Fraud Risk Assessment Frameworks Flashcards

Which of the following BEST describes the relationship between fraud risk assessments and internal controls?

Answer: Fraud risk assessments identify where controls are needed; controls are the response

The fraud risk assessment identifies vulnerabilities and schemes, while internal controls are the mechanisms designed and implemented in response to address those identified risks.

A fraudster in accounts receivable creates fictitious customer credits to conceal cash theft. This scheme would be classified under which fraud category in the ACFE Fraud Tree?

Answer: Asset misappropriation

Stealing cash and concealing it through false credits is an asset misappropriation scheme, specifically a cash larceny scheme with fraudulent concealment.

When assessing the impact of a potential fraud scheme, which factor should be considered BEYOND direct financial loss?

Answer: Reputational damage, regulatory penalties, and operational disruption

Comprehensive impact assessment must consider reputational harm, regulatory sanctions, and business disruption in addition to the direct monetary loss from fraud.

Which statement about fraud risk assessment frequency is MOST consistent with leading practice guidance?

Answer: Assessments should be performed annually and whenever significant changes occur

Leading practice calls for periodic (typically annual) fraud risk assessments plus triggered reassessments when significant organizational changes occur, such as mergers, new products, or leadership changes.

An organization identifies a fraud risk but determines that the cost of controls exceeds the potential loss. The appropriate risk response is to:

Answer: Accept the risk and document the decision with board awareness

When control costs exceed the expected loss, risk acceptance is appropriate, but the decision should be documented and approved by appropriate governance levels.

In fraud risk assessment, 'collusion' is significant because it:

Answer: Defeats segregation of duties controls that would otherwise prevent fraud

Collusion between two or more individuals allows them to circumvent segregation of duties, which is one of the most fundamental preventive controls against fraud.

Which quantitative method is used to estimate the expected loss from a fraud risk by combining its likelihood and impact?

Answer: Expected value calculation (probability × impact)

Expected value is calculated by multiplying the probability of a fraud occurring by its estimated impact, providing a single monetary figure for prioritizing risks.