Fraud Exam 1 MC Questions Chapter 1-8

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Why does fraud seem to be increasing at such an alarming rate?
computer, internet, and technology make fraud easier to commit.
Which of of the following is not an important element of fraud?
a. confidence
b. deception
c. trickery
d. intelligence
intelligence
fraud is considered to be:
a serious problem that continues to grow
people who commit fraud are usually
trusted individuals
"The use of ones occupation for personal enrichment through the deliberate misuse or misapplication of the employing organizations resources or assets" is the definition of which type of fraud?
employee embezzlement or occupational fraud
corporate employees fraud fighters:
prevent, detect, and investigate fraud within a company
Investment scams most often include
worthless investments or assets sold to unsuspecting investors
which of the following is not true of civil fraud?
a. it usually begins when one party files a complaint
b.the purpose is to compensate for harm done to another
c. it must be heard by 12 jurors
d. only "the preponderance of the evidence" is needed for the plaintiff to be successful
C. it must be heard by 12 jurors
Future careers in fraud will most likely be
in high demand and financially rewarding
studying fraud will help you
-learn evidence gather skills
-avoid high risk and fraudulent activities
-learn valuable interviewing skills.
which of the following is not a reliable resource for fraud statistics?
a. fbi agencies
b. health agencies
c. insurance organization
d. fraud perpetrators
d. fraud perpetrators
Which of the following statements is true?
a. bank robberies are most costly than frauds
b. fraud is often labeled the fastest growing crime
c. fbi agencies are currently spending approximately 34% of their time on fraudulent activities
d. none of the above statements are true
b. fraud is often labeled the fastest growing crime.
Which of the following is not an element of fraud?
a. false representation
b. accidental behavior
c. damage to a victim
d. intentional or reckless behavior
b. accidental behavior
What is the best way to minimize fraud within an organization?
prevention activities
what is the most important element in successful fraud schemes?
confidence in the perpetrator
which of the following characters is least likely to be involved in a fraud?
a. a middle-aged person with a middle management position
b. a long-haired teenager wearing leather pants
c. a recent college graduate
d. a senior executive who has significant stock options
b. a long-haired teenager wearing leather pants
which of the following is not a fraud type?
a. direct employee embezzlement
b. indirect employee embezzlement
c. supervisor fraud
d. investment scams
c. supervisor fraud
which of the following is not a form of vendor fraud?
a. overcharge for purchased goods
b. shipment of inferior goods
c. nonshipment of goods even though payment has been made
d. not paying for goods purchased
d. not paying for goods purchased
Civil law performs what functions?
remedy for violation of private rights
Fraud fighting includes what type of careers?
-professors
-lawyers
-cpa firms
which of the following is not an example of employee embezzlement?
a. land conservation employees stealing equipment
b. cashiers stealing money from cash register
c. angry employees vandalizing the building with spray paint
d. salespeople overcharging for products and pocketing extra cash
c. angry employees vandalizing the building with spray paint
which of the following is not an example of vendor fraud?
a. a vendor overcharges a contracting job that it completed one time
b. a vendor bills for service not performed
c. a vendor bills for goods not provided
d. a vendor has a much higher prices than its competitors
d. a vendor has much higher prices than its competitors
"deceptive manipulation of financial statements" describes which kind of fraud?
management fraud
What is required to become a CFE
- an individual must commit to abide by a strict code of professional conduct and ethics
-be an associate member, in good standing, of the ACFE
-Be of high moral character
Which of the following is not true regarding the AFCE?
a. it is the largest anti fraud organization in the world
b. it has roughly 12,000 members throughout the world
c. the entire organization is dedicated to the prevention of fraud
d. it is the premier provider of antifraud training
b. it has roughly 12,000 members throughout the world
Fraud perpetrators:
have profiles that look like most honest people
which of the following is not one of the three elements of fraud?
a. perceived pressure
b. perceived opportunity
c. rationalization
d. intelligence
d. intelligence
Which of the following is a common perceived pressure?
a. the ability to outsmart others
b. opportunity to cheat others
c. a financial need
d. the ability to "borrow" money by committing fraud
c. a financial need
If pressures and opportunities are high and personal integrity is low the chance of fraud is
high
which of the following is not a common type of fraud pressure?
