Fraud Chapter 3 MC

5. Most frauds start small and: a. If not detected, continue to get larger. b. Usually decrease in amount. c. Remain steady and consistent. d. None of the above.

a. If not detected, continue to get larger.

16. "Predication of fraud" is defined as: a. Reasonable belief that fraud has occurred or is occurring. b. Irrefutable evidence that fraud has been committed. c. Motivation for committing fraud. d. Punishment of fraud perpetrators.

a. Reasonable belief that fraud has occurred or is occurring.

4. Which of the following is NOT a proactive way for a company to eliminate fraud opportunities? a. Severely punishing fraud perpetrators. b. Assessing risks. c. Implementing appropriate preventive and detective controls. d. Creating widespread monitoring of employees.

a. Severely punishing fraud perpetrators.

14. Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls and through independent checks One other effective way of eliminating opportunities is: a. Teaching employees to monitor and report fraud. b. Terminating and punishing employees who commit fraud. c. Failing to terminate or punish employees who commit fraud. d. Identifying indicators of fraud or red flags.

a. Teaching employees to monitor and report fraud.

17. Which of the four types of evidence includes interrogation and honesty testing? a. Testimonial. b. Documentary. c. Physical. d. Personal observation.

a. Testimonial.

6. Because of the ability to override internal controls, it is usually most difficult to prevent which type of fraud? a. Investment scams. b. Fraud committed by a company president. c. Employee fraud. d. Customer fraud.

b. Fraud committed by a company president.

22. Which of the following is true regarding the Sarbanes Oxley act of 2002? a. Companies with revenues exceeding $10 million must have a whistle-blower system in place. b. Public companies must have a whistle-blower system in place. c. Public companies with revenues exceeding $10 million must have a whistle-blower system in place. d. All companies must have a whistle-blower system in place.

b. Public companies must have a whistle-blower system in place.

3. The best way for management to model appropriate behavior is to: a. Enforce a strict code of ethics. b. Set an example of appropriate behavior. c. Train employees about appropriate behavior. d. Make employees read and sign a code of conduct.

b. Set an example of appropriate behavior.

8. A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the: a. Investigative square of evidence. b. Investigative square. c. Evidence square. d. Fraud triangle plus.

c. Evidence square.

21. Factors that are usually associated with high levels of employee fraud include all of the following except: a. Negative feedback and lack of recognition of job performance. b. Perceived inequalities in an organization. c. Long and difficult hours shared equally by everyone in the organization. d. High turnover and absenteeism.

c. Long and difficult hours shared equally by everyone in the organization.

1. The most effective way to reduce losses from fraud is: a. Detecting fraud early. b. Implementing proactive fraud detection programs. c. Preventing fraud from occurring. d. Severely punishing fraud perpetrators.

c. Preventing fraud from occurring.

18. The three elements present in most cases of fraud are: a. Theft act, rationalization, and opportunity. b. Pressure, opportunity, and conversion. c. Theft act, concealment, and conversion. d. Theft act, pressure, and opportunity.

c. Theft act, concealment, and conversion.

19. Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be: a. Unproductive. b. Embarrassing. c. Expensive. d. All of the above.

d. All of the above.

2. To successfully prevent fraud, and organization must: a. Identify and remedy internal control weaknesses. b. Explicitly consider fraud risks. c. Take proactive steps to create the right kind of environment. d. All of the above.

d. All of the above.

11. All of the following are ways to create a culture of honesty and high ethics EXCEPT: a. Creating a positive work environment. b. Hiring the right kind of employees. c. Having top management model appropriate behavior. d. Eliminating opportunities for fraud.

d. Eliminating opportunities for fraud.

12. The tone at the top when related to fraud usually refers to managements attitude about: a. How management labels appropriate behavior. b. Management's attitude about fraud prosecution. c. Management's attitude about employee absenteeism. d. How management models appropriate behavior.

d. How management models appropriate behavior.

13. Research shows that fraud occurs less frequently when employees feel: a. Abused by management. b. Threatened. c. Challenged with unreasonable performance goals. d. Ownership in the organization.

d. Ownership in the organization.

7. Which of the following refers to the circumstances, taken as a whole, that would lead a reasonable prudent professional to believe fraud has occurred, is occurring or will occur? a. Evidential circumstance. b. Investigation. c. Invigilation. d. Predication.

d. Predication

20. The best argument for taking legal action against fraud perpetrators is: a. Huge cash settlements from prosecuting fraud are an excellent source of revenue. b. Legal action usually results in positive publicity for the company. c. Prosecution of perpetrators is a way to keep lawyers busy. d. Prosecution of perpetrators discourages future occurrences of fraud.

d. Prosecution of perpetrators discourages future occurrences of fraud.

10. To prevent fraud from reoccurring, most organizations and other fraud victims should: a. Take no legal action. b. Pursue only civil remedies. c. Pursue only criminal remedies. d. Pursue either civil or criminal action, depending on the circumstances, or both.

d. Pursue either civil or criminal action, depending on the circumstances, or both.

15. Drawback to establishing a hotline for employees to report fraud include all of the following except: a. The expense of having a hotline. b. Many incidents reported are hoaxes motivated by grudges and other non-fraud reasons. c. Some symptoms reported are caused by non-fraud factors. d. This method for finding fraud is outdated.

d. This method for finding fraud is outdated.

9. Usually, for everyone involved, especially victims, the investigation of fraud is very: a. Pleasant and relaxing. b. Educational. c. Exciting. d. Traumatic and difficult.

d. Traumatic and difficult.