CERTIFIED FORENSIC FRAUD EXAMINER (CFFE) MODULE THREE
FRAUD PREVENTION AND DETECTION
MONDAY: 5 December 2022. Morning Paper. Time Allowed: 3 hours.
Answer ALL the questions indicating the letter (A, B, C or D) that represents the correct answer. This paper is made up of one hundred (100) Multiple Choice Questions. Each question is allocated one (1) mark.
1. Which of the following parties has the ultimate responsibility for an organisation’s fraud detection and prevention initiatives?
A. Board of directors
B. In-house legal counsel
C. Management
D. Risk consultant
2. According to B F Skinner, positive reinforcement measures are the most effective measures of modifying behaviour. Which of the following BEST describes positive reinforcement measures?
A. Positive reinforcement measures are examples of strong controls
B. Positive reinforcement measures are examples of soft control
C. Positive reinforcement measures are examples of weak controls
D. Positive reinforcement are not associated with controls
3. Which of the following should management NOT do to create an anti-fraud culture?
A. Develop a code of ethics and compliance policies for employees only
B. Demonstrate zero tolerance for fraud and unethical behaviour
C. Create an open-door policy environment
D. Develop an anti-fraud policy
4. Which of the following is TRUE in regard to assignments and Certified Forensic Fraud Examiners?
A. A Certified Forensic Fraud Examiner can accept an assignment where he/she has a major interest
B. A Forensic Fraud Examiner, cannot accept an assignment where he/she has a major interest
C. A Certified Forensic Fraud must be an accountant to conduct a forensic audit assignment
D. None of the above
5. Read the following statements:
I. Some organisations are immune to fraud
II. Employees are encouraged to come forward and report suspected fraud
III. The employee’s identity must be disclosed
IV. The report need not be made to the employee’s manager or supervisor
Which of the above statements with regard to employees’ reporting program is TRUE?
A. I, II, III and IV
B. II and III
C. I, II, and IV
D. II and IV
6. According to the 2022 Report to the Nations, fraud professionals estimate that organisations lose what percentage of their revenues to fraud and abuse each year?
A. 10 %
B. 2%
C. 4%
D. 5%
7. Among the parties listed below, who plays a critical role in enhancing the reliability of financial information attesting as to whether the financial statements present a fair position?
A. Members of the Board of Directors
B. Internal auditors
C. Government regulators
D. External auditors
8. Which of the following BEST describes the rationalisation leg of the fraud triangle?
A. “Management is perpetrating fraud, so it cannot be that bad”
B. “I need money to repay my debts”
C. “Possibility of detection is very low or none”
D. “I have an emergency, I have no other way to solve the problem”
9. Law and morals differ in that not everything that is immoral is illegal. Therefore, the lowest level of reference for making moral or ethical decisions is:
A. Individual ethics and morals
B. Philosophical principles
C. The law
D. Philosophy of criminology
10. According to International Standard on Auditing (ISA) 240, the auditor is only concerned with fraud that:
A. Is perpetrated management and not employees
B. Perpetrated through collusion
C. Causes immaterial misstatement in the financial statements
D. None of the above
11. Which of the following is NOT one of the ways that businesses rationalise illegal or noncompliant conduct?
A. Violations is for retaining job security
B. Compliance with government regulations is not expensive
C. The damage done violations is diffused among a large number of parties
D. All of the above
12. According to COSO, an internal control system should be designed to provide reasonable assurance regarding the achievement of the organisation’s objectives. Which of the following is NOT one of the objectives?
A. The effectiveness and efficiency of the organisation’s operations
B. The financial performance growth and nonfinancial information to the users of the information
C. The organisation’s compliance with the laws and regulations.
D. All of the above
13. Which of the following is NOT one of the core principles of sound corporate governance?
A. Accountability
B. Fairness
C. Compliance
D. Transparency
14. Of the following parties, who has responsibility for the oversight of the organisation’s financial, accounting, and audit matters?
