The ACFE found that the most common way that fraud is first detected is:

• A. Internal audit
• B. Internal controls
• C. External audit
• D. Tip

Answer: (D)

The main idea is that fraud is most often first detected through tips from whistleblowers or anonymous reporting channels. People who work in or around an organization are in a good position to notice unusual activity—like irregular expense patterns, fictitious vendors, or unusual journal entries—and report it through confidential hotlines or other reporting mechanisms. The ACFE’s research shows that tips are the leading source of initial fraud discovery, often surfacing before audits or controls flag anything. While internal controls and internal audits are essential for preventing and catching fraud, they’re typically not the earliest signal because audits are periodic and controls may fail to reveal the first indication. External audits add value but are limited by their timing and scope, making them less likely to be the first detection. So, a tip is the most common way fraud comes to light initially.