Certified Fraud Examiner Corporate Governance Questions and Answers

Question 1

Which of the following represents the clearest distinction between the responsibilities of the board of directors and senior management in the context of fraud risk management?

Accepted Answer

The board has the ultimate responsibility for fraud risk oversight, while management is responsible for the day-to-day implementation of anti-fraud programs.

Answer

The board is responsible for designing internal controls, while management is responsible for testing their effectiveness.

Answer

Management is responsible for setting the 'tone at the top,' while the board is responsible for communicating it to employees.

Answer

Management is responsible for hiring external auditors, while the board is responsible for overseeing the internal audit function.

Question 2

A company's CEO consistently dismisses the importance of the corporate code of conduct during meetings, often stating, "We need to do whatever it takes to meet our quarterly numbers." This attitude has led middle managers to approve questionable expense reports and ignore inventory control weaknesses. This scenario is a prime example of a failure in what aspect of corporate governance?

Accepted Answer

The 'tone at the top'

Answer

Audit committee independence

Answer

Segregation of duties

Answer

Whistleblower protection policy

Question 3

Under the Sarbanes-Oxley Act of 2002 (SOX), which of the following is a key requirement for the audit committees of publicly traded companies?

Accepted Answer

The committee must be directly responsible for the appointment, compensation, and oversight of the external auditor.

Answer

All members of the audit committee must be Certified Public Accountants (CPAs).

Answer

The Chief Financial Officer (CFO) must serve as the chairperson of the audit committee.

Answer

The audit committee must meet on a daily basis to review all financial transactions.

Question 4

The primary role of a corporate board's audit committee in preventing and detecting fraud is to:

Accepted Answer

Provide active oversight of the financial reporting process, internal controls, and the external audit function.

Answer

Conduct detailed fraud investigations of all employee tips.

Answer

Design and implement the company's internal control system.

Answer

Personally approve every significant financial transaction.

Question 5

A Certified Fraud Examiner is reviewing the governance structure of a privately-held company. The CFE notes that the board of directors consists of the CEO, the CEO's brother (who is the COO), the company's long-time external lawyer, and two retired executives who are close personal friends of the CEO. Which corporate governance weakness is MOST apparent from this structure?

Accepted Answer

A significant lack of independent directors.

Answer

Lack of a formal whistleblower policy.

Answer

Absence of a designated financial expert.

Answer

Insufficient segregation of accounting duties.

Question 6

What is the primary purpose of a formal corporate Code of Conduct within a company's overall governance and anti-fraud framework?

Accepted Answer

To set clear expectations for ethical behavior and provide guidance for employees on how to act with integrity.

Answer

To satisfy the minimum requirements of government regulations.

Answer

To provide a detailed procedures manual for every job function.

Answer

To guarantee that no fraud will ever occur within the organization.