A. The Chief Finance Officer
B. The internal auditors
C. The external auditors
D. None of the above
15. Which of the following is TRUE about fraud?
A. A strong and effective internal control system can eliminate fraud
B. Absence of internal controls is the major root cause of fraud
C. Red flags and risks of fraud are evidence of fraud
D. An effective internal control system can reduce incidences of fraud
16. Which of the following is TRUE about white collar offences?
A. White-collar case evidence is usually overwhelming
B. White collar defendants are less likely to insist on a trial
C. White collar defendants are more likely to insist on a trial
D. None of the above
17. The theory that tries to prevent crime using the threat of criminal sanctions is referred to as:
A. Prevention
B. Deterrence
C. Punishment
D. Compliance
18. Efforts to control corporate crime generally include which of the following approaches?
A. Internal control
B. Fraud hotlines
C. Voluntary changes in corporate attitudes
D. All of the above
19. Several construction companies colluded to rig bids. They agreed that all the competent bidders refrain from submitting their bid and let only one of the bidders bid. Which of the following is the crime perpetrated the bidders?
A. Organisational crime
B. Occupational crime
C. Both occupational and organisational crime
D. None of the above
20. According to COSO, which of the following is NOT correct about the control environment of an organisation?
A. It provides a foundation for all other controls
B. Sets the moral and ethical tone of the organization
C. It provides for identification of the organization’s fraud risks
D. All of the above
21. Which of the following statements is TRUE with regard to white-collar crime?
A. In white-collar crime cases like corruption, the higher an offender’s status, the more likely the individual will 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 not be imprisoned
D. None of the above
22. The evaluation and communication of internal control deficiencies in a timely manner to those parties responsible for taking corrective action is a principle related to which component of COSO’s Internal Control-Integrated Framework?
A. Risk assessment
B. Monitoring
C. Control activities
D. Information and communication
23. Which of the following is TRUE with regard to a corporation’s board of directors?
A. The directors represent only the shareholders
B. The directors are generally elected the company stakeholders
C. The directors provide oversight over business operations assessing the strategy and underlying purpose of management’s decisions and actions
D. The directors provide management over business operations assessing the strategy and underlying purpose of management’s decisions and actions
24. Which of the following is the most common fraud detection method?
A. Internal audit
B. External audit
C. Management review
D. Tip
25. An organisation’s corporate culture is effectively evaluated which of the following procedures
A. Statements from the board and management in regard to their zero tolerance for fraud
B. Conducting external audits
C. Internal controls
D. None of the above
26. According to B. F. Skinner’s behaviorist theories, destructive workplace behavior, such as fraud and corruption can be modified through which of the following?
A. Strong internal controls
B. Punishment
C. Soft controls
D. Hard internal controls
27. A strategy to control corporate crime that is designed to achieve conformity with the law providing economic incentives for voluntary compliance with the law and using administrative efforts to control violations is referred to as:
A. Deterrence
B. Compliance
C. Prevention
D. Detection
28. Which of the following is not CORRECT in regard to the OECD Principles of Corporate Governance?
A. Establishment of a law, where governments should put in place an appropriate framework to support good corporate governance practices
B. An emphasis on the importance of timely, accurate, and transparent disclosure mechanisms
C. Recognition of the importance of the role of stakeholders in corporate governance
D. All of the above
29. Which of the following is NOT one of the examples of the non-shareable financial need leg of the fraud triangle?
A. A need to buy a house
B. Addiction problems
C. Gambling debts
D. All of the above
30. An organisation’s ethics policy is an essential tool for fraud prevention. Which of the following is NOT correct in regard to an ethics policy?
A. Access to the 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 employees.
D. All the above
31. PK, a Certified Forensic Fraud Examiner, conducted a fraud examination at ABC Ltd. where Moses is suspected of embezzlement of money. PK later found out that Moses is working for XYZ Ltd., another client of his. Under most of the anti-fraud and other professional bodies’ Code of Professional Ethics, what should PK do?
