ACFE Corporate Governance and Ethics 5 — Questions and Answers
Question 1: Which of the following BEST illustrates a conflict of interest in a corporate governance context?
- A board member who disagrees with management's strategic plan
- A procurement officer who awards a contract to their spouse's company (Correct answer)
- An auditor who issues a qualified opinion on financial statements
- An employee who reports a compliance violation anonymously
Correct answer: A procurement officer who awards a contract to their spouse's company
Awarding a contract to a spouse's company puts personal financial interests directly in conflict with the obligation to act in the organization's best interest.
Question 2: The 'reasonable person' standard in ethics compliance programs refers to:
- The average salary of an employee in the relevant industry
- Behavior that a typical, prudent person would consider acceptable under the circumstances (Correct answer)
- The minimum legal standard required to avoid prosecution
- The judgment of the most senior compliance officer at the firm
Correct answer: Behavior that a typical, prudent person would consider acceptable under the circumstances
The reasonable person standard asks whether an objective, prudent individual in the same situation would consider the conduct appropriate.
Question 3: Which characteristic of an effective ethics hotline is MOST critical to encouraging employee use?
- Hotline managed directly by the CEO's office
- Availability only during business hours
- Guaranteed anonymity and non-retaliation protections (Correct answer)
- Requirement to submit complaints in writing with signature
Correct answer: Guaranteed anonymity and non-retaliation protections
Employees will only use a hotline if they trust their identity will be protected and they won't face retaliation for raising concerns.
Question 4: Under COSO's Enterprise Risk Management framework, which of the following is an example of a 'risk appetite' statement?
- The company will never exceed a 2% loss ratio on its investment portfolio (Correct answer)
- The company will conduct quarterly risk assessments in all business units
- The company maintains directors and officers liability insurance
- The company's external auditor assesses fraud risk annually
Correct answer: The company will never exceed a 2% loss ratio on its investment portfolio
A risk appetite statement defines the amount of risk an organization is willing to accept in pursuit of its objectives, expressed as a quantitative threshold.
Question 5: A company's board has three members: the CEO, the CEO's spouse, and a retired executive who receives consulting income from the firm. Which statement is MOST accurate?
- The board has adequate independence because it has three members
- None of the board members qualify as independent directors (Correct answer)
- Only the retired executive is not independent
- The board structure complies with typical governance best practices
Correct answer: None of the board members qualify as independent directors
The CEO lacks independence by definition, the CEO's spouse has a family relationship, and the consulting income gives the retired executive a material relationship — none are independent.
Question 6: Which of the following is a key principle of the UK Bribery Act that differs from the US Foreign Corrupt Practices Act?
- The UK Act applies only to bribery of foreign officials, not domestic officials
- The UK Act prohibits all facilitation payments with no exception (Correct answer)
- The UK Act imposes criminal penalties only on corporations, not individuals
- The UK Act requires registration with a government anti-bribery registry
Correct answer: The UK Act prohibits all facilitation payments with no exception
Unlike the FCPA which permits facilitation payments, the UK Bribery Act 2010 prohibits all bribes including small facilitation payments.
Question 7: When evaluating whether a board is exercising proper oversight of management, fraud examiners should FIRST assess:
- The number of board meetings held per year
- The board's composition, independence, and access to information (Correct answer)
- The educational credentials of individual board members
- Whether the board has adopted a formal meeting agenda template
Correct answer: The board's composition, independence, and access to information
Effective oversight depends on whether directors are truly independent, have appropriate expertise, and receive timely and complete information from management.
ACFE Corporate Governance and Ethics 5
Which of the following BEST illustrates a conflict of interest in a corporate governance context?