Fraud Prevention Programs Flashcards

Which of the following BEST describes a 'control environment' as it relates to fraud prevention?

Answer: The overall attitude, awareness, and actions of management regarding internal controls

The control environment is the foundation of internal control, shaped by management's attitude and the ethical tone they set for the organization.

A company requires all employees to take vacations of at least one consecutive week. What fraud scheme is this policy specifically designed to detect?

Answer: Check tampering and lapping schemes

Mandatory vacations expose lapping and check-tampering schemes because a substitute must handle the work, making it difficult for the fraudster to continue concealment.

Which component of the COSO framework addresses the organization's risk appetite and tolerance for fraud risk?

Answer: Risk Assessment

Risk Assessment under COSO includes identifying and analyzing fraud risks and determining the organization's tolerance for those risks.

What is the key advantage of using data analytics in a proactive fraud prevention program?

Answer: It detects anomalies and patterns that may indicate fraud before significant losses occur

Data analytics continuously monitors transactions for red flags, enabling earlier detection and limiting fraud losses compared to periodic manual reviews.

Which scenario represents a segregation of duties violation that creates fraud risk?

Answer: The same clerk who approves vendor invoices also signs the payment checks

Allowing one person to both approve invoices and issue payments eliminates a key check, enabling them to create fictitious payables and steal funds.

Under the ACFE's fraud prevention framework, which action is described as a 'deterrent' rather than a 'detection' measure?

Answer: Publicizing the successful prosecution of a former employee for fraud

Publicizing prosecution outcomes deters potential fraudsters by demonstrating that fraud will be discovered and has serious consequences, without detecting an existing scheme.

What is the purpose of an anti-fraud policy that requires employees to disclose potential conflicts of interest?

Answer: To give management information needed to assess and manage conflicts that could lead to fraud

Conflict-of-interest disclosures allow management to evaluate whether relationships create fraud risks and implement safeguards or restrictions accordingly.