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Fraud Examination Final Exam (Ch. 1-15)
Terms in this set (531)
According to the ACFE study, which of the following comprises the highest percentage of asset misappropriation?
A conflict of interest occurs when:
An employee has an economic or personal interest in a transaction that adversely affects the company
Which of the following groups listed is most likely to perpetrate frauds against the organization?
Why is larceny easier to detect than skimming?
Larceny involves stealing cash after it has already been recorded in the company's accounting system
Claiming personal travel as a business expense, claiming a personal lunch as a business lunch, altering a receipt to reflect a higher amount than was actually paid, or submitting fictitious receipts is an example of which of the following?
An expense reimbursement scheme
The most common occupational frauds in small businesses involve employees doing all of the following EXCEPT:
Altering financial statements
What is the term that describes allowing selected investors to purchase mutual funds after 4:00pm, using that day's net asset value (NAV), rather than the next day's NAV, as required under law?
Identify the unlawful trading schemes engaged in through mutual funds.
Market timing and late trading
Which of the following is the most likely reason fraud within a company is detected?
Employees who have suspicions about possible fraud report them
Which of the following is more likely to help detect occupational frauds?
Which of the payroll fraud schemes listed below tends to generate the largest losses?
The two main categories of conflict of interest schemes are:
Purchase schemes and sale schemes
Which function of the victim company is usually involved in kickback schemes?
Thefts of inventory are divided into two groups. Identify them.
Larceny and misuse
Which of the following is the least costly disbursement scheme?
Register disbursement scheme
What is the point of difference between illegal gratuity and bribery schemes?
Illegal gratuities do not necessarily involve an intent to influence a business decision but rather to reward someone for making a favorable decision
Which is the least common expense disbursement scheme?
Submitting the same expenses multiple times
Bid-rigging is a type of which of the following?
Employees, vendors, and customers of organizations have three opportunities to steal assets. Which of the following is NOT one among them?
Paying off public officials or company insiders for preferential treatment
Identify the two basic bribery schemes.
Kickbacks and bid-rigging
What is known as the net asset value (NAV)?
The closing price of the securities that comprise a particular fund's portfolio plus the value of any uninvested cash that the fund manager maintains for the fund
An ice cream store cashier sells two-scoop ice cream cones to customers and enters the sales as single-scoop sales, while keeping the difference for himself. Which fraud is being committed here?
Commercial bribery is similar to the traditional definition of bribery except that in commercial bribery:
Something of value is offered to influence a business decision
What has been verified as the most significant impact for companies who have antifraud controls in place?
Victim organizations have lower losses
Identify the action that does NOT represent one of the four types of corruption.
Overbilling the company for travel and other related business expenses, such as business lunches, hotel bills, and air travel
Asset misappropriation is defined as:
A scheme that involves an employee prepares a fraudulent check for his or her own benefit
Which of the following is NOT an example of a commission-based payroll fraud?
Manipulating the number of hours worked and the rate of pay
Which of the following is NOT one of the most common types of billing schemes?
Overbilling the company for travel and other related expenses, such as business lunches, hotel bills, and air travel
Which of the following statements regarding larceny is NOT true?
Larceny occurs when employees steal cash before the amounts have been recorded in the accounting system
Which of the following defines lapping?
Embezzling one customer's payment and then crediting that customer's account when a subsequent customer pays
For ghost-employee fraud schemes to work, four things must happen. Which of the following is NOT one among them?
A member of human resources must be involved in the fraud
What is known as dilution?
The harm caused by the transfer of wealth from long-term investors to market timers
The primary victim of a workers' compensation fraud is the _____.
Which of the following is NOT a possible way to commit fraud by using a payroll scheme?
Which of the following occurs when an employee demands a payment from a vendor in order to make a decision in that vendor's favor?
Check tampering is unique among the disbursement frauds because:
It is the one group of schemes in which the perpetrator physically prepares the fraudulent check
Which of the following is an example of a register-disbursement scheme?
A perpetrator processes transactions as if a customer were returning merchandise, even though there is no actual return
Orders placed for buying shares of a mutual fund any time up to 4:00 p.m. are priced at that day's NAV, and orders placed after 4:01 p.m. are priced at the next day's NAV. What is this practice known as?
Which of the following is NOT a form of corruption?
Which of the following statements with reference to extortion is true?
It is a crime even if the extortion message is only sent but not received
Two basic fraudulent register disbursement schemes are:
False refunds and false voids
Which of the following examples is NOT a billing scheme?
Mark submits a receipt of his cab fare for reimbursement, which includes an extra $10
Check tampering is a type of:
Fraudulent disbursement scheme
Which of the following is the most common target regarding asset misappropriation?
According to the ACFE study, which of the following is the most common form of occupational fraud?
Which of the following is the best example of theft of cash through skimming?
Understating sales by recording larger-than-reality sales discounts
The 2010 ACFE Report to the Nation on Occupational Fraud & Abuse covers three types of fraud against organizations. Which of the following is one of them?
Which fraud is committed by an employee who doesn't record customer sales and pockets the payment?
Which of the following is NOT a common identity theft method?
Destroying personal property, such as a home or car
Which of the following is a true statement regarding the Gramm-Leach-Bliley Act?
The act gives financial institutions the right to share personal information for a profit
Accumulating documentation belongs to which stage of the identity theft cycle?
Which of the following is not a characteristic of a Nigerian money ofer scam?
Involves someone trying to sell a piece of prime African real estate
How do fraudsters use "cookie" type software?
To gather personal and confidential information from consumers' hard drives
A fraudster changes the physical address or e-mail of the victim so that credit card statements are sent by the financial institution to the perpetrator rather than the victim. Which stage of the identity theft cycle is being discussed here?
Which of the following is NOT an action to minimize your risk of identity theft?
Using Social Security number on visiting cards
Which of the following observations is NOT true of foreign-advance fee scams?
