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

Question 221. What is the purpose of identifying fraud risk causes

1. Set employee salaries
2. Design responses that address underlying exposure
3. Replace governance oversight
4. Eliminate all investigations

Correct Answer: 2. Design responses that address underlying exposure

Explanation:

Understanding the cause of a fraud risk helps management choose controls that address the actual vulnerability rather than only its visible symptoms. Causes can include excessive access, poor supervision, unrealistic incentives, weak segregation of duties, ineffective culture, or third party exposure. A control aimed at the wrong cause may add administrative work without significantly reducing fraud risk. Fraud risk assessment therefore requires understanding how and why a scheme could occur before determining the appropriate response. The current CFE Fraud Prevention and Deterrence section includes structured fraud risk assessment and risk management as major competencies.

Question 222. What should the audit committee do with serious hotline allegations involving executives

1. Return them only to management
2. Ignore anonymous reports
3. Delay review until year end
4. Ensure independent review and oversight

Correct Answer: 4. Ensure independent review and oversight

Explanation:

Serious allegations involving senior executives create an obvious conflict if they are handled only through the same management structure named in the complaint. The audit committee or another independent governance body should ensure that the matter receives appropriate review and that investigators can operate without improper interference. Independent escalation also helps protect reporting credibility and strengthens confidence in the organization’s ethics program. Corporate governance, effective audit committees, reporting programs, and management fraud responsibilities are all part of the current Fraud Prevention and Deterrence blueprint.

Question 223. What does a fraud risk universe represent

1. The broad population of fraud risks the organization might face
2. Only confirmed fraud cases
3. Only external fraud schemes
4. Only financial statement fraud

Correct Answer: 1. The broad population of fraud risks the organization might face

Explanation:

A fraud risk universe is a broad inventory of fraud risks that could affect the organization across processes, locations, systems, third parties, and organizational levels. It can help ensure that the assessment process considers more than previously reported fraud. From this broader population, management can identify which scenarios deserve detailed evaluation based on likelihood, impact, controls, and residual exposure. The concept supports a more systematic approach to fraud risk assessment and helps avoid a narrow focus on only known incidents or one business function.

Question 224. What is the main purpose of anti fraud program maturity assessment

1. Replace the fraud risk assessment
2. Eliminate monitoring
3. Evaluate how developed and effective the program is
4. Set external audit fees

Correct Answer: 3. Evaluate how developed and effective the program is

Explanation:

An anti fraud maturity assessment evaluates how well the organization’s prevention framework has developed across areas such as governance, risk assessment, controls, reporting, training, monitoring, investigations, and remediation. The objective is to identify strengths and areas needing improvement rather than simply confirm that policies exist. A mature program should operate consistently and adapt as fraud risks change. The current CFE Fraud Prevention and Deterrence framework emphasizes integrated fraud prevention programs, risk assessment, risk management, management responsibility, and governance.

Question 225. What should management do when controls rely heavily on manual judgment

1. Consider monitoring and review of that judgment
2. Remove all documentation
3. Eliminate supervision
4. Assume judgment cannot be abused

Correct Answer: 1. Consider monitoring and review of that judgment

Explanation:

Controls involving significant manual judgment can create opportunities for inconsistency, bias, override, or deliberate manipulation. Management should consider independent review, documentation standards, approval thresholds, analytics, or other monitoring measures where the fraud risk is significant. Manual judgment is not inherently weak, but it should be supported by clear expectations and accountability. The current CFE content requires candidates to understand control design, operating effectiveness, management override, fraud risk assessment, and fraud prevention techniques.

Question 226. What is a false positive in fraud analytics

1. A confirmed fraud case
2. A control that never operates
3. An alert that appears suspicious but is legitimate
4. A proven management override

Correct Answer: 3. An alert that appears suspicious but is legitimate

Explanation:

A false positive occurs when an analytical rule or monitoring system flags activity as potentially suspicious even though the underlying transaction is legitimate. Fraud analytics should therefore be calibrated carefully so investigators are not overwhelmed by unnecessary alerts. Too many false positives can reduce confidence in the system and waste limited review resources. At the same time, thresholds should not be made so loose that meaningful anomalies are missed. Data analytics can strengthen fraud prevention and monitoring, but it requires periodic evaluation and professional judgment.

Question 227. What is a false negative in fraud monitoring

1. A legitimate transaction that is flagged
2. A control that detects every exception
3. An allegation that is investigated
4. Suspicious activity that the monitoring system fails to flag

Correct Answer: 4. Suspicious activity that the monitoring system fails to flag

Explanation:

A false negative occurs when suspicious or fraudulent activity passes through monitoring without triggering an alert. False negatives can create a false sense of security because management may assume that low alert volume means low fraud risk. Organizations should periodically evaluate monitoring rules, data quality, thresholds, and known incidents to determine whether important patterns are being missed. Fraud analytics should complement controls, reporting channels, professional skepticism, and other prevention measures rather than being treated as a perfect detection mechanism.

