Fraud Prevention Programs Flashcards

Which fraud risk factor is most directly reduced by conducting thorough background checks before hiring?

Answer: Capability to commit fraud

Background checks help screen out candidates with a history of dishonesty or relevant crimes, reducing the pool of people with demonstrated capability to commit fraud.

An ethics hotline receives a tip alleging payroll fraud. To maintain tipster confidence in the program, the organization should PRIMARILY ensure:

Answer: The tipster's identity is protected and the tip is investigated promptly

Confidentiality and prompt follow-through are the two pillars that maintain employee willingness to report suspected fraud.

A fraud risk assessment reveals that the accounts payable department poses the highest inherent risk. Which control would BEST reduce the residual risk?

Answer: Implementing three-way matching of purchase orders, receiving reports, and invoices

Three-way matching prevents payment of fictitious or inflated invoices by requiring agreement among the purchase order, receipt of goods, and vendor invoice.

Which action BEST demonstrates that an organization has integrated its code of conduct into daily operations rather than treating it as a compliance formality?

Answer: Including ethical conduct metrics in performance evaluations and reward systems

Tying performance reviews and rewards to ethical conduct makes the code operationally meaningful and signals that ethics is a real organizational priority.

When designing a fraud risk assessment, which factor should be evaluated to determine inherent fraud risk?

Answer: The likelihood and potential impact of various fraud schemes absent controls

Inherent risk is assessed before considering controls — it reflects the raw exposure to each fraud scheme based on likelihood and magnitude.

Which of the following is an example of a 'soft' control in a fraud prevention program?

Answer: An organizational culture that encourages speaking up about ethical concerns

Soft controls like culture, tone, and norms influence behavior but are not procedural or technical safeguards — yet they are critical to an effective fraud prevention environment.

What is the primary purpose of a Fraud Risk Management Program (FRMP) as defined by the ACFE and COSO?

Answer: To establish a comprehensive framework for preventing, detecting, and responding to fraud

An FRMP provides an integrated framework covering governance, risk assessment, prevention controls, detection mechanisms, and response procedures.