ACFE Updated CFE-Fraud-Prevention-and-Deterrence Exam Questions and Answers by hamish

ACFE research highlights that an unwillingness to share duties is one of the most common red flags exhibited by fraud perpetrators. This behavior often indicates a desire to conceal fraudulent activities. Most fraudsters do not have prior convictions, and frauds committed by executives tend to cause higher losses compared to those committed by staff-level employees.

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 Effectiveness of Consistent Punishment:

Consistent punishment demonstrates an organization's commitment to enforcing anti-fraud policies and serves as a deterrent to potential fraudsters.

 Why A is Correct:

When perpetrators are consistently punished, it sends a strong message about zero tolerance for fraud and reinforces the importance of compliance throughout the organization.

 References:

ACFE guidance on fraud deterrence emphasizes the role of consequences in preventing fraud​​.

Diane Vaughan’s Research:

Vaughan highlights that linking employee performance goals with company goals can create undue pressure, fostering an environment where unethical behavior becomes rationalized.

Analysis of Other Options:

A. Diversity in hiring: Encourages broader perspectives and does not inherently lead to crime.

B. Rewarding challenges to the status quo: Promotes innovation and integrity, reducing crime risk.

Conclusion:Management’s linking of performance goals with company goals is the factor most associated with increased crime inclination.

References:ACFE criminological studies and Diane Vaughan’s findings​​.

ISA 240 and Auditors' Responsibilities:

ISA 240 clarifies that the responsibility for establishing and maintaining internal controls rests with the organization's management, not the auditors.

Auditors are responsible for evaluating the adequacy of internal controls and assessing fraud risks during an audit.

Why B is Correct:

Management is accountable for designing anti-fraud controls, while auditors provide oversight and recommendations based on their assessments.

References:

ISA 240, “The Auditor's Responsibilities Relating to Fraud in an Audit of Financial Statements”​​.