CGAP Internal Controls and Fraud Detection in Government 1 — Questions and Answers
Question 1: What is the primary framework used by U.S. federal agencies to evaluate and report on internal controls?
- COSO Enterprise Risk Management Framework
- GAO's Standards for Internal Control in the Federal Government (Green Book) (Correct answer)
- ISO 31000 Risk Management Standard
- COBIT Framework for IT Governance
Correct answer: GAO's Standards for Internal Control in the Federal Government (Green Book)
The GAO Green Book establishes standards for internal control in the federal government and is used to evaluate and report on internal control effectiveness under FMFIA.
Question 2: Which of the five components of internal control in the Green Book focuses on management's attitudes and commitment to integrity?
- Risk Assessment
- Control Activities
- Control Environment (Correct answer)
- Monitoring
Correct answer: Control Environment
The Control Environment sets the tone of an organization through management's integrity, ethical values, and commitment to competence and accountability.
Question 3: What is 'segregation of duties' as an internal control principle?
- Rotating employees between departments annually
- Dividing key tasks among different individuals so no single person can perpetrate and conceal an error or fraud (Correct answer)
- Separating financial records by fiscal year
- Assigning different supervisors to different teams
Correct answer: Dividing key tasks among different individuals so no single person can perpetrate and conceal an error or fraud
Segregation of duties splits authorization, custody, and record-keeping functions among different employees to prevent one person from having complete control over a transaction.
Question 4: In the fraud triangle, which element refers to the justification a fraudster uses to rationalize their behavior?
- Pressure
- Opportunity
- Rationalization (Correct answer)
- Incentive
Correct answer: Rationalization
Rationalization is the self-justification fraudsters use to make dishonest behavior seem acceptable to themselves, such as 'I'll pay it back' or 'the government wastes money anyway.'
Question 5: Which type of fraud involves government employees submitting claims for goods or services not received?
- Bid rigging
- Ghost employee scheme
- Fictitious vendor scheme (Correct answer)
- Payroll padding
Correct answer: Fictitious vendor scheme
A fictitious vendor scheme involves creating fake vendor records and submitting fraudulent invoices for goods or services never provided.
Question 6: What is a 'compensating control'?
- A control that rewards employees for good performance
- A secondary control that mitigates risk when a primary control cannot be implemented (Correct answer)
- A financial control that calculates employee compensation
- A detective control that compensates for preventive control failures
Correct answer: A secondary control that mitigates risk when a primary control cannot be implemented
A compensating control is an alternative control that reduces the risk of error or fraud when the ideal primary control (such as segregation of duties) is impractical.
CGAP Internal Controls and Fraud Detection in Government 1
What is the primary framework used by U.S. federal agencies to evaluate and report on internal controls?