View Full ACFE CFE – Fraud Prevention Exam Dumps and Practice Test Dumps.

Question 181. What is the main purpose of fraud risk governance

1. Set employee salaries
2. Replace internal audit
3. Eliminate all business risk
4. Establish oversight for fraud risk management

Correct Answer: 4. Establish oversight for fraud risk management

Explanation:

Fraud risk governance establishes who is responsible for overseeing fraud risk and how important fraud matters are communicated and managed. Effective governance commonly involves the board, appropriate committees, senior management, and designated risk functions. Management remains responsible for operating fraud controls, while governance bodies provide oversight and challenge. Clear responsibilities reduce the risk that significant fraud concerns fall between departments or remain unresolved. Corporate governance and fraud risk management are both major areas within the current CFE Fraud Prevention and Deterrence section.

Question 182. What should an organization do when two controls address the same fraud risk unnecessarily

1. Keep both permanently
2. Evaluate whether controls can be streamlined
3. Remove all controls
4. Ignore control costs

Correct Answer: 2. Evaluate whether controls can be streamlined

Explanation:

Multiple controls can sometimes address the same risk without providing meaningful additional protection. Management should evaluate whether overlapping controls are necessary or whether the process can be simplified while maintaining acceptable fraud risk coverage. Streamlining can reduce administrative burden and make important controls easier for employees to understand and perform consistently. The goal is not simply to reduce the number of controls. Management should preserve sufficient preventive and detective coverage based on the fraud risk assessment and remaining residual exposure.

Question 183. What is the first step when evaluating a new fraud scenario

1. Understand how the scheme could occur
2. Assume existing controls are sufficient
3. Close the risk immediately
4. Transfer it to external auditors

Correct Answer: 1. Understand how the scheme could occur

Explanation:

Before management can select appropriate controls, it should understand how the proposed fraud scheme could actually occur. This includes possible perpetrators, assets involved, access required, concealment methods, incentives, and weaknesses that could be exploited. A clear scenario makes it easier to identify relevant controls and estimate likelihood and impact. Fraud risk assessment is intended to evaluate realistic schemes rather than broad statements that fraud might occur. The current Fraud Prevention and Deterrence curriculum specifically includes fraud risk assessment frameworks and identified fraud risks.

Question 184. What should a key fraud risk indicator trigger

1. Automatic termination of an employee
2. Immediate public disclosure
3. Additional review or investigation
4. Removal of existing controls

Correct Answer: 3. Additional review or investigation

Explanation:

A fraud risk indicator is a warning signal rather than proof of wrongdoing. When an indicator exceeds an established threshold or shows an unusual pattern, the organization should perform additional review to understand the cause. Depending on the circumstances, the response might include management inquiry, transaction testing, control review, or investigation. Automatically treating every indicator as confirmed fraud can create unfair conclusions and unnecessary disruption. Data analytics and monitoring are useful because they help direct limited resources toward activity that deserves closer attention.

Question 185. What does fraud risk tolerance help management determine

1. How much variation around fraud risk appetite is acceptable
2. Which employees receive bonuses
3. Which auditor sets company policy
4. Whether fraud should be reported

Correct Answer: 1. How much variation around fraud risk appetite is acceptable

Explanation:

Fraud risk tolerance helps management translate broad risk appetite into more practical limits for particular activities or exposures. It supports decisions about when residual fraud risk remains acceptable and when additional controls or other responses are required. Tolerance should be consistent with organizational objectives and governance expectations. It does not mean management is willing to permit fraudulent conduct. Rather, it recognizes that organizations cannot reduce every fraud exposure to zero and must decide what level of remaining risk is manageable.

Question 186. What is the best response when fraud risk exceeds approved tolerance

1. Ignore the difference
2. Stop documenting the risk
3. Accept the risk automatically
4. Implement or strengthen a risk response

Correct Answer: 4. Implement or strengthen a risk response

Explanation:

When residual fraud risk exceeds the organization’s approved tolerance, management should evaluate additional actions to reduce or otherwise address the exposure. Options can include stronger controls, process redesign, increased monitoring, risk transfer, or discontinuing the activity. The response should be proportionate to the significance of the risk and should have a clear owner and timeline. Fraud risk management is an ongoing process of identifying, assessing, responding to, and monitoring exposure rather than simply recording high risk conditions.

Question 187. What is the primary purpose of anti fraud control ownership

1. Transfer risk to auditors
2. Identify who is responsible for operating the control
3. Eliminate monitoring
4. Replace policies

Correct Answer: 2. Identify who is responsible for operating the control

Explanation:

Every important anti fraud control should have a clearly identified owner who understands how and when the control must operate. Clear ownership improves accountability and makes it easier to follow up when controls fail, are skipped, or require improvement. The owner should have sufficient authority and knowledge to perform or oversee the control properly. Internal audit can test control effectiveness, but it should not normally become the operational owner because management is responsible for establishing and maintaining internal controls.

