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The CACM Review: Sample Questions & Answers

 

Part 2: Fraud and Corruption

 

The following is a partial excerpt of part 2 questions and answers.

 

Questions 1 -13

 

Definitions and Costs of Corruption

 

Q 1 Fiduciary duty is the duty, imposed on a fiduciary by virtue of his or her position, to act primarily for another’s benefit.

 

  • True
  • False

 

Q 2 A legal requirement in certain systems where the board of directors and executives must make informed decisions in discharging their fiduciary responsibilities.

 

An informed decision is generally based on gathering all relevant facts and material, giving such information due consideration, and then making a decision. A breach of duty of care can lead to legal action by shareholders.

 

This is a description of the duty of (Choose the best and correct answer)

 

  1. Fiduciary
  2. Care
  3. Loyalty
  4. Each answer option is not correct

 

Q 3 The common law defines fraud as follows:

 

IF

 

A misrepresentation of material fact(s), and

Intent to induce another to rely on the misrepresentation, and

A justifiable reliance on the misrepresentation by the deceived party, and

Damages suffered as a result of this reliance, and

A causal connection between the misrepresentation and the injury suffered

 

THEN, this act is fraudulent.

 

  • True
  • False

 

Q 4 When a board member avoids a conflict of interest in discharging his duties, he knows that he has a duty of (Choose the best and correct answer)

 

  1. Loyalty
  2. Fiduciary
  3. Care
  4. Each one of the answer options is correct


Q 5 The American Anti-Corruption Institute (AACI) defines corruption as (Choose the best and correct answer)

 

  1. Abuse of power or perceived power or entrusted authority for direct or indirect private monetary or non monetary gain.
  2. Abuse of power for private gain
  3. Abuse of entrusted authority for direct or indirect private monetary or non monetary gain.
  4. Abuse of power or perceived power or entrusted authority.

 

Q 6 At a national level, domestic laws are not the only source and authority that determine what is and what is not a fraud. They are not the only source to determine what acts are corrupt and what acts that are not corrupt. In other words, fraud and corruption definitions are not solely determined based on the domestic laws.

 

  • True
  • False

 

Q 7 Choose the best and correct answer.

 

  1. A government can eradicate corruption in a short period. For example, a country can defeat corruption in three to seven years.

  2. A government can eradicate corruption in a short period. For example, a country can defeat corruption in three to five years. A state or entity could be 100% corruption free.

  3. A government cannot eradicate corruption in a short period. First, a state or entity will never be 100% corruption free. Second, no one estimate would fit all the situations. Third, it depends on the scope and depth of corruption. In general, a country that is faithful and dedicated to fighting corruption would need at least 12 years to start reaping the results of its corruption prevention strategies.

  4. A government can eradicate corruption in a short period. For example, a country can defeat corruption in seven years.

 

Q 8 The political will is enough to combat corruption.

 

  • True
  • False

 

Q 9 Corruption (Choose the best and correct answer)

 

  1. Strangles people, communities, and nations, and weakens education and health.

  2. Strangles people, communities, and nations, weakens education and health, and undermines electoral processes.

  3. Weakens education and health, undermines electoral processes, and reinforces injustices by perverting criminal justice systems and the rule of law.

  4. Strangles people, communities, and nations, weakens education and health, undermines electoral processes, reinforces injustices by perverting criminal justice systems and the rule of law.

Q 10 Choose the best and correct answer.

 

  1. As corruption risks decrease, the organization undermines its ability to pursue its mission. Organizations should take into consideration fraud and corruption risks in formulating, implementing, and evaluating its strategies.

  2. As corruption risks increase, the organization does not undermine its ability to pursue its mission. Organizations should take into consideration fraud and corruption risks in formulating, implementing, and evaluating its strategies.

  3. As corruption risks increase, the organization undermines its ability to pursue its mission. Organizations should take into consideration fraud and corruption risks in formulating, implementing, and evaluating its strategies.

