Which of the following would be a preventive control for helping to manage fraud in an organization?

Question

Options

• AReviews of reports to determine which issued payments lack evidence of supervisory review.
• BA monthly review of new vendors performed by management for reasonableness.
• CBank reconciliations performed on a monthly basis by the accounting department.
• DA code of conduct and whistleblower policy that must be signed by all employees annually.

• A
  11% (7)
• B
  82% (51)
• C
  2% (1)
• D
  5% (3)

Explanation

Option B is correct because a management review of new vendors before they are approved and used prevents fraudulent or fictitious vendors from ever entering the payment system - stopping fraud before it can occur, which is the defining characteristic of a preventive control.

Why the distractors are wrong:

• A is a detective control - reviewing issued payments to find missing supervisory approval happens after payments have already been made.
• C is also detective - bank reconciliations identify discrepancies after transactions have occurred, not before.
• D is the trickiest distractor: while a code of conduct has a deterrent (preventive) element, the whistleblower policy component is fundamentally detective (employees report fraud they've already witnessed), making the overall combination more detective in nature.

Memory tip: Think of controls like a traffic system. Preventive controls are stop signs - they block the problem before it moves forward. Detective controls are speed cameras - they catch problems after they've already happened. A vendor review is a stop sign; reconciliations and report reviews are cameras.

No community discussion yet for this question.