Certified Fraud Examiner Fraud Risk Assessment Questions and Answers

Question 1

In the context of a fraud risk assessment, which of the following best defines residual fraud risk?

Accepted Answer

The risk of fraud that remains after management has implemented internal controls to mitigate identified threats.

Answer

Residual risk is the level of risk that remains after controls and other mitigation measures have been put in place to address a threat. In contrast, inherent risk is the risk that exists before any controls are applied. A fraud risk assessment aims to identify inherent risks, evaluate the effectiveness of controls, and determine the resulting residual risk.

Question 2

A Certified Fraud Examiner is leading a fraud risk assessment for a manufacturing company. The team has identified various potential fraud schemes. According to the COSO/ACFE Fraud Risk Management Guide, what is the next logical step in the process?

Accepted Answer

Assess the likelihood and significance of the identified fraud risks.

Answer

After identifying potential fraud schemes, the next step in a structured fraud risk assessment is to assess the likelihood of each risk occurring and the potential significance (or impact) if it did. This analysis allows the organization to prioritize risks and determine where to focus its control activities. Implementing controls or starting investigations before this analysis would be premature.

Question 3

An organization decides to stop offering credit card payments for online sales to eliminate the risk of chargeback fraud. This is an example of which type of fraud risk response?

Accepted Answer

Risk Avoidance

Answer

Risk avoidance is a response strategy where the organization decides to exit or not engage in the activities that give rise to the risk. By ceasing to accept credit card payments, the company is avoiding the associated chargeback fraud risk entirely. Mitigation involves reducing the risk, transfer involves sharing it (like insurance), and acceptance means taking no action.

Question 4

Which of the following activities is MOST critical for evaluating the operating effectiveness of existing anti-fraud controls during a fraud risk assessment?

Accepted Answer

Conducting transactional testing and observing control activities.

Answer

While reviewing policies (design effectiveness) and interviewing management are important, evaluating operating effectiveness requires determining if the controls are actually working as intended. This is best accomplished through activities like testing a sample of transactions to see if the control was applied correctly, observing employees performing control activities, and conducting walkthroughs.

Question 5

According to the principles of a sound fraud risk management program, which of the following is considered a foundational component?

Accepted Answer

A strong governance structure and a commitment to ethical conduct from senior management.

Answer

An effective fraud risk management program is built upon a strong governance foundation. This includes a clear commitment from the board and senior management, the establishment of clear ethical policies, and assigning specific roles for fraud prevention. Without this 'tone at the top,' even the best controls and software can fail.

Certified Fraud Examiner Exam Practice Test

Certified Fraud Examiner Exam Practice Test

Certified Fraud Examiner Fraud Risk Assessment Questions and Answers