IIA-CIA-Part2 Practice Test

Insurance companies often receive electronic hospitalization claims directly from hospitals. Which
of the following control procedures would be most effective in detecting fraud in such an
environment?

A.

Use integrated test facilities to test the accuracy of processing in a manner that is transparent
to data processing.

B.

Develop monitoring programs to identify unusual types of claims or an unusual number of
claims by demographic class for investigation by the claims department.

C.

Use generalized audit software to match the claimant identification number with a master list of
valid policyholders.

D.

Develop batch controls over all items received from a particular hospital and process those
claims in batches.

During an audit of executive travel, an auditor noted that the president's travel expense
reimbursements were approved by an executive secretary who reported to the president. The
organization's reimbursement policy requires all travel expense reimbursements to be approved
by the traveler's supervisor, but it does not address the president's reimbursements. Which of the
following represents the auditor's best recommendation in this situation?

A.

The organization's reimbursement policy should be amended to grant the president's executive
secretary the authority to approve the president's travel expense reimbursements.

B.

The approval policy for executive travel should be considered at the next meeting of the audit
committee of the board of directors.

C.

The president's travel expense reimbursements should be reviewed and approved by the chief
financial officer

D.

The president's noncompliance should be considered immaterial.

Which of the following, if observed, would not indicate the need to extend the search for other
indicators of fraud in a purchasing department?

A.

The standard of living of one of the purchasing agents has increased.

B.

The internal control structure has significant weaknesses.

C.

The purchasing agents have convinced management to adopt a policy of paying vendors on a
more timely basis in order to avoid incurring penalty charges.

D.

The cost of goods procured seems to be excessive in comparison with previous years.

Which of the following does not represent a difficulty in using red flags as fraud indicators?

A.

Many common red flags are also associated with situations where no fraud exists.

B.

Some red flags are difficult to quantify or to evaluate.

C.

Red flag information is only gathered in extraordinary circumstances.

D.

The red flags literature is not well enough established to have a positive impact on auditing

Which of the following might alert an auditor to the possibility of fraud in a division?
I. The division is not scheduled for an external audit this year.
II. Sales have increased by 10 percent.
III. A significant portion of management's compensation is directly tied to reported net income of
the division.

A.

I only

B.

III only

C.

I and II only

D.

I, II, and III