Question 228. What should an organization do when hotline reports decrease sharply after a retaliation incident

1. Assume misconduct has ended
2. Investigate trust and retaliation concerns
3. Close the reporting program
4. Stop communicating ethics policies

Correct Answer: 2. Investigate trust and retaliation concerns

Explanation:

A sudden decline in reporting after a retaliation incident can indicate that employees no longer trust the reporting process. Lower hotline volume is not automatically evidence that misconduct has declined. Management should assess whether employees fear retaliation, whether confidentiality protections are credible, and whether previous reports were handled fairly. Corrective action may involve stronger anti retaliation controls, independent administration, leadership communication, and disciplinary action against retaliators. Reporting programs and whistleblower protection are explicit topics in the current Fraud Prevention and Deterrence section.

Question 229. What is the purpose of control self assessment

1. Allow process owners to evaluate their own control environment
2. Replace independent audit
3. Eliminate management accountability
4. Guarantee no fraud risk remains

Correct Answer: 1. Allow process owners to evaluate their own control environment

Explanation:

Control self assessment allows employees and managers responsible for a process to evaluate risks and controls within their area. Because they understand daily operations, process owners can identify practical weaknesses that outsiders might not immediately see. However, self assessment should not replace independent assurance because people may overlook or understate weaknesses in their own work. Used together with audit, analytics, and fraud risk assessment, self assessment can improve awareness and control ownership. Management remains responsible for maintaining effective internal controls.

Question 230. What should happen when a control owner repeatedly misses remediation deadlines

1. Ignore the delays
2. Remove the issue from reporting
3. Escalate the unresolved risk appropriately
4. Mark the action complete

Correct Answer: 3. Escalate the unresolved risk appropriately

Explanation:

Repeatedly missed remediation deadlines can leave significant fraud exposure unresolved. Management should understand why actions are delayed and escalate important overdue items to higher management or governance personnel when appropriate. Escalation creates accountability and helps ensure that resource constraints, disagreements, or control failures receive attention. A remediation tracker should show responsible owners, due dates, status, and evidence of completion. Fraud risk management is not effective when risks are identified but corrective actions remain open indefinitely.

Question 231. What should performance metrics avoid rewarding

1. Accurate reporting
2. Ethical decision making
3. Long term customer value
4. Results achieved through improper conduct

Correct Answer: 4. Results achieved through improper conduct

Explanation:

Performance systems should reward both results and the manner in which those results are achieved. If management rewards revenue, growth, or production without considering compliance and ethical behavior, employees may believe misconduct is acceptable when it improves performance. This can increase pressure and rationalization. Organizations should therefore include ethical conduct, control compliance, and sustainable performance in evaluation systems where appropriate. The current CFE prevention material recognizes organizational pressures, culture, ethics, and performance management as relevant to fraud prevention and deterrence.

Question 232. What should be the primary purpose of an anti retaliation policy

1. Protect good faith reporters from adverse treatment
2. Prevent all disciplinary action
3. Guarantee every allegation is true
4. Make all reports public

Correct Answer: 2. Protect good faith reporters from adverse treatment

Explanation:

An anti retaliation policy protects individuals who raise concerns in good faith from improper punishment, harassment, demotion, threats, or other adverse treatment because they reported suspected misconduct. Protection encourages employees to speak up and strengthens the credibility of the reporting program. It does not prevent legitimate disciplinary action for unrelated misconduct and does not mean every allegation must be proven correct. The current CFE Fraud Prevention and Deterrence blueprint includes whistleblower protection and reporting program best practices as core prevention topics.

Question 233. What should management do when one control depends on unverifiable information

1. Accept the information without question
2. Remove documentation requirements
3. Assess the reliability of the information source
4. Stop all control testing

Correct Answer: 3. Assess the reliability of the information source

Explanation:

A control can only be as reliable as the information used to perform it. If reviewers rely on incomplete, inaccurate, or manipulable information, the control may appear to operate while failing to reduce fraud risk. Management should evaluate the completeness, accuracy, and source of important control information and consider independent validation where necessary. This issue is especially important when data can be altered by the same person whose activity is being reviewed. Internal control effectiveness and fraud risk management are central CFE Fraud Prevention topics.