Perpetrators are well-known businesses and there is usually some urgency to participate
Which act limits consumers' liability for fraudulent credit card charges?
Fair Credit Billing Act
What makes telemarketing fraud more effective than Internet or mail-based approaches?
Opportunity to speak with a person directly
Which act makes it illegal for any agency that receives federal funding to disclose privacy information about individuals?
Family Education Rights and Privacy Act of 1974
A clearinghouse scam involves a victim receiving:
A letter that falsely claims the writer represents a foreign bank
Which of the following is a scam in which consumers respond to an advertisement that promises income simply for filling envelopes?
Snake oil plans are plans that:
Promise enormous earnings or claim to sell miracle products
A Nigerian money offer e-mail is a form of which of the following scams?
Foreign advance-fee scams
Which act gives individuals the right to opt out of having their information sold?
Which of the following identity theft actions listed is part of the trial stage, first dimentional actions?
Small thefts to test the stolen information
What is one of the biggest marketing campaigns of illegal MLMs?
Promise that investors will always make money from future downline growth
All of the following are types of foreign advance schemes, EXCEPT:
Multi-level marketing scams
Which of the following is a scam where perpetrators promise high pay for working on different projects like wooden calendars, paper towel holders, hair clips, or holiday decorations?
Which is the primary agency responsible for helping victims of identity theft?
Federal Trade Commission
According to the Federal Trade Commission, what is the most common type of consumer fraud?
Which of these is a second dimensional action in the trial stage of the identity theft?
Larger thefts, often involving personal interaction, without much chance of getting caught
Which of the following is the term for a fraudulent process whereby even representatives of legitimate MLMs are required to buy large, expensive amounts of inventory?
Which of the following is a hi-tech method by which thieves capture personal or account information from a credit card, driver's license, or even a passport?
Product testing is a fraud:
That requests consumers to review the products presented in the brochures and send their commentaries to the supplier for review
Which stage is considered to be the most critical stage of the identity theft cycle?
What percent of the population was estimated to have been victims of fraud in 2011?
What is dumpster diving?
An activity where fraudsters rummage through consumers' trash
Which federal statute protects the privacy and confidentiality of patient information?
Health Information Portability and Accountability Act
Which of the following statements defines shoulder surfing?
Criminals watch consumers from a nearby location as they give credit card information over the phone
What is the term for when fraudsters contact potential identity theft victims and act as a representative of a business to verify previously gathered information?
Once a fraudster has gained confidence that the identity theft is working, he or she often takes out a loan using the victim's identity.
The most common type of fraudulent loan is for which of the following items?
According to the text, which of the following is the best defense against becoming a victim of consumer fraud?
Which of the following is a variation of fraudulent MLMs, in which an organization sells illusionary product and profits, instead of real products?
Identify the complaint database developed by the U.S. Federal Trade Commission.
Which of the following involves the use of Internet to steal important information?
Which is the most detrimental consequence of identity theft?
The loss of credit and reputation, as well as introduction of erroneous information that is difficult to fix
Which trial stage dimensional actions are the riskiest for the identity thief?
Third dimensional actions
Which of the following was the top consumer fraud in number of victims identified in the U.S. Federal Trade Commission report?
Fraudulent weight-loss products
Which of the following is NOT a symptom of potential investment scams?
Promise of returns comparable to those of treasury bonds
Which of the following statements correctly describes consumer fraud?
Any fraud that targets individuals as victims
TransUnion, Equifax, and Experian are examples of what type of agencies?
Credit reporting agencies
Which of the following related party transactions need to be most carefully examined for fraud?
Transactions that result in goodwill being recognized in the financial statements
According to a study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), the average fraud lasts for how many months?
The study done by the Committee of Sponsoring Organizations (COSO) on financial statement frauds that occurred during the period from 1987-1997 had many key findings. Which of the following is NOT one among them?
Most of these firms had audit committees that met at least four times a year
Which of the following statements is true?
Most people who commit managerial fraud are first-time offenders
Which of the following is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction?
In this phase of the economy, most businesses appear to be highly profitable.
Which of the following actions by the company auditor increases the potential to detect fraud?
Performing new procedures not conducted in prior years
Which is a common method of providing executive compensation by allowing top management to purchase stock at a fixed share price?
An auditor adjusts the audit plan by introducing unexpected audit procedures in response to what the auditor believes management may be doing to conceal a fraud based on management's strategic reasoning. Which order of reasoning is occurring here?
In addition to changes in financial statements, which of the following can indicate financial statement fraud has occurred?
information in the footnotes to the financial statements
According to study of financial statement frauds by the Committee of Sponsoring Organizations (COSO), who is the most common perpetrator of financial statement fraud?
chief executive officer
10-K forms refer to which of the following?
the corporate reports filed with the SEC
Which legislation led to the establishment of the Public Company Accounting Oversight Board?
Which of the following refers to when the auditor considers that directly affect the auditee?
Many financial statement frauds have been perpetrated because management:
needed to report high income to support stock prices
Which of the following is NOT one of the components of the fraud exposure rectangle?
accounting system controls
Frauds are more likely to occur in:
smaller companies where one or two individuals have almost all control in decision making
There has been an auditor change at Company X. Which of the following situations may NOT signal a potential fraud problem?
auditee believing that the auditor's fees are too high
Which of the following is a finding of the Treadway Commission?
while financial statement frauds occur infrequently, they are extremely costly
Which types of questions should be asked about a company's relationship with financial institutions?
is the organization highly leveraged through bank or other loans?
Which of the following observations concerning backdating of options is true?
the extraordinary timing and frequency of occurrences defied statistical probability
Understanding a company's relationships with financial institutions and bondholders is important because:
it can indicate the extent to which the company is leveraged
Corporate financial statement fraud discovered in 2001 resulted in how many of the ten largest corporate bankruptcies in United States history?
