final review
____________ involves deliberate actions by management to meet specific earnings objectives, generally for private gain.
"Earnings management"
Liability omissions, subsequent events, management fraud, related-party transactions, and accounting changes are all associated with which type of financial statement fraud?
Improper disclosures
During the admission-seeking interview, the interviewer must, at some point, make a direct accusation of the subject. Which of the following accusations below would best serve this purpose?
Our examination has clearly established that you ...
An audit is performed to ensure that ________________.
The financial statements are fairly presented and are free from material misstatement
In fraud cases, evidence of ______________ in particular, provides some of the best circumstantial evidence that the act and conversion (benefits) were intentional
concealment
Regardless of whom we interview, and about what, there are five general types of questions we can ask: introductory, informational, assessment, closing, and ____________.
Admission-seeking
Engaging in "small talk" for a few minutes at the beginning of an interview is:
Advisable because it can be a means of breaking the ice and establishing a flow of communication.
The primary challenge related to using financial profiling methods is the _________________________________________.
Amount of legwork involved in developing sources of information
When organization bank statements are reconciled, double endorsements on checks should always raise suspicions, particularly when the second signer is ______________.
An employee of the organization
In contrast to the fraud triangle which US courts have deemed to be more of a theoretical concept rather than a set of measurable standards or a specific, practical methodology for arguing that fraud occurred, the triangle of fraud action can be used in developing prosecutorial evidence. In particular, the element of ________________ provides a compelling argument that the act was intentional.
Concealment
Using indirect methods to estimate assets controlled by an entity, or income to an entity, is referred to as ________________.
"financial profiling"
The primary benefits of using public sources of data such as the local county courthouse, database searches, Internet searches, and other extra-organizational sources of data are that open sources of data provide evidence of conversion, and can be useful in ________________________.
Developing new leads
Whereas skimming schemes involve the theft of ___________, cash larceny schemes involve the theft of money ___________.
Off-book funds; that has already appeared on a victim company's books
Given a choice between using the words, "theft" or "shortage," an interviewer should generally opt for "shortage." This is because:
Words that normally put people on the defensive should be avoided
Fraud detection techniques require that fraud and forensic accounting professionals pay particular attention to the possibility of ________________ because it suggests deception.
concealment
____________ is the process of observing behavior before critical questions are asked, as opposed to doing so during questioning.
norming
Ted is Director of External Affairs for a large pharmaceutical company. Part of his responsibilities include coordinating the company's national lobbying efforts in order to create more favorable business conditions for the operations of its six regional distribution centers. If Ted decides to create a slush fund with company money in order to provide bribes and gratuities for legislators and others, which way would he most likely use to generate the necessary money for the slush fund?
Divert funds to lobbyists through invoices for "consulting fees," "referral fees," "commissions," or the like
You are a fraud examiner who has been hired to investigate a potential embezzlement case. In which order should you go about gathering the evidence?
Document analysis, neutral third-party witnesses, corroborative witnesses, co-conspirator(s), target.
The approach to investigating fraud recommended by the text:
Examine relevant evidence with an eye toward demonstrating three attributes of fraud
The text outlines a ten-step approach to implementing a targeted fraud risk assessment. Which of the following is NOT one of those steps.
Identify specific vendors that have a reputation for fraud within the industry.
In the fraud examination and forensic accounting professions, nothing is more important to the successful resolution of a case than the ability to conduct thorough interviews of ____________ and interrogation of ________________________.
Witnesses; subjects and targets
___________________ is defined as anything perceivable by the five senses, any proof, such as testimony of witnesses, records, documents, facts, data, and tangible objects, legally presented at trial to prove a contention and to induce a belief in the minds of the jury.
evidence
_____________ is an examination technique that considers periods before, during, and after a suspected fraud has occurred
invigilation
Even relevant evidence may be excluded from judicial proceedings if it is prejudicial, confusing, or ____________.
misleading
Auditors and accountants often direct their fraud prevention and deterrence efforts toward using internal controls to minimize _______________ because fraud is highly improbable without it.
opportunity
Unfair pricing, unfair business practices, violation of the FCPA and tax evasion are examples of:
organizational crime
According to research, the average person's ability to judge deception is relatively poor. Some studies have indicated that interviewers fail to identify lies as much ____ of the time.
