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

Question 161. What is the main purpose of a fraud risk appetite statement

1. Set audit fees
2. Eliminate every fraud risk
3. Define employee compensation
4. Clarify the level of fraud risk the organization will tolerate

Correct Answer: 4. Clarify the level of fraud risk the organization will tolerate

Explanation:

A fraud risk appetite statement helps management and governance personnel understand how much fraud exposure the organization is prepared to accept while pursuing its objectives. It supports decisions about controls, monitoring, remediation, and risk acceptance. Organizations cannot practically eliminate every possible fraud risk, so they need criteria for determining when residual exposure is acceptable and when additional action is necessary. Fraud risk appetite should align with broader risk management and governance expectations. The current CFE Fraud Prevention and Deterrence material emphasizes fraud risk management frameworks, residual risk, management responsibility, and structured responses to identified exposure.

Question 162. What is the purpose of evaluating control gaps during a fraud risk assessment

1. Identify risks without adequate control coverage
2. Replace all existing controls
3. Reduce audit documentation
4. Increase employee access

Correct Answer: 1. Identify risks without adequate control coverage

Explanation:

A control gap exists when an identified fraud risk is not adequately addressed by an existing preventive or detective measure. Identifying these gaps helps management determine where additional controls, monitoring, or process changes may be necessary. A fraud risk assessment should not merely list possible schemes. It should also evaluate how well current controls address those schemes and what residual risk remains afterward. The current CFE blueprint specifically includes internal control failures such as gaps, design problems, and operating effectiveness problems, while fraud risk assessment focuses on identified risks and appropriate responses.

Question 163. What is the best reason to evaluate collusion risk

1. Collusion eliminates management responsibility
2. Collusion always involves outsiders
3. Two or more people can bypass controls designed for one person
4. Collusion makes controls unnecessary

Correct Answer: 3. Two or more people can bypass controls designed for one person

Explanation:

Many internal controls assume that responsibilities are divided among people who act independently. Collusion can weaken this protection when two or more individuals cooperate to bypass approvals, falsify documentation, or conceal unauthorized activity. Segregation of duties remains important, but organizations should recognize that it is not an absolute safeguard against coordinated misconduct. Monitoring unusual relationships, transactions, access patterns, and override activity can help address this exposure. Fraud risk assessment should consider realistic methods perpetrators could use to defeat controls, including cooperation among employees, managers, or third parties.

Question 164. What is the purpose of a fraud risk heat map

1. Record employee attendance
2. Visually compare fraud risks by significance
3. Replace the risk register
4. Prove that fraud occurred

Correct Answer: 2. Visually compare fraud risks by significance

Explanation:

A fraud risk heat map visually displays risks according to factors such as likelihood and impact. It helps management identify which risks require the greatest attention and can make assessment results easier to communicate to senior leadership and governance personnel. A heat map does not prove fraud or eliminate the need for professional judgment. The underlying ratings should be supported by reasonable assessment criteria and current information. Fraud risk assessment frameworks are intended to make identification, evaluation, communication, and response more structured and useful for management decision making.

Question 165. What should management do when preventive controls are impractical

1. Consider stronger detective or compensating controls
2. Accept every fraud risk
3. Stop monitoring transactions
4. Remove responsibility from process owners

Correct Answer: 1. Consider stronger detective or compensating controls

Explanation:

Not every fraud risk can be addressed with an ideal preventive control. Small organizations, unusual processes, or operational limitations can make certain controls impractical. Management can respond by implementing suitable detective or compensating controls such as independent review, exception reporting, monitoring, reconciliations, or additional supervisory oversight. The alternative should address the underlying risk as effectively as practical. Management remains responsible for determining whether residual exposure is acceptable. The current CFE content emphasizes internal control design, operating effectiveness, fraud risk assessment, and appropriate responses to residual fraud risks.

Question 166. What should an organization do when fraud risk crosses several departments

1. Assign it only to external audit
2. Ignore ownership
3. Split the risk into unrelated issues
4. Coordinate responsibility across relevant functions

Correct Answer: 4. Coordinate responsibility across relevant functions

Explanation:

Some fraud risks involve several departments, systems, or business processes. For example, procurement fraud can involve purchasing, accounts payable, information technology, compliance, and operational management. Treating such exposure as the responsibility of one isolated function can leave important gaps. Management should establish clear ownership while coordinating controls and information across affected areas. Fraud risk management frameworks are intended to clarify responsibility, improve communication, and integrate fraud risk into broader organizational risk processes. Cross functional coordination is especially important when no single department can control the complete fraud scenario.

Question 167. What is the main purpose of scenario analysis in fraud risk assessment

1. Calculate tax rates
2. Explore how plausible fraud schemes could occur
3. Replace interviews
4. Determine audit fees

Correct Answer: 2. Explore how plausible fraud schemes could occur

Explanation:

Scenario analysis asks participants to think through realistic ways fraud could occur within a particular process or environment. The organization can consider possible perpetrators, methods, concealment techniques, incentives, weaknesses, and consequences. This approach helps identify exposures that may not appear when management focuses only on historical fraud incidents. Scenario analysis is particularly useful for emerging risks involving technology, new business models, or third parties. Fraud risk assessment should consider plausible future schemes in addition to known past misconduct so controls can be designed proactively rather than only after a loss occurs.

