CFE – Financial Transactions and Fraud Schemes — Question 45

Which of the following statements describes a best practice for preventing contract and procurement fraud?

Answer options

• A. Companies should have vendor-monitoring procedures that are based on the red flags of the vendor schemes that pose the greatest risk.
• B. Companies should not conduct background checks on vendors until after they are added to the vendor master file.
• C. Companies should restrict the monitoring of their procurement activities to once a year to ensure comparability over time.
• D. Companies should permit the person who maintains the vendor master file to have the authority to approve invoices for payment.

Correct answer: A

Explanation

Option A is correct because establishing vendor-monitoring procedures that highlight risk factors is essential in detecting and preventing fraud. Options B and C are incorrect as they suggest practices that would delay detection of fraud or limit oversight, increasing risk. Option D is also wrong because it creates a conflict of interest by allowing one individual too much control over vendor payments.