50%
You have been hired by the owner/CEO of Tread Lightly Tires, a family held private company in the automotive tire business, to investigate whether a back office receivables clerk has been skimming customer payments. Which of the following, if it exists, will greatly aid in your investigation?
A second set of books
The risk of management override and collusion are _________ residual fraud risks and require a specific audit response, if detection activities do not exist.
ALWAYS
Most successful altered payee schemes occur when the person who prepares checks also has:
Access to those checks after they have been signed.
A fiduciary is someone who:
Acts for the benefit of another
Conflicts of interest are essentially different from bribery, illegal gratuities, and economic extortion cases in that a conflict of interest occurs when an employee, manager, or executive, has ________________________________.
An undisclosed economic or personal interest in a transaction that adversely affects the organization.
One of the best ways to prevent and detect shell company schemes is to maintain and regularly update a list of:
Approved vendors that should be verified by someone independent of the purchasing function.
To be admitted at trial, evidence must be shown to have unique identifiers (preferable), or that the chain of evidence has been followed. This process is known as:
Authentication
_________________ is a process by which several bidders conspire together to split up contracts and ensure that each gets a certain amount of work.
BID POOLING
In a ____________________, the perpetrator uses false documentation—such as an invoice, purchase order, or credit card bill—to cause his employer to issue payment for some fraudulent purpose
BILLING SCHEME
Offering, giving, receiving, or soliciting anything of value to influence an official act is the definition of:
BRIBERY
Many times, shell companies schemes involve the purchase of services rather than goods such as "consulting services." Why is this?
Because services are not tangible, it is more difficult to confirm or deny their receipt.
Those with the authority to approve purchases would be among the most likely to engage in ___________ since they have fewer hurdles to overcome than other employees
Billing schemes
_______________ must take the lead in establishing, implementing, and maintaining a formal fraud risk management program.
Board and management
One issue that arises in interviews is the use of checklists and prewritten questionnaires. The main benefit of these is that the interviewer will be well prepared and less likely to miss an important inquiry. However, checklists can _________________.
Create tunnel vision and distract the interviewer from looking for signs of deception
When the text refers to a "process owner," it is referring to an individual who has:
Day-to-day authority and ability to alter standard operating procedures to accomplish the goals and objectives of the organization.
You are a fraud examiner who is investigating a suspected embezzlement. As you comb through the general ledger looking for debit entries to offset credits to cash, which account of those listed below is the most commonly used in concealment in such cases?
Debits to expense accounts
In point of sale cash larceny schemes, several methods are used by fraudsters to conceal their thievery. These include thefts from other registers, death by a thousand cuts, reversing transactions, altering cash counts or register tapes, and _________________.
Destroying register tapes
Not all cash larceny schemes occur at the point of sale. Larceny of receivables is generally concealed through one of three methods: force balancing, reversing entries and _____________.
Destruction of records
Financial statement frauds can be broken down into five distinct categories: concealed liabilities and expenses, _______________, improper asset valuations, improper disclosures, and timing differences.
Fictitious revenues
An organization's accounting system should be set up to _________________ that are coded as travel and entertainment expense.
Flag duplicate payment amounts
Within the context of concealing larceny, making unsupported entries in the company's books to produce a fictitious balance between receipts and the ledger is an example of:
Force balancing
Residual fraud risk includes those _______________ that are not adequately mitigated by control activities, and, as such, requires a fraud audit response.
Fraud schemes
Under which kind of fraud would an examiner start with the suspected perpetrator?
Fraudulent representations (such as tax returns and financial statements)
Management has some latitude to manage earnings as long as the choices are considered ____________, however, any sign of deliberate efforts to do so should be considered a red flag by auditors, because it can be fraud, whether or not material.
GAAP-compliant
You are conducting an admission-seeking interview of a suspected embezzler. At some point during the interview, you might say something like, "I totally get it. You were under such financial pressure at home, you just didn't see any other way out. That's a pretty common feeling, if you ask me, especially in this day and age where we're expected to do so much at work with so few resources." What are you attempting to do by saying this to the target?
Gain the confession without reducing the legal responsibility for the act
Which of the following represents the three main categories of payroll fraud?
Ghost employee schemes, falsified hours and salaries schemes, commission schemes.