Question 168. What should happen when fraud risk ratings rely on outdated information

1. Keep the ratings unchanged permanently
2. Remove the risk register
3. Update the assessment using current information
4. Assume controls remain effective

Correct Answer: 3. Update the assessment using current information

Explanation:

Fraud risk ratings can lose value when they are based on old business conditions, outdated systems, former employees, or controls that no longer operate as originally designed. Organizations should periodically reassess significant risks and update likelihood, impact, control effectiveness, and residual exposure when conditions change. Current information helps management prioritize resources properly. Fraud risk management is an ongoing process rather than a one time compliance exercise. The current CFE Fraud Prevention and Deterrence materials emphasize assessment frameworks, residual risk responses, risk management programs, and continued monitoring of fraud exposure.

Question 169. What should management do with recurring control exceptions

1. Treat them as evidence the control may need review
2. Ignore them as routine
3. Stop documenting them
4. Increase access privileges

Correct Answer: 4. Treat them as evidence the control may need review

Explanation:

Repeated control exceptions can indicate that a control is poorly designed, difficult to follow, frequently overridden, or ineffective in practice. Management should analyze the pattern and determine why exceptions keep occurring. The response might involve redesigning the control, improving training, strengthening supervision, changing system settings, or addressing deliberate circumvention. Treating repeated exceptions as normal can allow fraud opportunities to grow. Internal control effectiveness and monitoring are important management responsibilities within the current CFE Fraud Prevention and Deterrence framework.

Question 170. What should be the focus of fraud risk remediation tracking

1. Employee popularity
2. Completion and effectiveness of corrective actions
3. Marketing activity
4. Customer discounts

Correct Answer: 2. Completion and effectiveness of corrective actions

Explanation:

Remediation tracking should determine whether agreed fraud risk actions were completed on time and whether they actually reduced the identified exposure. Closing an action merely because a new policy was written is insufficient if the control is not implemented or does not work effectively. Responsible owners, deadlines, evidence of completion, and follow up testing can strengthen the process. Fraud risk management requires organizations to move from assessment to action and then monitor whether those actions produce the intended result. This supports accountability and continual improvement of the anti fraud program.

Question 171. What is the main purpose of periodic vendor rescreening

1. Detect changes in third party risk
2. Eliminate contracts
3. Increase vendor payments
4. Replace initial due diligence

Correct Answer: 1. Detect changes in third party risk

Explanation:

A vendor that appeared acceptable during initial due diligence can later experience changes in ownership, reputation, financial condition, sanctions exposure, conflicts, or business practices. Periodic rescreening helps organizations identify these changes and reassess whether the relationship remains appropriate. Rescreening does not replace initial due diligence. It complements it by recognizing that third party risk changes over time. The Fraud Examiners Manual specifically includes managing third party fraud risks as part of fraud risk management, emphasizing that external relationships require continued attention rather than one time approval.

Question 172. What should management do when a third party refuses reasonable audit rights

1. Ignore the refusal
2. Increase the third party’s access
3. Evaluate the refusal as a potential risk concern
4. Remove all monitoring

Correct Answer: 3. Evaluate the refusal as a potential risk concern

Explanation:

A refusal to accept reasonable audit, documentation, or monitoring provisions can be a warning sign when the relationship presents meaningful fraud risk. The organization should understand the reason for the refusal and determine whether adequate alternatives exist before proceeding. Not every refusal proves misconduct, but unresolved resistance to transparency can increase risk. Third party risk management can include contractual expectations, due diligence, monitoring, audit rights, and escalation procedures. The current Fraud Examiners Manual specifically identifies management of third party fraud risks within the fraud risk management program.

Question 173. What is the purpose of fraud risk indicators

1. Prove misconduct immediately
2. Eliminate investigations
3. Replace all controls
4. Provide signals of changing or elevated fraud exposure

Correct Answer: 4. Provide signals of changing or elevated fraud exposure

Explanation:

Fraud risk indicators are measurable conditions or events that can signal increased exposure. Examples might include unusual override activity, rising exception rates, vendor changes, control failures, or increased hotline complaints. Indicators do not prove fraud, but they help organizations identify where closer review may be warranted. Useful indicators should be tied to known fraud risks and monitored consistently. Data analytics and continuous monitoring can make indicator tracking more timely and scalable. The current CFE Fraud Prevention and Deterrence materials emphasize data analytics, fraud risk monitoring, and structured fraud risk management.

