Fraud Prevention and Detection Flashcards

Which type of AP fraud involves an employee creating fictitious vendors to submit and approve fraudulent invoices?

Answer: Shell company fraud

Shell company fraud involves setting up fake vendor entities to route fraudulent payments to employees or accomplices.

What is the primary purpose of segregation of duties in AP fraud prevention?

Answer: To ensure no single employee controls an entire transaction from start to finish

Segregation of duties ensures that different people handle authorization, recording, and custody so that fraud requires collusion between multiple employees.

Which red flag most strongly indicates potential duplicate payment fraud?

Answer: Multiple invoices with the same amount from the same vendor within a short period

Multiple invoices with identical amounts from the same vendor in a short timeframe is a classic indicator of duplicate billing or duplicate payment fraud.

An AP employee who approves invoices from a vendor in which they have an undisclosed ownership interest is committing which type of fraud?

Answer: Conflict of interest fraud

Conflict of interest fraud occurs when an employee uses their position to benefit personally from transactions they influence, without disclosing the relationship.

Which control is most effective at detecting fictitious vendor fraud?

Answer: Periodic vendor master file audits comparing vendor data to employee records

Auditing the vendor master file and cross-referencing it with employee data can reveal shared addresses, phone numbers, or bank accounts that signal fictitious or related-party vendors.

What is 'billing scheme' fraud in accounts payable?

Answer: Submitting false invoices or inflating invoices to cause the company to pay more than owed

A billing scheme involves an employee causing the company to issue payments for fictitious goods or services, or for inflated amounts, to a fraudulent entity.

Which analytical technique is commonly used in AP fraud detection to identify unusual payment patterns?

Answer: Benford's Law analysis

Benford's Law states that in naturally occurring datasets, leading digits follow a predictable distribution; deviations from this pattern in payment data can signal fraud.