06 - SB: Fraud and Internal Controls (17 - 25 min)

Describe the internal control principle of separating recordkeeping from custody of assets by completing the following sentence. A person who ________ (identifies/controls/recommends) or has access to an asset must _________ (always/not/) keep that asset's accounting records.

1. Controls 2. Not

Which of the following are correct regarding why management uses internal controls? (Check all that apply.) Multiple select question. 1. Ensure reliable accounting. 2. Increase revenues. 3. Protect assets. 4. Reduce vendor payables. 5. Promote efficient operations. 6. Uphold company policies.

1. Ensure reliable accounting. 3. Protect assets. 5. Promote efficient operations. 6. Uphold company policies.

How has the Sarbanes-Oxley Act (SOX) impacted the internal control of companies? (Check all that apply.) Multiple select question. 1. SOX requires that auditors verify internal controls. 2. SOX requires that management apply technological controls whenever cash is involved. 3. SOX requires that the company have effective internal controls. 4. SOX requires that management hire outside consultants to create internal controls to be used to safeguard assets.

1. SOX requires that auditors verify internal controls. 3. SOX requires that the company have effective internal controls.

Summarize the internal control principle of establishing responsibility by completing the following sentence. P Proper internal control means that responsibility for a _________ (task/shortage/sale) is clearly _________ (posted/established/compensated) and assigned to one person.

1. Task 2. Established

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.) Multiple select question. 1. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. 2. This principle is often called separation of duties. 3. Examples of transactions with divided responsibility are placing inventory orders and paying vendors. 4. This principle calls for a duplication of work so that comparisons can be made.

1. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. 2. This principle is often called separation of duties. 3. Examples of transactions with divided responsibility are placing inventory orders and paying vendors.

Good recordkeeping helps protect assets and helps managers: Multiple choice question. 1. monitor company activities 2. establish responsibilities 3. apply technological controls 4. divide responsibility

1. monitor company activities

Each of the following are types of technological impacts related to internal control: Multiple select question. 1. new evidence of processing 2. more extensive testing of records 3. maintaining adequate records 4. separation of duties 5. establish responsibilities 6. reduced processing errors

1. new evidence of processing 2. more extensive testing of records 4. separation of duties 6. reduced processing errors

Responsibility for a task should be clearly established and assigned to: Multiple choice question. 1. one person 2. two people 3. one person and their manager 4. multiple people

1. one person

Regular and independent reviews should be done by _____. Multiple choice question. 1. employees directly involved in the activities 2. auditors not directly involved in the activities 3. employees not directly involved in the activities 4. auditors directly involved in the activities

2. auditors not directly involved in the activities

True or false: An owner of a small business usually knows if the business is receiving the assets and services the company paid for. True false question. True False

True

Which of the following are principles of internal control? (Check all that apply.) Multiple select question. 1. Maintain adequate records. 2. Reduce vendor payables. 3. Establish responsibilities. 4. Divide responsibility for related transactions. 5. Increase revenues. 6. Perform regular and independent reviews.

1. Maintain adequate records. 3. Establish responsibilities. 4. Divide responsibility for related transactions. 6. Perform regular and independent reviews. insure assets and bond key employees separate record-keeping from custody of assets apply technological controls

Summarize the internal control procedure of maintaining adequate records by selecting the correct answers below. (Check all that apply.) Multiple select question. 1. Reliable records are a source of information that managers use to monitor activities. 2. Dividing responsibility for related transactions reduces the occurrence of recordkeeping errors. 3. Keeping detailed records makes it unlikely that assets are lost or stolen without detection. 4. Bonding employees reduces the risk of loss.

1. Reliable records are a source of information that managers use to monitor activities. 3. Keeping detailed records makes it unlikely that assets are lost or stolen without detection.

What is the purpose of internal controls? Multiple choice question. 1. To help managers know if the business is receiving the assets and services it has paid for. 2. Companies use strong internal controls to guarantee that loss is eliminated. 3. Internal controls are used by managers as a way to reduce outstanding customer balances. 4. Managers utilize internal controls as a basis of employee performance reviews.

1. To help managers know if the business is receiving the assets and services it has paid for.

Human (error/fraud) _________ is related to misjudgment or confusion. Human (error/fraud) _________ involves intent to defeat internal controls for personal gain.

