Certified Fraud Examiner Changed CFE-Fraud-Prevention-and-Deterrence Questions

 Statistics on Fraud Prosecution:

Research indicates that many organizations prefer to handle fraud cases internally rather than involving law enforcement due to concerns over reputation, cost, and time.

 Why B is Correct:

Organizations often resolve fraud cases through internal disciplinary actions, such as termination or restitution, rather than pursuing criminal prosecution​​.

 Why Other Options are Incorrect:

While internal handling is common, other factors like fear of publicity and legal costs also influence the decision to avoid prosecution.

 Auditor's Responsibility Under ISA Standards:

ISA 265 requires auditors to communicate significant deficiencies in internal control to those charged with governance in writing.

This ensures proper corrective actions are taken and maintains transparency in the audit process.

 Why B is Correct:

Written communication to governance authorities is the appropriate course of action to address control deficiencies without breaching confidentiality or overstepping regulatory boundaries.

 References:

ISA 265, “Communicating Deficiencies in Internal Control,” supports this approach​​.

Understanding Behavioral Responses:

Positive reinforcement:Increases desired behavior by providing rewards.

Negative reinforcement:Increases desired behavior by removing an unfavorable condition.

Punishment:Reduces undesired behavior by introducing a negative consequence or removing a positive condition.

Application to the Scenario:

Demotion is a punitive action designed to discourage the employee’s poor performance, making it an example of punishment.

Conclusion:The manager’s action aligns with the concept of punishment.