Fraud Detection & Prevention Flashcards

Which of the following BEST describes a 'pass-through' billing scheme?

Answer: An employee creates a shell company that buys and resells goods to the employer at inflated prices

In a pass-through scheme, an employee's shell company acts as a middleman, purchasing goods at cost and reselling them to the employer at a markup.

Which statistical technique is used to identify journal entries that deviate significantly from expected patterns?

Answer: Standard deviation analysis

Standard deviation analysis flags journal entries that fall far outside the normal distribution, highlighting unusual or potentially fraudulent postings.

An examiner reviewing purchase orders notices several approved by a manager whose approval limit was exceeded. This MOST likely indicates:

Answer: Authorization control override or collusion

Approvals that exceed stated limits suggest either the authorization controls were bypassed or the approver colluded with the requester.

Which forensic technique involves reconstructing a subject's net worth over time to detect unreported income?

Answer: Net worth method

The net worth method tracks changes in a subject's assets and liabilities over time; unexplained increases in net worth may indicate unreported income.

A company's accounts payable clerk processes a payment to a vendor whose address matches the clerk's personal address. This is BEST categorized as:

Answer: Billing fraud via shell company or self-dealing

Matching vendor and employee addresses is a classic red flag for a shell company or self-dealing billing scheme where the employee controls the vendor.

Which type of fraud involves manipulating financial statements by recording revenue in an earlier period than when it was actually earned?

Answer: Premature revenue recognition

Premature revenue recognition records revenue before it is earned, inflating current period results at the expense of future periods.

Which of the following is a key indicator of a 'ghost employee' scheme?

Answer: Multiple employees sharing the same bank account for direct deposit

Multiple direct deposit payments going to the same bank account may indicate a ghost employee whose wages are being redirected to an existing employee.