ACFE Corporate Governance and Ethics 3 — Questions and Answers
Question 1: Under the Foreign Corrupt Practices Act (FCPA), which of the following payments to a foreign official is explicitly permitted?
- Payments to obtain a major construction contract
- Facilitation payments to expedite routine government actions (Correct answer)
- Gifts above $250 to procurement officers
- Payments funneled through third-party agents
Correct answer: Facilitation payments to expedite routine government actions
The FCPA contains a narrow exception for 'facilitating payments' (also called grease payments) made to expedite routine non-discretionary government functions.
Question 2: Which component of the COSO Internal Control framework addresses the organization's commitment to integrity and ethical values?
- Risk Assessment
- Control Activities
- Control Environment (Correct answer)
- Monitoring Activities
Correct answer: Control Environment
The Control Environment is the foundation of COSO's framework and includes the tone set by management regarding integrity, ethics, and governance.
Question 3: A whistleblower who reports securities fraud under the Dodd-Frank Act is entitled to:
- Guaranteed employment reinstatement regardless of circumstances
- A monetary award of 10-30% of sanctions exceeding $1 million (Correct answer)
- Full immunity from all civil and criminal liability
- A fixed government payment of $50,000 per valid report
Correct answer: A monetary award of 10-30% of sanctions exceeding $1 million
Dodd-Frank provides whistleblowers with 10-30% of monetary sanctions collected in SEC enforcement actions exceeding $1 million.
Question 4: What governance structure characteristic is MOST associated with weak oversight and increased fraud risk?
- Board with a majority of independent directors
- Dominant CEO who also serves as board chairman (Correct answer)
- Robust internal audit function reporting to the audit committee
- Strong separation of duties in financial processes
Correct answer: Dominant CEO who also serves as board chairman
A CEO who also chairs the board creates a power imbalance where the executive can effectively control the body meant to oversee them, increasing fraud risk.
Question 5: Which of the following best describes 'regulatory capture' as an ethics concern?
- A regulator physically seizing a company's records during an investigation
- A regulatory agency coming to advance the interests of those it is supposed to regulate (Correct answer)
- Corporate espionage targeting regulatory agencies
- A company capturing market share through regulatory arbitrage
Correct answer: A regulatory agency coming to advance the interests of those it is supposed to regulate
Regulatory capture occurs when a regulatory agency is dominated by the industry it is supposed to oversee, undermining independent oversight.
Question 6: In corporate ethics, the 'rationalization' element of the fraud triangle refers to:
- A fraudster's logical calculation of detection probability
- The justification a fraudster uses to make their actions seem acceptable (Correct answer)
- The organizational process for rationalizing budget variances
- The ethical reasoning used by compliance officers
Correct answer: The justification a fraudster uses to make their actions seem acceptable
Rationalization is the self-justification that allows fraudsters to reconcile their behavior with their self-image as honest people.
Question 7: Which governance document typically establishes the fiduciary duties of corporate board members?
- The company's whistleblower policy
- Corporate bylaws and applicable state corporate law (Correct answer)
- The external auditor's engagement letter
- The annual proxy statement
Correct answer: Corporate bylaws and applicable state corporate law
Fiduciary duties of directors are primarily established by corporate bylaws and the state corporate law under which the company is incorporated.
ACFE Corporate Governance and Ethics 3
Under the Foreign Corrupt Practices Act (FCPA), which of the following payments to a foreign official is explicitly permitted?