CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE THREE
FRAUD PREVENTION AND DETECTION
MONDAY: 19 August 2024. Morning Paper. Time Allowed: 3 hours.
This paper consists of one hundred (100) Multiple Choice Questions. Answer ALL questions indicating the letter (A, B, C or D) that represents the correct answer. Each question is allocated one (1) mark.
1. Which one of the following is NOT a fraud risk associated with fraudulent financial reporting?
A. Perceived situational pressure
B. Pressure/incentives
C. Opportunity
D. Inadequate oversight (1 mark)
2. Which one of the following is a responsibility for the internal auditor in fraud risk management?
A. Develop internal controls
B. Conduct fraud risk assessment and develop a framework
C. Assist management in fraud prevention
D. Develop a fraud risk management program (1 mark)
3. Which one of the following is ACCURATE in regard to the internal auditor’s line of defense against fraud and corruption?
A. First line of defense
B. Third line of defense
C. Second line of defense
D. Fourth line of defense (1 mark)
4. Which one of the following entities’ auditors MUST adhere to IOSCO Principles for Auditor Oversight in regard to audit?
A. Public companies
B. Public entities
C. Private companies
D. All companies (1 mark)
5. Which one of the following is an element that facilitate fraud and BEST describes “Management seem to have high tolerance of fraud?”
A. Rationalisation
B. Opportunity
C. Low personal integrity
D. Situational pressure (1 mark)
6. Which one of the following fraud elements BEST describes strong sense of entitlement?
A. Perceived pressure
B. Perceived opportunity
C. Justification
D. Situational pressure (1 mark)
7. Which one of the following BEST describes situational pressure to perpetrate fraud?
A. “Management are engaging in conflict of interest”
B. “I need money to pay my debts”
C. “We must conceal a substantial amount of expenditure”
D. “I have an emergency; I must resolve it in whichever way” (1 mark)
8. Which one of the following principles of the COSO components involves assessing situations or circumstances that could significantly impact the internal control system?
A. Risk assessment
B. Control environment
C. Control activity
D. Monitoring (1 mark)
9. Which one of the following controls MUST be integrated with internal control system, for it to be effective?
A. Strong controls
B. Effective controls
C. Preventive and detective controls
D. Preventive controls (1 mark)
10. Which one of the following parties has responsibility for providing oversight over the internal control system?
A. Board
B. Management
C. Audit committee
D. Internal auditor (1 mark)
11. Which one of the following elements is NOT a component of the compliance program?
A. Designated compliance officer
B. Appropriate incentives for compliance with the program
C. Strong controls
D. Continuous evaluation of the compliance program (1 mark)
12. Which one of the following controls CANNOT help the treatment of rationalisation risk?
A. Fraud awareness training
B. Employees support program
C. Surprise audits
D. Comprehensive code of ethics (1 mark)
13. Which one of the following is NOT a fraud detective control?
A. Forensic audits
B. Management oversight
C. Independent reconciliations
D. Fraud detection (1 mark)
14. Which one of the following is a component of fraud prevention health check-up, that is related to the board of directors’ oversight over fraud risk management?
A. Fraud risk governance
B. Fraud risk tolerance
C. Fraud risk assessment
D. Fraud risk oversight (1 mark)
15. Which one of the following parties is responsible for evaluating the effectiveness of the fraud risk management program?
A. Internal auditor
B. Risk officer
C. Management
D. Board of directors (1 mark)
16. Which one of the following is NOT accurate in regard to an entity’s OECD corporate governance framework?
A. Ensure proportionate treatment based on the number of share
B. Encourage active cooperation between corporations and stakeholders in creating wealth and jobs
C. Ensure the timely and accurate disclosure of all material matters regarding the corporation
D. None of the above (1 mark)
17. Which one of the following parties is responsible for holding the oversight body accountable for a company’s resources?
A. The stakeholders
B. The regulatory authority
C. Executive board
D. None of the above (1 mark)
18. Which one of the following recommendations was made the Treadway Commission to audit committees to prevent fraudulent financial reporting?