You have been hired by the prosecution to provide expert testimony in a fraud case you helped investigate. As you provide answers to key questions around the fraud examination, your testimony will be more convincing to the judge and jury if you:
Have woven the answers into a coherent storyline grounded in the evidence
In a 2004 CPA Journal article, Wolfe and Hermanson argue that the fraud triangle could be enhanced to improve both fraud prevention and detection by considering a fourth element, ________________.
Individual capability
Illegal gratuities are similar to bribery schemes except there is not necessarily:
Intent to influence a particular business decision
The targeted fraud risk assessment approach assumes that there should be a direct relationship between the ________________ and the _________________________.
Level of risk associated with a material weakness in the company's controls; amount of attention devoted to that area during an audit
Fraud can occur when purposeful attempts are made to manipulate the ___________ concept. For example, through controlling the year-end cut-off in financial figures, many companies boost their current net income by counting revenue from the following year early, and by delaying the post of this year's expenses until the following year.
Matching
As the bookkeeper for Somewhat Healthy Foods, Inc., Ted stole $250,000 over four years (using an intricate lapping scheme). In cases such as this, it is common for the perpetrator to have developed a reputation as a/an ________________.
Model employee because they put in a lot of overtime and rarely take vacations
Skimming receivables requires _________ than skimming sales.
More effort
The materiality amount—once established—is _______________ for the duration of the audit engagement.
NOT SET IN STONE
The _________________ provides circumstantial evidence that amounts paid for assets and expenditures exceed income from known sources for a given period of time.
Net worth method
When conducting a fraud examination, variables such as weather data, employee headcount, production facilities, and production capacity might provide useful clues. These types of data are known as:
Non-financial measures (NFMs)
Data such as laundromat electricity usage and cycle time, beer purchase quantities, and travel dates are examples of:
Nonfinancial numerical performance data
Most red flags are:
Not indicators of fraud but are a function of the dynamic environment in which organizations operate.
The 2016 ACFE Report to the Nations found that ___________ of existing controls is the second most frequently observed internal control weakness that contributed to fraud; the lack of internal controls was the only weakness more frequently cited by the ACFE's survey respondents.
OVERRIDE
Sally was a secretary/assistant bookkeeper at a local non-profit food pantry. Part of her duties included opening mail, processing invoices, and authorizing payments. She used her position to intentionally pay some bills twice, then requested that recipients return one of the checks which she then intercepted and subsequently deposited into her own bank account. Sally's scheme is known as a:
Pay-and-return scheme
One of the simplest methods for concealing shrinkage is to change the ___________ inventory record so that it matches the ____________ inventory count.
Perpetual; physical
Billing schemes generally fall into one of three categories: shell company schemes, nonaccomplice vendor schemes, and _______________.
Personal purchases schemes
Persuasive evidence of an arrangement does not exist, delivery has not occurred or services have not been rendered, the seller's price to the buyer is not fixed or determined, or collectability is not reasonably assured are all examples of common problems associated with which type of financial statement fraud?
Premature revenue recognition
Many antifraud professionals, forensic accountants, and attorneys will suggest that the outcome of an interview or interrogation may be determined before the first question is asked. What is the underlying belief to this axiom?
Preparation is the primary key to success.
True big data, data analytics, and data mining software doesn't just change the presentation, but actually discovers _____________________ among the data.
Previously unknown relationships
The starting point for the antifraud professional or forensic accountant is an attitude of ______________________.
Professional skepticism
There are few hard-and-fast rules in interviewing, but one of them is
Question only one person at a time.
A short rule of thumb that can be used to distinguish between overbilling schemes that are classified as asset misappropriations and those that are conflicts of interest: if the bill originates from a ______________ in which the fraudster has an economic or personal interest, and if the fraudster's interest in the company is undisclosed to the victim company, then the scheme is a conflict of interest.
Real company
If a retail cashier perpetrates larceny, there will be an imbalance between the _________ and the ____________.
Register tape; cash drawer
Which of the following is NOT typical of forensic and litigation advisory services?
Stating an expert opinion about the guilt or innocence of a plaintiff or defendant in a court of law.
There is a debate in the profession about whether tracing money to a perpetrator's bank account is sufficient evidence of conversion, or whether the fraud examiner or forensic accountant needs to show how the ill-begotten money was used. Legal precedent indicates that tracing the money into the hands of the perpetrator or his or her bank account is____________________.
