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Fraud Red Flags and Internal Controls
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1
Question
What does an employee living well beyond their apparent salary level indicate in asset misappropriation?
Page 1
Answer
Possible embezzlement or theft
2
Question
Why is living beyond means considered a red flag for fraud?
Page 1
Answer
It suggests possible embezzlement or theft
3
Question
Is strong segregation of duties in a company a red flag for asset misappropriation?
Page 2
Answer
No, it's a good internal control
4
Question
What benefit does segregation of duties provide against fraud?
Page 2
Answer
Prevents fraud by separating cash handling, recording, and reconciliation
5
Question
Why might an inventory manager refusing vacation be a red flag?
Page 3
Answer
Suggests hiding fraudulent activity by not sharing duties
6
Question
What does reluctance to take time off indicate in fraud contexts?
Page 3
Answer
Possible concealment of fraudulent activity
7
Question
Are vendor invoices lacking supporting documentation a red flag?
Page 4
Answer
Yes, indicates fictitious vendors or billing schemes
8
Question
What can missing documentation on invoices suggest?
Page 4
Answer
Fictitious vendors or billing schemes
9
Question
Is requiring two signatures on checks over $5,000 a red flag?
Page 5
Answer
No, it's a strong control against fraud
10
Question
Why are dual signature requirements effective?
Page 5
Answer
They prevent fraud by requiring multiple approvals
11
Question
What does multiple payments just below approval thresholds indicate?
Page 6
Answer
Splitting transactions to avoid detection in billing schemes
12
Question
Why is splitting payments a common fraud tactic?
Page 6
Answer
To evade approval thresholds and detection
13
Question
Do frequent inventory write-offs for damaged goods signal fraud?
Page 7
Answer
Yes, may conceal theft of inventory
14
Question
What might excessive write-offs hide in inventory management?
Page 7
Answer
Theft of inventory
15
Question
Is requiring original receipts for expense reports a red flag?
Page 8
Answer
No, it's a control measure
16
Question
Why do expense report requirements help prevent fraud?
Page 8
Answer
They ensure documentation for all expenses
17
Question
What does a purchasing agent always choosing the same high-bidding vendor suggest?
Page 9
Answer
Possible kickbacks or bribery
18
Question
Why is favoring one vendor despite higher costs a corruption red flag?
Page 9
Answer
Suggests kickbacks or bribery
19
Question
Is disclosing close personal relationships with vendors a red flag?
Page 10
Answer
No, if reported through proper channels
20
Question
What makes proper conflict-of-interest disclosure appropriate?
Page 10
Answer
It demonstrates compliance, not fraud
21
Question
Why is a vendor's address matching an employee's home a red flag?
Page 11
Answer
Indicates possible shell company for kickbacks
22
Question
What does a shared address between vendor and employee suggest in corruption?
Page 11
Answer
Shell company setup for kickback schemes
23
Question
Are expensive holiday gifts from vendors to employees a red flag?
Page 12
Answer
Yes, can indicate bribery or undue influence
24
Question
Why might lavish gifts signal corruption?
Page 12
Answer
They indicate bribery or undue influence
25
Question
Is a written code of conduct and annual review a red flag for corruption?
Page 13
Answer
No, it's a preventive control
26
Question
What role do ethics policies play in preventing corruption?
Page 13
Answer
They set standards and require annual review
27
Question
What does tailoring contract specs to one vendor indicate?
Page 14
Answer
Bid-rigging through corruption
28
Question
Why are tailored contract specifications a corruption sign?
Page 14
Answer
Suggest bid-rigging
29
Question
Do frequent unexplained trips to offshore locations signal corruption?
Page 15
Answer
Yes, may indicate bribery or money laundering
30
Question
What suspicious patterns might offshore trips reveal?
Page 15
Answer
Bribery or money laundering activities