1. error 2. fraud

A blockchain ledger is more secure because: (Check all that apply). Multiple select question. 1. it is continuously updated. 2. it is difficult to modify the ledger without a detailed record of changes. 3. auditors can focus on verifying accuracy of the output of the ledger. 4. it is continuously verified.

1. it is continuously updated. 2. it is difficult to modify the ledger without a detailed record of changes. 4. it is continuously verified.

Which of the statements below explains the internal control principle of performing regular and independent reviews? Multiple choice question. 1. Using preprinted forms and internal documents are designed to be an independent review of transactions. 2. Regular reviews of internal control systems are needed to ensure that procedures are followed. 3. Responsibility for a task is clearly established and assigned to one person who does a regular review of these tasks to verify accuracy. 4. Using personal identification scanners are an appropriate regular and independent review.

2. Regular reviews of internal control systems are needed to ensure that procedures are followed.

Which of the statements below describes the internal control principle of applying technological controls? Multiple choice question. 1. Technological controls for assets should be separated from custody over those assets. 2. Technological controls, such as time clocks and cash registers, improve the effectiveness of controls. 3. A responsibility for a transaction should be divided between two or more individuals or departments 4. The person in charge of creating technology controls should not be the person who installs the technology control.

2. Technological controls, such as time clocks and cash registers, improve the effectiveness of controls.

Which of the statements below explains how technology has impacted internal control systems? (Check all that apply.) Multiple select question. 1. Technology increases job creation and fewer job consolidations. 2. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. 3. Technology has reduced the number of processing errors. 4. Technology has encouraged the growth of e-commerce, so there is a higher risk of credit card number theft. 5. Technology can be designed to require the use of password before access to the system is granted.

2. Technologically advanced systems can record who made entries, the date and time of the entry and the source of the entry. 3. Technology has reduced the number of processing errors. 4. Technology has encouraged the growth of e-commerce, so there is a higher risk of credit card number theft. 5. Technology can be designed to require the use of password before access to the system is granted.

Describe the internal control principle of dividing responsibility for related transactions by selecting the correct statements below. (Check all that apply.) Multiple select question. 1. This principle calls for a duplication of work so that comparisons can be made. 2. This principle is often called separation of duties. 3. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. 4. Examples of transactions with divided responsibility are placing inventory orders and paying vendors.

2. This principle is often called separation of duties. 3. This principle helps to make sure that the work of one individual acts as a check on another individual's work on a related transaction. 4. Examples of transactions with divided responsibility are placing inventory orders and paying vendors.

Bonding employees who handle cash is important because it: Multiple choice question. 1. ensures employees will not steal company property 2. discourages employee theft 3. helps establish responsibility 4. encourages employee theft

2. discourages employee theft

The triple threat of fraud involves: Multiple select question. 1. error 2. pressure 3. rationalization 4. opportunity 5. mistakes

2. pressure 3. rationalization 4. opportunity

What is the purpose of internal controls? Multiple choice question. 1. Managers utilize internal controls as a basis of employee performance reviews. 2. Companies use strong internal controls to guarantee that loss is eliminated. 3. Companies create internal controls to protect assets and ensure reliable accounting. 4. Internal controls are used by managers as a way to reduce outstanding customer balances.

3. Companies create internal controls to protect assets and ensure reliable accounting.

Which statement below describes the internal control procedure of insuring assets and bonding key employees? Multiple choice question. 1. Bonding employees and insuring assets increases the risk of loss. 2. Insuring assets and bonding employees makes it unlikely that a theft is uncovered. 3. Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss. 4. Insuring assets has a cost that outweighs the risk of loss.

3. Insuring assets against casualty and bonding employees who handle cash, reduces risk of loss.

Sarbanes-Oxley allows for the following penalties for violators: Multiple choice question. 1. Up to 25 years in prison without fines 2. Up to 15 years in prison without fines 3. Up to 15 years in prison with fines 4. Up to 25 years in prison with fines

4. Up to 25 years in prison with fines

An ID scanner is a type of __________ control.

Technological/ Technology

A more secure type of accounting ledger is called __________ ledger.

blockchain

A person who has access to an asset must _____ access to that asset's accounting records. Multiple choice question. not have have

not have

The internal control of _________ duties means that the responsibility for a transaction should be divided between two or more individuals.

seperation