ACFE Fraud Prevention & Deterrence 3 — Questions and Answers
Question 1: What is the main advantage of a confidential employee hotline compared to open-door reporting policies?
- It is cheaper to operate
- It encourages reporting by reducing fear of retaliation (Correct answer)
- It bypasses management entirely
- It only accepts anonymous tips
Correct answer: It encourages reporting by reducing fear of retaliation
Confidential hotlines encourage reporting because employees fear less retaliation when their identity is protected, leading to more tips being submitted.
Question 2: According to ACFE guidance, which department should ideally own and oversee the fraud risk management program?
- IT department
- Board of directors and senior management (Correct answer)
- External auditors
- Legal counsel only
Correct answer: Board of directors and senior management
The board of directors and senior management bear ultimate responsibility for the fraud risk management program, as governance starts at the top.
Question 3: Which scenario BEST illustrates the rationalization element of the fraud triangle?
- An employee needs money to pay medical bills
- An employee has access to company funds without oversight
- An employee believes the company underpays and they deserve more (Correct answer)
- An employee is passed over for promotion
Correct answer: An employee believes the company underpays and they deserve more
Rationalization occurs when a person justifies their fraudulent behavior with a belief such as 'I deserve this' or 'the company owes me.'
Question 4: Pre-employment screening is MOST effective at preventing fraud when it includes which element?
- Verification of references and credentials (Correct answer)
- Psychological stress testing
- Drug testing only
- Physical examination
Correct answer: Verification of references and credentials
Verifying references and credentials helps confirm honesty, qualifications, and past behavior, which are strong indicators of future integrity.
Question 5: What is 'proactive data analysis' in the context of fraud deterrence?
- Investigating fraud after it is reported
- Continuously monitoring transactions to detect anomalies before losses escalate (Correct answer)
- Training employees on data security
- Auditing data backups annually
Correct answer: Continuously monitoring transactions to detect anomalies before losses escalate
Proactive data analysis involves continuously reviewing transaction data for red flags and anomalies to catch potential fraud early, before significant losses occur.
Question 6: The ACFE's fraud prevention model emphasizes that deterrence is achieved primarily through:
- Harsh punishments for all employees
- The perception that fraud will be detected and punished (Correct answer)
- Eliminating all cash transactions
- Outsourcing all financial functions
Correct answer: The perception that fraud will be detected and punished
Deterrence works by making potential fraudsters believe they will be caught and face consequences, which requires both detection capability and consistent enforcement.
Question 7: Which of the following is an example of a preventive control in a fraud prevention framework?
- Reviewing exception reports after month-end
- Requiring dual authorization for wire transfers (Correct answer)
- Conducting surprise audits
- Analyzing vendor payment trends quarterly
Correct answer: Requiring dual authorization for wire transfers
Requiring dual authorization prevents unauthorized transfers from occurring at all, making it a preventive control rather than a detective one.
ACFE Fraud Prevention & Deterrence 3
What is the main advantage of a confidential employee hotline compared to open-door reporting policies?