Question 188. What can a sudden increase in manual journal entries indicate

1. Guaranteed financial statement fraud
2. Improved segregation of duties
3. A pattern that may deserve additional review
4. Elimination of management override

Correct Answer: 3. A pattern that may deserve additional review

Explanation:

An unusual increase in manual journal entries can warrant additional review because manual entries might provide opportunities to bypass automated transaction controls. However, the pattern does not prove fraud. There can be legitimate reasons for manual adjustments, especially during closing periods or unusual transactions. Fraud prevention monitoring should identify unusual patterns and then evaluate the business explanation and supporting documentation. This approach reflects professional skepticism and the proper use of data analytics as a risk indicator rather than as automatic proof of misconduct.

Question 189. What is a major purpose of surprise audits

1. Make concealment more difficult
2. Replace all routine audits
3. Eliminate management oversight
4. Increase employee compensation

Correct Answer: 4. Make concealment more difficult

Explanation:

Surprise audits can strengthen deterrence because employees cannot easily predict when transactions, assets, or records will be examined. Fraud schemes that depend on advance knowledge of review schedules can become more difficult to conceal. Surprise procedures are most useful when targeted toward areas with meaningful fraud exposure and should complement rather than replace routine controls and risk based auditing. The broader objective is to increase the perceived likelihood that misconduct will be detected, which can discourage potential offenders from attempting fraudulent activity.

Question 190. What should an organization do when employees routinely share passwords

1. Strengthen access control and stop the practice
2. Encourage sharing for efficiency
3. Remove user identification
4. Disable audit logs

Correct Answer: 1. Strengthen access control and stop the practice

Explanation:

Shared passwords weaken accountability because activity can no longer be reliably linked to a specific authorized user. They can also allow people to perform transactions or access information beyond their approved responsibilities. Management should require individual credentials, appropriate authentication, access reviews, and monitoring of account activity. Access control supports fraud prevention by limiting opportunity and preserving a useful audit trail. Internal control remains a management responsibility within the current CFE Fraud Prevention and Deterrence framework.

Question 191. What is the best reason to monitor privileged system accounts

1. They cannot affect fraud risk
2. They often have powerful access capabilities
3. They belong only to customers
4. They eliminate management override

Correct Answer: 2. They often have powerful access capabilities

Explanation:

Privileged accounts can create, change, delete, or access information beyond the permissions available to ordinary users. Because these accounts have significant capabilities, misuse can allow someone to alter transactions, change security settings, conceal activity, or bypass normal controls. Organizations should restrict privileged access, monitor its use, review logs, and remove unnecessary permissions. The principle supports both segregation of duties and reduction of opportunity. Technology enabled monitoring can strengthen fraud prevention when it is tied to identified risks and followed by appropriate review.

Question 192. What should happen when an employee receives temporary elevated access

1. Access should remain permanent
2. Monitoring should stop
3. The employee should approve their own access
4. Access should be removed when the need ends

Correct Answer: 4. Access should be removed when the need ends

Explanation:

Temporary elevated access should be limited to the period during which the employee genuinely needs the additional capability. Leaving temporary privileges active can create unnecessary fraud exposure and weaken segregation of duties. Organizations should document approval, monitor use where appropriate, and automatically or manually remove the privilege when the approved period ends. Periodic access reviews can also identify permissions that were never withdrawn. Effective access management reduces opportunity and supports management’s responsibility for maintaining internal controls.

Question 193. What should a fraud prevention dashboard primarily show

1. Marketing activity
2. Customer satisfaction only
3. Relevant fraud risks controls and trends
4. Product development schedules

Correct Answer: 3. Relevant fraud risks controls and trends

Explanation:

A useful fraud prevention dashboard summarizes information that management and governance personnel can use to understand current fraud exposure and program performance. It might include high risk areas, control exceptions, hotline trends, remediation progress, access issues, training results, or key fraud indicators. The dashboard should focus attention on meaningful information rather than creating large volumes of data with no clear purpose. Metrics should also be interpreted carefully because low reported fraud does not necessarily mean the organization has low fraud risk.