a. vices
b. work related pressures
c. financial pressures
d. pressure to outsmart peers
d. pressure to outsmart peers
opportunity involves:
-opportunity to conceal fraud
-opportunity to avoid being punished for fraud
-opportunity to commit fraud
which of the following is not one of the three elements of the control system of an organization?
a. the control environment
b. the accounting system
c. management
d. control activities or procedures
c. managment
noncontrol factors that provide opportunities for fraud:
-inability to judge the quality of performance
-lack of access to information
-failure to discipline fraud perpetrators
-lack of an audit trail
who generally has the highest risk of becoming a fraud victim?
older, less educated people
How frequently do most people rationalize?
often
which of the following kinds of pressure is most often associated with fraud?
a. work-related pressure
b. financial pressure
c. vice pressure
b. financial pressure
which of the following is not a primary control procedure?
a. use of documents and records to create an audit trail
b. independent checks
c. decreasing work-related pressure
d. physical safeguards
c. decreasing work-related pressure
it is the ______and _______of existing controls, not the ______of controls, that allows most frauds to be perpetrated
overriding, ignoring, lack
on what element of the fraud triangle do most fraud-fighters usually focus all or most of their preventative efforts?
perceived opportunity
which of the following is not a control activity procedure?
a. system of authorization
b. appropriate hiring procedures
c. independent checks
d. documents and records
e. all of the above are control activities
b. appropriate hiring procedures
Common Vices that motivate people to commit fraud:
-gambling
-drugs
-expensive extramarital relationships
-alcohol
Ways management can establish a good control environment:
-having a clear organizational structure
-proper training
-communicating openly
-appropriate hiring procedures
which of the following is not an element of most frauds?
a. taking the assets
b. concealment
c. breaking and entering
d. conversion
c. breaking and entering
which of the following is an example of legitimate power?
a. the offer of valuable stock options
b. a decision to participate in fraud based upon fear
c. your boss tells you to do something
d. you do something because your colleague is more knowledgeable than you are in that particular subject matter
c. your boss tells you to do something
which of the following is an example of referent power?
a. fear that you may lose your job
b. your friend asks you to do a special favor for him or her
c. the offer of a job promotion
d. your teacher asks you to do an assignment
your friend asks you to do a special favor for him or her
the most effective way to reduce losses from fraud is:
preventing fraud from occurring
to successfully prevent fraud, an organization must
-identify internal control weaknesses
-explicitly consider fraud risks
-take proactive steps to create the right kind of environment
the best way for management to model appropriate behavior is to:
set an example of appropriate behavior
which of the following is not a proactive way for a company to eliminate fraud opportunities?
a. severely punishing fraud perpetrators
b. assessing risks
c. implementing appropriate preventative and detective controls
d. creating widespread monitoring of employees
a. severely punishing fraud perpetrators
most frauds start small and
if not detected, continue to get larger
it is most difficult to prevent which type of fraud?
fraud committed by a company president
which of the following refers to the circumstances, taken as a whole, that would lead a reasonable prudent professional to believe fraud has occurred, is occurring, or will occur?
a. evidential circumstance
b. investigation
c. service process
d. predication
d. predication
an investigative approach that includes testimonial evidence, documentary evidence, physical evidence and personal observations is referred to as the
evidence square
usually, or everyone involved-espcially victims- the investigation of fraud is very:
traumatic and difficult
to prevent fraud from reoccurring most organizations and other fraud victims should
pursue either civil or criminal action
all of the following are ways to create a culture of honesty and high ethics except:
a. creating a positive work environment
b. hiring the right kind of employees
c. having top management model appropriate behavior
d. eliminating opportunities for fraud
d. eliminating opportunities for fraud
the tone at the top when related to fraud usually refers to managements attitude about:
how it models and labels appropriate behavior
research shows that fraud occurs less frequently when employees feel:
ownership in the organization
opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is:
teaching employees to monitor and report fraud
drawbacks to establishing a hotline for employees to report fraud include all of the following except:
a. expense
b. many incidents reported are hoaxes motivated by grudges
c. fraud symptoms reported are caused by nonfraud factors
d. this method for finding fraud is outdated
d. this method for finding fraud is outdated
"predication of fraud" is defined as:
reasonable belief that fraud has occurred
which of the four types of evidence includes interrogation and honesty testing?
