Fraud Detection & Prevention Techniques Flashcards

Which fraud scheme involves a perpetrator diverting incoming customer payments before they are recorded in the accounting system?

Answer: Skimming

Skimming is an off-book fraud where cash or checks are stolen before any accounting entry is made, making it harder to detect through record review alone.

A fraud prevention program includes 'pre-employment screening.' Which background check element is MOST relevant for a position with financial authority?

Answer: Criminal history and credit history checks

Criminal history and credit checks reveal prior dishonesty or financial distress that are significant risk factors for employees with access to company funds.

In fraud risk assessment, 'inherent risk' refers to:

Answer: The likelihood and impact of fraud before considering existing controls

Inherent risk is the raw risk of fraud based on the nature of the business activity, before any mitigating controls are considered.

A company's accounts payable clerk creates a fictitious vendor and submits invoices for services never rendered. Which control would MOST effectively prevent this scheme?

Answer: Centralizing vendor master file management with a separate approval process

Separating vendor creation authority from invoice processing prevents the same person from creating a fictitious vendor and approving fraudulent payments to that vendor.

During an interview with a fraud suspect, the investigator notices the subject uses more qualifying language and past tense when describing events. According to behavioral analysis, this may indicate:

Answer: Possible deception or discomfort with specifics of the account

Overuse of qualifiers ('I think,' 'I believe,' 'maybe') and past-tense distancing can be verbal indicators of deception, as subjects psychologically distance themselves from false statements.

Which financial statement assertion is MOST at risk in a revenue recognition fraud scheme?

Answer: Occurrence

Occurrence asserts that recorded revenues actually took place; revenue recognition fraud typically involves recording revenues for transactions that never occurred or are premature.

A proactive fraud detection program should PRIMARILY be based on:

Answer: A formal fraud risk assessment identifying where schemes are most likely to occur

A formal fraud risk assessment identifies specific vulnerabilities unique to the organization, enabling targeted and cost-effective prevention and detection controls.