Forensic Accounting Exam 3

Which of the following is a typical benchmark for calculating lost profits?

industry averages

For a ghost employee, which of the following is NOT one of the 4 primary steps needed to make this scheme work?

input a valid home address for the ghost

lapping

is a method of concealing the theft of cash which involves the crediting of one account through the abstraction of money from another account

segregation of duties

is the internal control procedure that is most effective in preventing skimming

a final concealment strategy with stolen deposits

is to carry the missing money as deposits in transits

Which of the following is indicative of the actions of the forged maker perpetrator?

issues two checks for the same invoice and fraudlently signs and cashes the second

Which of the following best describes the key attribute of kickback schemes?

kickback schemes always involve at least one person inside the organization and one person outside the organization

Which of the following is not a method for committing and concealing a sales skimming scheme?

lapping

Which of the following is NOT correct regarding bid-rigging schemes?

lost bids are always part of a bid-rigging scheme

Which of the following is NOT a type of commercial damages?

lost expenditures

Which of the following is NOT a methodology by which financial statement fraud is committed?

manipulation of accounting regulations

Which of the following is NOT a fictitious revenue schemes?

matching expenses to revenues

Which of the following is an integral step in a pay-and-return scheme?

misappropriate the incoming check related to returned good and desposit it in a bank account other than the company's

From the conceptual framework for financial reporting, which concept permits management to account for transactions in any manner they please?

none of the above (materiality, consistency, historical cost)

Which of the following is the first step to form a shell company?

obtain a certificate of incorporation from the state

bribery may be defined as

offering, giving, receiving, or solicitng anything of value to influence an offical act

Which of the following red flags is commonly associated with fictitious expense reimbursement schemes?

patterns when expense reimbursements are for the same amount

What is the main purpose of practice aids in forensic and valuation services?

provide useful information and guidance to practicing professionals

Which of the following best describes the contribution of ratio analysis to a forensic accounting or fraud examination engagement?

ratio analysis may provide red flags or symptoms of fraudulent activity

Which of the following is NOT likely to deter financial statment fraud?

reducing the amount of inventory on-hand

Related to financial reporting disclosures, even when reported, which of the following still requires careful examination by the anti-fraud professional?

related party transactions

Which of the following is likely the least effective methodology to detect sales or accounts receivable skimming?

review the accounts receivable employee personnel records for prior terminations for fraudulent activity

Which of the following best describes skimming?

skimming involves the theft of cash prior to the cash entering the company's bank account and accounting system

Which of the following is likely to be least effective in detecting noncash misappropriations?

summarizing inventory items valued at less than the retail price

Which of the following is NOT a decision that needs to be made with regard to quantifying lost revenues and increased expenses?

the appropriate regression software

generally, in order to pursue a claim for legal damages successfully,

the injured party must prove liability and damages

What is the best way to prevent and detect conflicts of interest?

transparent and full disclosure

Which of the following is a non-cash asset misappropriation scheme?

using a company computer to operate an Internet commerce site after business hours

Which improper asset valuation may inflate the current ratio?

valuing inventory at current retail prices

Which of the following is most likely the least effective methodology to detect cash larceny?

visit the store and interview customers concerning their shopping experience

Which of the following is not a methodology for the skimmy of receivables and its related concealment?

voiding a sale after the customer leaves the premises

Which of the following is not typically a methodology to conceal the misuse of noncash assets?

voiding sales at the warehouse liquidation location

economic extortion schemes are committed

when one person demands payment from another, typically with the implication that harm will come if the payment isn't made

Which of the following is an activity NOT usually associated with forensic accounting and fraud examination consulting and litigation support?

writing an audit report

A pass through scheme is a sub-category under shell company schemes. Perpetrating a pass through scheme requires the abilit to add vendors to the vendor master file

acutal goods or services are purchased by the shell company and resold, at an inflated price, to the victim organization

Which of the following is NOT a typical method that employees use to overstate legitimate expenses on their expense reports?

altering the delivery paperwork for inventory receipts at the warehouse

the discounted cash flows method (DCF) requires

an estimate of future earnings or cash flows, and understanding of the duration of those cash flows, and the determination of an appropriate risk adjusted discount rate in determing Present Value (PV)

Which of the following is most consistent with illegal gratuities?

an illegal gratuity is not received as a result of an agreement to facilitate an action in advance of that action

Which of the following generally is NOT considered "something of value?"

an obligation to make up hours derived from accidentally over-using "banked" vacation hours

Which of the following best describes the difference between skimmy and cash larceny?

cash larceny is an "on-the-books" scheme while skimming is an "off-the-books" scheme

