Fraud Detection & Prevention Flashcards
7 cards from real CAP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fraud Detection & Prevention flashcards as text
A nonprofit's executive director approves vendor invoices, signs checks, and reconciles bank statements. Which best practice is violated?
Answer: Segregation of duties
Allowing one person to authorize, execute, and reconcile transactions removes essential checks and creates a high fraud risk.
Which type of charity scam involves fraudsters collecting donations but never distributing them to intended beneficiaries?
Answer: Phantom charity fraud
Phantom charities appear legitimate but exist solely to collect donations without providing any charitable benefit.
When evaluating a charity for a major gift recommendation, a CAP advisor should prioritize reviewing which document?
Answer: Form 990 and audited financial statements
Form 990 and audited financials provide objective data on revenue, expenses, executive compensation, and governance practices.
A fundraiser asks a donor to make a check payable to the fundraiser personally rather than the organization. This is:
Answer: A major fraud red flag indicating possible misappropriation
Legitimate charities always direct donations to the organization itself; requests to pay individuals are a clear fraud warning sign.
What is 'ghost employee' fraud in a nonprofit context?
Answer: Paying salaries to fictitious or former employees to divert payroll funds
Ghost employee schemes involve adding nonexistent people to payroll and redirecting their wages to the perpetrator.
Which organization provides a charity ratings system that CAP advisors can use to vet potential grantees?
Answer: Charity Navigator
Charity Navigator rates nonprofits on financial health, accountability, and transparency, making it a key due diligence resource.
A donor-advised fund (DAF) sponsor discovers that a donor recommended a grant to a charity that benefits the donor personally. This violates:
Answer: The prohibition on private benefit and self-dealing under IRC Section 4941
Grants from DAFs that confer personal benefit on the donor constitute self-dealing prohibited under the private foundation excise tax rules.