Company XYZ had a long-standing relationship with a leading law firm. In fact, the law firm's business with this company was one of its most profitable relationships. If the law firm decides that it no longer wants to conduct business with the company, this is:
a large cause for concern that financial statement fraud may be occurring
Your firm has just acquired a new audit client. The new client is highly leveraged with borrowing from several institutions. It is planning to expand the business by obtaining additional debt finance in the near future. Based on these facts, which one of the following should be most carefully examined?
loans and other financing transactions between related entities
Your audit team working with a newly acquired client, discovers that there has been fraudulent financial reporting for the past 5 years. Who is most likely to have been involved in the fraud?
Which of the following is the term for a practice where the effective dates on stock options are deliberately changed for the purpose of securing extra pay for management?
What is the meaning of "short sell?"
borrow shares from a brokerage and sell the shares at today's price with the intention to repay the borrowed stock they sold at some future time when the stock is trading for a lower price
A CEO believes that the company should try to keep the stock price high by manipulating the financial statements to protect its shareholders. Which element of the fraud triangle is discussed here?
While generally accepted accounting principles do allow flexibility, standards of __________, __________, and __________ must always prevail in the financial statements.
objectivity, integrity, judgment
What are special purpose entities (SPEs)?
business interests formed solely to accomplish some specific task or tasks
Examining a company's relationships with other individuals and entities can reveal important information about financial statement fraud. Identify the piece of information that is correctly linked to its source.
examining relationships with related parties will show whether there are unusual transactions that significantly improve the company's reported financial performance
According to the text authors, educators have failed in three areas and contributed to "the perfect fraud storm" that saw a rise in fraud activity in recent years. Which of the following is NOT one of those areas?
they have not taught accounting students how to detect fraud during audits
Which of the following is an example of examining nonfinancial data to detect fraud?
comparing the dates of sales to shipment dates
Identify an example of a perceived pressure that can motivate financial statement fraud.
failure to meet Wall Street's earnings expectations
Which of the following is depicted when the auditor simply considers his or her own incentives, such as audit fees, sampling costs, and penalties?
Which of the following would be least likely to indicate potential fraud activity?
increased customer appreciation activities
Which of the following occurs when an auditor and auditee only consider conditions that directly affect themselves but not the other party?
Should nonfinancial indicators be used for assessing fraud risk? Why or why not?
yes. management can more easily manipulate financial numbers but finds it harder to keep all the nonfinancial information consistent with the financial information
According to the study done by the Securities and Exchanges Commission in what areas were the greatest number of enforcement actions taken?
improper revenue recognition
Which of the following are considered the backbone of capitalism and allow investors, lenders, and regulators to measure the performance of a business?
Which of the following is NOT an activity specifically listed in the text as prohibited by the Sarbanes-Oxley Act for an auditor of a company to perform contemporaneously?
income tax preparation services
Which of the following is an example of a perceived opportunity that can lead to financial statement fraud?
inadequate internal controls
Which of the terms refers to the ability to anticipate a fraud perpetrator's likely method of concealing a fraud?
Which of the following is NOT a kind of question that should be asked in order to understand the exposure to management fraud?
how many employees are there in the organization who have many years with the organization?
Which of the following organizational characteristics is an indicator of a possible fraud?
an audit committee comprised of mainly insiders
Which of the following is least likely to indicate possible financial statement fraud?
purchase of a small competitor that resulted in goodwill
Why is it that horizontal analysis is performed only on the income statement and balance sheet, but not on the statement of cash flows?
horizontal analysis converts balance sheet and income statement to change statements whereas the statement of cash flows is already a change statement
What is often referred to as "abusing the cutoff?"
inflating revenues by including revenues in the current period that should be recognized in the next period
Given the following information, calculate the gross profit ratio.
Gross sales: $100,000
Sales returns: $10,000
When do fraud occur in related-party transactions?
when the transactions are not properly disclosed
Which of the following is a lifestyle symptom associated with revenue-related fraud?
executives' personal net worth tied up in company stock
If an auditor notices fraud symptoms related to inventory, one of the best ways to confirm if a fraud is occurring is to:
search out tips and complaints from employees who may be aware that something isn't right
The first step to uncovering revenue fraud is to:
analyze and diagram the various transactions between an organization and its customers
Smart fraudsters will avoid financial statement fraud involving the overstatement of _____ because of the compounding effect from period to period.
Which of the following is a symptom of potential inventory fraud?
an auditor observing an override of an internal control
Overstating of sales in the income statement leads to a:
increase in gross profit ratio
Which of the following is a true statement regarding searching for inventory analytical symptoms?
the pace of the change in the numbers can often be indicative of potential fraud
Working capital turnover ratio indicates:
the amount of working capital used in generating sales for the period
According to the text, why is the accounts receivable turnover ratio widely used in analyzing revenue-related fraud?
significant amounts of fictitious revenues and receivables will almost always affect this ratio except in rare cases
Which of the following is a documentary symptom associated with revenue-related fraud?
unsupported or unauthorized revenue-related balances or transactions
Which of the following is a fraud scheme affecting the inventory?
Which of the following is a typical symptom of a revenue-related fraud?
significant new, unknown customers
Which of the following is a rare situation that may arise in a privately owned company that wants to decrease the amount of income taxes paid to the government?
Which of the following is NOT true regarding "topside" journal entries used to commit financial statement fraud?
entries are recorded to subsidiary ledgers
Which of the following can be used to simultaneously view the relationships between all numbers on the balance sheet or income statement?
Which of the following depicts the practice that suppliers use to encourage customers to buy extra inventory so as to increase current-year sales?
What is the least effective method for comparing financial statement information between companies?
focusing on changes in financial statement numbers
When a company records fictitious revenues, what is the effect on asset turnover ratio?
the ratio increases
Which of the following involves examining percentage changes in account balances from period to period?