Sufficient
James Dunham was the CEO at a small non-profit ministry dependent on donor contributions that sent medical doctors and supplies to Haiti. The name of the non-profit was "Limye Medical Missions" (Limye means light in Haitian Creole). Eventually, the board received a tip from an employee that James had been stealing money from the organization. The investigation revealed that the way James did this was to direct his office staff to place the mail unopened on his desk each day. When James returned from lunch, he entered his office and locked his door and sorted the mail. He placed contributions into two stacks. One stack contained only checks that were made payable to Limye Medical Missions. These were deposited in the ministry's bank account. The other stack contained checks made payable simply to, "Limye." To these checks, James simply added the words "and Friends, Inc" on the payee line. The latter were then deposited by James into a shell company bank account called Limye and Friends. The type of check tampering scheme used by James is known as a ___________ scheme:
Tacking on
Not every false billing scheme is categorized as a conflict of interest. For a scheme to be classified as a conflict of interest:
The employee (or a friend or relative of the employee) must have some ownership or employment interest in the vendor that submits the invoice.
The main benefit of using the elements of fraud in an investigation is that in virtually every fraud or financial crime, ____________________.
The evidence of each element can be developed
When it is time to obtain a signed statement from the confessor, which approach is best?
The interviewer should prepare the statement for the confessor to sign.
A subcategory of shell company schemes in which actual goods or services are sold to the victim company are known as pass through-schemes because:
The perpetrator purchases actual goods and services which simply pass through a shell company to the victim company at inflated prices.
There are two major approaches to fraud detection:
Through the identification of red flags and through a targeted risk assessment
One of the most effective techniques for stopping or interrupting a denial is _________________________.
Through the use of a delaying tactic
The most common means for hiding real estate and business ownership is to __________________________________________.
Transfer those assets to another party over which the person holding the assets has some element of control
One simple measure that makes it easy to detect off-hours sales is to compare the organization's hours of operation to cash register _________________.
User log-in/log-out time records
You are a fraud examiner investigating a case involving a large amount of physical evidence (e.g., emails, journal entries, checks, etc.). In addition to having a system for gathering, documenting, organizing, retaining, and retrieving the evidence, you also need to review it for relevance, reliability, and ______________.
Validity
In order for a confession to be valid, it must be deemed to be:
Voluntary
_____________ inventory and other assets is a relatively common way for fraudsters to remove assets from the books before or after they are stolen
WRITING OFF
____________ are part of the day-to-day operations of most organizations and are often observed by auditors.
anomalies
Three types of evidence may be offered at trial: testimony, real, and ____________.
demonstrative
Because prevention through segregation of duties, approvals, and authorizations is not possible in a collusive environment, the principal internal control procedures will be centered on _____________.
detection
The value of ________, to include "smoking gun" evidence of financial crimes, fraud, motivations for activity, and other information cannot be overstated.
As with any interview, there are three general approaches to obtaining the verbal confession: chronologically, by transaction, or by:
event
There are a number of red flags that may indicate an employee is seeking reimbursement for fictitious travel and entertainment expenses. One of the most common is the employee who claims items—particularly high dollar items—were paid for _________:
in cash
The legal standard for the tort of negligence does NOT include the following element:
intent
To prove fraud, the investigator has to deal with the issue of:
intent
_________ is an essential element in all criminal and civil actions involving fraud.
intent
The "felonious stealing, taking and carrying, leading, riding, or driving away with another's property, with the intent to convert it or deprive the owner thereof" is the legal definition of:
larceny
_______________ is defined as the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe that a fraud has occurred, is occurring, or is about to occur.
predication
_______________ is the totality of circumstances that lead a reasonable, professionally trained, and prudent individual to believe that a fraud has occurred, is occurring, and/or will occur. All fraud examinations must be based on it.
predication
In a typical interview, in what stage would the question be asked, "Is there anyone else I should speak with about the matter?"
the close
According to ACFE research, ______________________ are the most common concealment methods for all three categories: asset misappropriation, corruption, and financial reporting fraud.
Creating fraudulent documents and altering physical documents
Interviewers need to have complete command of the facts, events, dates, other relevant details, especially in potentially adversarial interviews, in order to _____________________________________.
