Fraud Prevention & Detection Flashcards

Which element of the Fraud Triangle represents an employee's belief that fraud will not be discovered?

Answer: Opportunity

Opportunity reflects the perceived ability to commit fraud undetected, often due to weak internal controls.

A company implements mandatory job rotation for employees who handle cash. This control primarily addresses which fraud risk factor?

Answer: Opportunity

Job rotation limits continuous access to assets and records, reducing the opportunity for sustained fraud.

Which document best supports detection of fictitious employees in a payroll fraud scheme?

Answer: HR personnel files with verified I-9 forms

Verifying personnel files and I-9 documentation confirms that all employees on payroll are legitimate, real individuals.

Continuous monitoring differs from periodic auditing primarily because it:

Answer: Detects anomalies in real time as transactions occur

Continuous monitoring uses automated tools to review transactions as they happen, enabling faster detection of irregularities.

A supervisor who approves their own subordinate's expense reports is an example of a breakdown in:

Answer: Segregation of duties

Segregation of duties requires that no single person control all phases of a transaction, including both submission and approval.

Which fraud scheme involves recording fictitious sales to inflate revenue?

Answer: Fictitious revenue

Fictitious revenue schemes record sales that never occurred, directly inflating income on financial statements.

Pre-employment background checks are most effective at reducing which fraud risk?

Answer: Hiring individuals with prior fraud history

Background checks screen candidates for criminal history, prior terminations for cause, and credential fraud before they are hired.