Which of the following can be used by fraud examiners to sift through millions of journal entries to find the potentially fraudulent few?
Which of the following is a valid reason behind the prevalence of revenue-related financial statement fraud?
it is easy to manipulate net income using revenues and receivables accounts
The presence of fraud symptoms should cause a fraud examiner to do which of the following?
launch an investigation
Which of the following is most likely an indicator of potential revenue fraud?
a rapidly increasing asset turnover ratio
Which of the following is defined as selling unused assets for a promise to buy them or similar assets back at roughly the same price?
Which of the following ratios is relatively more helpful in highlighting revenue-related frauds?
accounts receivable turnover
Assume that the net sales for a company is $5,000, cost of goods sold is $3,000, and average inventory is $1,500. Calculate the number of days' sales in inventory.
Inventory fraud often involves overstating inventory and/or understating cost of goods sold. The result is a decrease in the:
inventory turnover ratio
How is the sales return percentage ratio calculated?
By dividing sales returns by total sales
When using ratios to discover financial statement fraud, what is typically the most important aspect to evaluate?
the change in the ratio
Which of the following tends to be the most common method for understanding cost of goods sold?
Overstating ending inventory has the following effect on cost of goods sold and net income respectively.
COGS - understated and NI - overstated
What is the difficulty in using horizontal, vertical, or ratio analysis?
knowing when a change in account balance or relationship is significant enough to signal possible fraud
Assume that the net sales for a company is $5,000, cost of goods sold is $3,000, and average inventory is $1,500. Calculate the inventory turnover ratio.
Which of the following is most likely an indicator of fraud involving inventory overstatement?
a sudden increase in number of days' sales in inventory
Which of the following is a common inventory-related fraud scheme?
Which of the following may indicate management fraud?
inconsistencies exist between what management is telling the auditor and what the auditor observes
Which of the following is a potential revenue-related fraud scheme?
Which of the following terms depicts processing orders for goods that are stored by the seller, often, because the buyer is not ready or able to receive the goods at the time of the order?
Which of the following statements is the least useful means to detect revenue-related frauds?
comparing financial statement amounts with the assets they represent
What is meant by the term "topside" journal entries?
the entries that involve the overriding of internal controls
Which of the following is an analytical symptom associated with revenue related financial statement fraud?
unusual entries made at the end of the accounting period that increase revenues
Which of the following is a commonly used ratio to discover inventory-related fraud?
gross profit ratio
When a company understates the cost of goods sold, what is the effect on the inventory turnover ratio?
the ratio will decrease
What is the practice in which cash receipts are misapplied to hide fictitious receivables called?
According to a study sponsored by the Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:
recording fictitious revenues
What does "Dex shuffling" refer to?
changing the publication dates on telephone directories to inflate revenue
Capitalizing costs that should be expensed:
has the effect of increasing net income by the same amount of the capital costs
Which of the following is an example of liability fraud?
underrecording accounts payable
In case of deferred revenue liabilities, when should revenues almost always be recorded as earned?
when the service is performed or the product is shipped
Which of the following is commonly created during good times or when new management takes over to turn around a company that experienced poor performance under the previous management?
Which asset is probably the most difficult to overstate under normal audit procedures?
In dealing with capitalized costs, what should be done when deferred charges of interest exist on the balance sheet?
consider them candidates for fraud
What does the Financial Accounting Standards Board now call special purpose entities?
variable interest entities
All of the following adjustments can be used to understate accounts payable EXCEPT:
understating purchase returns
What is the easiest way to identify understatement of liability fraud exposures?
investigate the various transactions that involve liabilities and can be understated
What are pension liabilities?
future liabilities resulting from pension commitments made by a corporation
With liability fraud, which of the following is most likely to occur?
balances in general that relate to this fraud will tend to be low
Which ratio will increase in a liability fraud?
interest expense/notes payable
Which type of fraud will not have any analytical symptoms?
When examining whether a company has underrecorded accounts payable, all of the following ratios are helpful EXCEPT:
unearned revenue/accounts payable
Which of the following observations is NOT true with respect to analytical symptoms?
to discover an inadequate disclosure fraud, a person must look for analytical symptoms
Disclosure frauds occur through misrepresentations about the company or through what other intentional act?
omissions in the footnotes to the financial statements
All of the following are indicators of financial statement fraud EXCEPT:
companies that report contingent liabilities that have the potential to create a loss
It is usually easier to detect inadequate disclosure fraud that involves _____ disclosures than it is to detect disclosure fraud that involves _____ disclosures.
All of the following observations concerning off-balance-sheet arrangements are true, EXCEPT:
they are considered illegal under SEC guidelines
When does inadequate disclosure occur?
when management makes statements that are wrong in its annual report or any other media
Asset frauds are often easier to detect than other types of financial statement fraud because:
overstated assets are always included on the balance sheet
Which of the following items listed provide the best opportunity to find contingent liabilities that should be recorded?
Which ratio will increase when accounts payable is not recorded?
quick assets/current liabilities
Which of the following will NOT understate liabilities?
recognize earned revenue as unearned revenue
No mention of the contingent liability needs to be made in the financial statements, if the probability of payment is:
Why are overstated reserves sometimes referred to as "cookie jar" reserves?
like money stored in a cookie jar, overstated revenues represent a stash of accounting earnings that can be used to bolster the perceived performance of the company in the future
You observe that a company's current ratio has increased significantly. What could this indicate?
accounts payable is understated
Recognizing unearned revenue as earned revenue is an example of which type of fraud?
Which ratio should be examined while analyzing the balance sheet to detect underrecording of accounts payable?
current assets/current liabilities
A form 1099 with no withholdings, where withholdings should exist, may be a fraud symptom for which liability account?
