Ethics for Fraud Examiners Flashcards
Roger has just completed a fraud examination report containing confidential information for ABC, Inc., a client. He received a call from a special agent with the FBI requesting a copy of the report. Which of the following statements is FALSE?
A. Roger can turn over the report if his client consents.
B. Roger can turn over the report without any repercussions because he owns the information contained in the document.
C. Roger can turn over the report if the information is requested in a search warrant.
D. Roger can turn over the report if it is subpoenaed.
B. Roger can turn over the report without any repercussions because he owns the information contained in the document.
Confidential information, for all practical purposes, is any and all information a Certified Fraud Examiner might obtain in the course of work, whether it be from the company or client for whom an investigation is performed or from any other source consulted during the work. However, there is no legal privilege that exists between a CFE and his client. That means that although the CFE is not allowed to reveal confidential information without authorization from the client, if the information is subject to a subpoena or search warrant, the CFE must turn it over.
During an admission-seeking interview of a fraud suspect, Gary, a Certified Fraud Examiner, accuses the suspect of having committed a fraud. Gary’s accusation violates the Certified Fraud Examiner Code of Professional Ethics. T/F
False
Article V of the Certified Fraud Examiner Code of Professional Ethics states: “A CFE, in conducting an examination, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered. No opinion shall be expressed regarding the guilt or innocence of any person or party.” Although it does not specifically state such, Article V really applies to statements of opinion made to third parties. If the Certified Fraud Examiner was interviewing a suspect whose guilt was highly probable, the Code would not prohibit the fraud examiner from making accusations. The admission-seeking process, used extensively by Certified Fraud Examiners, requires that accusations be made of the probable guilty party. As long as these accusations are not communicated to third parties, the Certified Fraud Examiner would not be in violation of the Code.
In general, the lowest level of reference for making moral decisions is:
A. Philosophical principles
B. The law
C. Individual standards
D. None of the above
B. The law
When faced with an ethics-related problem, it is tempting and appropriate to begin analyzing the issue by asking: Is it legal? The law, including professional rules and regulations, deals with actions that are permitted and prohibited, but it is the lowest level of reference for moral decisions; a law might permit an action that is prohibited by a profession’s code of ethics. Laws, rules, and regulations function as standards by which to judge whether an action is acceptable or illegal, but not whether the behavior is right. For instance, if you have promised an individual that you will honor a contract, you are ethically bound to do so, regardless of your legal responsibility; under these facts, keeping your word is the right thing to do, no matter what the law says.
A Certified Fraud Examiner is strictly prohibited from accepting an assignment to uncover fraud in a company in which he has a major interest. T/F
False
Article II of the Certified Fraud Examiner Code of Professional Ethics states: “A CFE shall not engage in any illegal or unethical conduct, or any activity which would constitute a conflict of interest.” However, a Certified Fraud Examiner does not have the same responsibilities as a Certified Public Accountant. For example, a CPA generally would not be able to express an audit opinion on a company in which he held a major financial interest. In the case of the Certified Fraud Examiner, he would be able to accept such an assignment under most conditions, since the goal of the Certified Fraud Examiner is to gather facts regarding a potential fraud, not express an opinion. The fraud examiner should, however, make appropriate disclosures regarding his ownership.
Certified Fraud Examiners are absolutely prohibited from expressing opinions regarding the guilt or innocence of any party. T/F
True
The guilt or innocence of any person or party is the sole judgment of the jury, not of the Certified Fraud Examiner. Consequently, Certified Fraud Examiners are absolutely prohibited from expressing opinions regarding guilt or innocence. Article V of the Certified Fraud Examiner Code of Professional Ethics states: “A CFE, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for any opinion rendered. No opinion shall be expressed regarding the guilt or innocence of any person or party.”
In considering general ethics, a person’s primary goal is to arrive at a set of acceptable methods for making ethical decisions to fulfill all his roles. T/F
True
Every person acts not only as an individual but also as a member of a profession and as a member of society. Hence, fraud examiners might also be spectators (observing the decisions of colleagues), advisors (counseling with coworkers), instructors (teaching students or new employees on the job), judges (serving on disciplinary committees), and critics (commenting on the ethical decisions of others). All of these roles are important in the practice of professional ethics. In considering general ethics, the fraud examiner’s primary goal is to arrive at a set of acceptable methods for making ethical decisions to fulfill all his roles
A Certified Fraud Examiner was hired to investigate a company. After he carefully examined the company, he issued a report that stated, in part, “… in my opinion, this operation is free of material fraud.” Such an opinion is permitted under the Certified Fraud Examiner Code of Professional Ethics. T/F
False
Fraud examiners must always perform their work with an attitude of skepticism and begin with the belief that something is wrong or someone is committing a fraud (depending on the nature of the assignment and the preliminary information available). Furthermore, fraud examiners should relax their attitude of skepticism only when the evidence shows no signs of fraudulent activity. At no time is a Certified Fraud Examiner entitled to assume a fraud problem does not exist. Thus, professional skepticism can be dispelled only by evidence. As a result, opinions or attestations about a fraud-free environment are absolutely prohibited for Certified Fraud Examiners.
Under the Certified Fraud Examiner Code of Professional Ethics, information provided to a CFE by a client is considered privileged information and is therefore protected from being legally demanded by outside parties. T/F
False
Privileged information is information that cannot be demanded, even by a court. Common law privileges exist for husband-wife and attorney-client relationships, and physician-patient and priest-penitent relationships have obtained the privilege through state statutes. In all the recognized privileged relationships, the professional person is obligated to observe the privilege, which can be waived only by the client, patient, or penitent. Likewise, the Certified Fraud Examiner’s client or employer is the holder of the confidence. Certified Fraud Examiners, like CPAs and similar professionals, do not have protected privileges in common law or statute.
