ABA Internal Controls & Risk Management Flashcards

What is 'occupational fraud' as defined by the Association of Certified Fraud Examiners (ACFE)?

Answer: The use of one's occupation for personal enrichment through deliberate misuse of resources

Occupational fraud occurs when an employee uses their position within an organization for personal enrichment through the misuse or theft of company resources.

Which of the following is the most common type of occupational fraud according to ACFE research?

Answer: Asset misappropriation

Asset misappropriation, which includes theft of cash, inventory, or other assets, is by far the most common type of occupational fraud according to ACFE research.

What is a 'red flag' in fraud detection?

Answer: An unusual indicator that may suggest fraudulent activity

A red flag is a warning sign or unusual indicator in financial records or employee behavior that may suggest fraudulent activity requiring further investigation.

Which document control procedure helps prevent check fraud?

Answer: Keeping blank checks locked and using pre-numbered checks with dual signatures

Locking blank checks, using pre-numbered checks, and requiring dual signatures are document control procedures that significantly reduce check fraud risk.

What is the 'fraud triangle'?

Answer: Three conditions (pressure, opportunity, rationalization) that typically lead to fraud

The fraud triangle identifies three conditions that typically exist when fraud occurs: pressure (motivation), opportunity (weak controls), and rationalization (justification).

How does requiring physical inventory counts serve as an internal control?

Answer: It verifies that recorded inventory quantities match actual quantities on hand

Physical inventory counts verify that quantities recorded in the accounting system match actual inventory on hand, detecting theft, shrinkage, or recording errors.