A. Report the matter to the XYZ Ltd.’s Board
B. Inform XYZ Ltd.’s Management
C. Inform police if the evidence is sufficient
D. None of the above
32. Most professional organisations have codes of ethics. Which of the following is NOT a purpose of the code of ethics for professional ethics?
A. Provide more general 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. All of the above
33. Which of the following parties is responsible for directing employees to carry out business activities and manage the expected performance?
A. External auditors
B. Internal auditors
C. The audit and risk committee
D. None of the above
34. Which of the following is an element of the Fraud Triangle?
A. Social pressure
B. Perceived situational pressure
C. Personal integrity
D. None of the above
35. Effective ownership and reporting structures within an organisation are necessary to ensure which of the following principles of corporate governance?
A. Transparency
B. Accountability
C. Responsibility
D. All the above
36. A forensic fraud examiner, while conducting an investigation, is NOT permitted to express an opinion regarding which one of the following?
A. The guilt or innocence of a suspect
B. Failure to comply with IFRS
C. Failure to comply with IAS
D. None of the above
37. The corporate governance principle that pertains to the duty of internal parties to act in the best interest of the organisation is referred to as:
A. Accountability
B. Transparency
C. Fairness
D. Responsibility
38. Which of the three known major categories of occupational fraud is the most common?
A. Fraudulent disbursement
B. Conflict of interest
C. Asset misappropriations
D. Embezzlement
39. A Public Interest Oversight Board (PIOB) in a country normally includes which one of the following functions?
A. Developing best practices for corporate governance for global organisations
B. Establishing international standards for financial reporting
C. Providing Oversight over the process of setting international auditing standards
D. All of the above
40. Which of the following procedures should the external auditor NOT use to obtain information for identifying the risks of material misstatement due to fraud?
A. Conduct interviews of the entity’s management only, to obtain clear and accurate views on the risks of fraud
B. Examine any unusual or unexpected relationships identified through analytical procedures
C. Consider whether the information obtained from the risk assessment procedures indicates that fraud risk factors are present
D. All of the above
41. Which of the following is NOT true in regard to occupational fraud?
A. Most of occupational offenders are repeat offenders
B. Most of the occupational offenders are first offenders
C. Most of the occupational offenders do not have prior criminal records
D. All the above
42. The primary responsibility for evaluating the effectiveness of the compliance program rests with?
A. Internal auditor
B. Management
C. Board of directors
D. None of the above
43. Preventive anti-fraud controls include which one of the following?
A. Continuous audit techniques
B. Anti-fraud prevention policy
C. Analytical data review
D. None of the above
44. Preventive anti-fraud controls include all the following EXCEPT?
A. Fraud audit
B. Fraud awareness training
C. Hiring policies
D. Segregation of duties
45. If an individual perceives a high possibility of being caught perpetrating fraud, he or she would be demotivated from committing fraud. Which of the following procedures would discourage individuals in an organisation from engaging in fraudulent and corrupt activities?
A. Proactive fraud audits
B. Fraud awareness training
C. An anti-fraud policy
D. All the above
46. Which of the following statements is CORRECT 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 enforced
C. An effective internal control system must be well-designed, implemented and well enhanced
D. All the above
47. Which of the following is ACCURATE in regard to fraud prevention?
A. Fraud prevention is made up of a set of rules and procedures which in their aggregate minimise the occurrence of fraud while maximising the detection of fraud
B. Fraud prevention is a process that provides reasonable assurance with regard to fraud prevention and detection
C. A thorough fraud prevention control system can eliminate fraud
D. All the above
48. Which of the following is the primary foundation for the INTOSAI professional framework for auditing in the public sector?
A. The call for supreme audit institutions to develop their own independence standards
B. The call to keep government auditors employed the organisations that they audit.
C. The call for supreme audit institutions to influence industry regulations
D. The call for legislated independence of government auditing institutions
49. Which of the following statements is TRUE with 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. All the above
50. According to ISA 240, the auditor’s assessment of the risk of material misstatement due to fraud at the financial statement level should have an effect on which of the following aspect(s) of an audit?
