CCA Construction Fraud Detection and Prevention Flashcards

Which procurement control is most effective in preventing kickback arrangements between a contractor's purchasing staff and suppliers?

Answer: Mandatory competitive bidding with documented bid comparisons and segregation of purchasing and payment approval duties

Competitive bidding with documented evaluation and segregation of duties between the person selecting vendors and the person approving payments removes the single point of control that enables kickback schemes.

During a fraud investigation on a construction project, an auditor should handle physical evidence according to which principle?

Answer: Chain of custody procedures to preserve evidential integrity and admissibility in legal proceedings

Maintaining an unbroken chain of custody is critical to preserving the legal admissibility of evidence; improper handling can render valid evidence inadmissible in civil or criminal proceedings.

A CCA auditor finds evidence of potential fraud on a client engagement. What is the auditor's most appropriate immediate action?

Answer: Notify the client's senior management or audit committee and recommend engaging legal counsel before proceeding

Auditors should promptly notify appropriate governance levels and engage legal counsel before taking further action to ensure proper investigation protocols and legal privilege are established.

What is defective pricing in a construction contract context, and when is it most relevant?

Answer: When a contractor submits a proposal knowing that claimed costs are overstated or unsupported by actual cost data

Defective pricing involves submitting proposals with inflated or unsupported cost data to deceive the owner into paying more than the work actually costs, particularly relevant on negotiated contracts.

An auditor discovers that a construction project manager accepted free vacation travel from a major subcontractor. Under most ethics frameworks applicable to CCA practice, this is:

Answer: A prohibited conflict of interest that must be disclosed and may require the project manager's removal from oversight of that subcontractor

Accepting gifts of significant value from vendors or subcontractors creates a conflict of interest that compromises the project manager's ability to objectively oversee that subcontractor's work and billing.

Which data analytics test is most useful for identifying potential payroll fraud in construction where workers may be paid for hours not worked?

Answer: Comparing total labor hours billed per worker per pay period against badge swipe or biometric time-and-attendance records

Comparing payroll hours to independent time-and-attendance system records is the most direct test to identify workers paid for hours they did not spend on site.