Deflate attempts at misdirection and deception by the subject or target
In the course of an admission-seeking interview, you could display physical evidence of the fraud, discuss the testimony of witnesses, or discuss the accused's deceptions. All of these may be useful to:
Defuse alibis
A key anti-fraud control in preventing/detecting deposit larceny and lapping is:
Itemizing deposit slips
By regularly monitoring the prices paid for goods and services as compared to market rates, which type of fraud is an organization trying to detect?
Kickback schemes
Bribery schemes generally fall into two broad categories
Kickbacks and bid-rigging schemes
Once the subject has admitted to remembering the first instance, the interviewer should ___________________________________.
Say to him or her to "tell me about it"
A significant increase in ___________ could indicate an inventory theft scheme.
Scrap levels
Antifraud professionals logically conclude that small organizations are particularly vulnerable to occupational fraud and abuse. The results from fraud surveys bear this out: losses in the smallest companies were comparable to or greater than those in organizations with the largest number of employees. It is suspected that this phenomenon exists for two reasons.
Smaller businesses have fewer divisions of responsibility and there is a greater degree of trust where people know one another personally.
Rather than being confrontational in interviews, constantly seek agreement from the accused. No matter what the accused has supposedly done, do not express shock, outrage, or condemnation. This posture is recommended because
The goal is to remain in control while still appearing compassionate and understanding
The primary deterrent effect of an internal audit group is related to:
The increased perception that fraud perpetrators will be detected.
In an electronic environment that captures a huge amount of transactions annually, many transactions and data relationship anomalies appear to be a potential fraud or error. To utilize the computer environment effectively, _________________ must be completed.
The targeted fraud risk assessment process
Forensic and Valuation Services (FVS) professionals can expect that:
Their work will be carefully scrutinized by the opposing side and that engagements are adversarial in nature.
Most frauds are solo ventures—committed without the aid of an accomplice. However, the interviewer should still seek to determine whether other parties were involved. Which choice from the list below would be the best way to phrase this?
Who else knew besides you?
To complete a fraud examination, the fraud examiner or forensic accountant needs to answer the essential questions of ____________________ with ________________.
Who, what, when, where, and why; evidence
___________ is the process by which each side may explore the merits of the other side's arguments by obtaining documentary and testimonial evidence.
discovery
One of the interesting aspects of the characteristics of fraud perpetrators is that they do not typically have ______________.
A criminal background
Irregularities such as missing documents, excessive voids or credit memos, excessive write-offs, duplicate payments, second endorsement on checks, and questionable handwriting are all examples of:
Accounting anomalies
As a result of the Sarbanes-Oxley Act (2002), which of the following became part of the business landscape?
Assessment of internal controls, preservation of evidence, whistleblower protection and increased penalties for securities fraud
The occupational fraud and abuse classification system (fraud tree) arranges organizational frauds in which three categories?
Asset misappropriation, corruption, and financial statement fraud
Generally, truthful behavior includes direct answers that give the impression that the interviewee has nothing to hide, spontaneous answers that indicate that the interviewee has nothing to think about, a perception by the interviewee of attentiveness and interest in the interview outcomes, an orientation toward the interviewer, and ________________________.
Behavioral consistency between verbal and nonverbal cues
In addition to the fraud triangle, typical motivations of fraud perpetrators may be identified with the acronym M.I.C.E. This stands for money, ideology, _________, and ego/entitlement.
Coercion
According to the AICPA, the "Achilles Heel" of an organization's antifraud efforts is _______________ and ___________________.
Collusion; management override
An unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owner's rights is the definition of:
Conversion
In a civil case, interviews are most often carried out in the form of ____________.
Depositions
__________________ is an attempt to identify the fraud as early as possible, in contrast to the optimal situation in which the fraud is prevented or deterred.
Effective fraud detection
The intentional, deliberate misstatement, or omission of material facts or accounting data that is misleading and, when considered with all the information made available, that would cause the reader to change or alter his or her judgment or decision is defined by the Association of Certified Fraud Examiners as:
Financial statement fraud
Analysis of cash flows, analysis of competing hypotheses, consideration of analytical and accounting anomalies, big data and data analytics, consideration of the fraud triangle, use of graphical tools for analysis and communication, internal controls, the control environment and opportunity, interviewing for information and admissions, analysis of nonaccounting and nonfinancial numbers and metrics, financial statement and ratio analysis, consideration of red flags, and analysis of related parties are all examples of:
Forensic accounting and fraud examination tools/techniques.