A. Selection of auditing procedures
B. Assignment and supervision of personnel
C. Consideration of accounting principles used
D. All of the above
51. Which of the following is ACCURATE in regard to the objectives of good corporate governance?
A. Enhance the accuracy and reliability of the organsation’s financial reports
B. Detect financial misstatements, whether caused errors or fraud
C. Provide reasonable assurance regarding the organisation’s compliance with applicable laws and regulations.
D. Encourage the efficient use of resources and require accountability for the stewardship of the resources
52. According to the authors of Crimes of the Middle Classes, which of the following factors is NOT correct in regard to the rising problem of economic crime?
A. The economy’s increased reliance on credit
B. The decreased opportunity for wrongdoing facilitated advanced information technology
C. The continued pressures of a culture that rewards affluence and success
D. All of the above
53. An employees’ anti-fraud training should include which of the following elements?
A. Information on how the organisation responded to previous offences
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. All of the above
54. Which of the factors below does NOT affect employees’ ethical decisions?
A. Tension between personal standards and organisational needs
B. Industry and organisational ethical codes
C. The law and other government regulations
D. None of the above
55. Inadequate oversight over management, is an example of which type of fraud risk factor relating to fraudulent financial reporting?
A. Rationalisation
B. Perceived situational pressure
C. Pressures/ incentives
D. None of the above
56. Which of the following parties has responsibility to aid shareholder in fraud prevention and detection within an organisation?
A. Internal auditors
B. Management
C. Board of directors
D. All the above
57. According to COSO, the effectiveness of the internal control system can be evaluated assessing whether the five components of the COSO internal control integrated framework are in place and functioning effectively, and operating together in an integrated manner. Which of the following is NOT one of the components?
A. Control environment
B. Internal controls
C. Information and communication
D. Control Activities
58. Which of the following is NOT important for a company, to consider in regard to establishment of a document retention policy?
A. General rules for documenting and retaining records
B. Specific requirements related to electronic documents
C. Laws and regulations regarding recordkeeping requirements
D. All of the above
59. In relation to fraud examination and integrity, which of the following is NOT desirable?
A. Independence of mental attitude and avoidance of conflict of interest
B. Subordination of desires for personal gain to the interests of clients, employers and the public
C. An ability to analyse situations where only professional rules are specifically applicable and determine right from wrong
D. All of the above
60. Which of the following is NOT an IOSCO Principle for Auditor Oversight in regard to audit?
A. Be performed a body that acts and is seen to act in the interest of the client
B. Involve a regular review process designed to ascertain whether audit firms adhere to quality control policies and procedures
C. Take place within the audit firm, professional associates, and through government regulation
D. All of the above
61. According to The Institute of Internal Auditors’ International Standards for the Professional Practice of Internal Auditing, the internal audit team must NOT do which one of the following?
A. Evaluate the risks of fraud
B. Identify red flags of fraud
C. Evaluate the fraud risk management initiatives
D. Investigate fraud where red flags are identified
62. The IOSCO Principles for Auditor Oversight, effective oversight of the auditing profession do NOT include which one of the following principles?
A. The mechanism does not 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 proper qualifications and competency
C. A mechanism to require that auditors are independent of the enterprises that they audit
D. All of the above
63. Which of the following BEST describes the rationalisation leg of the fraud triangle?
A. “Management and the board is taking kickbacks, so it cannot be that bad?”
B. “I need money to pay my debts”
C. “Possibility of detection is very low or none
D. “I have an emergency I have no other way to solve the problem”
64. Which of the following BEST describes the opportunity leg of the fraud triangle?
A. “Management and the board is engaging in a conflict of interest, so it is okay
B. “I need money for an emergency
C. “I have the skills to perpetrate and conceal the fraud
D. “I have an emergency I have no other way to solve the problem”
65. Which of the following BEST describes situational pressure fraud scale developed Dr. Steve Albretch?
A. “Management and the board are taking kickbacks, so it cannot be that bad?”
B. “I need money to pay my debts”
C. “We have not met the profits targets; we must make the figures meet the targets
D. “I have an emergency and I have no other way of solving the problem”
66. Which of the following factors should an organisation NOT consider when designing the components of its compliance and ethics programme?