Question 194. What is the purpose of fraud control rationalization

1. Remove controls without review
2. Ensure controls efficiently address meaningful fraud risks
3. Increase every control requirement
4. Replace fraud risk assessment

Correct Answer: 2. Ensure controls efficiently address meaningful fraud risks

Explanation:

Control rationalization evaluates whether existing controls address important risks effectively and efficiently. Organizations sometimes accumulate duplicate or outdated controls that create work without meaningfully reducing exposure. A rationalization exercise can identify gaps, redundancies, ineffective procedures, and opportunities for automation. Controls should not be removed merely to reduce effort. Management should confirm that the remaining framework still provides adequate fraud risk coverage and keeps residual exposure within acceptable levels. This reflects the broader fraud risk management principle of aligning controls with identified risks.

Question 195. What should an organization do when one employee can create and approve a vendor

1. Separate or independently review those duties
2. Give the employee payment authority too
3. Remove vendor records
4. Eliminate approval requirements

Correct Answer: 1. Separate or independently review those duties

Explanation:

Allowing one employee to create and approve vendors can create an opportunity to establish fictitious or unauthorized suppliers. Ideally, vendor setup and vendor approval should be separated between independent individuals. If staffing makes full separation impractical, a compensating control such as independent management review can reduce the risk. Segregation of incompatible duties is an important preventive control because it makes it harder for one person to initiate and conceal an improper transaction. Management is responsible for designing controls appropriate to its fraud risks.

Question 196. What should happen when a fraud control depends on one employee only

1. Stop documenting the control
2. Eliminate all backups
3. Evaluate key person and continuity risk
4. Assume the control will always work

Correct Answer: 3. Evaluate key person and continuity risk

Explanation:

A control that depends entirely on one employee can become ineffective when that person is absent, leaves the organization, or intentionally fails to perform it. Management should evaluate whether backup personnel, automated controls, independent review, or documented procedures are needed to maintain continuity. Excessive dependence on one individual can also create opportunities for concealment when no one else understands the process. Fraud prevention controls should therefore be designed not only for effectiveness but also for reliable operation over time.

Question 197. What is a major benefit of independent bank reconciliations

1. They eliminate all accounting errors
2. They reduce external audit work to zero
3. They increase transaction authority
4. They can reveal unauthorized or unexplained transactions

Correct Answer: 4. They can reveal unauthorized or unexplained transactions

Explanation:

Independent bank reconciliations compare accounting records with bank information and can reveal unauthorized payments, missing deposits, unusual adjustments, or unexplained differences. Their effectiveness improves when the person performing or reviewing the reconciliation is independent of cash receipt and payment processing. Reconciliation is primarily a detective control, although its existence can also deter misconduct because employees know discrepancies may be identified. The broader internal control framework should combine reconciliations with authorization, segregation of duties, access restrictions, and monitoring.

Question 198. What should management do when fraud losses remain low but control violations increase

1. Review the growing control weakness
2. Assume fraud risk is declining
3. Stop monitoring
4. Remove reporting channels

Correct Answer: 2. Review the growing control weakness

Explanation:

Low recorded fraud losses do not necessarily mean fraud risk is low. Increasing control violations can signal deteriorating discipline, ineffective procedures, weak supervision, or growing opportunities for misconduct. Management should investigate the trend before a major loss occurs. Fraud prevention programs should consider leading indicators such as control exceptions and policy violations in addition to confirmed fraud losses. Monitoring current control performance helps organizations respond proactively rather than waiting until misconduct produces a measurable financial impact.

Question 199. What should a CFE do when facts remain uncertain

1. State assumptions as proven facts
2. Ignore uncertainty
3. Communicate relevant limitations clearly
4. Change evidence to reach certainty

Correct Answer: 3. Communicate relevant limitations clearly

Explanation:

A fraud examiner should distinguish established facts from assumptions, interpretations, and unresolved matters. When available evidence does not support a definite conclusion, the limitation should be communicated rather than hidden. Professional credibility depends on presenting findings accurately and avoiding overstatement. The ACFE’s professional standards and ethics principles require integrity, diligence, a reasonable evidential basis, confidentiality, and complete reporting of material matters. Clear communication of uncertainty helps readers understand the strength and limits of the examiner’s conclusions.

Question 200. What best describes an effective fraud prevention system

1. One control that prevents every scheme
2. A coordinated combination of governance controls monitoring and ethics
3. External audit alone
4. Employee surveillance alone

Correct Answer: 1. A coordinated combination of governance controls monitoring and ethics

Explanation:

Effective fraud prevention depends on several complementary elements rather than one perfect control. Governance provides oversight, internal controls reduce opportunity, fraud risk assessment identifies vulnerabilities, monitoring reveals changes, reporting mechanisms surface concerns, and ethical leadership influences behavior. The current CFE Fraud Prevention and Deterrence section reflects this integrated approach by covering financial crime, corporate governance, management and auditor responsibilities, fraud prevention programs, fraud risk assessment and management, and professional ethics. Together these elements help organizations prevent, deter, detect, and respond to fraud more effectively.