a. testimonial
b. documentary
c. physical
d. personal observation
a. testimonial
the three elements of fraud are
theft act, concealment, and conversion
most often, victims of fraud do not take legal action against perpetrators. this is because legal action can be
-unproductive
-embarrassing
-expensive
arguments for taking legal action against perpetrators of fraud include:
prosecution discourages reoccurrence of fraud
Factors that are usually associated with high levels of employee fraud include all of the following except:
a. negative feedback and lack of recognition of job performance
b. perceived inequalities in an organization
c. long and difficult hours shared equally by everyone in the organization
d. high turnover and absenteeism
c. long and difficult hours shared equally by everyone in the organization
which of the following is true regarding the Sarbanes-Oxley Act of 2002:
a. companies with revenues exceeding $10 million must have a whistle-blower system in place
b. public companies must have a whistle blower system in place
c. public companies with revenues exceeding $10 million must have a whistle blower system in place
d. all companies must have a whistle blower system in place
b. public companies must have a whistle blower system in place
people will often be dishonest if they are place in an environment of
-poor controls
-high pressure
-low integrity
-loose accountability
which of the following factors contribute to creating a corporate culture of honesty and openness?
a. hiring honest people
b. performing criminal background checks
c. not having an open-door policy
d. having a well-understood and respected code of ethics
e. both a and d
e. both a and d
Personnel and operating policies contribute to high-fraud environments:
-management by crisis
-rigid rules
-high employee lifestyle expectations
-poor promotion opportunities
the single most effective tool in preventing and detecting fraud is usually:
having a good system of internal controls
a company's control environment includes:
-the tone that management established toward what is honest and acceptable behavior
-corporate hiring practices
-having an internal audit department
which of the following factors generally results in a high-fraud environment?
a. hiring honest people
b. providing an EAP
c. autocratic management
c. autocratic management
which of the following aspects of fraud usually results in the largest savings?
a. fraud prevention
b. fraud detection
c. fraud investigation
d. it is impossible to tell
a. fraud prevention
which of the following is usually the most effective tool in preventing and detecting fraud?
a. discouraging collusion between employees and customers or vendors
b. effective investigations of fraud symptoms
c. having a good system of internal controls
d. creating an expectation of punishment in the company
c. having a good system of internal controls
which of the following is the typical fraud model that describes most firms?
a. fraud incident, assessing risk, investigation, reporting
b. fraud incident, investigation, action, resolution
c. assessing risk, fraud incident, investigation, resolution
d. assessing risk, investigation, implementing a fraud program, reporting
b. fraud incident, investigation, action, resolution
the tone at the top is an important element in fighting fraud which involves:
setting a proper example or modeling appropriate management bahavior
which of the following is not a recognized method of eliminating fraud opportunities?
a. having good internal controls
b. monitoring employees
c. creating an expectation of punishment
d. engendering employee goodwill by having lax rules
d. engendering employee goodwill by having lax rules
which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?
a. lack of anonymity
b. pressure to comply
c. culture
d. lack of awareness
b. pressure to comply
altering vendors and contractors to comply policies often result in:
discovery of current frauds and the prevention of future frauds
which of the following is true regarding fraud?
a. it is easily identified
b. it is seldom observed
c. when a fraud occurs there is not question whether or not a crime has been committed
d. many witnesses are usually available when fraud occurs
b. it is seldom observed
which of the following is not a fraud symptom related to source documents?
a. duplicate payments
b. missing documents
c. a tip from an employee
d. photocopied documents
c. a tip from an employee
Fraud symptoms related to internal control weakness:
-lack of proper authorization
-lack of independent checks
-inadequate accounting system
-lack of physical safeguards
In the three elements of fraud (theft act, concealment, conversion), who is usually in the best position to detect the fraud?
coworkers and managers
when a person commits a crime:
her or she usually becomes engulfed by emotions of fear and guilt
most people who commit fraud:
use the embezzled funds to improve their lifestyle
which of the following is not a reason people are hesitant to come forward with knowledge or suspicions of fraud?
