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

Question 81. What is fraud deterrence designed to influence

1. Accounting standards
2. A potential offender’s decision to commit fraud
3. Customer pricing
4. Product development

Correct Answer: 2. A potential offender’s decision to commit fraud

Explanation:

Fraud deterrence seeks to discourage potential offenders by increasing their perception that misconduct will be detected and that meaningful consequences will follow. Deterrence differs slightly from prevention because prevention can directly restrict the ability to commit fraud through controls, while deterrence influences behavior and decision making. Strong oversight, monitoring, visible enforcement, and consistent disciplinary action can all contribute to deterrence. The current CFE Fraud Prevention and Deterrence section examines why people commit fraud and how organizations can prevent and deter misconduct through governance, controls, risk management, and ethical programs.

Question 82. What should management do when fraud risks change significantly

1. Keep the old assessment unchanged
2. Eliminate all controls
3. Wait for an actual fraud
4. Reassess the fraud risk environment

Correct Answer: 4. Reassess the fraud risk environment

Explanation:

Fraud risk assessments should be updated when important changes occur in the organization or its environment. New technology, acquisitions, remote work, new vendors, market expansion, staffing changes, or modified business processes can create fraud risks that were not considered previously. An outdated assessment can leave management relying on controls designed for conditions that no longer exist. Fraud risk assessment and fraud risk management are major subjects in the current Fraud Prevention and Deterrence body of knowledge. Effective risk management therefore requires periodic reassessment and additional review whenever significant organizational changes occur.

Question 83. What should happen when management identifies a high fraud risk with weak controls

1. Develop an appropriate risk response
2. Ignore the risk
3. Remove documentation
4. Stop monitoring

Correct Answer: 1. Develop an appropriate risk response

Explanation:

A significant fraud risk with weak controls requires an appropriate management response. Depending on the circumstances, management might introduce stronger preventive controls, increase monitoring, redesign the process, transfer part of the exposure, or discontinue the activity. The response should be proportionate to the likelihood and potential impact of the risk. Simply recording the risk without assigning actions does not reduce exposure. The current CFE Fraud Prevention and Deterrence section includes both fraud risk assessment and fraud risk management because organizations must move from identifying risks to actively managing them.

Question 84. What is the main purpose of assigning fraud risk owners

1. Transfer responsibility to auditors
2. Eliminate governance
3. Establish accountability for managing identified risks
4. Remove management involvement

Correct Answer: 3. Establish accountability for managing identified risks

Explanation:

Assigning a fraud risk owner establishes clear responsibility for monitoring and responding to a particular risk. The owner should normally have sufficient authority over the affected business process to implement controls, monitor changes, and report concerns. Without ownership, corrective actions can remain incomplete because no one is clearly responsible for moving them forward. Internal audit can independently assess how risks are managed, but operational ownership should remain with management. Fraud risk management is a major part of the current CFE Fraud Prevention and Deterrence examination.

Question 85. What is a key purpose of management certification statements

1. Reinforce accountability for accurate information
2. Replace internal audit
3. Remove executive responsibility
4. Eliminate documentation

Correct Answer: 1. Reinforce accountability for accurate information

Explanation:

Management certifications require responsible individuals to affirm the accuracy, completeness, or compliance of information within their areas of responsibility. Requiring someone to make an explicit certification can strengthen accountability and make individuals think more carefully before approving questionable information. Certification does not replace controls, audits, or independent verification, but it can complement them by creating a clear statement of responsibility. Behavioral interventions and management accountability are relevant to fraud prevention because individuals are less likely to disregard requirements when their personal responsibility is clearly documented and visible.

Question 86. What should happen when a hotline report concerns senior management

1. Send it only to the accused executive
2. Delete the report
3. Delay it until year end
4. Escalate it through an independent channel

Correct Answer: 4. Escalate it through an independent channel

Explanation:

Allegations involving senior management should be handled through a reporting path that is sufficiently independent of the individuals named in the allegation. This can involve the audit committee, board, compliance leadership, or another designated independent authority. Routing the allegation only through the accused person’s normal management chain could create conflicts and increase the risk of retaliation or interference. Effective reporting programs require appropriate escalation procedures for sensitive allegations. Fraud prevention programs and corporate governance are both tested within the current CFE Fraud Prevention and Deterrence section.

Question 87. What should fraud prevention training for managers emphasize

1. Only annual revenue goals
2. Their responsibility for controls and reporting
3. Avoiding employee questions
4. Eliminating documentation

Correct Answer: 2. Their responsibility for controls and reporting

Explanation:

Managers should understand their responsibility for maintaining controls, identifying warning signs, responding to concerns, escalating suspected misconduct, and reinforcing ethical expectations. Fraud prevention is not solely the responsibility of internal audit or compliance personnel. Managers are close to daily business processes and can often recognize unusual behavior or control weaknesses early. Training should therefore explain both organizational policies and practical management duties. The current CFE Fraud Prevention and Deterrence body of knowledge includes management’s fraud related responsibilities, compliance and ethics programs, internal controls, and fraud awareness.