In a fraud examination, evidence is usually gathered in a manner that moves from __________ to __________.
General; specific
By arranging interviews in order of probable culpability, the fraud examiner is in a position to ______________________________________.
Have as much information as possible by the time the prime target is interviewed
An excellent tool to analyze evidence and develop a compelling storyline is the _______________________.
Hypothesis-Evidence Matrix
_____________ generally involves the questioning of a suspect, target, or uncooperative witness to obtain evidence, to obtain an admission of guilt or complicity in an act, or to give the interviewee an opportunity to volunteer facts and circumstances that may eliminate them as a suspect or target of the examination.
INTERROGATION
Link charts, flow charts, commodity and money flow diagrams, timelines are:
Important as both investigative tools and communication tools
Forensic accounting is the application of financial principles and theories to facts or hypotheses in a legal dispute and consists of two primary functions:
Litigation advisory services and investigative services
In preparing to rebut defenses to cash from unknown sources, the fraud examiner should develop an evidence trail, if possible, which suggests that defenses are not feasible. Four common defenses to unknown sources of cash include the assertion that the cash was: accumulated in prior periods, obtained by gift or inheritance, obtained from loan proceeds, or a result of:
Lottery or gambling winnings
Because of the nature of the psychology of confessions, most confessors will lie about one or more aspects of the offense, even though confirming overall guilt. When this happens during the verbal confession, the interviewer should ________________________.
Make a mental note of the discrepancy and proceed as if the falsehood had been accepted as truthful
In the fraud perpetrator profile presented in the text, which set of characteristics summarizes the typical fraud perpetrator?
Male, middle-aged to retired, with the company for five or more years, never charged or convicted of a criminal offense, well education, accountant, upper management, or executive, acts alone
A major difference between auditors and fraud examiners is that most auditors __________________. Fraud examiners and forensic accountants who detect fraud go beyond this. They determine whether __________________, whether expenditures make sense, and whether all aspects of the documentation are in order.
Merely match documents to numbers to see whether support exists and is adequate; the documents are real or fraudulent
Internal fraud committed by one or more employees of an organization is more commonly referred to as:
Occupational fraud and abuse
Fraud professionals need to understand that no one is better at generating alternative theories of a case than _____________________.
Opposing attorneys
Money laundering, mail and wire fraud, criminal conspiracy and racketeering are examples of crimes associated with:
Organized crime
Donald R. Cressey (1919-1987) used his doctoral dissertation to study embezzlers, whom he called "trust violators." Upon completion of his research, he developed what still remains as the classical model for the occupational offender. In 1991, Dr. Steve Albrecht organized Cressey's three conditions into a tool that has become known as the "fraud triangle." Which answer below constitutes the three legs of the fraud triangle?
Perceived pressure, perceived opportunity, and rationalization
Dr. Steve Albrecht substituted _______________ for rationalization in the development of the "Fraud Scale."
Personal integrity
Generally, enhanced skepticism has three defining elements. First it includes the recognition that fraud may be present. Second, professional skepticism is exemplified by a professional's attitude, an attitude that includes a questioning mind and a critical assessment of evidence. Third, professional skepticism asks professionals to make a commitment to __________________________.
Persuasive evidence to determine whether or not fraud is present
Using non-financial data to corroborate financial information is:
Powerful and its value cannot be overstated
A civil action requires a _________________ of the evidence, meaning that the evidence stacks up slightly more heavily on one side than the other. This contrasts with the criminal threshold of "____________________."
Preponderance; beyond a reasonable doubt
There are essentially three tools available to fraud examiners, regardless of the nature of the fraud examination or forensic accounting investigation. Which of the following is NOT one of these three tools?
Preserving a crime scene from contamination
From a fraud perspective, internal controls have at least three different objectives:
Prevention, deterrence, and detection
During the course of an investigation, you will encounter "loose threads" or "red flags" such as accounting anomalies. When encountering such anomalies, the fraud professional should:
Pull on it and see what happens
Pressure/incentive typically relates to:
Situations in which an employee has an unmet substantial financial need.
