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Intro To Fraud CH 1, 9, 14-15 and 18

Terms in this set (207)

Why does fraud seem to be increasing at such an alarming rate?
Computers, the Internet, and technology make fraud easier to commit.
Which of the following is not an important element of fraud?
Intelligence
Fraud is considered to be:
A serious problem that continues to grow.
People who commit fraud are usually:
Trusted individuals.
"The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets" is the definition of which of the following types of fraud?
Employee embezzlement or occupational fraud.
Corporate employee 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 litigation?
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-gathering skills, avoid high-risk and fraudulent activities, and learn valuable interviewing skills
Which of the following is the least reliable resource for fraud statistics
Fraud perpetrators.
Which of the following is not an element of fraud?
Accidental behavior.
Which of the following is not a form of vendor fraud
Not paying for goods purchased.
All frauds that are detected by organizations are made public.
False
Manufacturing companies with a profit margin of 10 percent must usually generate about 10 times as much revenue as the dollar amount of the fraud in order to restore net income to its pre-fraud level.
True
When perpetrators are criminally convicted of fraud, they often serve jail sentences and/or pay fines.
True
The single most critical element for a fraud to be successful is opportunity.
False- Confidence is
A fraud may be perpetrated through an unintentional mistake.
False
Which of the following non-control factors provides opportunities for fraud?
inability to judge the quality of performance. Lack of access to, or asymmetrical, information. Failure to discipline fraud perpetrators. Lack of an audit trail.
The three elements of the fraud triangle are a perceived pressure, a perceived opportunity, and rationalization.
True
A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the:
Evidence square.
Physical evidence includes evidence gathered from paper, computers, and other written documents.
False
Which of the following is true regarding fraud
It is seldom observed
What is the best way to minimize fraud expense within an organization?
Effective prevention of fraud
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 long haired teenager wearing leather pants
Which of the following is not a common type of fraud?
Executives embezzling from the petty cash
Which of the following is not a form of vendor fraud?
Not paying for goods purchased
Civil law performs which of the following functions?
Remedy for violation of private rights
Fraud fighting can include which of the following type(s) of careers?
Professor
Lawyer
CPA Firms
Which of the following is not an example of employee embezzlement
Angry employees vandalizing the building with spray paint
Which of the following is not an example of vendor fraud?
A vendor has much higher prices than the competition
"Intentional manipulation of financial statements" describes which kind of fraud?
Management Fraud
Which of the following is required to become a CFE?
An individual much commit to abide by a strict code of professional conduct and ethics
Be an associate member, in good standing, with the AFCE
Be of high moral character
Which of the following is not true regarding the ACFE.
It roughly has 12000 members throughout the world
Perpetrators use trickery, confidence, and deception to commit fraud.
True
One of the most common responses to fraud is disbelief by those around the fraud.
True
Fraud involves using physical force to take something from someone.
False
Identity theft is an example of employee embezzlement.
False
Management fraud is deception perpetrated by an organization's top management.
True
A Ponzi scheme is considered to be a type of investment scam.
True
Most experts agree that fraud-related careers will be in demand in the future.
True
In civil cases, fraud experts are rarely used as expert witnesses.
False
Many companies try to hide their losses from fraud rather than make them public.
True
The only group/business that must report employee embezzlement is the federal government.
False
Advances in technology have had no effect either on the size or frequency of fraud or on the detection or investigation of fraud.
False
Fraud losses generally reduce a firm's income on a dollar-for-dollar basis.
True
Fraud perpetrators are often those who are least suspected and most trusted
True
Unintentional errors in financial statements are a form of fraud.
False
Occupational fraud is fraud committed on behalf of an organization
False
Companies that commit financial statement fraud are often experiencing net losses or have profits that are significantly lower than expectations.
True
Indirect fraud occurs when a company's assets go directly into the perpetrator's pockets without the involvement of third parties.