Question 174. What should an organization do when an anti fraud control creates a new risk

1. Keep it unchanged
2. Reassess and redesign the control
3. Stop all fraud prevention
4. Ignore the new exposure

Correct Answer: 2. Reassess and redesign the control

Explanation:

Controls can sometimes create unintended consequences. A poorly designed control might encourage employees to bypass procedures, concentrate excessive access in one role, or create new vulnerabilities. Management should evaluate both the benefits and unintended risks of its control design. If the control creates significant new exposure, it should be modified or replaced with a more effective approach. Fraud risk management requires continual evaluation rather than assuming that every added control automatically reduces overall risk. Internal control design and residual risk are important concepts within the current CFE blueprint.

Question 175. What should internal audit do with significant fraud control weaknesses

1. Communicate them to appropriate management and governance
2. Take permanent ownership of the controls
3. Hide them from management
4. Remove them from audit reports

Correct Answer: 3. Communicate them to appropriate management and governance

Explanation:

Internal audit should communicate significant control weaknesses to the people responsible for correcting them and, when appropriate, to governance personnel. Internal auditors can evaluate fraud controls and recommend improvements, but management remains responsible for designing, implementing, and operating controls. Serious weaknesses involving senior management or substantial risk may require escalation to the audit committee or board. The current CFE Fraud Prevention and Deterrence section specifically addresses internal auditors’ fraud related responsibilities as well as corporate governance and management’s responsibility for internal controls.

Question 176. What should happen when external auditors identify possible fraud

1. They should automatically prosecute the suspect
2. They should follow applicable audit and reporting responsibilities
3. They should manage the client’s controls
4. They should ignore immaterial misconduct in every case

Correct Answer: 1. They should follow applicable audit and reporting responsibilities

Explanation:

External auditors who identify possible fraud should respond according to applicable professional auditing standards, engagement requirements, and reporting obligations. Their role is not to prosecute suspects or assume management’s responsibility for controls. The response can involve additional audit procedures, communication with appropriate management or governance personnel, and consideration of the effect on financial statements and the audit. The current CFE Fraud Prevention and Deterrence blueprint specifically requires candidates to understand external auditors’ fraud related responsibilities and relevant reporting requirements.

Question 177. What is the purpose of an escalation protocol in a reporting program

1. Hide serious allegations
2. Route important concerns to the proper authority
3. Eliminate confidentiality
4. Delay investigations

Correct Answer: 4. Route important concerns to the proper authority

Explanation:

An escalation protocol defines where reports should go when allegations involve senior management, significant financial exposure, legal concerns, or other sensitive circumstances. Ordinary management channels may be inappropriate when the person receiving the report has a conflict of interest. Clear escalation rules can direct matters to compliance, legal counsel, the audit committee, the board, or another independent authority. Effective reporting programs require more than a hotline number. They also need procedures for handling different levels of allegations appropriately and protecting the integrity of the response process.

Question 178. What should an organization do when employees do not trust its hotline

1. Investigate why trust is low and improve the program
2. Close the hotline
3. Punish employees for not reporting
4. Make every report public

Correct Answer: 1. Investigate why trust is low and improve the program

Explanation:

A reporting program cannot function effectively when employees believe reports will be ignored, exposed, or followed by retaliation. Management should understand why trust is low and address the underlying problems. Improvements may involve stronger confidentiality controls, independent administration, clearer anti retaliation protections, better communication, or more consistent responses to allegations. A hotline’s existence alone does not demonstrate effectiveness. The current CFE Fraud Prevention and Deterrence curriculum includes reporting programs, whistleblower protection, ethics programs, and organizational culture as important fraud prevention topics.

Question 179. What is the best reason to review disciplinary trends

1. Set product prices
2. Identify inconsistency or recurring misconduct patterns
3. Replace investigations
4. Eliminate policies

Correct Answer: 2. Identify inconsistency or recurring misconduct patterns

Explanation:

Reviewing disciplinary trends can reveal whether similar violations receive inconsistent treatment or whether particular types of misconduct repeatedly occur in certain business units. Inconsistent discipline can weaken ethical culture and create the impression that policies apply differently depending on status or performance. Recurring patterns can also indicate underlying control or culture problems requiring broader action. Fraud prevention programs should evaluate how policies operate in practice, not merely whether written rules exist. Consistency, accountability, ethics, and incident response are all relevant to effective prevention and deterrence.

Question 180. What is the best overall purpose of continual fraud risk reassessment

1. Keep prevention efforts aligned with changing threats
2. Guarantee fraud cannot occur
3. Eliminate management judgment
4. Replace governance oversight

Correct Answer: 3. Keep prevention efforts aligned with changing threats

Explanation:

Fraud risks change as organizations adopt new technology, modify processes, enter markets, change personnel, and work with different third parties. Continual reassessment helps determine whether existing controls still address current threats and whether new risks require different responses. The updated CFE Exam launched in June 2026 specifically reflects changes in the modern fraud risk landscape, reinforcing the importance of keeping professional knowledge and organizational prevention programs current. Fraud risk management should therefore be treated as an ongoing cycle of assessment, response, monitoring, and improvement.