Overcoming Well-Designed Internal Controls

C

When fraudsters target a victim company that has well-designed internal controls, they may use a variety of tactics to circumvent these controls. The correct answer to this question is C. Collusion.

Collusion occurs when two or more individuals work together to commit a fraud. In the context of internal controls, collusion can be used to bypass established controls by exploiting weaknesses in the system. For example, one employee may have the authority to approve purchases, while another employee has the ability to create and submit invoices for payment. If these two employees collude, they may create fraudulent invoices and approve them for payment, bypassing the controls that are in place to prevent such fraud.

Shell companies (A) are entities that are created solely for the purpose of committing fraud or other illegal activities. They can be used to facilitate fraudulent transactions or to launder money. However, while shell companies can be used to circumvent internal controls, they are not necessarily a solution to overcoming well-designed internal controls.

Fraudulent invoices (B) are also a common tactic used by fraudsters to commit fraud. However, they are not necessarily a way to overcome well-designed internal controls. If the controls are effective, fraudulent invoices should be caught and prevented from being paid.

Rubber stamp supervisors (D) are supervisors who do not adequately review or scrutinize the work of their subordinates. While they may contribute to a breakdown in internal controls, they are not necessarily a way to overcome well-designed internal controls. Effective internal controls should include checks and balances at multiple levels to prevent fraud.

In summary, collusion is the tactic that is most commonly used to overcome well-designed internal controls of a victim company. It is important for companies to be aware of the potential for collusion and to implement controls that can detect and prevent it.