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1. Which statement best aligns with internal audit's responsibility regarding fraud under Standard 2120.A2?
- A.Internal audit must design and own anti-fraud controls across the enterprise for every process without exception.
- B.Internal audit must evaluate the adequacy of risk management, including fraud risks, and recommend improvements when needed.✓ Correct
- C.Internal audit is responsible for investigating every whistleblower allegation until legal action is complete.
- D.Internal audit should avoid discussing fraud risk because it compromises objectivity during routine engagements.
Explanation
2120.A2 requires evaluating fraud risk management and controls; IA does not own controls or investigate all cases by default.
2. A cashier pockets cash from sales before recording them. Which scheme is this and why?
- A.Disbursement fraud, because the loss occurs when cash leaves the bank through a false vendor payment entry.
- B.Skimming, because the theft occurs off-books before the transaction is recorded in the accounting system.✓ Correct
- C.Payroll fraud, because cash taken by an employee is part of compensation that should have been accrued properly.
- D.Asset misappropriation via inventory theft, because the cashier converts physical goods rather than currency.
Explanation
Skimming removes receipts before recording, making it hard to detect from books. Disbursement and payroll are recorded; inventory theft is different.
3. Which scenario most likely indicates a fraudulent disbursement scheme?
- A.Frequent small payments to a new vendor with a mailbox store address that match an approver's personal address.✓ Correct
- B.Cash overages at point-of-sale locations that are reversed by supervisors during end-of-day procedures.
- C.Periodic inventory write-downs due to obsolescence that follow clear product lifecycle patterns.
- D.Higher payroll tax remittances after seasonal hiring increases in distribution centers.
Explanation
Shell vendor patterns with mailbox addresses and conflict clues fit disbursement fraud. Others reflect operational or explainable trends.
4. Which control most directly prevents ghost employee payroll schemes in a growing organization?
- A.Mandating dual signatures on all bank reconciliations performed by the controller and CFO monthly for accuracy.
- B.Segregating HR hiring/termination from payroll processing and reconciling HR master data to payroll periodically.✓ Correct
- C.Requiring procurement to validate vendor tax IDs against government databases before onboarding suppliers.
- D.Implementing surprise cash counts in retail registers at random intervals across locations every week.
Explanation
Ghost employees exploit HR-payroll conflicts; independent master data reconciliation and segregation address the root risk.
5. Management recognizes revenue on bill-and-hold arrangements without meeting criteria. What type of fraud is most implicated?
- A.Asset misappropriation, because physical goods were diverted for personal use by warehouse employees.
- B.Information misrepresentation, because disclosure and recognition rules are bypassed to inflate reported performance.✓ Correct
- C.Corruption, because the scheme relies on external parties bribing managers to accept early shipments.
- D.Payroll fraud, because employees are compensated based on falsified productivity metrics from the plant.
Explanation
Premature revenue recognition is a classic financial reporting misrepresentation, not theft, payroll, or corruption.
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