CFE – Financial Transactions and Fraud Schemes — Question 25

Which of the following is a red flag that might indicate the existence of a need recognition scheme?

Answer options

• A. The purchasing entity’s materials are being ordered at the optimal reorder point.
• B. The purchasing entity has a large list of backup suppliers.
• C. The purchasing entity has unusually high requirements for stock and inventory levels.
• D. The purchasing entity has few surplus items written off as scrap.

Correct answer: C

Explanation

Option C is correct because unusually high requirements for stock and inventory levels can indicate an underlying need recognition scheme. The other options do not necessarily suggest a scheme; for instance, having backup suppliers (B) or optimal reorder points (A) are common practices, and having few surplus items (D) can indicate efficient inventory management rather than a need recognition issue.