

Social control theory

25. Which of the following is a detective anti-fraud control?

Hiring policies and procedures

Independent reconciliations

Separation of duties

Fraud awareness training

26. According to behaviorists such as B. F. Skinner, which of the following scenarios is MOST LIKELY to occur when an undesired behavior is punished?

The behavior will return when punishment ceases

The behavior will be permanently suppressed

The behavior will occur more frequently.

The behavior will not be affected by the punishment

27. Which of the following theories suggests that, when considering the possibility of violating a law. people are likely to ask themselves. "What will my spouse think if they find out?"

Social control theory

Operant theory

Cognitive theory

Behavioral theory

28. In the area of criminological theory, compliance is the theory that tries to prevent crime by providing economic incentives for voluntary conformity to the laws and using administrative efforts to control violations before they occur.

True

False

29. Article II of the ACFE Code of Professional Ethics prohibits illegal or unethical conduct, but It allows exceptions for unknowing violations of the law.

True

False

30. XYZ. Inc. is a publicly traded, multi-national corporation .

Which of the following statements is TRUE regarding the corporate governance requirements that XYZ is subject to?

XYZ must comply with the various laws and regulations in the countries in which it operates

XYZ is subject to the Universal Corporate Governance Act because it is a publicly traded corporation.

XYZ is required to comply with G20'OECD Principles of Corporate Governance.

XYZ is not required to comply with any corporate governance requirements because it operates in multiple jurisdictions

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31. In the context of a fraud examination, integrity requires all of the following EXCEPT:

Trustworthiness

A well-developed sense of moral philosophy

Avoidance of conflicts of interest

Refusal to admit errors

32. Which of the following is TRUE regarding prosecutions of white-collar criminals?

Only a small percentage of perpetrators are punished when an organization deals with a fraud case internally.

Most fraud cases are only handled internally and are not referred to law enforcement for prosecution

The primary reason organizations decline to prosecute fraud cases is a belief that their internal discipline methods are sufficient

When fraud cases are handled internally, an employee is more likely to be suspended or put on probation than to be terminated for their crime.

33. Employees should be kept unaware that management is watching for lifestyle and behavior changes In staff members that might indicate fraud.

True

False

34. The objective of anti-fraud controls is to:

Completely eliminate inherent fraud risk.

Reduce the inherent fraud risk to a level that is significantly smaller than the residual fraud risk.

Completely eliminate residual fraud risk

Reduce the residual fraud risk to a level that is significantly smaller than the inherent fraud risk

35. International Standard on Auditing (ISA) 240 establishes auditors as being primarily responsible for the establishment of anti-fraud internal controls within an organization.

True

False

36. An effective system of anti-fraud controls

Fully eliminates the risk of fraud

Focuses more on detective controls than preventive controls

Focuses more on preventive controls than detective controls

Increases the perception that fraud will be detected

37. Benjamin, a Certified Fraud Examiner (CFE). was contacted regarding an engagement to investigate a complex money laundering case spanning numerous international jurisdictions and involving multiple cutting-edge technologies. Benjamin had previously attended a seminar on investigating money laundering schemes, but he had no other training or experience in such cases. However, he accepted the engagement and chose to conduct the work himself. Benjamin's conduct would likely be a violation of the ACFE Code of Professional Ethics.

True

False

38. Smith, a retail sales manager, wants to decrease the level of cash register over-and-short discrepancies among his sales team.

According to behaviorist theories, which of the following options would be the MOST EFFECTIVE way for Smith to encourage his team members to keep their cash drawers in balance?

Offer a bonus to anyone whose drawer reconciles perfectly for sixty days.

Publicly call out and criticize employees whose cash drawers are over or short.

Take away an hour of paid time off for each time the drawer is over or short

Demote employees who continue to have reconciliation discrepancies

39. In response to a risk identified during a fraud risk assessment, management decides to implement additional internal control measures.

This response is known as:

Assuming the risk

Mitigating the risk

Avoiding the risk

Transferring the risk

40. In identifying the inherent fraud risks that could apply to the organization, the fraud risk assessment team should discuss:

The organization's incentive programs

The possibility of management's override of controls

Risks to the organization's reputation

All of the above

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41. Which of the following is NOT a responsibility of the organization's board of directors?

Serving as the intermediaries between shareholders and management

Acting as guardians of the organization's resources and assets

Directing employees to execute business activities

Assessing the strategy and underlying purpose of management's decisions and actions

42. Employee support programs are a fraud prevention mechanism that addresses which leg of the Fraud Triangle

Rationalization

Lack of integrity

Opportunity

Pressure

43. According to the Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Internal Control-integrated Framework (the Framework), there are five interrelated components of a company's internal control .

Which of the following is NOT among these five components?

Monitoring

Control environment

Independent oversight

Information and communication

CFE Fraud Prevention and Deterrence Exam Practice Questions

CFE Fraud Prevention and Deterrence Exam Practice Questions

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