Question 88. What is the primary purpose of fraud control testing

1. Increase transaction volume
2. Set customer prices
3. Determine whether controls operate as intended
4. Eliminate risk assessment

Correct Answer: 3. Determine whether controls operate as intended

Explanation:

Fraud control testing evaluates whether controls designed to prevent or detect fraud are actually functioning as intended. A control might be well designed on paper but ineffective if employees do not perform it consistently or if exceptions are routinely ignored. Testing can identify design weaknesses and operating failures that require remediation. The results can also help management reassess residual fraud risk. The current CFE content includes internal control effectiveness, management responsibilities, fraud risk assessment, and fraud risk management, making control evaluation an important prevention concept.

Question 89. What is the purpose of a fraud response plan

1. Define how suspected fraud will be handled
2. Replace the code of conduct
3. Eliminate investigations
4. Approve sales transactions

Correct Answer: 1. Define how suspected fraud will be handled

Explanation:

A fraud response plan establishes procedures for handling suspected misconduct once an allegation or warning sign is identified. It can define reporting routes, investigation responsibilities, evidence preservation, legal involvement, communication, disciplinary processes, and remediation steps. Having the plan in advance reduces confusion and helps the organization respond consistently rather than improvising during a crisis. Fraud prevention programs are stronger when prevention, detection, and response activities are connected. The current CFE Fraud Prevention and Deterrence section includes how organizations should respond to fraud incidents as part of effective fraud prevention programs.

Question 90. What should happen when confirmed fraud reveals a control weakness

1. Conceal the weakness
2. Keep the control unchanged
3. Stop all monitoring
4. Correct the underlying control problem

Correct Answer: 4. Correct the underlying control problem

Explanation:

A confirmed fraud incident provides information about how controls were bypassed, missing, or ineffective. Management should analyze the root cause and correct the relevant weakness to reduce the chance of similar misconduct occurring again. Disciplining an offender without improving the vulnerable process leaves the organization exposed. Remediation can include stronger approvals, access restrictions, monitoring, segregation of duties, or changes in management supervision. Fraud incident response and fraud risk management are interconnected topics within the current CFE Fraud Prevention and Deterrence body of knowledge.

Question 91. What should a strong anti fraud culture encourage employees to do

1. Ignore minor misconduct
2. Speak up about suspected wrongdoing
3. Protect high performers from discipline
4. Avoid reporting concerns

Correct Answer: 2. Speak up about suspected wrongdoing

Explanation:

A strong anti fraud culture encourages employees to raise concerns when they observe suspicious behavior or violations of organizational standards. Employees should know where to report concerns and believe that good faith reports will be handled seriously without improper retaliation. Leadership behavior strongly influences whether employees feel safe speaking up. Organizations that punish reporters or tolerate misconduct by powerful individuals can undermine formal policies and hotlines. Fraud prevention programs, ethics programs, reporting systems, and whistleblower protection are important components of the current CFE Fraud Prevention and Deterrence material.

Question 92. What does an independent fraud risk assessment improve

1. Employee compensation
2. Sales forecasting
3. Objectivity in evaluating fraud exposure
4. Product pricing

Correct Answer: 3. Objectivity in evaluating fraud exposure

Explanation:

Independent participation can improve fraud risk assessment by challenging assumptions made by people who operate the process every day. Process owners provide essential knowledge, but they may overlook weaknesses because they are familiar with existing practices or have incentives to view controls positively. Involving independent risk, compliance, audit, or fraud specialists can bring additional perspective. Independence does not eliminate the need for management participation because management remains responsible for fraud risk. A balanced assessment combines operational knowledge with objective challenge and is consistent with the current CFE focus on fraud risk assessment and management.

Question 93. What should management consider when evaluating fraud risk impact

1. Financial and nonfinancial consequences
2. Only immediate cash loss
3. Only insurance coverage
4. Only employee count

Correct Answer: 1. Financial and nonfinancial consequences

Explanation:

Fraud impact should not be measured only by direct monetary loss. Misconduct can also cause reputational damage, regulatory penalties, litigation, operational disruption, employee morale problems, customer losses, and increased compliance costs. Some schemes with relatively small direct losses can create major long term consequences. The Fraud Examiners Manual specifically includes the nonfinancial costs of financial crime within the current Fraud Prevention and Deterrence section. Considering both financial and nonfinancial effects provides a more realistic basis for prioritizing fraud risks and selecting suitable responses.

