Fraud Prevention Programs Flashcards

Which anti-fraud measure most directly addresses the 'rationalization' element of the fraud triangle?

Answer: Enforcing a zero-tolerance fraud policy communicated to all employees

A clearly communicated zero-tolerance policy challenges the rationalizations fraudsters use by making clear that no excuse justifies dishonest behavior.

A company implements continuous monitoring software that flags all journal entries posted after business hours. This is an example of which type of control?

Answer: Detective control

Flagging unusual journal entries is a detective control because it identifies anomalies after they occur rather than stopping them beforehand.

Under the Sarbanes-Oxley Act, Section 301 requires audit committees to establish procedures for:

Answer: Receiving, retaining, and treating complaints regarding accounting and internal controls, including anonymous employee submissions

SOX Section 301 mandates that audit committees establish confidential, anonymous complaint procedures — essentially requiring ethics hotlines for public companies.

What is the concept of 'anti-fraud training' specifically designed to accomplish among non-financial employees?

Answer: Help employees recognize red flags of fraud and understand their reporting obligations

Anti-fraud training equips employees at all levels to recognize warning signs and empowers them to report concerns through appropriate channels.

Which of the following represents a key difference between fraud prevention and fraud detection controls?

Answer: Prevention controls stop fraud before it occurs; detection controls identify fraud after it has happened

Prevention controls (like approvals and access restrictions) stop fraud from occurring, while detection controls (like reconciliations and audits) identify fraud that has already taken place.

When an organization performs a vendor due diligence review as part of its fraud prevention program, what is the PRIMARY concern being addressed?

Answer: Identifying vendors with histories of fraudulent billing, bribery, or criminal conduct

Vendor due diligence screens for red flags such as prior fraud convictions, bribery records, or shell company structures that indicate elevated risk of procurement fraud.

Which practice BEST helps an organization ensure its fraud prevention program remains effective over time?

Answer: Periodically assessing and updating the program based on new fraud risks, control test results, and emerging schemes

Fraud risks evolve constantly, so the prevention program must be regularly reassessed and updated to address new schemes, operational changes, and control weaknesses.