CFS Fraud Prevention & Detection 2 — Questions and Answers
Question 1: Which control best prevents a single employee from both approving and processing a payment?
- Dual authorization (Correct answer)
- Password complexity policy
- Annual audits
- User activity logging
Correct answer: Dual authorization
Dual authorization requires a second person to approve transactions, enforcing segregation of duties.
Question 2: A company notices that expense reports submitted on Fridays are rarely reviewed. This represents which type of fraud opportunity?
- Collusion risk
- Control gap exploitation (Correct answer)
- Asset misappropriation
- Financial statement fraud
Correct answer: Control gap exploitation
Exploiting predictable review gaps (like end-of-week reduced oversight) is a classic control gap exploitation tactic.
Question 3: Which analytical technique flags transactions that fall just below an approval threshold repeatedly?
- Regression analysis
- Benford's Law analysis
- Threshold circumvention detection (Correct answer)
- Ratio analysis
Correct answer: Threshold circumvention detection
Threshold circumvention detection identifies patterns where amounts cluster just below approval limits, a common fraud indicator.
Question 4: A vendor master file that is rarely reviewed creates the greatest risk of which scheme?
- Skimming
- Ghost vendor fraud (Correct answer)
- Payroll padding
- Kiting
Correct answer: Ghost vendor fraud
Unreviewed vendor master files allow fictitious vendors to remain active and receive fraudulent payments.
Question 5: Which fraud detection method involves comparing employee addresses against vendor addresses in the system?
- Horizontal analysis
- Data matching (Correct answer)
- Benford's Law
- Net worth analysis
Correct answer: Data matching
Data matching cross-references records to identify conflicts of interest, such as employees operating undisclosed vendor companies.
Question 6: What is the primary purpose of a hotline as an anti-fraud control?
- Increase employee productivity
- Provide anonymous tips about suspected misconduct (Correct answer)
- Automate transaction approvals
- Replace internal audits
Correct answer: Provide anonymous tips about suspected misconduct
Ethics hotlines give employees and third parties a confidential channel to report suspected fraud without fear of retaliation.
Question 7: Which of the following is considered a proactive fraud detection technique?
- Reviewing complaints after they arise
- Conducting surprise cash counts (Correct answer)
- Waiting for external auditor findings
- Accepting management representations without verification
Correct answer: Conducting surprise cash counts
Surprise cash counts are proactive because they occur without advance notice, catching potential misappropriation before it can be concealed.
CFS Fraud Prevention & Detection 2
Which control best prevents a single employee from both approving and processing a payment?