False
In vendor fraud, customers don't pay for goods purchased.
False
A negative outcome in a civil lawsuit usually results in jail time for the perpetrator.
False
When fraud is committed, criminal prosecution usually proceeds before civil litigation.
True
What is the ACFE
a nonprofit organization dedicated to the prevention and dedication of fraud throughout the world.
Fraud perpetrators:
Have profiles that look like most honest people.
Power is rarely used to influence another person to participate in an already existing fraud scheme
False
A Wall Street bond trader turned on the television one day and saw a news report accusing him of committing a large securities scam. This trader learned that his employer had accused him of creating $300 million of phony profits and, as a result, getting bogus bonuses of $8 million. He claimed he was innocent, and it took about three years for him to prove his innocence. In the months that followed the accusations, he was investigated by the SEC, the National Association of Securities Dealers, and the Justice Department. Three years later, the bond trader was cleared of all major charges brought against him.
Assume that you are the employer who accused the trader of this fraud. You would most like seek civil action only against the trader.
False
Two keys to being a good expert witness are excellent preparation and calm demeanor.
True
Expert witnesses are the only witnesses that can render opinions in a trial.
True
A deposition is a testimony taken before the trial begins in a situation that is usually less formal than a courtroom, but in which the court rules and regulations still apply.
True
An individual committing fraud can be prosecuted either criminally or civilly, but not both.
False
The defendant can choose to have his or her case tried in either a state lower court or a state higher court.
False
The federal courts will only hear cases that involve federal law, more than one state, or a federal statute.
True
If responses to interrogatories are not given in a timely fashion, the court may charge fees and costs to a noncomplying party and issue an order demanding that all questions be answered.
True
The parties in a civil case may negotiate a settlement during any stage of litigation.
True
A request for confession asks the opposing party to admit designated facts relevant to litigation.
False
An interrogatory is a series of written questions that specifically identifies information needed from the opposing party.
True
An initial pleading or complaint generally includes an explanation of the alleged violation and the monetary expenses or damages sought.
True
Investigation is the legal process by which each party's attorneys try to find all information about the other side's case before the trial begins.
False
To be successful, the plaintiff in a civil case must prove his or her case beyond a reasonable doubt.
False
The burden of proof necessary to prove a defendant is guilty in a criminal trial is significantly greater than that in a civil trial.
True
If, during a preliminary hearing, sufficient evidence is not available to show probable cause, the defendant can still be prosecuted at a later time when more evidence is available.
True
The prosecution usually prefers to present evidence at a grand jury because the accused does not have the right to hear the evidence.
True
Civil cases must consist of a jury of at least six jurors.
True
State courts hear bankruptcy cases.
False
Most fraud cases are tried in federal courts.
False
The Fourth Amendment requires that probable cause exist before a defendant is arrested or searched. Which of the following levels of evidence is necessary to show probable cause?
Less than certainty, but more than speculation or suspicion.
Which of the following actions can fraud victims pursue after sufficient evidence is obtained?
Two of these
Pursue civil litigation.
Prosecute in a criminal court.
In a civil trial, settlements may be negotiated:
At any time during the litigation.
Which of the following is not one of the common stages of a criminal case?
Filing a complaint
Having a civil trial before a criminal trial has which of the following benefits?
Both the defendant may make admissions during civil trial that can be used in criminal trial and there is greater access to documents of the defendant.
When deposing an expert witness, the opposing attorneys try to achieve all of the following goals except:
Seeking admission of guilt
Fraud investigators can assist in a case in which of the following ways?
By preparing questions to ask opposing witnesses during depositions, evaluating whether documents produced by the opposing side satisfy a production request, and by assisting in the preparation of a production request because of their knowledge of a case.
During cross-examination, expert witnesses should:
Maintain the same positions taken during direct testimony
During a trial or deposition, expert witnesses should:
Answer questions convincingly, without hedging their answers
Which of the following rights is not provided by the Fifth Amendment?