In liability fraud, liabilities are most often:
What is the effect on the cost of goods sold account when the inventory account is overstated?
it is understated
Which of the following are accounting symptoms that may indicate cash or marketable security misstatements?
differences between recorded amounts and amounts confirmed with banks, brokers, and other independent parties
Which of the following is a documentary symptom that relates to all kinds of understatement of liability fraud?
unusual discrepancies between the entity's records and confirmation replies
Inadequate disclosure generally occurs through misrepresentation about the nature and products of the company through which means?
Which of the following applies to a "cookie jar?"
Which of the following statements is FALSE?
liability understatements are easier to detect than other types of financial statement fraud
Which of the following is least important when concerned about overstatement of assets through a merger?
identifying specific analytical or documentary symptoms
Analytical symptoms for unrecorded notes and mortgages payable include which of the following?
unreasonable relationships between interest expense and recorded liabilities
Which of the following expenditures would be most suspicious if it were capitalized?
salaries to the top management
In asset fraud, assets are most often:
Which of the following is NOT a symptom of liability fraud?
inappropriately capitalizing costs that should be expensed
Which of the following is NOT helpful in detecting inadequate disclosure fraud?
searching for analytical symptoms in the financial statements
Which method is NOT used to overstate assets?
recording newly acquired assets at cost instead of fair market value in a healthy economy
If marketable securities increase, then cash should usually decrease by a similar amount, since cash was probably used to purchase the securities. An exception occurs when:
the company incurred debt or traded an asset for the securities
How is a contingent liability reported if it is considered "reasonably possible?"
the contingent liability should be disclosed in the footnotes to the financial statements
Which ratio is helpful in understanding whether the relationship between cash and marketable securities is reasonable in relation to current assets or total assets?
current assets/total assets
_____ focuses more on creating a culture of openness than eliminating opportunities.
creating a positive work environment
Company X has a good whistle-blowing program in place. Sara used the whistle-blowing system to alert management about a fraud being committed by a senior employee in the human resources department. The company investigated the allegation and punished the fraudster. However, Sara was shocked to find later that everyone on her team knew that she was the one who blew the whistle. What could be a major issue with the program at the company?
lack of adherence to anonymity policies
Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?
tone at the top
One of the most important responsibilities of an employer is the hiring and retention of employees. Which of the following situations reflects the current market scenario?
high turnover, low loyalty
Which of the following observations is true?
no internal control structure can ever be completely effective, regardless of the care followed in its design and implementation
A "right-to-audit" clause:
alerts vendors that the company reserves the right to audit the vendor's books at any time
Which of the following is a sign of a positive work environment?
having positive personnel and operating procedures
Approximately _____ of all frauds are committed by an individual acting alone. The remaining _____ involve collusion and often involve the _____ thefts.
71%, 29%, largest
An employee recently bought three new cars and remodeled his/her home. These facts would be considered as a:
Which of the following should employers always obtain from the applicant to obtain information from references?
a hold harmless agreement
A good internal control system includes:
segregation of duties
One way to create and communicate clear expectations about what is and is not acceptable in an organization is:
having a clearly defined code of conduct in place
What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?
Fraud is most commonly detected by:
tips and complaints
An operating condition that can contribute to a higher risk of fraud is:
management by crisis
Which of the following explains the Pygmalion effect?
people generally perform according to a leader's expectations
The correct order of the six elements of the fraud-fighting model is:
tone at the top, education and training, integrity risk and controls, reporting and monitoring, proactive detection, investigation and follow-up
Which of the following environments will be LEAST conductive to fraud?
A company used computer auditing techniques to compare employees' telephone numbers with vendors' telephone numbers. This is an example of which step in a proactive fraud auditing?
building audit programs to proactively look for symptoms and exposures
Which of the following help employees deal with substance abuse (alcohol and drugs), gambling, money management, and health, family, and personal problems?
employee assistance programs
Which of the following is the foundation for all other components of internal control, providing discipline and structure?
Which of the following best describes an action that can cause a whistle-blowing system in place in an organization to fail?
management is slow to act on reports of suspected fraud
Which method will result in the biggest savings?
fraud prevention-- including EAP plans
Which of the following describe the overall tone of the organization that management establishes through its modeling and labeling, organization, communication, and other activities?
What does the acronym "EAP" stand for?
employee assistance program
Which of the following is a step that organizations should undertake while recruiting employees?
require candidates to certify that all information on their resume is accurate
Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?
Recruitment interview questions that deal with an applicant's race, sex, age, religion, color, national origin, or disability:
are usually prohibited unless the criterion is a bona fide occupational qualification
What is a purpose of proactive fraud auditing?
its purpose is to deter employees from committing fraud
Jim was a crook. He embezzled $450,000 from his employer. When his employer found out about his misdeeds, before even conducting a thorough investigation, he went and gave all the details to a local newspaper agency. The next day Jim read his own story, with his own name, in the newspaper. Which of the following is correct?
Jim may have been misrepresented in the story by the newspaper agency and the company might face legal fees
An organization requires that employees in its accounting department take mandatory, two-week-long, continuous vacations once a year. It allows no exceptions to this rule. Which control activity is the company using?
Which of the following questions should be avoided during a job interview?
can you tell me your birth date?
Which of the following should be emphasized in an employee reporting program?
I. fraud, waste, and abuse occur in few companies
II. the company actively encourages employees with information to come forward
III. the name of the employee reporting the fraud must be known
IV. the report need not be made to one's immediate supervisor
II and IV
Preventive controls include:
segregation of duties
Which of the following would usually be an environment conductive to fraud?
reactive rather than proactive management
What are the key attributes for a low-fraud environment?
honesty, openness, and assistance
What is the most widely recognized way to deter fraud?
implement a good system of controls
Identify a situation that could usually lead to a conflict of interest.
a purchase manager in the company runs an operation that produces the raw materials required by the company
Which of the following allows managers and others to become aware of employees' pressures, problems, and rationalizations, thus enabling them to take fraud prevention steps?