Question 94. What can make an anti fraud control ineffective despite good design

1. Strong management review
2. Employees failing to perform it consistently
3. Independent testing
4. Clear responsibility

Correct Answer: 2. Employees failing to perform it consistently

Explanation:

A control can be well designed yet ineffective when employees do not execute it properly or consistently. This is an operating effectiveness problem. For example, policy might require approval of vendor changes, but staff might routinely bypass the review. The control exists and could reduce risk if performed, yet actual practice leaves the organization exposed. Management should monitor operation, train responsible employees, investigate repeated exceptions, and remediate failures. Internal control failures and management’s responsibility for effective controls are part of the current CFE Fraud Prevention and Deterrence body of knowledge.

Question 95. What is a major benefit of mandatory vacation policies in sensitive jobs

1. They can expose schemes requiring continuous concealment
2. They eliminate all fraud
3. They replace reconciliations
4. They remove supervisory responsibility

Correct Answer: 1. They can expose schemes requiring continuous concealment

Explanation:

Certain fraud schemes require the perpetrator to remain continuously involved so records can be manipulated or suspicious transactions concealed. Mandatory vacations require another person to perform the employee’s duties for a period, which can reveal irregularities that would otherwise remain hidden. This practice can be especially useful in financial, cash handling, or reconciliation roles. It should complement rather than replace other controls such as segregation of duties and independent review. Fraud prevention procedures should combine several controls so the failure of one measure does not leave the organization unprotected.

Question 96. What should third party contracts include when fraud risk is significant

1. No compliance requirements
2. Unlimited access rights
3. Appropriate anti fraud and compliance expectations
4. No monitoring provisions

Correct Answer: 3. Appropriate anti fraud and compliance expectations

Explanation:

Contracts with higher risk third parties can establish clear expectations concerning ethical conduct, compliance, documentation, audit rights, reporting, conflicts, and other fraud related matters. Contract terms alone do not prevent third party fraud, but they establish requirements that can support due diligence, monitoring, and enforcement. Organizations should tailor provisions to the nature and risk of the relationship instead of applying identical controls to every vendor. The current Fraud Examiners Manual specifically includes third party fraud risks within fraud risk management, making external relationship controls relevant to fraud prevention.

Question 97. What should happen when a third party presents unresolved integrity concerns

1. Ignore the concerns
2. Increase the vendor’s access
3. Skip due diligence
4. Escalate the issue before continuing the relationship

Correct Answer: 4. Escalate the issue before continuing the relationship

Explanation:

Unresolved integrity concerns discovered during due diligence should be investigated and escalated before an organization proceeds with or expands a third party relationship. Warning signs can involve ownership, conflicts of interest, sanctions, bribery concerns, unusual payment requests, or questionable business history. Proceeding without understanding significant red flags can expose the organization to financial, regulatory, and reputational harm. Fraud risk management includes identifying and responding to risks arising from external parties rather than focusing exclusively on employees.

Question 98. What is an important purpose of periodic ethics training

1. Eliminate reporting channels
2. Reinforce expectations as risks and roles change
3. Replace policies
4. Guarantee ethical behavior

Correct Answer: 2. Reinforce expectations as risks and roles change

Explanation:

Ethics training should be reinforced periodically because employees change positions, new risks emerge, policies evolve, and lessons from actual incidents can improve awareness. One training session at hiring may be forgotten or become outdated. Effective programs use repeated communication to explain expected conduct, conflicts, reporting channels, management responsibilities, and consequences for violations. Training cannot guarantee that everyone will behave ethically, but it helps keep organizational standards visible and supports a stronger anti fraud culture. Fraud prevention programs and ethics are both central to the current CFE Fraud Prevention and Deterrence section.

Question 99. What should a CFE do when professional judgment could be impaired by a personal interest

1. Address or disclose the conflict appropriately
2. Conceal the interest
3. Change evidence
4. Ignore professional ethics

Correct Answer: 1. Address or disclose the conflict appropriately

Explanation:

Fraud examiners must protect objectivity and avoid allowing personal interests to influence professional judgment. A conflict of interest can create actual bias or the appearance that conclusions are not impartial. Depending on the circumstances, the professional should disclose the conflict, remove themselves from the matter, or take another appropriate measure consistent with organizational and professional requirements. The ACFE requires members and CFEs to follow its Code of Professional Ethics throughout their membership and certification. Ethical considerations are specifically tested in the current Fraud Prevention and Deterrence section.

Question 100. What should an organization do to keep its fraud prevention program effective over time

1. Leave it unchanged permanently
2. Review and improve it as risks evolve
3. Remove management oversight
4. Stop evaluating controls

Correct Answer: 2. Review and improve it as risks evolve

Explanation:

Fraud prevention programs should evolve with the organization. New technologies, markets, personnel, business models, third parties, and regulatory expectations can create risks that older controls were not designed to address. Management should periodically assess fraud risks, evaluate control effectiveness, review reporting and training programs, analyze incidents, and make improvements when necessary. The ACFE’s current examination framework reflects this integrated approach through its coverage of fraud prevention programs, fraud risk assessment, fraud risk management, corporate governance, and management responsibilities. A program that is never reviewed can become outdated even if it was effective when first implemented.