CPSM Risk Management & Compliance Flashcards

A procurement team conducts a business continuity exercise and discovers a critical component has only a 3-day lead time buffer. Which action BEST addresses this supply continuity risk?

Answer: Establish a dual-source strategy and increase strategic buffer stock

Combining dual-sourcing with increased strategic buffer stock addresses both supplier disruption risk and the inadequate lead time buffer simultaneously.

Under the Sarbanes-Oxley Act (SOX), what is the PRIMARY supply management compliance obligation?

Answer: Maintaining accurate financial reporting controls over procurement transactions

SOX requires companies to maintain strong internal controls over financial reporting, which includes procurement transactions to prevent fraud, errors, and misstatements in financial statements.

A company's supplier code of conduct requires annual self-assessments. Which additional verification step provides the STRONGEST assurance of supplier compliance?

Answer: Conducting on-site third-party audits of supplier facilities

Third-party on-site audits provide independent, objective evidence of actual conditions, making them far more reliable than self-reported data or attestations.

Which type of supply chain disruption is BEST categorized as a 'black swan' event?

Answer: A global pandemic shutting down manufacturing worldwide

A black swan event is a rare, unpredictable, high-impact occurrence that defies normal expectations—a global pandemic fits this definition perfectly.

When performing a supplier financial risk assessment, which ratio BEST measures a supplier's ability to meet short-term obligations?

Answer: Current ratio (current assets / current liabilities)

The current ratio directly measures whether a supplier has sufficient short-term assets to cover its short-term liabilities, indicating near-term financial stability.

A company's procurement policy prohibits accepting gifts above $25 from suppliers. An employee accepts a $200 holiday gift basket and discloses it. What is the MOST appropriate organizational response?

Answer: Return the gift and issue a formal ethics policy reminder to all staff

Returning the gift upholds the policy boundary while using the incident as a teaching opportunity through a company-wide reminder reinforces the ethics culture without disproportionate punishment for voluntary disclosure.

Which clause in a supply contract MOST directly protects a buyer if a supplier is acquired by a competitor?

Answer: Change of control clause

A change of control clause gives the buyer the right to terminate or renegotiate the contract if the supplier undergoes ownership change, protecting against conflicts of interest from competitor acquisition.