Miranda rights must be read upon arrest
What is/are the distinguishing factor(s) between the lower and higher state trial courts?
Both the amount of monetary damage and the seriousness of the crime
Most court cases are decided in state courts, except when:
Either federal laws are in question or the case involves several states.
To be convicted in a criminal case, the standard of evidence is:
Beyond reasonable doubt
You have recently been asked to be a damages expert witness in a large Ponzi scheme. The lawyers have asked you to calculate actual damages, what-if damages, and pre-judgment interest damages.
Which of these types of damages estimates what the plaintiffs could have done with the money if the fraud hadn't occurred?
What-if damages
Bobby Jones, an accountant for ABC Corporation, has been suspected of committing fraud. Some information already gathered about the fraud points to Bobby Jones as the most likely perpetrator. In his scheme, Bobby supposedly stole more than $5 million over the past three years. Due to the magnitude of the fraud and to set an example in the company, ABC decides to prosecute Bobby both civilly and criminally.
In what stage of the civil litigation process will each side's attorneys try to find out information about the other side's case?
Discovery Stage
When O. J. Simpson was tried for the murder of his wife, Nicole Simpson, he was ruled not guilty in the criminal court hearings. However, when Nicole Simpson's family sued Simpson civilly, he was ordered to compensate Nicole's family several millions of dollars.
O. J. Simpson was ordered to compensate Nicole's family because the burden of proof in a criminal case is significantly greater than that in a civil case.
True
In June 2000, the SEC brought civil charges against seven top executives of Cendant Company. The SEC alleged that these officials had, among other things, inflated income by more than $100 million through improper use of company reserves. These proceedings were a result of a longstanding investigation by the SEC of financial fraud that started back in the 1980s.
This case was mostly likely in the "Settlement Negotiations" stage of the criminal litigation process In June 2000.
False
Since a Social Security card does not contain your photo, it is impossible to have your identity stolen by merely losing your Social Security card.
False
A discarded tax return has enough information to steal someone's identity.
True
Because it is impossible to "market" at an assortment of levels, every multilevel marketing scheme is fraudulent.
False
Only stupid people who are not careful are victims of consumer fraud.
False
Consumer fraud only affects those who often use credit cards online.
False
Congress outlawed pyramid organizations in the United States in 1934.
False
Pyramid organizations eventually fail, causing all but a few investors to lose their investments.
True
The National Processing Company was given authority by the FTC to preregister consumers for the do not call registry.
False
Once an identity theft victim has reported a fraud to the FTC, the FTC will help a victim contact the FBI, Secret Service, and local police to coordinate an investigation.
False
By federal law, no organization or company can sell individuals' personal information without their express written consent.
False
The larger the amount requested by a fraudulent telemarketer, the easier it is for him or her to deceive victims.
F
Elderly people are more susceptible to chain letter scams than any other type of fraud.
F
Illegal multilevel marketing companies almost always focus their efforts on the recruiting of new members rather than on the selling of legitimate products.
T
A fraud scam in which the perpetrator, falsely claiming to represent a foreign bank, tries to get victims to invest in nonexistent foreign venture capital companies for high returns is called a clearinghouse scam.
T
The Gramm-Leach-Bliley Act states that it is illegal for organizations to share your personal information with any other party or individual.
F
Keeping your wallet in your front pocket will help prevent it from being lost or stolen.
T
The best way to prevent a fraudster from establishing a preapproved credit card in your name is to destroy all credit card applications as soon as you receive them.
F
Identity theft can result in an individual's loss of credit.
T
Identity theft is the most frequent type of consumer fraud.
T
Those most susceptible to consumer fraud are often:
Uneducated or Elderly
What is one way to determine if a Web site is secure or not?
Look for an "s" after the "http" in the URL of the website.
Which of the following institutions would not be very helpful to call in the event of identity theft?
