CFE Question of the Day: Conflict of Interest Controls

Quiz Yazan Ibrahim
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CFE exam practice question — CFE Question of the Day: Conflict of Interest Controls

CFE exam practice question: daily practice for the Certified Fraud Examiner (CFE) exam — domain: Fraud Prevention and Deterrence.

Question

An accounts payable clerk notifies their manager that their sibling recently started a sole-proprietor company that supplies office furniture. The clerk currently has the ability to create vendors and approve invoices. Which control is most appropriate to reduce the risk of related-party or fictitious payments while allowing legitimate purchases?

  • A. Require the employee to submit a written conflict-of-interest disclosure and recuse themselves from vendor setup and payment approvals, with periodic review by their manager.
  • B. Allow the employee to approve invoices from the vendor if individual transactions remain below an established dollar threshold and are accompanied by receipts.
  • C. Require the employee to submit a written conflict-of-interest disclosure, prohibit them from vendor setup and payment approval, and require all related-party transactions to be approved and periodically audited by an independent function.
  • D. Prohibit the organization from doing business with any vendor that employs or is owned by an employee, unless approved by the chief executive officer.
Show the answer and explanation

Correct answer: C. Require the employee to submit a written conflict-of-interest disclosure, prohibit them from vendor setup and payment approval, and require all related-party transactions to be approved and periodically audited by an independent function.

Option C is best because it combines disclosure, segregation of duties, independent approval, and periodic audit—key controls to detect and deter related‑party or fictitious payments. Option A is weaker because review by the employee’s manager may not be sufficiently independent and does not require independent approvals or audit. Option B is risky: dollar thresholds and receipts alone do not address the underlying conflict or prevent collusion, and small transactions can be abused. Option D is overly broad and may be impractical; blanket prohibition can be administratively burdensome and may be unnecessary when targeted controls and oversight can manage the risk effectively.

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