Audit and Assurance Practice Exam

What could indicate potential fraud risk related to cash?

1. Consistent pay increases for all employees

2. Signature mismatches on cash disbursements

3. A significant increase in cash deposits

4. Reduction in cash handling staff

The correct answer is: Signature mismatches on cash disbursements

The presence of signature mismatches on cash disbursements is a strong indicator of potential fraud risk related to cash. This could suggest that unauthorized individuals are attempting to withdraw or manipulate funds without proper authority. In a well-controlled environment, signatures on checks or disbursement documents should match the established signature for those responsible for making payments. When discrepancies begin to appear, it raises immediate red flags that warrant further investigation, as it can point to fraudulent activities, such as forgery or the misappropriation of cash. On the other hand, consistent pay increases for all employees could be indicative of good management practices or improvement in company performance, rather than a direct fraud risk. A significant increase in cash deposits might simply reflect normal business growth or increased sales rather than fraudulent activity. Similarly, a reduction in cash handling staff could result from efficiency improvements or cost-cutting measures without necessarily indicating a fraud risk. Thus, signature mismatches stand out as a clear warning sign that suggests the need for a more thorough examination of the cash handling processes.