Which of the following observations concerning collusive frauds is true?
they are usually slower to develop than frauds committed by one individual
Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his/her means?
a person closely monitors his/her investments
When only a very small amount of money has been embezzled:
the perpetrator should be prosecuted
In order to detect fraud at the earliest, a manager should pay attention to:
What is the most likely outcome when a company denotes the perpetrator but allows him or her to go unprosecuted?
the perpetrator may commit another fraud in the future
An organization has a policy requiring the dual counting of all incoming cash receipts. Which control activity is being used here?
segregation of duties
Once a fraud has occurred and a preventive solution developed, the solution should:
always be implemented by default
Which of the following is the role of an internal auditor in an organization?
to assist management with the evaluation of internal controls currently in place
A good fraud auditing involves four steps. Which of the following is the correct sequence?
identifying fraud risk exposures, identifying the fraud symptoms of each exposure, building audit programs to proactively look for symptoms and exposures, investigating fraud symptoms identified
Which of the following indicates proactive fraud auditing?
creating an awareness among employees that their actions can be reviewed at any time
Which of the following is FALSE regarding a comprehensive approach to fighting fraud?
detecting fraud is the responsibility of the independent auditors
Implementing a system of independent checks is one of the most effective ways to deter fraud. Which one of the following is NOT a way of providing independent checks on employees?
authorization required for purchases over $2,000 or more
Which of the following is NOT a fraud symptom related to internal control weaknesses?
excessive turnover of executives
Which of the following is NOT a "strange" financial statement relationship?
decreased inventory with decreased payables
Document symptoms to some extent can signal out that embezzlement is taking place. Which among the following usually do NOT point to some problem with the source documents?
different names or addresses of payees or customers
How does a smart embezzler manipulate accounting records to conceal fraud?
by increasing expenses
In most organizations, coworkers and others have knowledge or suspicions that fraud is occurring but do not come forward with their information. There are several major reasons for hesitancy. Which of the following is NOT one among them?
the suspicious action is not affecting their work
What does the following journal entry indicate?
DR legal expense $2,900
CR cash $2,900
an attorney was paid $2,900
Which of the following usually motivates embezzlers to indulge in a fraudulent activity?
pursuit of immediate gratification
After committing fraud, an individual often exhibits unusual and recognizable behavior patterns to cope with the stress. Perpetrators experience these behavioral signals in which sequence?
guilt - fear - stress - behavior changes
A major difference between financial statement auditors and fraud examiners is that most financial statement auditors:
match documents to verify whether support exists for recorded information
Allowing the clerk who checked out customer A to handle a return by that same individual without presenting the receipt would NOT be an example of which of the following weaknesses in internal controls?
lack of an adequate accounting system
There are three simple procedures that small business owners should do on a timely basis to prevent fraud when they can't afford sufficient employees to guarantee effective segregation of duties. Which of the following is NOT one among them?
allow one key employee to operate the bank account personally
Lifestyle changes of fraud perpetrators are related to which of the following fraud elements?
Which of the following possible actions may discourage an employee from reporting suspected fraudulent activities?
management promises no prosecution of the individual if guilty
Which of the following acts by management could discourage someone from reporting an observed act of fraud?
providing a clear list of possible consequences
An auditor noticed that company B had an exorbitant increase in sales and drastic decreases in its inventory and accounts receivables. This statement symbolizes which fraud symptom?
_____ fraud symptoms are procedures or relationships that are unusual or that do not make sense.
_____ involves the actual taking of cash, inventory, information, or other assets, whereas _____ involves selling stolen assets or transferring them into cash and then spending the cash.
Telemarketing fraud usually falls into this category:
Given below are the profit margins and fraud-related losses of four economies. Which economy will have to generate the maximum dollar amount of additional revenues to recover the loss to aggregate income?
Economy A: 10%, $225 million
Economy B: 10%, $150 million
Economy C: 5%, $100 million
Economy D: 2%, $50 million
In fraud prosecution cases, _____ matter consists of the underlying data and all corroborating information available.
Fraud statistics come from all of the following sources except:
Civil claims begin when one party files a complaint against another, usually for the purpose of:
being awarded financial restitution
Which of the following is the most common type of occupational fraud?
The victim is a company or organization in all of the following except:
The word "con," which means to deceive, comes from the word:
Which of the following is not one of the major types of fraud classification schemes?
The most common fraud committed on behalf of an organization is:
fraudulent financial reporting
To be successful, plaintiffs in civil cases must prove their case by which of the following?
by the preponderance of the evidence
Customer fraud includes all of the following except:
receiving improper payment through collusion between buyers and vendors
Which of the following is not an element of a Ponzi scheme?
collected money is invested
How is the confidence element established in a Ponzi scheme?
by paying returns to investors initially
Government agencies such as the FBI, FDIC, IRS, or various health agencies publish fraud statistics from time to time. Which of the following observations concerning such statistics is true?
they provide only those statistics related to their jurisdiction
Which of the following statements regarding fraud on behalf of an organization is true?
financial statement fraud benefits top executives as it generally increases stock price
Which of the following is not an example of a fraud-fighting career?
maintaining the security of public records
A company was the victim of several frauds that totaled approximately $10 million in one year. With a profit margin of 10%, and assuming that the company's product sold for $1,000 per unit, how many additional units must the company sell to compensate for the fraud losses?
Fraud has a direct dollar-for-dollar impact on a company's:
Which individual listed is most likely to commit financial statement fraud in order to benefit an organization?
Which of the following is not a primary reason for increased size and number of frauds?
increased centralization of businesses
Employee embezzlement can be direct or indirect. Indirect fraud occurs when:
an employee receives a kickback from a vendor
Fraud in companies such as WorldCom, Enron, Waste Management, Sunbeam, Rite-Aid, Phar-Mor, and Parmalat are examples of:
Which of the following entails an insider who has material inside information purchasing or selling the companies securities though insider deals directly or through an exchange?
