CCA Fraud Detection and Prevention in Construction 2 — Questions and Answers
Question 1: Which anti-fraud control is most effective at deterring collusion between a contractor's project manager and a subcontractor?
- Mandatory job rotation and vendor audit rights (Correct answer)
- Increasing project contingency
- Requiring detailed daily reports
- Using lump-sum subcontracts
Correct answer: Mandatory job rotation and vendor audit rights
Job rotation disrupts established collusive relationships, and contract audit rights allow the owner to examine subcontractor records independently.
Question 2: A construction auditor suspects change order inflation. Which procedure provides the strongest evidence?
- Reviewing the contractor's marketing materials
- Comparing change order costs to independent cost estimates and actual subcontractor quotes (Correct answer)
- Inspecting the owner's project charter
- Reviewing the contractor's safety record
Correct answer: Comparing change order costs to independent cost estimates and actual subcontractor quotes
Comparing claimed change order costs to independent estimates and the underlying subcontractor bids directly reveals whether amounts are inflated.
Question 3: Which condition most increases the risk of fraud in a construction project?
- Competitive bidding with multiple responsive bidders
- A single individual controlling both purchasing and payment approval (Correct answer)
- Frequent owner audits
- Detailed subcontractor prequalification
Correct answer: A single individual controlling both purchasing and payment approval
Concentration of purchasing and payment authority in one person eliminates the checks and balances that prevent unauthorized or fraudulent transactions.
Question 4: False claims in construction, where a contractor submits inflated invoices to a government owner, may subject the contractor to liability under which US federal law?
- Sarbanes-Oxley Act
- False Claims Act (31 U.S.C. § 3729) (Correct answer)
- Davis-Bacon Act
- Miller Act
Correct answer: False Claims Act (31 U.S.C. § 3729)
The False Claims Act imposes civil and criminal penalties on those who knowingly submit fraudulent claims for payment to the federal government.
Question 5: A construction auditor finds that a sole-source contract was awarded without documented justification. The primary risk this represents is:
- Schedule delay
- Loss of competitive pricing and potential favoritism or fraud (Correct answer)
- Increased safety incidents
- Environmental non-compliance
Correct answer: Loss of competitive pricing and potential favoritism or fraud
Undocumented sole-source awards bypass competitive safeguards and can mask favoritism, kickbacks, or inflated pricing.
Question 6: Which technique involves auditors selecting and confirming a random sample of material deliveries directly with suppliers to detect fictitious charges?
- Accounts payable confirmation (Correct answer)
- Benford's Law testing
- Critical path analysis
- Punch list review
Correct answer: Accounts payable confirmation
Accounts payable confirmation involves directly contacting suppliers to verify that billed deliveries actually occurred, detecting phantom invoices.
CCA Fraud Detection and Prevention in Construction 2
Which anti-fraud control is most effective at deterring collusion between a contractor's project manager and a subcontractor?