Under the Certified Fraud Examiner Code of Professional Ethics, evidence and conclusions are considered ___________ if knowledge of them would affect clients’ decisions based on a Certified Fraud Examiner’s report.
A. Confidential
B. Reliable
C. Circumstantial
D. Material
D. Material
Evidence and conclusions are material if knowledge of them would affect clients’ decisions based on a Certified Fraud Examiner’s report. Materiality is a user-oriented concept. If matters omitted from a report were known to the users, and their own perceptions and conclusions would be different in light of this knowledge, the omitted information is material. Article VII requires CFEs to reveal all material matters discovered during the course of an examination which, if omitted, could cause a distortion of the facts.
Lane, a Certified Fraud Examiner, conducted a fraud examination at Blue Corp. Betty was a prime suspect in the disappearance of money, but Lane could not prove it. Later, Lane discovered Betty had been recently hired by Red Corp., another client of his. Under the Certified Fraud Examiner Code of Professional Ethics, Lane must:
A. Inform Red Corp.
B. Inform Red Corp. if the evidence is clear and convincing
C. Not inform Red Corp.
D. None of the above
C. Not inform Red Corp.
Article VI says that: “A CFE shall not reveal any confidential information obtained during a professional engagement without proper authorization.” Under this scenario, Lane may not disclose information about Betty’s employment at Blue Corp. or that she was a suspect in the disappearance of money without the authorization of Blue Corp. However, even if that authorization was received, Lane is limited as to what he can disclose. Betty was a suspect; she did not confess, nor was she convicted of a crime. If Lane does disclose this information, he could run the risk of serious legal problems.
The CFE Code of Professional Ethics prohibits CFEs from engaging in conflicts of interest. Which of the following situations should a CFE avoid to ensure compliance with this rule?
A. Undertaking engagements that create a hardship or loss to the CFE’s full-time employer
B. Undertaking an engagement to secretly infiltrate the CFE’s employing organization and transmit inside information to another party
C. Undertaking engagements for both sides to a particular controversy or issue
D. All of the above
D. All of the above
The CFE Code of Professional Ethics states that Certified Fraud Examiners shall not engage in conflicts of interest. A conflict of interest exists when a fraud examiner’s ability to objectively evaluate and present an issue for a client is impaired by a current, prior, or potential future relationship with parties to the fraud examination.
Deciding if a conflict or a community of interests exists depends on the facts of each particular situation; however, the following are some general rules concerning conflicts of interest:
• A Certified Fraud Examiner employed full time by a company should not engage in other jobs that create a hardship or loss to the employer.
• A fraud examiner should not be a “double agent” employed by one company, but retained by another company or person to infiltrate the employer and transmit inside information (unless, of course, the employing company agrees to the arrangement in order to apprehend other parties employed by the company).
• A Certified Fraud Examiner should not accept engagements from both sides to a controversy—just like lawyers are prohibited from representing both parties in a transaction, lawsuit, or trial.
In the context of a fraud examination, a mindset of professional skepticism means:
A. Fraud examiners should always begin their assignments with the belief that something is amiss
B. Fraud examiners should relax their attitude of skepticism only when the evidence shows no signs of fraud
C. The fraud examiner’s professional skepticism can be dispelled only by evidence
D. All of the above
D. All of the above
As part of exercising professional integrity and competence, fraud examiners must always perform their work with a mindset of professional skepticism and begin assignments with the belief that something is wrong or someone is committing a fraud (depending on the nature of the assignment and the preliminary information available). Furthermore, fraud examiners should relax their attitude of skepticism only when the evidence shows no signs of fraudulent activity. At no time is a Certified Fraud Examiner entitled to assume a fraud problem does not exist. Thus, professional skepticism can be dispelled only by evidence. As a result, opinions or attestations about a fraud-free environment are absolutely prohibited for Certified Fraud Examiners.
Which of the following is a fraud examiner permitted to express an opinion regarding?
A. The effectiveness of an organization’s internal controls
B. The guilt of a particular individual
C. The innocence of a particular individual
D. None of the above
A
Materiality in a CFE’s report is determined by the perceptions and conclusions of the report’s user. t/f
t
Evidence and conclusions are material if knowledge of them would affect a client’s decisions based on a CFE’s report. Materiality is a user-oriented concept. If matters omitted from the report were known to the users, and their own perceptions and conclusions would be different in light of this knowledge, the omitted information is material. CFEs are placed in the difficult position of determining not what they consider important and material, but what they think the users will consider important and material.
The reason the Certified Fraud Examiner Code of Professional Ethics restricts the types of opinions CFEs may express is to protect the fraud examiner from claims of: A. False imprisonment B. Compounding a felony C. Libel D. None of the above
C
Libel and slander can cause personal injury and subject a fraud examiner to a lawsuit for damages. Libel is a written defamation of someone else’s character. Slander is a spoken defamation. The content of a libelous or slanderous message must:
Contain words that injure another person’s character or reputation or hold him up to ridicule.
Be communicated orally or in writing to other people.
Cause an actual damage to the person who is the subject of the communication.
The risks involved in libel and slander are reasons for having the rule in the Certified Fraud Examiner Code of Professional Ethics that prohibits expression of opinions on the guilt or innocence of people.