Week 12 — Answer Key

Internal Controls & Fraud Prevention (Return to Syllabus)

Instructor Version — Detailed Answers for Internal Control Principles, Fraud Risks, and Documentation Standards

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Concept 1

Core Internal Control Concepts — Answer Key

Internal controls ensure accurate reporting, protect assets, and reduce fraud. Bookkeepers must consistently follow these controls and maintain strong documentation.

Concept 2

The Fraud Triangle — Key Answers

The three elements of the fraud triangle are pressure, opportunity, and rationalization. Internal controls reduce opportunity, the factor organizations can influence most.

Common Fraud Risks

Fake vendors and ghost employees
Skimming or diverting customer payments
Altered checks or invoices
False reimbursement claims

Concept 3

Segregation of Duties — Answer Key

Task	Proper Role	Separation Requirement
Approve bills	Manager/CFO	Must not be AP clerk
Enter bills	Bookkeeper/AP	Cannot approve payments
Write checks	AP	Cannot reconcile bank
Reconcile bank	Senior accountant	Cannot handle cash

Students must identify conflicts and propose correct SOD structures.

Concept 4

Approval Workflows — Instructor Answers

Transactions require proper authorization: PO approvals, 3-way match, expense approvals, timecard approvals. These are preventive controls.

Concept 5

Documentation Standards — Answer Key

Invoices must show vendor, date, description, amount
Purchase orders & receiving docs support 3-way match
Reimbursement receipts must be itemized
Bank recs must be signed and dated
Journal entries require support and explanation

Grading focus: Students must state the core rule: “If it isn’t documented, it may be treated as if it didn’t happen.”

Concept 6

Types of Internal Controls

Preventive

SOD, approvals, system access, vendor setup controls

Detective

Bank recs, exception reports, audit logs, inventories

Corrective

Training, policy updates, system restrictions

Concept 7

Fraud Red Flags — Instructor Notes

Missing or altered documents
Duplicate payments
Vendor/employee address matches
Excessive voids or manual adjustments
Employees avoiding vacation

Students must explain why each is suspicious.

Concept 8

Case Study Analysis — Expected Responses

Example: AP clerk creates fake vendor.

Fraud type: Ghost vendor
Control failures: No SOD, no vendor approval process
Prevention: Vendor onboarding controls, periodic audits

Discussion

Discussion Prompt — Model Answer

Segregation of duties prevents one person from hiding unauthorized activity. When authorization, custody, and recordkeeping are separated, fraud becomes difficult without collusion.

Summary

Week 12 Summary — Instructor Version

Students should now understand internal controls, fraud risks, documentation standards, and how bookkeepers support strong controls through daily practice.