CCA Fraud Detection and Prevention in Construction 1 — Questions and Answers
Question 1: Which fraud scheme involves a construction contractor billing the owner for materials at inflated prices while receiving a secret kickback from the supplier?
- Ghost employee scheme
- Vendor kickback scheme (Correct answer)
- Bid rigging
- Change order inflation
Correct answer: Vendor kickback scheme
A vendor kickback scheme occurs when a contractor receives undisclosed financial benefits from a supplier in exchange for awarding business or approving inflated invoices.
Question 2: In the context of the Fraud Triangle, which element describes a contractor's ability to commit fraud due to weak internal controls?
- Pressure
- Rationalization
- Opportunity (Correct answer)
- Motivation
Correct answer: Opportunity
Opportunity is the element of the Fraud Triangle that refers to the circumstances—such as weak controls—that allow fraud to occur.
Question 3: A construction auditor reviewing payroll records discovers several employees with identical bank account numbers. This is a red flag for:
- Ghost employee scheme (Correct answer)
- Bid rigging
- Material substitution fraud
- Front-loading
Correct answer: Ghost employee scheme
Duplicate bank account numbers on payroll records suggest ghost employees—fictitious workers whose paychecks are deposited into an accomplice's account.
Question 4: Which procurement fraud scheme involves competitors secretly agreeing on which company will win a bid while others submit intentionally losing bids?
- Phantom bidding
- Bid rotation (bid rigging) (Correct answer)
- Sole-source manipulation
- Change order fraud
Correct answer: Bid rotation (bid rigging)
Bid rotation is a form of bid rigging where competitors take turns winning contracts while the others submit cover bids to create the appearance of competition.
Question 5: Which data analytics technique is most effective for identifying unusual patterns of round-dollar invoices in a construction project?
- Regression analysis
- Benford's Law analysis (Correct answer)
- Network diagram analysis
- Monte Carlo simulation
Correct answer: Benford's Law analysis
Benford's Law predicts natural digit distribution in large datasets; deviations—such as clusters of round numbers—can indicate fabricated invoices.
Question 6: Material substitution fraud in construction occurs when:
- A contractor uses lower-grade materials than specified and bills for the specified grade (Correct answer)
- A contractor orders too much material
- The owner approves a substitution via change order
- Materials are stored off-site
Correct answer: A contractor uses lower-grade materials than specified and bills for the specified grade
Material substitution fraud involves installing inferior or cheaper materials while billing the owner for the specified higher-grade materials.
CCA Fraud Detection and Prevention in Construction 1
Which fraud scheme involves a construction contractor billing the owner for materials at inflated prices while receiving a secret kickback from the supplier?