Local chamber of commerce
Which of the following is not listed in the chapter as a common characteristic of Nigerian scam letters?
Picture of perpetrator to assure victims.
Which federal statute requires that credit reports can only be obtained for legitimate business needs?
Title 15 U.S. Code § 1681
What does "https" stand for?
Hypertext transfer protocol (secure).
What is the best defense against consumer fraud?
Educating yourself about credit card risks.
Consumers should provide credit card numbers or bank account information over the telephone only when:
They initiated the call and are purchasing a legitimate product.
The major reason that elderly people are so susceptible to telemarketing fraud is that they:
Are often lonely and enjoy talking to friendly callers.
Which of the following is a common characteristic of fraudulent money offer letters?
a. The letter will ask for help, convincing the victim that assistance is desperately needed.
b. Through the letter, the perpetrator will try to build a relationship of trust with the victim.
c. The letter promises the victim a large amount of money for little or no effort on the victim's part.
d. The letter will make the victim feel that he or she is the only person receiving the "once-in-a-lifetime" offer.
If you become a victim of identity theft, you should first:
Contact the Federal Trade Commission for assistance and advice.
The Gramm-Leach-Bliley Act gives you the right to:
Opt out of having your personal information sold to organizations
To protect yourself from identity theft, you should:
Always shred receipts, credit card offers, doctor's bills, insurance information, or other documents that contain sensitive personal information.
Multilevel marketing companies:
Increase their distribution process by recruiting additional company sales representatives.
Phishing is the method of:
Using e-mail or other Internet applications to deceive people into disclosing valuable personal information.
You are a certified fraud examiner, and a local community group, the Silver Years Senior Squad, has requested that you give a presentation about consumer fraud. They want to hear about examples of recent scams that have happened to people and how they can avoid being scammed.
Which of the following is not information or advice you would give to the Silver Years Senior Squad to help them avoid becoming a victim of a telemarketing fraudster?
The most effective way to combat telemarketing fraud is through reporting all telemarketing calls you suspect are fraudulent to the Federal Trade Commission.
The false refund fraud scheme involves any refund given in cash for an item that was originally stolen from the store.
F
Bid rigging involves establishing a predetermined amount of money that bidders will have to exceed in order to win a bid.
F
Of all the different kinds of corruption, bribery schemes have the greatest median loss of fraud schemes committed against an organization.
T
Illegal gratuities are made before deals are approved but after payment has been accepted.
F
Compared to bribery and conflicts of interest, economic extortion fraud schemes occur relatively infrequently.
T
Kickbacks are undisclosed payments made by employees of purchasing companies to vendors.
F
Corruption is divided into four fraud scheme types: (1) bribery, (2) conflict of interest, (3) extortion, and (4) illegal gratuities.
T
Ghost employee schemes usually generate the largest losses among the payroll disbursement fraud schemes.
T
The two basic fraudulent register disbursement schemes are false refunds and false voids.
T
Understating sales and stealing cash are examples of skimming.
T
Larceny is the stealing of cash by employees before the cash has been recorded in the company's accounting system.
F
Asset misappropriations are divided into two categories: theft of cash and theft of inventory.
T
Failure to account for missing inventory that was supposed to have been returned is a problem found in voided sales frauds.
T
Commercial bribery is different from traditional bribery in that the offer made in commercial bribery is to influence an official act of government and traditional briberies never involve government officials.
F
Bribery is one of the four types of corruption.
T
Kickback schemes always involve the purchasing function of the victim company.
F
Billing schemes have by far the highest median costs per incident of all frauds.
F
Skimming schemes are far less common than larceny schemes.
F
Larceny, skimming, and misuse are all subdivisions of theft of cash.
F
Statistics show that fraud losses are directly proportional to age and inversely proportional to education.
F
Employee frauds constitute a greater percentage of all frauds and have greater median losses than do management and owner frauds combined.
F
At the present time, approximately 25,000 members make up the Association of Certified Fraud Examiners.
