CPB / BookKeeping Internal Controls and Fraud Prevention 1 — Questions and Answers
Question 1: Which internal control principle requires that no single employee handles all aspects of a financial transaction from beginning to end?
- Segregation of duties (Correct answer)
- Management override
- Dual custody
- Audit trail
Correct answer: Segregation of duties
Segregation of duties divides key tasks among multiple employees to reduce the risk of errors and fraud.
Question 2: A bookkeeper discovers that small amounts of cash are consistently missing from the petty cash fund. This is BEST described as:
- Skimming (Correct answer)
- Lapping
- Check kiting
- Petty theft
Correct answer: Skimming
Skimming involves removing cash before it is recorded in the accounting system, making it difficult to detect.
Question 3: Which document provides written authorization before a company makes a payment to a vendor?
- Purchase order (Correct answer)
- Remittance advice
- Credit memo
- Bank reconciliation
Correct answer: Purchase order
A purchase order authorizes the acquisition of goods or services and serves as a key control over expenditures.
Question 4: Requiring two authorized signatures on checks above a specified dollar amount is an example of which control?
- Dual authorization (Correct answer)
- Positive pay
- Segregation of duties
- Bank confirmation
Correct answer: Dual authorization
Dual authorization requires two approvals for high-value transactions, reducing unauthorized disbursement risk.
Question 5: Which fraud scheme involves an employee stealing a customer payment and then using a later customer payment to cover the shortage?
- Lapping (Correct answer)
- Kiting
- Skimming
- Embezzlement
Correct answer: Lapping
Lapping is a receivables fraud where stolen payments are concealed by applying subsequent customer receipts to earlier accounts.
Question 6: An unannounced cash count of the petty cash fund is an example of which internal control activity?
- Surprise audit (Correct answer)
- Reconciliation
- Positive pay
- Authorization
Correct answer: Surprise audit
Surprise audits deter theft by keeping employees uncertain about when a count or review will occur.
CPB / BookKeeping Internal Controls and Fraud Prevention 1
Which internal control principle requires that no single employee handles all aspects of a financial transaction from beginning to end?