CFS Fraud Prevention & Detection 3 — Questions and Answers
Question 1: Which element of the Fraud Triangle represents an employee's belief that fraud will not be discovered?
- Pressure
- Opportunity (Correct answer)
- Rationalization
- Capability
Correct answer: Opportunity
Opportunity reflects the perceived ability to commit fraud undetected, often due to weak internal controls.
Question 2: A company implements mandatory job rotation for employees who handle cash. This control primarily addresses which fraud risk factor?
- Rationalization
- Pressure
- Opportunity (Correct answer)
- Concealment
Correct answer: Opportunity
Job rotation limits continuous access to assets and records, reducing the opportunity for sustained fraud.
Question 3: Which document best supports detection of fictitious employees in a payroll fraud scheme?
- Vendor invoices
- HR personnel files with verified I-9 forms (Correct answer)
- Fixed asset register
- Bank reconciliations
Correct 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.
Question 4: Continuous monitoring differs from periodic auditing primarily because it:
- Costs less to implement
- Detects anomalies in real time as transactions occur (Correct answer)
- Requires no technology investment
- Is performed only at year-end
Correct 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.
Question 5: A supervisor who approves their own subordinate's expense reports is an example of a breakdown in:
- Background check procedures
- Segregation of duties (Correct answer)
- Physical access controls
- IT general controls
Correct answer: Segregation of duties
Segregation of duties requires that no single person control all phases of a transaction, including both submission and approval.
Question 6: Which fraud scheme involves recording fictitious sales to inflate revenue?
- Lapping
- Channel stuffing
- Skimming
- Fictitious revenue (Correct answer)
Correct answer: Fictitious revenue
Fictitious revenue schemes record sales that never occurred, directly inflating income on financial statements.
Question 7: Pre-employment background checks are most effective at reducing which fraud risk?
- Management override
- Hiring individuals with prior fraud history (Correct answer)
- Collusion among existing employees
- Vendor invoice manipulation
Correct 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.
CFS Fraud Prevention & Detection 3
Which element of the Fraud Triangle represents an employee's belief that fraud will not be discovered?