CFE Question of the Day: Preventing Check Fraud with Bank Controls

Quiz Yazan Ibrahim
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CFE exam practice question — CFE Question of the Day: Preventing Check Fraud with Bank Controls

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

Question

A mid-sized nonprofit has experienced several recent forged checks drawn on its operating account. Which single control will most effectively prevent forged or altered checks from being paid by the bank before the organization suffers a loss?

  • A. Implement a positive pay service with the company's bank so the bank only pays checks that match an issued check file.
  • B. Require two manual signatures on every check and centralize signed checks in the mailroom for distribution.
  • C. Require daily cash reconciliations by an independent accounting reviewer to detect unauthorized checks promptly.
  • D. Outsource check printing and mailing to a secure third-party fulfillment provider with locked physical controls.
Show the answer and explanation

Correct answer: A. Implement a positive pay service with the company's bank so the bank only pays checks that match an issued check file.

Implementing positive pay is the best preventive control because the bank compares each presented check to the organization's issued check file and refuses payment for mismatches, stopping forged or altered checks before funds are disbursed. Requiring two signatures can reduce risk but does not stop presentment at the bank if a forged check bears apparent signatures and is easier to bypass or delay operations. Daily reconciliations detect unauthorized checks after presentment and may limit losses but are reactive rather than preventive. Outsourcing printing and mailing improves physical security but does not prevent a fraudulent check presented at the bank that does not match the issued-file exception screen.

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