CAPA Fraud Prevention and Detection 1 — Questions and Answers
Question 1: Which type of AP fraud involves an employee creating fictitious vendors to submit and approve fraudulent invoices?
- Skimming
- Shell company fraud (Correct answer)
- Duplicate payment fraud
- Payroll padding
Correct answer: Shell company fraud
Shell company fraud involves setting up fake vendor entities to route fraudulent payments to employees or accomplices.
Question 2: What is the primary purpose of segregation of duties in AP fraud prevention?
- To speed up invoice processing
- To ensure no single employee controls an entire transaction from start to finish (Correct answer)
- To reduce the number of AP staff needed
- To comply with tax regulations
Correct 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.
Question 3: Which red flag most strongly indicates potential duplicate payment fraud?
- Invoices submitted on weekdays
- Multiple invoices with the same amount from the same vendor within a short period (Correct answer)
- Invoices referencing purchase orders
- Vendor invoices with itemized line details
Correct 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.
Question 4: An AP employee who approves invoices from a vendor in which they have an undisclosed ownership interest is committing which type of fraud?
- Lapping
- Conflict of interest fraud (Correct answer)
- Kiting
- Bid rigging
Correct 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.
Question 5: Which control is most effective at detecting fictitious vendor fraud?
- Requiring invoices to be submitted by email
- Periodic vendor master file audits comparing vendor data to employee records (Correct answer)
- Allowing vendors to self-register in the system
- Paying all invoices within 30 days
Correct 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.
Question 6: What is 'billing scheme' fraud in accounts payable?
- Theft of checks before they are mailed to vendors
- Submitting false invoices or inflating invoices to cause the company to pay more than owed (Correct answer)
- Intercepting and cashing vendor refund checks
- Creating ghost employees in payroll
Correct 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.
Question 7: Which analytical technique is commonly used in AP fraud detection to identify unusual payment patterns?
- Break-even analysis
- Benford's Law analysis (Correct answer)
- Net present value calculation
- Straight-line depreciation review
Correct 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.
CAPA Fraud Prevention and Detection 1
Which type of AP fraud involves an employee creating fictitious vendors to submit and approve fraudulent invoices?