  4. Each one of the answer options is not correct.

 

Q 11 An organization that shows commitment to honesty, integrity, transparency and implements corruption prevention policy would enjoy a lower cost of capital compared to those entities of high corruption risks.

 

  • True
  • False

 

Q 12 Corruption does not negatively affect sustainable development at the national level.

 

  • True
  • False

 

Q 13  The rule of law is a prerequisite for any well-intentioned and well-structured corruption prevention policies. When the public perceives that the law is applied selectively, corruption thrives, talented citizens leave the country, foreign direct investment plummets, tax evasion increases, equality at all levels diminishes, and a path towards a failed state status takes shape over time.

 

  • True
  • False

 

Answers to Questions 1-13

 

Q 1: The correct answer is True.

 

Q 2: The best and correct answer is (b) duty of care.

 

Q 3: The correct answer is True.

 

Q 4: The best and correct answer is (a) Loyalty.

 

Duty of loyalty is

 

A legal requirement in certain systems where the board of directors and executives must ensure that any action taken is done in good faith and with the best interests of shareholders in mind. A breach of duty of loyalty can lead to legal action by shareholder.

 

Q 5: The best and correct answer is (a)

 

The AACI defines corruption as “Abuse of power or perceived power or entrusted authority for direct or indirect private monetary or non monetary gain.”

 

Q 6: The correct answer is False.

 

At a national level, domestic laws are the only source and authority that determine what is and what is not a fraud. They are the only source to determine what acts are corrupt and what acts that are not corrupt. In other words, fraud and corruption definitions are solely determine based on the domestic laws. However, there is almost an international consensus on what corruption is since 2005 when the United Nations issued the United Nations Convention Against Corruption (UNCAC).

 

Q 7: The best and correct answer is (c)

 

Once of the misconceptions about corruption is the following:

 

A government can eradicate corruption in a short period. For example, a country can defeat corruption in three to five years. This is almost impossible. First, a state or entity will never be 100% corruption free. Second, no one estimate would fit all the situations. Third, it depends on the scope and depth of corruption. In general, a country that is faithful and dedicated to fighting corruption would need at least 12 years to start reaping the results of its corruption prevention strategies.

Q 8: The correct answer is False.

 

Once of the misconceptions about corruption is the following:

 

The political will is enough to combat corruption. This is wrong. Though the political will, at the highest level of governance, is necessary to unleash faithful corruption prevention strategies, a mere political will is not enough to prevent fraud and corruption.

 

Q 9: The correct and best answer is (d)

 

As stated by the U.N. Secretary-General, corruption:

 

  1. Strangles people, communities, and nations

  2. Weakens education and health

  3. Undermines electoral processes

  4. Reinforces injustices by perverting criminal justice systems and the rule of law

  5. By diverting domestic and foreign funds, it wrecks economic and social development and increases poverty

  6. Harms everyone, but the poor and vulnerable suffer most

 

Q 10: The best and correct answer is (c)

 

As corruption risks increase, the organization undermines its ability to pursue its mission. Organizations should take into consideration fraud and corruption risks in formulating, implementing, and evaluating its strategies.

Q 11: The correct answer is True.

 

Whenever fraud and corruption hit an organization, its damages immediately become visible. For example, the Dieselgate of Volkswagen affected its stock price significantly within less than twenty-four hours once the scandal became known to the public. Volkswagen's legal and regulatory costs are still mounting.

 

An organization that shows commitment to honesty, integrity, transparency and implements corruption prevention policy would enjoy a lower cost of capital compared to those entities of high corruption risks.

 

Q 12: The correct answer is False.

 

Corruption significantly and negatively affects sustainable development at the national level. It destroys the fundamental political, social and economic foundations of any country at any time and place. It threatens the stability and security of the nation state in the comprehensive sense of security. For example, when bribery and corruption spread in a society, citizens' trust in public institutions is shaken. More significantly, the national identity decays over time. It is not an exaggeration when we say that corruption threatens countries’ prosperity and existence. No wonder that corruption is one of the characteristics of failed nations.

 

Q13: The correct answer is True.

 

 

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