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 charity's Form 990 shows that executive compensation represents 80% of total expenses. What concern does this raise?
Answer: Excessive compensation may indicate misuse of charitable assets
When compensation dominates expenses, very little funding reaches program beneficiaries, signaling potential mismanagement or self-dealing.
Under state charity registration laws, what is the typical consequence for a charity that solicits without registering?
Answer: Fines, injunctions, and potential loss of ability to solicit in that state
States enforce registration requirements through civil penalties, cease-and-desist orders, and bans on future solicitation within the state.
Which scenario best illustrates an improper quid pro quo contribution?
Answer: A donor gives $10,000 to a charity that then gives an equivalent value gift back to the donor
When the charitable organization returns equivalent value to the donor, no real charitable gift has occurred and the deduction is fraudulent.
A CAP advisor discovers that a client's private foundation made a grant to a company owned by the foundation's disqualified person. This is called:
Answer: Self-dealing under IRC Section 4941
Grants from private foundations to entities owned by disqualified persons constitute self-dealing subject to excise taxes under IRC Section 4941.
Which technique do auditors use to detect fictitious vendor fraud at nonprofits?
Answer: Matching vendor addresses and tax IDs against employee records and known databases
Fictitious vendors often share addresses, phone numbers, or tax IDs with employees, making cross-referencing a key detection technique.
What is the role of the IRS Form 8283 in preventing charitable contribution fraud?
Answer: It requires independent appraisal documentation for noncash gifts over $5,000, deterring inflated valuations
Form 8283 requires a qualified appraisal signed by both the appraiser and charity for large noncash gifts, preventing donors from claiming inflated deductions.
A solicitation promises that a gift will fund a specific named child overseas, but the charity's actual practice pools all donations. The advisor should flag this as:
Answer: Potentially deceptive fundraising that misrepresents how donations are used
Representing donations as sponsoring a specific child when funds are pooled is a misleading fundraising practice that may violate FTC truth-in-advertising standards.