CFFE Module III

Fraud Prevention and Detection flashcards

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Complete Flashcard Reference

Review every card in this deck. Open any card to reveal its answer. The first 10 are free; the other 40 come with the subject.

What are the three elements of the fraud triangle?

Pressure: a perceived financial or personal need. Opportunity: a perceived way to commit the fraud without getting caught, usually a control weakness. Rationalisation: a way to justify the act to oneself as acceptable.

Who first named white collar crime, and how did he define it?

The criminologist Edwin Sutherland. Non-violent crime committed for financial gain by persons of respectability and high social status in the course of their occupation.

Why are mandatory vacations an anti-fraud control, and when do they work?

Most concealment needs the offender's continuous attention, such as posting an entry or intercepting a statement each month, so the scheme often surfaces while they are away. It works only if the duties genuinely pass to another person during the absence.

What are the five components of COSO's Internal Control, Integrated Framework?

1. Control environment. 2. Risk assessment. 3. Control activities. 4. Information and communication. 5. Monitoring activities.

Under ISA 240, who is primarily responsible for preventing and detecting fraud, and what is the auditor responsible for?

Management is primarily responsible for preventing and detecting fraud. The auditor obtains reasonable assurance that the financial statements are free of material misstatement, whether caused by fraud or error, with professional scepticism throughout. It is not a guarantee that all fraud will be found.

May a forensic examiner give an opinion on whether a person is guilty?

No. Guilt or innocence is for the court to decide. The examiner presents facts and, where qualified, expert opinion on those facts, and may say the evidence is consistent with a particular scheme, but never that a person is guilty.

What did Re Barings plc (No 5) hold about directors' duty to supervise?

Directors have a continuing duty, individually and collectively, to acquire and maintain enough understanding of the business to discharge their duties. Delegating a function does not absolve a director of the duty to supervise its discharge, and having no adequate system of monitoring was itself a breach.

What are the two kinds of red flag, with examples of each?

Behavioural: living beyond apparent means, unwillingness to take leave, unusually close association with a supplier, irritation at routine questions. Transactional: round-sum amounts, payments just below an approval threshold, invoices without purchase orders, suppliers whose bank details changed recently. A red flag raises a question; it never answers one.

What five tasks make up the fraud prevention health check case study?

1. Conduct a fraud prevention health check on the sample organisation. 2. Score the seven criteria of evaluation. 3. Identify the fraud prevention gaps. 4. Recommend how to seal the gaps. 5. Reason through a scenario for which there is no specific code of conduct.

What is vicarious liability, and what does it mean when an employee defrauds a customer?

The organisation is legally responsible for its employees' or agents' acts within the scope of their employment, even where management did not personally participate, including an authorised act performed in an unauthorised way. The organisation faces the customer's claim first and recovers from the employee afterwards, if at all.

Summarise the four theories of crime causation.