ACFE Fraud Risk Assessment 4 — Questions and Answers
Question 1: Which type of fraud scheme is most directly mitigated by implementing a mandatory vacation policy for employees in sensitive positions?
- Payroll fraud
- Financial statement fraud
- Skimming and lapping schemes (Correct answer)
- Vendor kickback schemes
Correct answer: Skimming and lapping schemes
Mandatory vacations force others to cover an employee's duties, which can expose ongoing skimming or lapping schemes that require constant maintenance.
Question 2: During a fraud risk assessment, which of the following would be considered an 'anti-fraud control' rather than a fraud risk?
- Lack of segregation of duties
- Mandatory ethics training for all employees (Correct answer)
- High employee turnover in accounting
- Management pressure to meet revenue targets
Correct answer: Mandatory ethics training for all employees
Mandatory ethics training is an anti-fraud control designed to reduce rationalization and deter fraudulent behavior, not a risk factor.
Question 3: An organization wants to assess fraud risks in its procurement process. Which approach provides the most direct insight into potential fraud schemes?
- Reviewing the organization's mission statement
- Mapping procurement process flows to identify control gaps and scheme opportunities (Correct answer)
- Comparing payroll costs to industry benchmarks
- Surveying customers about their satisfaction with vendor products
Correct answer: Mapping procurement process flows to identify control gaps and scheme opportunities
Process mapping identifies where assets change hands and where controls may be absent, directly revealing where fraud schemes could occur.
Question 4: The ACFE's Fraud Risk Management Guide recommends that fraud risk assessments be conducted by whom?
- External auditors exclusively
- A cross-functional team that includes management, internal audit, legal, and compliance (Correct answer)
- The CFO and finance team only
- Law enforcement representatives
Correct answer: A cross-functional team that includes management, internal audit, legal, and compliance
The ACFE guide recommends a multidisciplinary team to capture diverse perspectives on fraud risks across all organizational functions.
Question 5: When assessing fraud risk related to financial reporting, which of the following revenue recognition scenarios represents the highest fraud risk?
- Subscription revenue recognized ratably over contract periods
- Revenue from long-term contracts recognized using percentage-of-completion estimates (Correct answer)
- Point-of-sale retail transactions recorded daily
- Dividend income recognized when declared
Correct answer: Revenue from long-term contracts recognized using percentage-of-completion estimates
Percentage-of-completion accounting requires significant management estimates, creating opportunity to manipulate reported revenue and earnings.
Question 6: Which of the following best describes a 'fraud risk scenario' as used in a formal fraud risk assessment?
- A historical fraud case study from another organization
- A specific, plausible description of how a fraud scheme could be perpetrated in the organization (Correct answer)
- A statistical forecast of expected fraud losses
- A general category of fraud such as 'asset misappropriation'
Correct answer: A specific, plausible description of how a fraud scheme could be perpetrated in the organization
A fraud risk scenario is a concrete, organization-specific description of how a particular fraud scheme could be carried out given the entity's people, processes, and systems.
Question 7: A company's fraud risk assessment identifies a risk of bid rigging in its procurement department. Which control would MOST directly address this risk?
- Requiring dual signatures on all disbursements over $10,000
- Implementing a blind bidding process with independent bid committee review (Correct answer)
- Conducting annual background checks on all employees
- Installing surveillance cameras in the finance office
Correct answer: Implementing a blind bidding process with independent bid committee review
A blind bidding process with independent review prevents procurement staff from influencing bid outcomes, directly addressing bid rigging risk.
ACFE Fraud Risk Assessment 4
Which type of fraud scheme is most directly mitigated by implementing a mandatory vacation policy for employees in sensitive positions?