Rationale for Correct Answer: In a need recognition scheme, an employee creates or exaggerates a need for goods or services to benefit a favored supplier. One red flag is that materials are ordered prematurely or not at the optimal reorder point, suggesting that purchases are being manipulated to benefit a corrupt vendor rather than based on actual business needs.
Analysis of Incorrect Options:
A – A large list of suppliers suggests competition, not fraud.
C – A need met by various suppliers does not indicate fraud.
D – Low requirements for stock may reflect lean inventory management, not fraud.
Key Concept: Corruption – need recognition schemes and red flags.
[Reference: ACFE Manual, Corruption – Need Recognition Schemes., , ]
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