CCA Ethics, Compliance, and Regulatory Standards 2 — Questions and Answers
Question 1: A construction auditor discovers that a project manager has been splitting purchase orders to stay below the competitive bidding threshold. What ethical obligation does the auditor have?
- Ignore it if the amounts are small
- Report the finding as a bid-splitting violation regardless of amounts (Correct answer)
- Warn the project manager privately and allow self-correction
- Defer to the contractor's internal policy
Correct answer: Report the finding as a bid-splitting violation regardless of amounts
Bid splitting to circumvent competitive bidding requirements is a procurement violation that must be reported regardless of the dollar amounts involved.
Question 2: Under the False Claims Act, which condition subjects a contractor to liability?
- Submitting a claim with minor arithmetic errors
- Knowingly submitting a false or fraudulent claim for payment to the federal government (Correct answer)
- Failing to meet project milestones by more than 30 days
- Using non-union labor on a prevailing-wage project
Correct answer: Knowingly submitting a false or fraudulent claim for payment to the federal government
The False Claims Act imposes liability on any person who knowingly submits a false or fraudulent claim for payment to the U.S. government.
Question 3: The IIA Code of Ethics requires internal auditors to exhibit which of the following regarding conflicts of interest?
- Disclose conflicts only when asked by management
- Avoid situations that impair or appear to impair objectivity (Correct answer)
- Accept gifts valued under $50 without disclosure
- Prioritize organizational goals over personal ethics
Correct answer: Avoid situations that impair or appear to impair objectivity
The IIA Code of Ethics requires auditors to avoid any conflict of interest, real or apparent, that could impair their objectivity.
Question 4: Which federal act establishes prevailing wage requirements for laborers and mechanics on federally funded construction projects?
- The Fair Labor Standards Act
- The Davis-Bacon Act (Correct answer)
- The Service Contract Act
- The Walsh-Healey Public Contracts Act
Correct answer: The Davis-Bacon Act
The Davis-Bacon Act requires payment of prevailing wages to workers on federally funded or assisted construction contracts exceeding $2,000.
Question 5: When an auditor identifies a potential legal violation during a construction audit, the most appropriate first step is to:
- Immediately contact law enforcement
- Consult with legal counsel before proceeding (Correct answer)
- Include findings in the report without further action
- Confront the responsible party directly
Correct answer: Consult with legal counsel before proceeding
Auditors should consult legal counsel when potential legal violations are identified to determine proper reporting and investigation procedures.
Question 6: A construction auditor is asked by a senior executive to exclude a significant finding from the audit report to avoid embarrassment. The auditor should:
- Remove the finding out of deference to authority
- Consult peers before deciding
- Refuse and maintain the finding, escalating if necessary (Correct answer)
- Include a watered-down version of the finding
Correct answer: Refuse and maintain the finding, escalating if necessary
Auditors must maintain objectivity and integrity; if management attempts to suppress valid findings, the auditor must escalate to the audit committee or board.
Question 7: The Sarbanes-Oxley Act Section 404 most directly impacts construction companies that are:
- Performing federally funded projects over $10 million
- Publicly traded and required to assess internal controls over financial reporting (Correct answer)
- Employing more than 500 workers on a single project
- Operating under a cost-plus contract with a government agency
Correct answer: Publicly traded and required to assess internal controls over financial reporting
SOX Section 404 requires publicly traded companies to assess and report on the effectiveness of internal controls over financial reporting.
CCA Ethics, Compliance, and Regulatory Standards 2
A construction auditor discovers that a project manager has been splitting purchase orders to stay below the competitive bidding threshold.
What ethical obligation does the auditor have?