a. they often think that squealing on someone is wrong
b. they fear reprisal for being a whistle-blower
c. it is usually impossible to know for sure that a fraud is taking place
d. people who report fraud are often rewarded monetarily
d. people who report fraud are often rewarded monetarily
which of the following is not one of the categories of employee fraud symptoms?
a. accounting anomalies
b. analytical anomalies
c. tips and complaints
d. firm students
d. firm students
embezzlement of assets reduces the left side of the accounting equation. To conceal the theft, the embezzler must find a way to reduce the right side of the accounting equation. A perpetrator would most likely reduce the right side of the equation by:
increasing expenses
which of the following is not a fraud symptom related to journal entries?
a. unexplained adjustments to receivables, payables, revenues, or expenses
b. journal entries that do not balance
c. journal entires without documentary support
d. journal entries made near the beginning of accounting periods
journal entries adjustments to receivables, payables, revenues, or expenses
once in a while, someone commits fraud or another crime and does not feel stress. Such people are referred to as:
psychopathic
fraud is usually detected by recognizing and pursuing
symptoms
a letter is most likely to be fraudulent if
it is a photocopy of an original letter
if a perpetrator has stolen assets, which of the following is the easiest method for concealing the theft?
increase expenses
which of the following is a common fraud symptoms relating to ledgers?
a. a ledger that does not balance
b. a ledger that balances too perfectly
c. master account balances that do not equal the sum of individual customer or vendor balances
d. a and c
d. a and c
Which element is not a common element of fraud?
a. concealment
b. coercion
c. conversion
d. theft act
b. coercion
when detecting fraud it is important that fraud investigators:
remain objective and neutral
data-driven fraud detection:
-determines the cost of fraud
-identifies possible fraud suspects
-looks for possible fraud suspects
-looks for anomalies in databases
Once a buyer starts accepting kickbacks from a suppliers
-prices often increase
-purchases from other vendors often decrease
-the supplier usually takes control of the purchasing relationship
the most obvious disadvantage of data-driven approach is
high cost
Benfords law
-is usually unsuccessful as a fraud detection tool
-predicts that the first digit of random number sets will begin with one 1 more often than a 2, a 2 more often than a 3, and so on.
-applies to personal ID number
a detection method that focuses on the kinds of frauds that can occur and then uses technology to determine whether those frauds actually exist is called:
data-driven fraud detection
when deciding which detection method to use, it is important to:
-determine the advantages and disadvantages of each approach
-identify the costs involved
-determine which method will meet the clients objectives
fraud is the best detected through financial statements by focusing on:
unexplained changes in financial statement balances
the most effective way to convert balance sheets and income statements from position and period statements to change statements is to:
perform horizontal and vertical analyses
profit margin, return on assets, and return on equity are all examples of:
key financial statement ratios
when vertical analysis is performed
financial statement balances are converted to percentages
Horizontal analysis is different from vertical analysis in that:
horizontal analysis converts balances in a single period to percentages, while vertical analysis calculates the percentage change in balance sheet and income statement numbers from one period to the next
which of the following is an advantage of using data analysis software to detect fraud?
a. it is a static approach, and results cannot be recombined in different ways
b. data analysis software can only be used to analyze small data sets
c. data analysis software can analyze entire populations rather than just samples
d. significant numbers of hits can occur, requiring iterative refinement of analysis
c. data analysis software can analyze entire populations rather than just samples
Benford's law is
an effective way to identify anomalies in data sets
if a search reveals that an employee an a vendor have the same telephone number, this result may indicate that:
employees may be establishing dummy vendors
when conducting financial statement analysis which ratio will be the most useful in determining whether a company has erroneously inflated accounts receivable
debt percentages
when trying to identify outliers, what is one of the best statistical approaches?
the z-score calculation
an advantage of using ODBC to import data into a data warehouse is that:
ODBC automatically retrieves column names and types from the databases
the soundex algorithm:
-uses consonants but ignores vowels
-creates a numerical score representing how a word sounds
-is useful when fuzzy matching value
which of the following is not a category used in the fraud triangle plus inquiry paradigm?
a. theft investigative techniques
b. concealment investigative techniques
c. action investigative techniques
d. conversion investigative techniques
c. action investigative techniques
when beginning an investigation, fraud examiners should use techniques that will:
not arouse suspicion
when conducting interviews during an investigation, which of the following words should usually be avoided?