F
One key element of skimming is that cash is taken:
Prior to its entry into an accounting system.
"Putting someone on the payroll who does not actually work for the victim company" is an example of a(n):
Payroll Scheme
Which of the following is not one of the ACFE's types of fraudulent disbursement?
Skimming disbursement schemes.
Which of the following is not true of billing schemes?
The perpetrator takes physical possession of his or her employer's cash
Which of the following is not considered a misappropriation of assets?
Kickbacks
Which of the following results in the highest loss per case?
Billing Schemes
Which of the following types of disbursement fraud occurs least frequently?
Register disbursement schemes
Which of the following is a major difference between larceny and skimming?
Larceny is committed after the cash is entered into the accounting system, while skimming is committed before the cash is entered into the system.
The most affected party in a workers' compensation fraud case is which of the following?
Employer's insurance carrier
Which of the following is not one of the most common billing schemes?
Changing the quantity or price on an invoice to favor a customer
Out of all the types of frauds discussed in this chapter, which type is perpetrated least often?
Larceny
What are the three major classes of asset misappropriation?
Stealing receipts, disbursement fraud, and stealing assets on hand.
Most frauds against organizations are perpetrated by:
Employees
Jill has recently begun working at a local florist. In addition to creating floral arrangements, Jill spends a good deal of her time talking to customers and ringing up sales. Over time, she identifies a weakness in the procedures for ringing up voids. No approval is necessary to void a sale, and the void slip collects very little information about the sale. After Jill has completed a cash sale and the customer has left, she voids the sale and pockets the cash that was just received. The floral shop doesn't miss the lost inventory because it has a high inventory turnover rate and high losses due to flowers losing their blooms.
Jill is committing theft of cash through skimming, a fraud scheme in which cash is stolen from an organization before it is recorded on the organization's books and records.
F
In a Las Vegas casino, an employee discovered a flaw in the accounting system. The accounts payable clerk discovered that he was able to change the names of vendors in the computer system to his name. As a result, the employee could create false invoices and then cut a check for the false invoice. The name on the check would be changed to the name of the employee. After the check was printed, the name in the system could then be changed back to the appropriate vendor. The check register would show only the name of the vendor. The fraudulent employee had authorization to sign checks under $1,000. By writing small checks, the employee was able to defraud the company of $10,000. This fraud was caught by accident when the employee of another department was looking through the vendor list on her computer after the fraudulent employee had changed the vendor name to his name. A few entries later, the vendor name changed again. She wondered how this could occur and asked her supervisor. Following an investigation, the supervisor determined that the employee was committing fraud through check tampering.
Check tampering is unique among the disbursement frauds because it is the one group of schemes in which the perpetrator actually prepares the check or takes physical control of the check and converts it for his or her own benefit.
T
Regina recently landed her dream job at a local clothes outlet. Within a few weeks of working in her new employment, however, Regina began to engage in fraud. Regina committed the fraud by doing the following: When people returned merchandise for a cash refund, Regina would ring up an amount that was greater than the value of the item that was being returned. Regina would then pocket the extra cash and give the customer the amount due. Regina found this method of fraud very effective because people were, in reality, returning something, and inventory and register totals wouldn't be out of balance at the end of the day.
Which type of occupational fraud is Regina committing?
Fraudulent disbursements.
An increase in a person's net worth plus living expenses equals the person's total income.
T
The net worth method cannot help in determining the extent of stolen funds.
F
Private financial institutions can usually sell confidential customer information.
T
When people convert stolen cash by entering into financial transactions, such as buying assets, they usually leave tracks that investigators can follow.
T
Federal agencies provide better records than state or county agencies for conversion investigations.
F
Before financial institutions can sell or disclose confidential customer information, they must provide customers with the opportunity to "opt out" from information sharing.
T
The Gramm-Leach-Bliley Act of 1999 made it more difficult for officials and private citizens to access information from financial institutions.