A company is a victim of a $414 million fraud. At that time its profit margin is 10%. How much additional revenue should the company generate in order to recover from the effect on net income?
What is the single most critical element for a fraud to be successful?
One way that criminal law differs from civil law is that it:
must yield a unanimous verdict
The ACFE does not include which of the following major categories of occupational fraud?
What is the most cost-effective way to minimize the cost of fraud?
Who are the primary victims of financial statement fraud?
Which of the following is not a characteristic of management fraud?
kickbacks or bribes
The elements of fraud include all of the following except:
the misrepresentation is known to the victim
Which of the following observations concerning occupational fraud is not true?
it usually involves two or more employees
Which of the following frauds is usually the most expensive?
management (financial statement) fraud
Which of the following is a common example of vendor fraud?
fraud perpetrated though collusion between buyers and vendors
Which of the following would not be acceptable as fraud-related experience to satisfy the education requirements to apply for CFE certification?
experience in the Human Resources department of an organization
Which one of the following is not a characteristic of a criminal proceeding?
consequences including restitution and damage payments
Management fraud is often referred to as:
financial statement fraud
Generally, applicants for CFE certification should have a minimum of a bachelor's degree or equivalent from an institution of higher learning. Alternatively, if applicants do not have a bachelor's degree, they may substitute _____ months of fraud-related professional experience for each year of academic study.
Which of the following statements regarding civil law is correct?
civil cases must be heard by 12 jurors
The burden of proof in a criminal case:
is beyond a reasonable doubt
The following are all elements of Title 26, US Code Section 1201 except:
bribes paid may be deducted as business expenses
Which of the following skills would be least beneficial in a career as a fraud-fighting professional?
Which is required to prove fraud, as opposed to negligence?
The Anti-Kickback Act of 1986 intends to prevent:
the giving or receiving of anything of value by a subcontractor to a prime contractor in the US government contracts
Which legal code makes the bribing of public officials illegal?
Title 18, US Code Section 201
The study conducted by the Association of Certified Fraud Examiners in 2016 estimated that organizations lose _____ percent of their annual revenues to fraud.
Which of the following statements is true?
fraud always involves deception, confidence, and trickery
Which of the following statements about criminal and civil cases is correct?
the purpose of a criminal case is "to right a wrong," the purpose of civil case is to obtain a remedy
The GDP in the economy of Ponziland was $5 billion in the year prior to the frauds (year 1). The economy was growing at 4%. Frauds during the year reduce aggregate income by $200 million. During the year, the economy has:
Which of the following about rationalization is not true?
rationalizing is unnecessary when there are multiple opportunities present to commit fraud
Which of the following is not one of the key elements common to all frauds?
Which of the following is usually the most expensive of all control procedures?
segregation of duties
Which of the following is not a possible control activity?
supervisory review of each task completed by employees
Which of the following is not a primary control procedure to minimize the occurrence of fraud?
internal audit department
An effective accounting system is designed to provide which of the following to help discover fraud?
an audit trail
Which of the following is an example of a vice pressure?
an expensive extramarital relationship
Greed, living beyond one's means and high bills all describe what type of fraud-related pressure?
Poor credit could become a _____ that could lead to fraud.
What is the most important element in a control environment?
management's role and example
Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?
Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?
Most fraud perpetrators have profiles that look like:
those of other honest people
_____ is the ability of the fraud perpetrator to make an individual perceive punishment if he or she does not participate in the fraud.
According to the study mentioned in the text, which of the following is true about fraud perpetrators compared to property offenders?
fraud perpetrators are more educated than property offenders
According to Max Weber, _____ is the probability that a person can carry out his or her own will despite resistance.
Studies of honesty levels in advanced countries have led to which of the following expectations regarding fraud?
Less perceived opportunity will have to be present for fraud to occur
Which of the following is NOT a common rationalization of fraud perpetrators?
No one will care
Which of the following is NOT a common financial pressure associated with fraud?
Desire to hurt employer financially
_____ is the ability of the perpetrator to relate to the potential co-conspirator.
_____ require(s) every public company to have a code of ethics to help deter wrongdoing.
The Sarbanes-Oxley legislation
Which of the following is NOT a true statement?
All frauds involve financial or vice-related pressures
Individuals often participate in fraud because they believe that by not participating in the fraud scheme, they may lose their job. Which type of power is at play here?
Why do criminologists compare fraudsters to in relation to repeat offenses and why?
Rapists. They repeat their crimes because they are not severely punished
Which of the following is NOT a work-related pressure?
Wanting to appear successful
Which of the following is an example of an authorization control procedure?
Wilma participates in a fraud scheme by executing some derivative trades because she believed that a senior analyst knew more about complex derivative transactions than she did. These transactions were fraudulent in nature. Which type of power was employed to deceive Wilma?
What is the strongest factor in deterring future fraud activity?
Which of the following is a true statement regarding the fraud scale depicted in the text?
The greater the perceived opportunity to commit fraud, the less rationalization it takes to commit fraud
When fraud occurs, the most common reaction to those affected by the fraud is:
A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a fraud scheme. Which type of power is the fraud perpetrator using?
Which of the following people is most likely to have opportunities to commit fraud?
Sixty-two-year-old Dave has loyally worked up his company's corporate ladder for the past 24 years
Which of the following is true regarding the fraud triangle?
The three elements of the fraud triangle are interactive
Modeling and labeling are subcomponents of which fraud-related element of an organization?
Which of the following is NOT an example of a control weakness or violation?
The employees know who has responsibility for each business activity. Procedures to follow are in place.
Which of the following is NOT an element of a good control environment?
An employee who has the responsibilities of both writing checks and making bank deposits would have _____ to commit fraud.
A perceived opportunity
Which of the following is NOT a perceived pressure that can lead to employee fraud?
