ADA Fraud Detection Analytics 2 — Questions and Answers
Question 1: Which analytical approach traces financial transactions through multiple accounts or entities to detect complex money laundering schemes?
- Network analysis (Correct answer)
- Stratification analysis
- Regression testing
- Horizontal trend analysis
Correct answer: Network analysis
Network analysis maps relationships between entities and traces transaction flows across multiple accounts, making it effective for identifying layering schemes used in money laundering.
Question 2: In procurement fraud, what does 'splitting' refer to?
- Dividing contract payments between multiple vendors to spread liability
- Breaking up contracts into smaller amounts to avoid competitive bidding thresholds (Correct answer)
- Sharing kickbacks between colluding employees
- Separating purchase orders from receiving reports to bypass controls
Correct answer: Breaking up contracts into smaller amounts to avoid competitive bidding thresholds
Splitting involves intentionally dividing purchases into smaller amounts to circumvent competitive bidding requirements or authorization thresholds, bypassing required procurement controls.
Question 3: Which machine learning technique is most commonly used in fraud detection to classify transactions as fraudulent or legitimate based on historical labeled data?
- K-means clustering
- Principal component analysis
- Supervised classification (Correct answer)
- Time series decomposition
Correct answer: Supervised classification
Supervised classification algorithms are trained on labeled historical data (known fraud vs. legitimate transactions) to learn distinguishing patterns and classify new transactions accordingly.
Question 4: Which red flag in procurement data most commonly indicates bid rigging among competing vendors?
- All vendors submitting bids on the exact same day
- A small group of vendors taking turns winning contracts in a rotating pattern (Correct answer)
- Vendors submitting bids from different geographic regions
- Some vendors choosing not to submit bids on certain lower-value contracts
Correct answer: A small group of vendors taking turns winning contracts in a rotating pattern
Bid rotation, where a small group of vendors takes turns winning contracts, is a key indicator of collusion, suggesting competitors are coordinating to divide business rather than competing legitimately.
Question 5: What does a 'related party' analysis in fraud detection primarily examine?
- Statistical correlations between different financial data sets
- The relationship between budget variances and actual spending
- Undisclosed business relationships between employees and vendors or customers (Correct answer)
- Relationships between financial ratios over multiple reporting periods
Correct answer: Undisclosed business relationships between employees and vendors or customers
Related party analysis examines whether employees have undisclosed financial relationships with vendors or customers that could create conflicts of interest or enable fraudulent schemes.
Question 6: What is 'lapping' in accounts receivable fraud?
- Overstating customer account balances to inflate total assets
- Stealing customer payments and concealing the theft using subsequent payments from other customers (Correct answer)
- Recording fictitious sales at period end to inflate revenue
- Granting unauthorized extended credit terms to favored customers
Correct answer: Stealing customer payments and concealing the theft using subsequent payments from other customers
Lapping involves misappropriating a customer's payment, then concealing the theft by applying a later payment from another customer to the first account, creating a perpetually rolling shortfall.
Question 7: Which data analytics test is most effective for detecting fictitious vendors in accounts payable?
- Regression analysis of payment amounts over time
- Stratifying invoices by payment amount to find anomalies
- Calculating the average payment processing time by vendor
- Matching vendor addresses, phone numbers, or bank details against employee records (Correct answer)
Correct answer: Matching vendor addresses, phone numbers, or bank details against employee records
Matching vendor master file data against employee records can reveal fictitious vendors created by employees, who often accidentally use their own contact information or banking details for the fake vendor.
ADA Fraud Detection Analytics 2
Which analytical approach traces financial transactions through multiple accounts or entities to detect complex money laundering schemes?