Giving vague or evasive answers to questions, avoiding eye contact with the interviewer, casting guilt to others in general but not specifically, and being indignant may be signs of ____________________________________________.
Stress that may accompany deception
Instead of taking detailed notes during an interview, the authors advise jotting down keywords. The reason they recommend this is that:
Taking extensive notes distracts interviewers from their main responsibility to watch and listen.
Forensic accounting and fraud examination require at least three major skill types:
Technical competence, investigative, and communication
Individual rights are grounded in four amendments to the US Constitution associated with due process. Which of the following is not one of these four amendments?
The Seventh Amendment which entitles the accused the right to a speedy trial
Four common elements to occupational fraud and abuse schemes were first identified by ACFE in its 1996 Report to the Nation on Occupational Fraud and Abuse. Which of the following does not contain all four elements?
The activity is clandestine, violates the employee's fiduciary duties to the organization, is committed for the purpose of direct or indirect financial benefit to the employee, and costs the employing organization assets, revenues, or reserves.
Rationalization/attitude typically relates to:
The employee fabricating an internal moral excuse for the fraud.
Surveillance is generally legal, however, once the investigator enters the realm of electronic (audio) surveillance, the laws become more complicated. Generally federal law prevents ________________________:
The interception and/or recording of wire, oral, or electronic communications except by law enforcement officers with a warrant.
In conducting an interview, it is advisable to indicate your name and your company but not to use your title. Why is this?
The more informal the interview, the more relaxed the respondent will be.
Significant research suggests that increasing _______________ may be the best way to deter employee theft.
The perception of detection
The three attributes of a fraud are:
The scheme or fraud act, the concealment activity, and the conversion or benefit.
The term occupational fraud and abuse is defined as:
The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets.
A liar will often request that the interviewer "Check with my wife," or "Talk to my minister." Why do they say this?
To add credibility to the false statement
Admission-seeking questions are reserved specifically for individuals whose culpability is reasonably certain. Such questions have at least three purposes: (1) to distinguish the innocent from the culpable, (2) to obtain a valid confession, and (3) ______________________.
To obtain from the confessor a written statement acknowledging the facts
Generally, evidence is admitted at trial provided that: it is relevant to the issue at hand, any probative effect outweighs any prejudicial effect, and the evidence is ________.
Trustworthy
Under current auditing standards, the auditor is required to:
Undertake a fraud-risk assessment but not for planning and performing auditing procedures to detect immaterial misstatements.
Generally, three procedures are effective in identifying breakdowns in internal controls due to override and collusion: journal entries recording in the books and records, as well as other adjustments to financial information should be examined for proper back-up document; significant accounting estimates needs to be reviewed; and ___________________________.
Unusual "one-time" transactions should be scrutinized to ensure they have an appropriate underlying business rationale.
Which of the following is NOT one of the four essential elements of fraud under common law?
Use of email, wire, or telephone with a criminal intent to deceive
Accounting books and records that are found during the course of an examination to have been altered provide compelling evidence of ______________.
concealment
_____________ is the systematic questioning of a person who has knowledge of events, people, evidence, and other details surrounding a fraud or forensic accounting issue.
interviewing
Cressey observed that rationalization as it applies to occupational fraud occurs _________________ the crime.
before
Within the context of concealing larceny, adjusting customer accounts with unauthorized "courtesy discounts" is an example of _____________.
Reversing entries
The difference between a mistake and fraud is ____________. If the fraud examiner or forensic accountant cannot prove it, a civil or criminal conviction for fraud most likely cannot be sustained.
INTENT
Fraudulent cash register disbursement schemes differ from cash register skimming and larceny in that when the money is taken from the cash register:
It is recorded on the register tape.
Known as "off-book" frauds, skimming schemes involve the theft of cash before it is recorded in the victim company's books. As a result, __________________________.
It may be difficult to detect that money has been stolen.
The perception of the public—particularly with regard to asset misappropriation, corruption, and misstated financial statements—is that independent auditors are:
Responsible for fraud detection
"Management is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, initiate, authorize, record, process, and report transactions (as well as events and conditions) consistent with management's assertions embodied in in the financial statements." What is the source of this standard?