A. To micro manage management
B. To have advanced training
C. To have authority
D. None of the above (1 mark)
19. Which one of the following is responsible for providing oversight over employees?
A. Managers and supervisors
B. External auditors
C. The board of directors
D. None of the above (1 mark)
20. Which one of the following BEST describes the culture of an organisation that has not put in place measures to prevent and detect fraud?
A. High tolerance for fraudulent and corrupt activities
B. Lack of due diligence
C. Complicated organisational structure
D. High tolerance for fraud risks (1 mark)
21. Which one of the following BEST describes evaluation responsibilities for an organisation’s programs.?
A. Management
B. Audit committee
C. Corporate compliance
D. Internal auditor (1 mark)
22. Which one of the following BEST describes the principle related to clarity, accuracy, completeness, and timeliness of the financial statements and other information provided management to shareholders?
A. Fairness
B. Accountability
C. Responsibility
D. Transparency (1 mark)
23. Which one of the following BEST describes the most effective method of fraud risk management?
A. Designing and implementing detective controls
B. Designing and implementing preventive controls
C. Designing and implementing strong controls
D. Designing and implementing effective controls (1 mark)
24. Which one of the following BEST describes reorganisation of existing controls?
A. Enhancing controls
B. Enforcing controls
C. Reengineering controls
D. Strengthening controls (1 mark)
25. Which of the following is MOST accurate in regard to a control environment principle that supports the design and implementation of an effective control environment?
A. Senior management demonstrate commitment to integrity and ethical values
B. Board should be very close to management and oversee the design and implementation of the internal control
C. Internal auditors should be held accountable for the effectiveness of the internal controls
D. None of the above (1 mark)
26. Which one of the following statements is MOST accurate in regard to fraud risk assessment principle?
A. The organisation sets clear objectives to enable the detection and assessment of risks relating to the objectives
B. The organisation detect the risks associated with the achievement of the objectives
C. The organisation detect changes that would significantly impact the system of internal controls
D. The organisation identify the risks associated with the achievement of the objectives (1 mark)
27. Which one of the following is among the board’s responsibilities for fraud risk management?
A. Design and implementation of controls to mitigate the risks
B. Monitoring the fraud risk management program
C. Performing and regularly updating the fraud risk assessment
D. Developing strategies to prevent and detect fraud (1 mark)
28. Which one of the following topics should NOT be in employee anti-fraud training course contents?
A. A statement that management is going to respond to fraud allegations effectively
B. A statement that management, has no tolerance for fraudulent activities
C. Dates for scheduled control activities
D. Methods that management will use to proactively detect fraud (1 mark)
29. Which one of the following is a fraud risk associated with compensation based on performance bonuses?
A. Rationalisation
B. Pressure
C. Opportunity
D. Situational pressure (1 mark)
30. Which one of the following parties is responsible for assisting management in fraud prevention and detection in an organisation?
A. Internal auditors
B. External auditors
C. All employees
D. Board of directors (1 mark)
31. Which one of the following BEST describes fraud prevention health check–up component, that is related to the culture of the organisation?
A. Control activities
B. Fraud risk tolerance and risk management policy
C. Internal control environment
D. None of the above (1 mark)
32. Which one of the following statements BEST describes positive reinforcement measures?
A. Positive reinforcement measures help to enhance the internal controls
B. Segregation of duties are examples of positive reinforcement measures
C. Positive reinforcement measures enforce the hard controls
D. Positive reinforcement measures are enforced the hard controls (1 mark)
33. Which one of the following should management NOT do to create a strong control environment?
A. Develop a comprehensive compliance program
B. Demonstrate zero tolerance for fraud and unethical behavior
C. Create an open-door policy environment
D. Define zero tolerance for fraud risks (1 mark)
34. Which one of the following statements is NOT accurate in regard to the independent auditor’s responsibility for fraud?
