CIA CIA Fraud Detection & Prevention 1 — Questions and Answers
Question 1: According to the fraud triangle, which three elements must be present for fraud to occur?
- Motive, skill, and access
- Pressure, opportunity, and rationalization (Correct answer)
- Greed, access, and collusion
- Incentive, knowledge, and deception
Correct answer: Pressure, opportunity, and rationalization
The fraud triangle identifies pressure (incentive), opportunity (weak controls), and rationalization (justification) as the three conditions enabling fraud.
Question 2: Which of the following is the most common type of occupational fraud according to the ACFE Report to the Nations?
- Financial statement fraud
- Asset misappropriation (Correct answer)
- Corruption schemes
- Bribery and kickbacks
Correct answer: Asset misappropriation
Asset misappropriation is by far the most common category of occupational fraud, accounting for the majority of reported cases.
Question 3: A 'lapping' scheme in accounts receivable involves:
- Inflating revenue by recording fictitious sales
- Stealing customer payments and covering the shortage with later receipts (Correct answer)
- Writing off valid receivables as uncollectible
- Issuing duplicate invoices to customers
Correct answer: Stealing customer payments and covering the shortage with later receipts
Lapping is a fraud where an employee steals cash receipts and conceals the theft by applying subsequent payments to earlier accounts.
Question 4: Which internal control is most effective at preventing check tampering fraud?
- Monthly bank reconciliations performed by the check preparer
- Independent bank reconciliation performed by someone not involved in check preparation (Correct answer)
- Requiring dual signatures on all checks
- Storing blank checks in an unlocked drawer for efficiency
Correct answer: Independent bank reconciliation performed by someone not involved in check preparation
An independent bank reconciliation performed by someone separate from check preparation detects unauthorized disbursements.
Question 5: A 'ghost employee' scheme typically involves:
- Paying a real employee for hours not worked
- Adding fictitious employees to the payroll and diverting their paychecks (Correct answer)
- Underreporting employee count to reduce payroll taxes
- Misclassifying employees as independent contractors
Correct answer: Adding fictitious employees to the payroll and diverting their paychecks
A ghost employee scheme involves adding non-existent workers to payroll so the fraudster can intercept or redirect those payments.
Question 6: Under IIA Standards, when an internal auditor discovers fraud during an audit, the auditor should first:
- Immediately confront the employee suspected of fraud
- Report findings to the audit committee or appropriate level of management (Correct answer)
- Close the audit and issue a clean opinion
- Terminate the engagement until legal counsel is retained
Correct answer: Report findings to the audit committee or appropriate level of management
When fraud is discovered, the internal auditor must escalate findings to senior management or the audit committee as required by IIA Standards.
CIA CIA Fraud Detection & Prevention 1
According to the fraud triangle, which three elements must be present for fraud to occur?