Which of the following is NOT one of the 5 major classifications of financial statement fraud?

channel stuffing

Which of the following is a key attribute of corruption schemes?

corruption schemes other than conflicts of interest usually involve at least one person outside (non-employee) of the organization acting to obtain some advantage inconsistent with their duties, responsibilities, and relationship with the organization

Which of the following is not a technique to conceal inventory shrinkage?

counting and valuing the physical inventory at the end of each year

The legal framework for damages does NOT include which of the following?

damages that can be converted to lost cash flows directly attributable to the act of the liable party

Which of the following most accurately indicates why conflicts of interest create concern?

decision makers can be influenced by a person with a conflict of interest without understanding the underlying motivations of the person

register disbursement fraud in the form of falsified returns can be

detected by physical inventories

Given the 4 criteria necessary for a sale to be complete which of the following is NOT one of those conditions?

documentation exists that can serve as evidence of a sale

in a forensic accounting investigation,

documents are not only subjected to confirmation with external parties, but may also be subjected to fingerprint analysis

Which of the following is most accurate with regard to the time value of money?

each engagement requires its own development and defense of the discount rate

subsequent events

events occuring or becoming knowing after the close of the period that may have a significant effect on the financial statements should be disclosed

Which of the following forensic accountant's work product is least likely to provide relevant evidence for an investigation?

examination of the employee handbook

A sales employee created a "dummy" customer record. The sales employee then recorded phony refunds and then pocketed the cash. What procedure might catch this fraud?

extract customers with no telephone numbers or tax ID number

Of the following, choose the one that depicts a situation where liabilities and expenses are manipulated to make a company appear more profitable?

failure to record payroll earned by employees but not paid as of period end

Which of the following is NOT a type of damages that may ensue as a result of personal injury, wrongful death and survivor actions?

family member medical costs

Which of the following most accurately identifies the significance of the "perception of detection"?

fear of getting caught is a critical aspect of effective deterrence

Which of the following is most accurate with regard to fraud prevention and fraud deterrence?

fraud deterrence is about creating an envrionment where fraud is less likely to occur

Which of the following is NOT a method to prevent and detect the theft and alteration of outgoing company checks?

hand each paycheck to the employee while checking appropriate identification

Which of the following is NOT a common reason why senior management might overstate or understate business performance?

high levels of personal debt leading to a need for the executive to generate cash

Which of the following red flags is seldom associated with cash register frauds?

higher than expected uncollectible receivables

Explain what is meant by the human factor?

human failings have led trusted people to violate that trust

force balancing

if a fraudster has a hand in both ends of the receipting process, he or she can falsify records to conceal the theft of receivables payments

all areas of concern in determining incremental costs

-allocated costs -accounting estimates -the time value of money

fixed assets are subject to manipuplation through several different schemes, including:

-booking fictitious assets -misrepresenting asset valuation -improperly capitalizing items that should be expensed

some ways to detect altered expense schemes is to:

-compare the expenses claimed to the credit card statement -require a company issued credit card for all expense purchases -require a full printed receipt, as opposed to a "summary receipt"

the venues where the fraud examiner or forensic accountant can expect to be evaluated, scrutinized, and challenged includes:

-deposition testimony -trial testimony -meetings with counsel where they determine how to proceed with the case

two of the most common fraud scheme(s) involving accounts receivable

-fictitious receivables -failure to write-off accounts receivable as bad debts

valuations can be developed to address a number of issues, relating to:

-liquidations -mergers and acquisitions -bankruptcy -divorce

public records include:

-real and personal property records -criminal and civil litigation records -stock trading activites for public companies by executives

all of these are red flags that fraudulent expense reporting is occuring

-receipt numbers from the same establishment that are consecutive even though they occur over a period of time -expense amount ending in "0" -expense amounts consistently under the threshold for requiring a receipt

red flags associated with improper asset valuation:

-reocurring negative cash flows from operations, or an inability to generate cash flows from operations, while reporting earnings and earnings growth -significant declines in customer demand and increasing business failures in either the industry or the overall economy while company reports earnings and earnings growth -unusual increase in gross margin or margin in excess of industry peers

reasons senior managers issue fraudulent financial statements include:

-to conceal true business performance -to preserve personal status/control -to maintain personal income/wealth flowing from salary, bonus, stock and stock options

Which of the following is one of the 5 principal categories of check tampering?

Creating of a check and altering the payee after the check is signed

Which of the following is NOT one of the 5 major categories of fradulent disbursements?

Shell Company schemes

an example of fictitious maker

a check on which the signature is forged

related-party transactions occur when

a company does business with another entity whose management or operating policies can be controlled, or significantly influenced, by the company or by some other common party