Question 234. What is the strongest reason to analyze near miss fraud events

1. They can reveal weaknesses before a major loss occurs
2. They should never be documented
3. They prove controls are perfect
4. They eliminate the need for assessment

Correct Answer: 1. They can reveal weaknesses before a major loss occurs

Explanation:

A near miss occurs when a fraud attempt or serious control failure does not ultimately produce a major loss. These events can provide valuable information because they reveal vulnerabilities that might succeed next time. Management should analyze how the event occurred, which controls worked, which controls failed, and what improvements are needed. Waiting for a major financial loss before acting wastes an important learning opportunity. Fraud risk management and prevention programs should use incidents, attempted frauds, and other warning signals to improve the control environment.

Question 235. What should an organization do when fraud prevention responsibilities are unclear

1. Define roles and accountability explicitly
2. Leave responsibility informal
3. Transfer every responsibility to internal audit
4. Stop risk assessment

Correct Answer: 2. Define roles and accountability explicitly

Explanation:

Unclear responsibilities can create gaps because employees assume someone else is monitoring the risk. A strong fraud prevention program should define who owns fraud risks, who operates controls, who monitors performance, who investigates allegations, and who provides governance oversight. Internal audit can provide assurance but should not become the owner of every fraud risk or control. Clear responsibilities improve accountability and make escalation easier when problems arise. Governance and fraud risk management are both major topics in the current CFE Fraud Prevention and Deterrence section.

Question 236. What should a CFE do when pressured to omit a material fact

1. Omit it to satisfy management
2. Change the evidence
3. Report material matters completely and objectively
4. Destroy supporting records

Correct Answer: 3. Report material matters completely and objectively

Explanation:

A fraud examiner should not allow management, clients, or other parties to pressure them into omitting material facts that are necessary for a fair understanding of the findings. Professional ethics require integrity, diligence, a reasonable evidential basis, and complete reporting of material matters. A report can be misleading even when every included statement is technically true if important contrary information is deliberately excluded. Ethical obligations therefore require the CFE to preserve objectivity and communicate significant information appropriately.

Question 237. What is the purpose of periodic fraud risk reassessment after a merger

1. Identify new risks created by combined operations
2. Eliminate all inherited controls
3. Assume both companies have identical risks
4. Stop due diligence

Correct Answer: 1. Identify new risks created by combined operations

Explanation:

A merger can change systems, reporting lines, cultures, access rights, vendors, incentives, and internal controls. These changes can create new fraud opportunities or weaken controls that previously worked well. A post merger fraud risk reassessment helps management understand the combined risk environment and prioritize remediation. Organizations should not assume that two previously effective control systems will remain effective when integrated. Fraud risk assessment should be repeated when major organizational changes significantly alter processes or exposure.

Question 238. What should management do when an automated fraud control has excessive false positives

1. Ignore all alerts
2. Recalibrate the control while preserving risk coverage
3. Disable every monitoring control
4. Treat all alerts as confirmed fraud

Correct Answer: 4. Recalibrate the control while preserving risk coverage

Explanation:

Excessive false positives can overwhelm reviewers and reduce the usefulness of automated monitoring. Management should analyze why legitimate activity is being flagged and adjust rules or thresholds while ensuring meaningful fraud scenarios remain covered. Simply disabling the system can create blind spots, while treating every alert as fraud wastes resources and can produce unfair conclusions. Effective analytics require continuous evaluation of performance, data quality, alert relevance, and follow up procedures. Fraud risk management should balance efficiency with adequate risk coverage.

Question 239. What should happen when a fraud risk owner leaves the organization

1. Reassign ownership promptly
2. Leave the risk without an owner
3. Close the risk automatically
4. Remove all controls

Correct Answer: 3. Reassign ownership promptly

Explanation:

Fraud risks should always have a responsible owner with authority to monitor exposure and ensure required controls and remediation actions are performed. When that person leaves or changes roles, ownership should be transferred promptly. Otherwise important monitoring or corrective work can stop without anyone realizing responsibility has disappeared. Risk ownership should therefore be reviewed during organizational changes and maintained in the fraud risk register or similar documentation. Clear accountability is a key part of effective fraud risk management.

Question 240. What is the best indicator that a fraud prevention program is integrated into the organization

1. Only compliance staff discuss fraud
2. Governance management employees and controls all support prevention
3. Fraud is discussed only after losses
4. External auditors own all fraud risks

Correct Answer: 2. Governance management employees and controls all support prevention

Explanation:

An integrated fraud prevention program is embedded throughout governance, management, business processes, employee responsibilities, reporting channels, controls, monitoring, and ethics. It is not owned solely by compliance or internal audit and does not activate only after a fraud occurs. The current CFE Fraud Prevention and Deterrence section reflects this broad approach by covering financial crime, governance, management and auditor responsibilities, prevention programs, fraud risk assessment, fraud risk management, and ethics. Effective prevention becomes part of how the organization operates rather than a separate administrative exercise.