Auditing Principles & Procedures Flashcards

Under a GAP audit framework, what does 'dual control' refer to in the context of claims processing?

Answer: Requiring two authorized individuals to approve or process a transaction

Dual control is an internal control requiring two authorized individuals to review or approve transactions, reducing the risk of fraud or error in claims processing.

Which of the following is a key indicator of potential misrepresentation that a GAP auditor should flag during contract review?

Answer: A vehicle purchase price significantly below book value with no explanation

A vehicle purchase price significantly below market value without documentation raises a red flag for potential misrepresentation or fraud in the underlying transaction.

What is the auditor's responsibility when they discover a potential violation of state insurance regulations during a GAP program audit?

Answer: Document the finding and escalate it to appropriate compliance or legal personnel

Auditors must document all findings, including potential regulatory violations, and escalate them to compliance or legal personnel who can determine the appropriate response.

In GAP auditing, what does 'stratification' of a contract population help an auditor accomplish?

Answer: Divide contracts into subgroups by characteristics (e.g., loan term, LTV) to target sampling more effectively

Stratification groups contracts by shared characteristics so auditors can design samples that adequately represent higher-risk subgroups within the overall population.

Which internal control is most effective at preventing a GAP certificate from being issued after a total loss has already occurred?

Answer: System-level date validation that cross-checks certificate issuance date against the reported loss date

Automated date validation controls prevent back-dating by cross-referencing the issuance date against loss dates, making post-loss enrollment technically impossible.

A GAP auditor calculates the 'deficiency balance' for a sample claim. What two figures are subtracted to arrive at this amount?

Answer: Outstanding loan balance minus actual cash value (ACV) of the vehicle

The deficiency balance equals the outstanding loan balance minus the vehicle's actual cash value (ACV), which is the core amount GAP coverage is designed to address.

When an audit reveals that a dealer has been charging customers a GAP premium higher than the rate filed with the administrator, what type of violation has occurred?

Answer: A rate/pricing compliance violation

Charging a premium rate different from the rate filed and approved by the program administrator constitutes a rate/pricing compliance violation.