A. International Standard on Auditing (ISA 240) has put express responsibility on the auditor to detect fraud in the course of auditing financial statements
B. Auditors have a responsibility for identify fraud risks in all the processes
C. Auditors have a responsibility for identify risks and red flags of fraud in all the processes
D. None of the above (1 mark)
35. Which one of the following does NOT describe the pressure leg of the fraud triangle?
A. “I am in a financial crisis”
B. “I need money to repay my debts”
C. “I have the technical skills and knowledge to help myself”
D. “I have an emergency; I have to help myself” (1 mark)
36. According to International Standard on Auditing (ISA 240), the auditor is only concerned with fraud that
.
A. is perpetrated management and employees
B. causes misappropriation of assets
C. causes misstatement in the financial statements
D. None of the above (1 mark)
37. Organisation crime theorists, found that businesses justify illegal or noncompliant conduct. Which one of the following statements is NOT a justification made the businesses for their behavior?
A. The purpose for violations is to retain employees’ jobs
B. Compliance with government regulations are too expensive
C. The damage is shared among a large number of consumers
D. The purpose for violation to remain profitable (1 mark)
38. According to COSO, an internal control system should be designed to provide reasonable assurance in the achievement of the organisation’s objectives. Which one of the following is NOT one of these objectives?
A. The effectiveness and efficiency of the organisation’s operations
B. To maximise income and profits
C. The organisation’s compliance with the laws and regulations.
D. None of the above (1 mark)
39. Which one of the following is NOT a core principle of sound corporate governance?
A. Responsibility
B. Confidentiality
C. Accountability
D. Transparency (1 mark)
40. Which one of the following parties is responsible for providing oversight over the design and implementation of the organisation’s fraud prevention program?
A. The management
B. Internal auditors
C. External auditors
D. The board (1 mark)
41. Which one of the following parties has responsibility for the design, implementation and monitoring of the effectiveness of the fraud risk management program?
A. Internal auditor
B. External auditor
C. Management
D. Compliance officer (1 mark)
42. Which one of the following statements is ACCURATE in regard to internal control system?
A. An effective internal control system can mitigate all types of fraud risks to an acceptable level
B. Red flags of fraud are sure indicators that fraud has occurred and the organisation should respond to such red flags conducting a fraud investigation
C. Absence of internal controls is not a root cause of fraud
D. Risks of fraud are sure indicators that fraud has occurred and therefore the organisation should conduct a fraud investigation (1 mark)
43. Which one of the following theories BEST describes the use of threat of criminal sanctions?
A. Prevention
B. Detection
C. Investigation
D. None of the above (1 mark)
44. Which one of the following is the MAIN organisational risk factor that contributes towards fraudulent activity management?
A. Living beyond means
B. Overwhelming desire for wealth
C. Trusting key employees and not verifying
D. Financial pressure (1 mark)
45. Which one of the following is the BEST approach to control corporate crime?
A. Consumer pressure
B. Fraud hotlines
C. Deliberate changes in corporate culture
D. Government intervention (1 mark)
46. Which one of the following is NOT accurate in regard to the control environment of an organisation?
A. It sets the tone at the top
B. Sets the moral and ethical tone of the organisation
C. It puts all other controls into action
D. None of the above (1 mark)
47. Which one of the following statements is NOT accurate in regard to white-collar crime?
A. In white-collar crime cases like corruption, the higher the offender’s status, the more likely the individual will not be imprisoned
B. In white-collar crime cases, the higher an offender’s status, the more likely the individual will be convicted
C. In white-collar crime cases, the higher an offender’s status, the more likely the individual will be found guilty
D. None of the above (1 mark)
48. Which one of the following components of COSO’s Internal Control-Integrated Framework, is related to evaluation and communication?
A. Control environment
B. Control activities
C. Information and communication
D. None of the above (1 mark)
49. Which of the following BEST describes the reason why fraud would still occur where the internal control system is strong?
A. A strong internal control system is not effective, in fraud prevention and detection
B. A strong internal control system is not effective because is not well integrated with the COSO components
C. A strong internal control system is not effective because it does not have a right balance of preventive and detective controls
D. A strong internal control system is not effective it does not sufficient preventive controls (1 mark)
50. Which one of the following is ACCURATE in regard an effective internal control system?
A. An effective internal control system can eliminate fraud
B. An effective internal control system, has very strong controls in place
C. An effective control system has a good balance of detective and preventive controls
D. An effective internal control system has more preventive than detective controls (1 mark)
51. Which one of the following BEST describes white collar defendants, in relation to bargaining agreement with the prosecution?