investigation
when beginning a fraud investigation, which of the following methods is most useful in identifying possible suspects?
a. preparing an identification chart
b. preparing a vulnerability chart
c. preparing a surveillance log
d. none of the above
b. preparing a vulnerability chart
invigilation:
-is most commonly associated with crimes such as robbery, murder, and property offenses
-can create tremendous amounts of documentary evidence
-provides evidence to help determine whether fraud is occurring
which of the following is not a theft investigative method?
a. invigilation
b. honesty testing
c. seizing and searching computers
d. surveillance and covert operations
b. honesty testing
when deciding whether or not to investigate, which of the following factors should an organization not consider?
a. possible cost of the investigation
b. perceived strength of the predication
c. possible public exposure resulting because of the investigation
d. all of the above should be considered
d. all of the above should be considered
surveillance, when properly performed, is done
without the perpetrators knowledge
which of the following is not included in a vulnerability chart?
a. explanations of the fraud triangle in relation to suspects of fraud
b. breakdowns in key internal controls that may have created fraud opportunities
c. internal controls that a company plans to institute in the future
d. theft investigation methods
c. internal controls that a company plans to institute in the future
a vulnerability charg:
forces investigators to explicitly consider all aspects of fraud
Fixed point, or stationary, observation can be conducted by
anyone
surveillance logs should include all of the following except:
a. time the observation began and ended
b. cost of the surveillance equipment used
c. movements and activities of the suspect
d. distance the observation was from the scene
b. cost of the surveillance equipment used
wiretapping, a form of electronic surveillance, can be used by:
a. internal auditors
b. company controllers
c. cpas
e. none of the above
e. none of the above
which theft investigative method is most limited in value during employee fraud investigations because of concerns regarding employees privacy at work?
a. electronic surveillance
b. invigilation
c. forensic accounting
d. interviewing and interrogation
a. electronic surveillance
who should be consulted before any form of surveillance takes place?
legal counsel and human resources
when seizing computers, a calculation (also called a hash) that ensures you have an exact clone and have not changed data is called
CRC checksum number
a snapshot of active memory should be done:
after seizure of the computer but before turning off the computer
in a fraud investigation, documents
usually contain extremely valuable
chain of custody refers to:
a record of when a document is received and what has happened to it since its receipt
marking documentary evidence is important to ensure that:
documents can be identified later
Discovery sampling
deals with the probability of discovering at least one error in a give sample size if the population error is a certain percentage
Documentary evidence such as private tax returns can usually be obtained only by:
-subpoena
-search warrant
-voluntary consent
Document experts:
-can usually determine whether a document was written by the person whose signature the document bears
-can usually determine whether a document has been forged
-can usually determine whether the date the document bears is the date the document was written
which of the following is not a benefit of statistical sampling?
a. it allows auditors to be certain that fraud does not exist in a population
b. it is helpful when populations are large
c. it allows quantification of risk
d. it allows interference about a population
a. it allows auditors to be certain that fraud does not exist in a population
which of the following methods of gathering documents is based primarily on luck?
a. documents discovered during audits
b. hard to get private documents that are subpoenaed
c. documents discovered through searching public sources
d. documents provided by tipsters
d. documents provided by tipsters
which of the following is true of graphologists?
a. they can only perform their work in laboratory settings
b. they perform the same type of work as forensic document experts
c. they study handwriting as a way to interpret and identify personalities
d. they are required to be members of the ABFDE organization
c. they study handwriting as a way to interpret and identify personalities
what can a fraud examiner conclude if one or more instances of fraud are found in a sample taken from a population?
the population contains fraud
what can a fraud examiner conclude if his or her tests confirm that no instances of fraud are present in a sample taken from a population?
only that n fraud is present in that particular sample
how are most frauds concealed?
by creating fictitious documents or altering source documents
which of the following is usually the best way to obtain documentary evidence?
a. computer-based queries of full-population accounting and other databases
b. a statistically sound sampling approach like discovery sampling
c. chance, accident, or tip discovery
d. none of the above
a. computer-based queries of full-population accounting and other databases
programs like casemap, casecentral, ZANTAZ, ringtail and daticon are examples:
software packages used to index and store evidence