Internal Controls and Fraud Prevention Flashcards

Which of the following BEST describes the 'three-way match' in accounts payable controls?

Answer: Matching the purchase order, receiving report, and vendor invoice

The three-way match verifies that the purchase order, receiving report, and vendor invoice all agree before a payment is approved.

A bookkeeper who opens mail, records receipts, AND deposits checks violates which control principle?

Answer: Segregation of duties

Handling all steps of cash receipts without oversight creates an opportunity for theft that segregation of duties would prevent.

Which control requires the bank to verify each check number and amount against a company-provided list before paying it?

Answer: Positive pay

Positive pay is a bank fraud prevention service where the bank matches checks presented for payment against the company's authorized list.

Physical controls over assets include all of the following EXCEPT:

Answer: Approving journal entries before posting

Approving journal entries is an authorization control, not a physical safeguard over assets.

Which term describes the practice of requiring employees to take mandatory vacations to help detect fraud?

Answer: Mandatory leave policy

Mandatory vacations force another employee to handle duties, which can expose fraudulent schemes that require daily maintenance.

Which document should a company use to formally report a discovered employee fraud to management and auditors?

Answer: Incident report

An incident report formally documents the discovery, details, and evidence of fraud for management review and investigative follow-up.