F
Conversion is the third element of the fraud investigation triangle.
T
For various reasons, the net worth method tends to be a conservative estimate of amounts stolen.
T
The net worth method is rarely, if ever, helpful in actual fraud investigations.
F
Several publicly available databases provide information that can be helpful in investigations.
T
Private credit records are maintained on both individuals and organizations by various credit-reporting companies.
T
Counties and other local agencies that contain records are usually not very useful in fraud investigation.
F
The secretary of state maintains many types of records relating to business and Uniform Commercial Code (UCC) filings.
T
It is always necessary to involve a federal law enforcement agent when accessing federal databases.
F
Investigations of perpetrators' net worth and lifestyles help investigators know what class of society the perpetrators are from.
F
One common investigation procedure determines how perpetrators convert or spend their time.
F
Perpetrators usually save what they steal.
F
Known income subtracted from total income gives a reasonable estimate of:
Unknown income
Under the net worth method, a person who has an increase in net worth of $100,000, known expenses of $80,000, and a salary of $60,000 would have an unknown income of:
$120,000
Each of these statements is true about the net worth method for determining embezzled amounts except:
Courts are generally suspicious of dollar amounts determined by the net worth method because courts realize that the net worth method can only provide approximations of the amount stolen.
Each of these agencies is correctly matched with the type of information the agency provides except:
State Attorney General: Maintains birth records and information about people's SSNs
The Gramm-Leach-Bliley Act allows:
a. Banks to sell customer information.
b. Financial institutions to share information.
c. Customers to "opt out" and ask that their information not be shared.
The formula to calculate funds from unknown sources is:
Assets - Liabilities - Prior Year's Net Worth + Living Expenses - Funds from Known Sources.
The net worth method is a calculation based on a person's
Assets, liabilities, income, and living expenses.
Which source could be used to access valuable financial information in a fraud investigation?
a. Financial institutions.
b. Internet sites.
c. The former spouse of a suspected fraud perpetrator.
d. Trash.
Who among the following are usually some of the best and most helpful federal fraud investigators?
Postal inspectors.
A database of criminal records maintained by the FBI is:
Both the III and the NCIC.
Most conversion investigations involve searching public records and other sources to trace:
a. Purchases of assets.
b. Payments of liabilities.
c. Changes in lifestyle.
d. Net worth.
Which of the following is a possible use of conversion-based investigation techniques?
a. Searching public records to trace purchases of assets and payments of liabilities.
b. Attempting to locate previous spouses' bank account records.
c. Locating significant amounts of money held by related parties.
Conversion investigations focus on how suspects:
Spent stolen money.
The net worth method is effective:
a. As evidence in court.
b. To help obtain a confession.
c. To conduct an interview of suspects.
Which of the following laws regulates activities of credit, insurance, and employment investigations?
Fair Credit Reporting Act of 1971 and Fair and Accurate Credit Transactions Act of 2003.
How useful are local and county records in fraud investigations?
Very Useful
Which of the following organizations maintain public information that can be accessed in record searches?
a. Local agencies.
b. State agencies.
c. Federal agencies.
The net worth method of analyzing financial information can help to determine:
The amount of embezzled funds.
Evidence gathered from public records can be useful in:
Obtaining a confession
Although most perpetrators begin their thefts because of a perceived critical need, they usually continue to embezzle in order to:
Improve their lifestyle
Bill James is being investigated for embezzling over $700,000 from ABC Capital Management, for whom Bill has worked for nearly 10 years. When co-workers noticed the new "toys" Bill was buying, they jokingly asked him to tell them his stock picks as they wanted in too! Bill told them that they better adopt some rich relatives. "My Uncle Eddie didn't have any kids, so he left a chunk of his money to each of his nephews."
As a fraud expert, you would perform net worth calculations to assess the validity of Bill's claim of a recent inheritance.
F
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