SAS No. 1
A cashier at Pretty Good Shoes, Inc. sold a pair of shoes to a cash paying customer who did not wait for a receipt. Instead of ringing up the sale and placing the cash in the drawer, the cashier rang "no sale" and then pocketed the cash after the customer left. Which type of fraud strategy did the cashier utilize?
SKIMMING
Professional skepticism can be broken into three attributes. Which one of the following is NOT one of those three attributes?
A willingness to give others a presumption of goodwill until they prove otherwise
The triangle of fraud action is composed of which three elements:
Act, concealment, conversion
The board's audit committee is __________________ with regard to management override and high-level management collusion.
An integral internal control mechanism
The most challenging issue regarding fraud detection in a digital environment is the potential for:
An over-whelming number of fraud symptoms (i.e., red flags).
One of the best ways to ruin an investigation, fail to gain a conviction, or lose a civil case, is to:
Base investigative conclusions on logic and arguments that the defendant is a "bad person"
In an admission-seeking interview, there comes a point at which the accused is deliberating whether or not to confess. When this occurs, the interviewer should present an alternative question to the accused which forces him or her to make one of two choices. One alternative allows the accused a morally accepted reason for the misdeed; the other paints the accused in a negative light. Regardless of which answer the accused chooses, her or she is acknowledging guilt. This is known as a/an:
Benchmark admission
Most fraud and forensic accounting cases are proved with ___________ evidence.
CIRCUMSTANTIAL
Things such as the timing of key transactions, altered documents, concealed documents, destroyed evidence, missing documents, false statements, patterns of suspicious activity, and breaks in patterns of expected activity are examples of ___________________ that may indicate the act, concealment, or conversion in fraud.
Circumstantial evidence
The first step to detecting fraud is to build an understanding of the organization and the environment in which it operates. The second step is to ______________________.
Develop an understanding of the control environment—the environment as opposed to the controls themselves.
One basic fraud detection approach is to run a computer query that compares ________________________ to the ___________________ in the accounts payable system.
Employees' home addresses; addresses of vendors
An overview of the fraud risk assessment process includes the following components:
Evaluate the fraud risk factors, identify possible fraud schemes and scenarios, prioritize individual fraud risks, evaluate mitigating controls.
Payments to offshore bank accounts in cash or by wire; undocumented business entertainment expenses; unusual payments for commissions, loans, temporary employees and directors' fees are red flags associated with possible:
FCPA violations
Civil litigation issues such as damage claims, lost wages, disability, wrongful death, assets and business valuations, costs and lost profits associated with construction delays or business interruptions, insurance claims, intellectual property infringement, environmental issues, tax claims are examples of the kinds of issues for which:
Forensic litigation advisory services are offered by forensic accountants
When conducting an audit, the auditor has a responsibility to design audit tests to address the risk of management override of internal controls. _____________ can be discerned by looking for evidence of concealment such as missing documents, altered documents, nonreconcilable items, misinformation obtained during management inquiries, and other indicators of concealment.
INTENT
Economic extortion is basically the flip side of a bribery scheme:
Instead of a vendor offering a payment to an employee to influence a decision, the employee demands a payment from a vendor in order to make a decision in that vendor's favor.
In preventing and detecting overstated expense reimbursement schemes, it is particularly important that the organization require:
Original receipts for all expense reimbursements
To prevent fraudulent shipments of merchandise, organizations should make sure that every ___________ is matched to an approved _________ before the merchandise goes out.
Packing slip; purchase order
You are a fraud examiner investigating the theft of a company's automotive parts inventory. After reviewing documents and interviewing witnesses, you have narrowed the list of probable perpetrators to three warehouse workers who appear to have colluded with each other: a forklift operator, a shift leader, and a loader. All three have high school diplomas and earn about 15% more than minimum wage (except for the shift leader, who earns a little more). You decide to interview the forklift driver first (on the belief that the shift leader and the loader are the probable the primary targets). As you talk, you use the terms, "collusion," "defalcation," and "predication." Which of the following statements is most applicable?
You should avoid technical terms and language because they may confuse the interviewee.
_______________ is a relative concept. A misstated amount that would be immaterial to a large company could be large enough to wipe out the net worth of most small companies.
materiality
To prevent larceny of noncash assets, the duties of requisitioning, purchasing, and ___________ the assets should be segregated
receiving