Free Practice Questions for CIPS L5M2 Exam

Question 1

Dave is a procurement manager for a chocolate factory who is running a tender to source cocoa from a new supplier. The tender is a huge opportunity for suppliers and the contract would be worth millions of pounds. Dave has passed some information about the tender to one of the bidders in exchange for a free holiday to Barbados. Which of the following types of fraud has Dave committed?

Aholiday fraud

Baccepting a kick-back

Ccounterfeiting

Dbribery

Correct Answer: D. bribery

Explanation:

This is an example of bribery. The trip to Barbados is the bribe. For more information on these types of fraud see p.19

Question 2

Which of the following is a component of the Sarbanes-Oxley Regulations?

Aseparation of duties

Bethical business practices

Celimination of bribery

Denvironmental protection

Correct Answer: A. separation of duties

Explanation:

Separation of duties is a key component of the Sarbanes-Oxley Regulations. It ensures businesses are accounting responsibly, and one way to do this is through separation of duties (no one person has complete control of the accounts of a company). See https://www.investopedia.com/terms/s/sarbanesoxleyact.asp and p.42 in the study guide. This piece of legislation does tend to come up in the exam so do revise this topic.

Question 3

There are three main areas where third party suppliers are used in risk management. What are they?

Acontract negotiations

Bsupply chain management

Ccredit ratings

Drisk auditing

Edisaster recovery

Correct Answer: C. credit ratings; D. risk auditing; E. disaster recovery

Explanation:

3 4 and 5 are the correct answers. This is from p. 79 of the textbook - each of these three areas is then covered in detail throughout chapter 2.2.

Question 4

Which of the following is a method for approaching risks?

Atolerate

Btranslate

Ctransport

Dtake out

Correct Answer: A. tolerate

Explanation:

Tolerate is one of the 4 Ts. This is a popular exam question so do learn the 4 Ts: Tolerate, Treat, Transfer and Terminate. See p.32.

Question 5

A large multi-national corporation has just been awarded a credit rating of C by the three main credit rating agencies. What does this score signify?

Alow risk

Baverage risk

Csubstantial risk

Din default

Correct Answer: C. substantial risk

Explanation:

a C grade = substantial risk. This is based on the grading system of AAA-D and is explained on p. 80. basically anything that isn't an A is bad.

Question 6

Which of the following will you put into box 5?

ACSR Policy

BQuote in Buyer's Currency

CForce Majeure

DStandardise Payment Terms

Correct Answer: C. Force Majeure

Explanation:

The correct answers are as follows:

A force majeure clause within a contract would allow XWY to end any contracts it is unable to fulfil without repercussions if an earthquake were to strike.

Question 7

The triple bottom line is a way to refer to sustainability practices. Which of the following is included within the Triple Bottom Line? 1. People, 2. Profit, 3. Price, 4. Planet 5. Power.

A1,2 and 3

B1,3 and 5

C2, 4 and 5

D1,2 and 4

Correct Answer: D. 1,2 and 4

Explanation:

Triple Bottom Line - people, profit and planet - options 1, 2 and 4. See p.45 for more details on sustainability

Question 8

What is the purpose of an indemnity clause within a contract?

Ato assign risk to each party

Bto ensure both parties are adequately insured if something were to go wrong

Cto transfer risk from one party to another

Dto explain what would happen in the case of a force majeure

Correct Answer: C. to transfer risk from one party to another

Explanation:

Indemnity clauses transfer risk from one party to another. It is an arrangement whereby one party promises to compensate the other party for a trigger event. An example of an indemnity clause could be a construction firm is building a new bridge and the project is supposed to be completed by 1st June. An indemnity clause may state that should the bridge not be ready by this date, the construction firm will compensate the buyer by X amount. See p.61 for more information on indemnity.

Question 9

Envy Manufacturing has several factories located in countries with poor reputations for human rights. It is concerned about potential risks of child labour being used within the supply chain. Envy Manufacturing has therefore decided to enlist the support of a third party auditing company to audit its factories. How should these audits be conducted? Select TWO

Aorganised well in advance to allow the factory managers to prepare for the audit

Bconduct on the spot visits with no warning

Cconduct group interviews with workers to ensure that all voices are heard

Dconduct private meetings with a selection of workers

Correct Answer: B. conduct on the spot visits with no warning; D. conduct private meetings with a selection of workers

Explanation:

2 and 4 are correct. Audits should be unscheduled so that any issues can't be covered up in advance. Interviews with workers should also be conducted in private as this will allow them to speak their mind with confidence. Where interviews are conducted as a group there may be peer-pressure to say the correct thing. especially if there are managers around. see p.88 for information on Audits

Question 10

Which of the following are key areas of ISO 26000 Social Responsibility? Select THREE.

Aorganisational governance

Bquality management

Chuman rights

Dconsumer issues

Eefficient systems

Correct Answer: A. organisational governance; C. human rights; D. consumer issues

Explanation:

1 3 and 4 are the correct answers. There are 7 key areas that ISO 26000 focuses on. As well as these three, there is also labour practices, the environment, fair operating practices and community involvement. See p. 51 of the study guide. ISOs are a popular exam topic so do revise these before the exam.