Legal Compliance & Ethical Standards Flashcards

An employee who reports suspected fraud internally and is subsequently demoted may have a retaliation claim under which of the following federal laws?

Answer: Sarbanes-Oxley Section 806 and/or Dodd-Frank

SOX Section 806 and Dodd-Frank both contain anti-retaliation provisions protecting employees who report suspected securities fraud or other financial misconduct.

A company's anti-fraud policy should include all of the following EXCEPT:

Answer: A guarantee that all reported allegations will result in termination

Promising termination for all allegations before investigation is inappropriate and could deter reporting — policies should promise fair investigation, not predetermined outcomes.

Which of the following describes a 'proffer agreement' in the context of a federal fraud investigation?

Answer: An agreement allowing a subject to share information with prosecutors without direct use of those statements against them

A proffer agreement (or 'queen for a day' letter) allows a subject to provide information to prosecutors with the protection that the statements themselves cannot be used as direct evidence against them.

The 'deliberate ignorance' doctrine (also called willful blindness) in fraud law means that a defendant:

Answer: May be found to have criminal knowledge if they deliberately avoided learning the truth

Willful blindness holds that a person who deliberately avoids knowledge of obvious facts may be treated as having actual knowledge for purposes of criminal liability.

When conducting a fraud investigation, a CFE should document all evidence using chain of custody procedures primarily to:

Answer: Ensure evidence is admissible and credible if used in legal proceedings

Proper chain of custody documentation preserves the integrity and admissibility of evidence by recording who collected, handled, and stored it at every step.

Under the ACFE's ethical standards, a CFE who discovers evidence of fraud outside the original scope of their engagement should:

Answer: Advise the client of the discovered information and determine how to proceed

CFEs must advise clients of significant findings discovered outside the original scope and allow the client to determine whether to expand the engagement or take other action.

The primary purpose of a 'clawback' provision in executive compensation agreements, as encouraged by Dodd-Frank, is to:

Answer: Recover incentive-based compensation paid based on misstated financial results

Clawback provisions allow companies (and in some cases regulators) to recoup executive bonuses and incentive pay that were earned based on financial statements later found to be materially misstated.