Anticipated actual financial reports that are below published expectations
Segregation of duties, as a control procedure, is most often used:
When cash is involved
Every fraud is comprised of all the following elements EXCEPT:
Studies show that in advanced countries, levels of honesty are:
Increasing at a steady rate
Documents and records are an important control activity. Which of the following statements concerning this activity is true?
The entire accounting system serves as a documentary control
The theory behind _____ is that if people know their work or activities will be monitored by others, the opportunity to commit and conceal a fraud will be reduced.
Which of the following factors creates an opportunity for fraud?
Lack of an audit trail
A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?
Many individuals, when persuaded by a trusted friend to participate in fraud, will rationalize the actions as being justifiable. Which type of power is being employed in such situations?
When management fraud occurs, companies usually:
Overstate assets and net income
Which of the following observations is true?
Most fraud perpetrators have profiles that are similar to those of other people?
A fraud perpetrator used the float time between banks to give the impression that he had money in his accounts. Which crime is he committing?
According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed on:
Which of the following is the largest employee group in most organizations?
Swing group of employees who could be honest or dishonest
Which legislation makes it compulsory for every public company to have a code of conduct to convey expectations about what is and is not appropriate for the directors and officers?
Investigative techniques under which approach include investigation, surveillance, and covert operations?
Which of the following is a result of the presence of fraud prevention controls within an organization?
Employees are less likely to commit fraud
Investigative methods utilized to catch a fraud perpetrator while he/she is actually receiving a kickback fall under which of the following categories?
Theft act investigative methods
Which of the following was NOT discussed as a way to create a culture of honesty and integrity?
Offer rewards for honest behavior
Which level in the ethical maturity model can be summarized as "willingness to pay the price for ethics?"
Which of the following is an example of a whistle-blowing system?
Fraud reporting hotline
In the past, most frauds were detected:
Research in moral development strongly suggests that honesty can be best reinforced when:
A proper example is set by management
_____ refers to the circumstances, taken as a whole, that would lead a ressonable, prudent professional to believe a fraud has occurred, is occurring, or will incur.
Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee's computer to use as evidence in the case. Under which category of evidence would an email message fail?
When perceived pressures and/or opportunities are low, a person needs more _____ to commit fraud.
What is the overall term for the investigative technique that includes gathering evidence through data mining, audits, computer searches, net worth calculation, and financial statement analysis?
Which area of investigative method involves searching for ways in which perpetrators have spent or sued their stolen assets?
Which of the following is NOT one of the ways in which a fraud investigation must be conducted?
Investigators should keep all managers apprised of investigation activities
Which of the following questions should be answered when considering fraud risk and fraud prevention?
Which employees are in the vest position to commit fraud?
Communicating expectations about honesty and integrity throughout a company includes all of the following elements EXCEPT:
insisting that top management model appropriate behavior
Which of the following is FALSE concerning legal actions by organizations regarding fraud?
legal action steps future frauds
All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT:
Which of the following is NOT a part of the evidence square?
Which of the following is NOT a proactive hiring procedure?
instilling in employees a desire to develop ethical awareness and courage to do the right thing
Research has shown that _____ detect most frauds.
Studies show that legal action against fraudsters is typically taken:
less than 50 percent of the time
Which of the following is NOT a primary way fraud can be detected early?
watching those employees whose honesty test results were suspicious
Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?
hiring the right kind of employees
All of the following are part of the fraud element triangle EXCEPT:
Which of the following is true of the "swing group" of employees in organizations?
individuals in this group have situational ethics
Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation, and honesty tests?
Research on honesty shows that individuals fall into three groups:
(1) those who will almost always be honest
(2) those who are situationally honest
(3) those who will always be dishonest.
Which of these groups is (are) the biggest?
Group 2 (40%)
Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions. Which of the following represents the foundation of ethics according to this model?
personal ethical understanding
Which of the following is NOT a method that an organization can adopt to proactively eliminate fraud opportunities?
eliminate protections for whistle-blowers
In recent years, organizations have implemented a number of initiatives to more proactively detect fraud. The first and most common proactive fraud detection approach has been to:
install reporting hotlines
The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.
Which of the following is one of the three basic elements of the fraud motivation triangle?
In the ethical maturity model, instilling in others a desire to develop ethical awareness and courage is referred to as:
Which of the following is a component of the evidence square?
Organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:
pay big dividends
Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud investigation?
Civil suits are usually quite rare in cases of employee fraud because:
perpetrators have usually spent the money
The most effective way to involve employees in the monitoring process is to provide a protocol for which of the following?
Which of the following key activities related to fraud is the most important and cost-effective way to reduce losses from fraud?
Which is the highest level in the ethical maturity model?
Which of the following is a prerequisite for a fraud investigation?
In an organization, individuals who suspect fraud usually don't come forward because they:
fear being branded as a whistle-blower
According to the text, which of the following is a consideration that influences the risk of fraud when identifying a company's fraud risks?
Which of the following is true about legal action taken by organizations that are the victims of fraud?
legal action is taken in fewer than half of frauds committed
Which of the following statements is NOT true?
criminal convictions are only successful if there is overwhelming, undeniable proof that the perpetrator "intentionally" stole money or other assets
Which of the following is true of why fraud should be detected early?
most frauds start small and get larger over time
Although there are multiple approaches to fraud investigation, most investigators tend to rely heavily on:
An auditor noticed that company B had an exorbitant increase in sales and drastic decreases in its inventory and accounts receivables. The above statement symbolizes which fraud symptom?
Which of the following actions would most likely create an opportunity for fraud?
requiring one password code for each entire department to enter the storeroom
Which of the following is a true statement?
a fraud perpetrator may start entertaining coworkers more often and more lavishly
Which of the following is a highly suspicious financial statement relationship?
increased inventory with deceased payables
Which of the following fraud symptoms is often the easiest to detect?