A. White collar defendants are less likely to enter into a guilty plea
B. White collar defendants are more likely to enter into a guilty plea
C. White collar defendants are less likely to insist on a trial
D. None of the above (1 mark)
52. Which one of the following BEST describes strategy initiatives to control corporate crime?
A. Voluntary change of corporate culture
B. Consumer pressure
C. Government intervention
D. None of the above (1 mark)
53. Which one of the following BEST describes organisation crime related to bid rigging?
A. Corruption
B. Asset misappropriation
C. Procurement fraud
D. Conspiracy (1 mark)
54. Which one of the following is a fraud examiner ALLOWED code of ethics for fraud examiners?
A. To express an opinion in regard to the liability of the suspect
B. To conclude that the suspect is culpable based on evidence collected
C. To recommend on what action should be taken against the suspect
D. None of the above (1 mark)
55. Which one of the following is ACCURATE in regard to occupational fraud?
A. Most of occupational offenders have a high sense of loyalty
B. Most of the occupational offenders have a sense of ownership
C. Most of the occupational offenders do not have prior criminal records
D. Most of the occupational offenders do not have a sense of ownership (1 mark)
56. The primary responsibility for evaluating the effectiveness of the compliance program rests with .
A. internal auditor
B. management
C. board of directors
D. compliance officer (1 mark)
57. Which one of the following controls is preventive and detective anti-fraud control?
A. Fraud risk assessment
B. Analytical data review
C. Proactive forensic audits
D. Independent reconciliations (1 mark)
58. Preventive anti-fraud controls include all the following, EXCEPT .
A. Segregation
B. Fraud awareness training
C. Hiring policies
D. Fraud audits (1 mark)
59. Which one of the following procedures would discourage individuals in an organisation from engaging in fraudulent and corrupt activities?
A. Fraud audits
B. Fraud awareness training
C. An anti-fraud policy
D. Code of ethics (1 mark)
60. The primary responsibility for monitoring the effectiveness of the compliance program rests with?
A. Internal auditor
B. Management
C. Board of directors
D. Compliance officer (1 mark)
61. Which one of the following statements is ACCURATE in regard to, a fraud examiner’s ability to take up assignments where they have major interest unlike an accountant?
A. A Certified Fraud Examiner cannot accept an assignment where he has major interest because he will not objective
B. A Certified Fraud Examiner can accept an assignment where he has major interest because he will not express an opinion
C. A Certified Fraud Examiner cannot accept an assignment where he has major interest because he will be subjective
D. None of the above (1 mark)
62. Which one of the following parties, is responsible for ensuring that the design and implementation of the organisation’s fraud prevention program is effective?
A. The management
B. Internal auditors
C. External auditors
D. Board of directors (1 mark)
63. Which one of the following parties has responsibility for the design implementation and monitoring of the effectiveness of the fraud risk management program?
A. Risk officer
B. Management
C. Compliance officer
D. Internal auditor (1 mark)
64. Which one of the following parties has responsibility for providing second line of defense against fraud and corruption in an organisation?
A. Management
B. Risk officer
C. Compliance manager
D. Heads of departments (1 mark)
65. According to behaviourist theories, destructive workplace behaviour such as fraud and corruption can be modified through which of the following measures?
A. Strong internal controls
B. Punishment
C. Hard controls
D. Preventive and detective controls (1 mark)
66. Which one of the following is an example of the opportunity leg of the fraud triangle?
A. Knowledge and technical skills
B. Absence of internal controls
C. Financial pressure
D. None of the above (1 mark)
67. Which one of the following principles of corporate governance is related to effective ownership and reporting structures within an organisation?
A. Transparency
B. Fairness
C. Responsibility
D. None of the above (1 mark)
68. The primary responsibility for monitoring compliance with the compliance program rests with which of the following party?