A. Age of the organisation
B. Recurrence of similar conduct
C. Industry size and standards
D. All of the above
67. Which of the following is NOT one of the principles involved in the risk assessment process, as laid out COSO?
A. Conducting ongoing monitoring of the risk management strategy
B. Assessing changes that could significantly impact the internal control system
C. Setting clear organisational objectives
D. Considering the potential for fraud
68. COSO identified five components that must be integrated to which of the following?
A. Compliance program
B. Ethics program
C. Internal control framework
D. None of the above
69. Which of the following is NOT one of the COSO interrelated components of a company’s internal control system?
A. Control environment
B. Risk assessment
C. Assurance function
D. None of the above
70. Which of the following elements is NOT desirable for a corporate compliance program to be effective?
A. Due diligence in the hiring process
B. Appropriate incentives for compliance with the programme
C. One-off evaluation of the compliance programme
D. All of the above
71. Which of the following is an example of controls that can minimise rationalisation?
A. Fraud awareness training
B. Employees support program
C. Proactive audit procedures
D. None of the above
72. Which of the following is NOT one of the proactive fraud detection measures?
A. Regular analytical review procedures,
B. Regular fraud assessment questioning
C. Routine audits
D. None of the above
73. Which of the following is a criteria of fraud prevention health check-up, that is related to, the extent that the board of directors are providing oversight over fraud risk management?
A. Fraud risk oversight
B. Fraud risk tolerance
C. Fraud risk assessment
D. None of the above
74. Which of the following is NOT a component of a comprehensive ethics program?
A. Focus on ethical leadership
B. Vision statement
C. Values statement
D. None of the above
75. Which of the following is NOT a desirable component of a comprehensive ethics program?
A. Ethics official with other major responsibilities
B. Ethics task force or committee
C. Ethics communication strategy
D. Ethics training
76. Which of the following is NOT a responsibility that the internal auditor should carry out in conducting an audit engagement?
A. Evaluate the indicators of fraud and decide whether any further action is necessary or whether the auditor should conduct further investigation alongside the audit
B. Evaluate whether management is actively retaining responsibility for oversight of the fraud risk management program
C. Consider fraud risks in the assessment of internal control design and determination of audit steps to perform
D. All of the above
77. The commission formed in 1985 with the purpose of defining the responsibility of the auditor in preventing and detecting fraud is known as the:
A. COSO Commission
B. Treadway Commission
C. International securities commission
D. None of the above
78. Which of the following is NOT a good corporate governance practice?
A. Define the relationships and expectations of the parties involved
B. Provide clear lines of accountability and reporting
C. Ensure that a few individuals are capable of making all the business decisions without influence, input or approval of other parties.
D. All of the above
79. Which of the following is NOT true in regard to a good corporate governance framework?
A. It is not flexible
B. Is appropriate for the organisation’s legal and regulatory environment
C. Takes into account the organisation’s cultural and ethical environment
D. None of the above
80. Which of the following is CORRECT in regard to OECD and Corporate Governance?
A. The OECD Principles of Corporate Governance support establishing stronger protection for foreign shareholders than domestic shareholders
B. The OECD Principles of Corporate Governance support establishing stronger protection for domestic shareholders than foreign shareholders
C. The OECD has developed a detailed corporate governance policy that can be effectively applied to all organisations
D. None of the above
81. According to the OECD Principles of Corporate Governance, which of the following is NOT correct on a corporate governance framework?
A. Ensure proportionate treatment of all shareholders, including minority and foreign shareholders.
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. All of the above
82. Who is responsible for holding the board of directors accountable for proper governance and oversight?
A. The external auditors
B. The shareholders
C. The chairman of the board
D. Executive management
83. Which of the following was NOT one of the recommendations of the Treadway Commission for the audit committee to reduce the risk of fraudulent financial reporting?
