Certified Internal Auditor (CIA) Practice Test

Which statement about fraud prevention is true?

1. Fraud prevention is primarily the responsibility of internal auditors alone.

2. Internal control established by management is the primary means of preventing fraud.

3. Internal auditors are not involved in fraud prevention.

4. Only external auditors assess the effectiveness of fraud-related communication systems.

The correct answer is: Internal control established by management is the primary means of preventing fraud.

The statement that internal control established by management is the primary means of preventing fraud is accurate because effective internal controls serve as the first line of defense against fraudulent activities. These controls include policies, procedures, and practices put in place by management to ensure compliance with laws, policies, and ethical standards, which ultimately help deter and detect fraud. Internal controls help to create an environment of accountability and transparency, making it challenging for individuals within the organization to engage in fraudulent behavior without detection. This may include segregation of duties, authorization processes, and regular audits, which all work together to safeguard the organization's assets. Understanding the role of internal controls underscores their importance in fostering a culture of integrity and mitigating risks associated with fraud. Therefore, when management effectively implements these controls, they significantly contribute to the prevention of fraud within an organization.