A. Internal Auditor
B. Management
C. Board of Directors
D. Compliance Officer (1 mark)
69. Which one of the following is NOT a detective anti-fraud control?
A. Surprise audits
B. Training and awareness
C. Analytical data review
D. Fraud audits (1 mark)
70. Which one of the following is a preventive anti-fraud control?
A. Proactive forensic audits
B. Fraud awareness training
C. Hiring policies
D. None of the above (1 mark)
71. Which one of the following organisations MUST have effective corporate governance practices?
A. A limited partnership
B. A sole proprietor enterprise
C. A public company
D. All organisations (1 mark)
72. Which one of the following parties has the primary responsibility for the design and implementation of the preventive and detective controls?
A. Board
B. Management
C. Internal auditor
D. Compliance officer (1 mark)
73. Which one of the following BEST describes enhancing controls?
A. Adding more controls
B. Adding preventive and detective controls
C. Enforcing controls
D. Re-engineering controls (1 mark)
74. Which one of the following BEST describes the board’s responsibilities for fraud risk management?
A. Conducting fraud risk assessment
B. Monitoring and proactively improving the fraud risk management programme
C. Regularly updating the fraud risk management program
D. None of the above (1 mark)
75. Which one of the following topics should be covered in employee anti-fraud training?
A. How to identify red flags and risks of fraud
B. A detailed explanation of the company’s anti-fraud controls
C. The exact procedures management uses to detect fraud
D. None of the above (1 mark)
76. Which one of the following is statements is ACCURATE according to positive reinforcement and punishment?
A. Behavior is modified punishment
B. Behavior is weakened when punishment is avoided
C. Behavior is reinforced when punishment is applied
D. Behavior is modified positive reinforcement (1 mark)
77. Which one of the following is NOT an effective method of maximising possibility of fraud detection?
A. Strong management oversight
B. Mandatory vacations
C. Fraud audits
D. Fraud investigations (1 mark)
78. Which of the following parties has NO responsibility for fraud prevention?
A. Human resource
B. Internal audit
C. Risk officer
D. None of the above (1 mark)
79. Which one of the following is a measure that employers can put in place to mitigate fraud risks associated with employees’ overwhelming desire for wealth?
A. Proactive forensic audits
B. Fraud awareness and education
C. Support programs
D. Special audits (1 mark)
80. Which one of the following is NOT accurate in regard to an ethics policy?
A. The ethics policy should be communicated to all company employees
B. In developing the policy, management should consider how various members of the organisation define success
C. In developing the policy, management should consider the existing ethical tone set management
D. None of the above (1 mark)
81. Under the code of professional ethics, what code is related to not disclosing information obtained in the course of an engagement?
A. Confidentiality
B. Concealment of material information
C. Honesty and integrity
D. Loyalty (1 mark)
82. Which one of the following is NOT an objective for professional code of ethics?
A. Provide more specific solutions to professional ethical dilemmas that might not be found under general ethical principles
B. Facilitate practical enforcement and profession-wide internal discipline
C. To serve as an ethical reference and benchmark
D. None of the above (1 mark)
83. Which one of the following BEST describes an element of the fraud triangle?
A. Justification to commit fraud
B. Pressure to achieve targets
C. Low personal integrity
D. Social pressure (1 mark)
84. Which one of the following procedures would discourage individuals in an organisation from engaging in fraudulent and corrupt activities?
A. Board oversight
B. Regular forensic audits
C. An anti-fraud policy
D. None of the above (1 mark)
85. Which one of the following statements is ACCURATE in regard to an effective internal control system?
A. Well-designed and implemented internal control system is effective in fraud prevention
B. An effective internal control system must be well-designed, implemented, and continuously monitored
C. An effective internal control system must be well-designed, implemented and well enhanced
D. None of the above (1 mark)
86. Which one of the following is statements is MOST accurate in regard to minimising the occurrence of fraud and maximising fraud detection respectively in fraud prevention?
