Which of the following is a key component of a fraud risk management program?

A conflict disclosure mechanism is a key component of a fraud risk management program because it helps to identify and manage situations where personal interests may conflict with professional duties. This mechanism encourages transparency and accountability, enabling an organization to mitigate potential fraud risks associated with conflicts of interest. It promotes a culture of integrity and ethical behavior, which is essential for preventing fraud.

Establishing a conflict disclosure process allows employees to voluntarily report any personal interests that may interfere with their decision-making responsibilities. By systematically managing these disclosures, organizations can proactively address issues before they escalate into fraudulent activities. In addition to fostering trust, this mechanism can enhance the organization’s internal controls and compliance with legal and ethical standards.

In contrast, management oversight, while important, must be robust and proactive rather than minimal. Annual employee outings do not directly contribute to fraud risk management and mainly focus on team building rather than addressing potential fraud opportunities. Similarly, the separation of departments can help with internal controls, but it is not explicitly a fraud risk management component like a conflict disclosure mechanism is, which plays a direct role in identifying and managing one of the key risk factors associated with fraud.