A. To have written charter for the audit committee
B. To have a mandatory independent audit committee
C. To have adequate resources and authority
D. To have basic Knowledge on matters that pertain to their responsibility
84. Which of the following parties is responsible for directing employees to carry out business activities and managing their performance of those tasks?
A. Shareholders
B. External auditors
C. The board of directors
D. None of the above
85. Effective corporate governance practices are most important for which of the following organisations?
A. A wholesale shop
B. A sole-practitioner medical clinic
C. A financial institution listed in the stock exchange
D. A General partnership enterprise
86. Which of the following BEST describe oversight responsibilities of different parties for an organisation’s direction, operations and performance.
A. Risk management
B. Corporate governance
C. Corporate compliance
D. None of the above
87. Which 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. Transparency
D. Responsibility
88. Which of the following is the most effective method of fraud prevention?
A. Increasing perception of detection
B. Putting strong controls in place
C. Punishing offenders
D. All the above
89. Which of the following is NOT a method of reengineering controls?
A. Gender balance in a high fraud risk area
B. Ethnic balance in a high fraud risk area
C. Enhancing controls in a high fraud risk area
D. None of the above
90. Which of the following is NOT a control environment principle of the COSO that supports the design and implementation of an effective control environment?
A. Personnel at all levels demonstrate commitment to integrity and ethical values
B. Management demonstrate commitment to integrity and ethical values
C. Board should be independent of management and oversee the design and implementation of the internal control
D. Organisation holds individuals accountable on internal controls
91. Which of the following is NOT a fraud risk assessment principle of the COSO
A. The organisation sets clear objectives to enable the identification and assessment of risks relating to the objectives
B. The organisation identifies risks to the achievement of the objectives
C. The organisation identify changes that would significantly impact the system of internal controls
D. The organisation puts control activities in place to mitigate the fraud risk
92. Which of the following is among the audit committee’s responsibilities for fraud risk management?
A. Design and implementation of controls to mitigate the risks
B. Monitoring and proactively improving the fraud risk management programme
C. Performing and regularly updating the fraud risk assessment
D. None of the above
93. Which of the following should be covered in employee anti-fraud training?
A. Examples of past incidences of fraud and how the organisation responded
B. A detailed explanation of the company’s anti-fraud controls
C. The exact procedures management uses to detect fraud
D. All of the above
94. Which of the following is NOT a factor that affects employees’ ethical decisions:
A. Balance between personal standards and organizational needs
B. Financial pressure
C. Social pressure
D. None of the above
95. Ineffective monitoring of management, a complex organisational structure, and deficient internal control components are all examples of which type of fraud risk factor relating to fraudulent financial reporting?
A. Rationalisations
B. Pressures
C. Collusion
D. None of the above
96. Which of the following parties is responsible for fraud prevention in an organisation?
A. Internal auditors
B. External auditors
C. All levels of personnel
D. Board of directors
97. Which of the following is CORRECT according to differential reinforcement theory?
A. Behavior is weakened positive stimuli
B. Behavior is weakened when punishment is avoided
C. Behavior is reinforced through positive reinforcement
D. None of the above
98. Clinard and Yeager believe that corporate crimes are increasingly difficult to detect because:
A. Accounting techniques are more complex
B. Criminals are smarter
C. Violations are more complex
D. None of the above
99. Which of the following is NOT an effective method of increasing the perception of detection?
A. Requiring strong management oversight
B. Forcing employees to take time off
C. Conducting special audits
D. All of the above
100. Which of the following is NOT a principle pertaining to the information and communication component of the COSO’s Internal Control—Integrated Framework?
A. The organisation communicates information, including objectives and responsibilities for internal control, necessary to support the functioning of internal control internally
B. The organisation communicates only with internal parties regarding matters affecting the functioning of internal control
C. The organisation obtains or generate and uses relevant, quality information to support the functioning of internal control
D. All of the above
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