A. Fraud prevention is made up of a set of rules and procedures which in their aggregate encourage and discourage potential fraudsters from perpetrating fraud
B. Fraud prevention is a process that ensure reasonable assurance in regard to fraud prevention
C. A thorough fraud prevention control system can eliminate fraud
D. Fraud prevention is made up of a set of rules and procedures which in their aggregate, discourage potential fraudsters in engaging in fraud (1 mark)
87. Which one of the following statements is NOT accurate in regard to employees’ loyalty?
A. According to Diane Vaughan, an employee who is truly loyal to a company can perpetrate fraud on behalf of the organisation
B. According to Diane Vaughan, an employee who is truly loyal to a company cannot perpetrate fraud on behalf of the organisation
C. According to Diane Vaughan, an employee who is truly loyal to a company can perpetrate fraud against the organisation
D. None of the above (1 mark)
88. According to ISA 240, the auditor’s assessment of the risk of material misstatement due to fraud at the financial statement level should NOT have an effect on which of the following aspects of an audit?
A. Aspect of unpredictability
B. Aspect of predictability
C. Consideration of accounting principles applied
D. Assignment and supervision of audit staff (1 mark)
89. Which one of the following is NOT accurate in regard to the objectives of good corporate governance?
A. Enhance the reliability of the organisation’s financial reporting
B. Detect material financial statement caused errors or fraud
C. Provide reasonable assurance regarding the organisation’s compliance with applicable laws and regulations
D. None of the above (1 mark)
90. Employee anti-fraud training should include which of the following elements?
A. A detailed information on how the organisation will be responding on each fraud
B. A detailed information of the organisation’s anti-fraud controls
C. A detailed information of the procedures management will use to detect fraud
D. Training and awareness of the procedures that organisation will uses to proactively detect fraud (1 mark)
91. Which one of the following BEST describes tension between personal ethics and organisational goals?
A. Ethical decision
B. Moral principles
C. Ethical standards
D. None of the above (1 mark)
92. Which one of the following fraud risk is associated with inadequate oversight over management?
A. Financial statement fraud
B. Asset misappropriation
C. Corruption
D. None of the above (1 mark)
93. Which one of the following parties has the primary responsibility for mitigating fraud risk in the organisation?
A. Risk owners
B. Chief risk officer
C. Board of directors
D. Internal auditors (1 mark)
94. Which one of the following is NOT one of the components of the COSO?
A. Control environment
B. Fraud control activities
C. Information and communication
D. Control activities (1 mark)
95. Which one of the following is NOT accurate in regard to document retention policy?
A. Document retention policy should incorporate response plan to incidences of fraud
B. Specific requirements related to electronic documents
C. Laws and regulations regarding recordkeeping requirements
D. None of the above (1 mark)
96. Which one of the following statements is NOT accurate in regard to fraud examination?
A. Fraud examination requires avoidance of conflict of interest
B. Fraud examination requires subordination of desires for personal gain to the interests of clients, employers and the public
C. Fraud examination requires ability to respond to situations only where there are professional codes applicable
D. Fraud examination requires ability to respond to situations where there are no direct professional codes applicable (1 mark)
97. The IOSCO Principles for Auditor Oversight, effective oversight of the auditing profession does NOT include which one of the following principles?
A. The mechanism to require auditors to be subject to the discipline of an auditor oversight body that is independent of the audit profession
B. A mechanism to require that auditors have advanced training in accounting
C. A mechanism to require that auditors are independent of the enterprises that they audit
D. A mechanism to require that auditors to be qualified (1 mark)
98. Which one of the following fraud prevention health check- up component, is related to evaluating the quality of the fraud controls?
A. Control environment
B. Fraud risk tolerance and management policy
C. Proactive detection
D. Risk ownership (1 mark)
99. Which one of the following is NOT a component of fraud prevention check list?
A. Effective reporting mechanism
B. Tone at the top that is of honesty and integrity
C. Audit department with adequate resources and authority
D. Strong controls in place (1 mark)
100. Which one of the following is NOT a factor that influences the level of fraud risk that is exposed to an organisation?
A. The effectiveness of its anti-fraud controls
B. The geographic regions in which it operates
C. The ethics of its leadership team
D. The ethics and integrity of employees (1 mark)
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