Fraud Detection & Prevention Techniques Flashcards
7 cards from real CFA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Fraud Detection & Prevention Techniques flashcards as text
Which data analytics technique is most effective for detecting duplicate payments in accounts payable?
Answer: Duplicate transaction testing
Duplicate transaction testing directly compares payment records for matching vendor, amount, and date fields to identify fraudulent double payments.
A fraud examiner notices that a company's financial data does not conform to Benford's Law. What does this most likely indicate?
Answer: Possible manipulation or fabrication of financial data
Significant deviation from Benford's Law distribution suggests numbers may have been artificially created or manipulated rather than occurring naturally.
Which internal control is the PRIMARY preventive measure against payroll fraud involving ghost employees?
Answer: Segregation of payroll processing and HR duties
Segregating HR functions (hiring/termination) from payroll processing prevents one person from both creating fictitious employees and issuing payments to them.
During a fraud investigation, an examiner discovers unusually high sales returns just after quarter-end. This pattern most likely suggests:
Answer: Channel stuffing or premature revenue recognition
High post-period returns are a red flag for channel stuffing, where revenue is prematurely recognized by shipping product that customers later return.
What is the purpose of a 'surprise audit' as a fraud prevention technique?
Answer: To deter fraud by creating uncertainty about when scrutiny will occur
Surprise audits deter fraud because employees cannot conceal or temporarily reverse fraudulent transactions before the audit begins.
A company implements a vendor master file review process. Which anomaly would MOST warrant further investigation?
Answer: A vendor with the same address as an employee
A vendor sharing an address with an employee is a classic red flag for shell company fraud, where an employee creates a fictitious vendor to divert payments.
Which technique is BEST suited for identifying trends suggesting financial statement fraud over multiple reporting periods?
Answer: Horizontal analysis comparing multiple periods
Horizontal (trend) analysis reveals unusual changes between periods that may indicate manipulation of reported figures across financial statements.