Fraud Audit Exam 1: True/False

A fraud may be perpetrated through an unintentional mistake.

False

A good internal control system within a company can ensure the absence of fraud.

False

A negative outcome in a civil lawsuit usually results in jail time for the perpetrator.

False

Advances in technology have had no effect on the size or frequency of fraud.

False

All frauds that are detected are made public.

False

An individual who owns his or her own business and is the sole employee needs many control procedures.

False

Analytical anomalies are present in every fraud.

False

Analytical fraud symptoms are the least effective way to detect fraud.

False

Appropriate hiring will not decrease an organization's risk of fraud.

False

Auditors can best help detect fraud in conversion.

False

Because of the nature of fraud, auditors are often in the best position to detect its occurrence.

False

Creating an expectation of punishment causes firm morale to deteriorate and often results in lower productivity.

False

Developing a positive work environment is of little importance when creating a culture of honesty.

False

Effective fraud-fighters usually put most of their time and effort into minimizing the pressures for fraud perpetrators to commit fraud.

False

Even with the right opportunity or significant pressure, most people would probably not steal or embezzle.

False

Expectations about punishment must be communicated randomly among work groups if fraud is to be prevented.

False

First-time offenders usually exhibit no psychological changes.

False

Fraud involves using physical force to take something from someone.

False

Fraud perpetrators who are prosecuted, incarcerated, or severely punished usually commit fraud again.

False

Fraud prevention involves two fundamental activities: (1) a hotline for tips and (2) assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities for fraud.

False

Frauds typically start large and get smaller as the perpetrator tries to conceal his dishonest acts.

False

Good controls will often increase opportunities for individuals to commit fraud within an organization.

False

Good documents and records are some of the best preventative controls.

False

If a perpetrator is not caught, his confidence in the scheme will decrease, and he will become less and less greedy.

False

In civil cases, fraud experts are rarely used as expert witnesses.

False

In order to create a culture of honesty and confidentiality, persons aware of fraudulent activity should be encouraged to tell only the CEO .

False

In vendor fraud, customers don't pay for goods purchased.

False

Indirect fraud occurs when a company's assets go directly into the perpetrator's pockets without the involvement of third parties.

False

Investigating fraud is the most cost-effective way to reduce losses from fraud.

False

It is most often people who are not trusted that commit fraud.

False

Management fraud is when managers intentionally deceive their employees about the potential of raises, vacations, and other perks.

False

Management's example or modeling is of little importance to the control environment.

False

Most fraud perpetrators have a long history of dishonesty and deceit.

False

Most people who commit fraud use the embezzled funds to save for retirement.

False

Not prosecuting fraud perpetrators is cost effective both in the short run and the long run.

False

Occupational fraud is fraud committed on behalf of an organization.

False

Physical evidence includes evidence gathered from paper, computers, and other written documents.

False

Power is rarely used to influence another person to participate in an already existing fraud scheme.

False

Since complete fraud prevention is impossible because it requires changing actual human behavior, successful companies should forgo fraud prevention and instead focus on strong fraud detection programs.

False

Since fraud prevention programs are so costly, despite being ethically superior, they almost always result in higher costs and thus lower net income than using only a strong system of fraud detection.

False

Studies have found that the most common internal control problem when frauds occur is having a lack of proper authorizations.

False

Studies show that a positive and honest work culture in a company does little to prevent fraud.

False

Telemarketing fraud is an example of employee embezzlement.

False

The fraud elements consist of concealment, conversion, and completion.

False

The increasingly complex nature of business helps to decrease the number of collusive frauds.

False

The major role of employee assistance programs is to help employes recover from the damaging psychological effects of fraud.

False

The only group/business that must report employee embezzlement is the federal government.

False

The single most critical element for a fraud to be successful is opportunity.

False

There is no difference between a CFE and a CPA.

False

Unintentional errors in financial statements are a form of fraud.

False

A Ponzi Scheme is considered to be a type of investment scam.

True

A check is an example of a source document.

True

A proper system of authorization will help ensure good internal controls.

True

An important factor in creating a culture of honesty, openness, and assistance in the workplace is maintaining an employee assistance program.

True

As fraud perpetrators become more confident in their fraud schemes, they steal and spend increasingly larger amounts.

True

Companies that commit financial statement fraud are often experiencing net losses or have profits less than expectations.

True

Coworkers are usually in the best position to detect fraud.

True

Criminal conviction is much more difficult to achieve than a civil judgment because there must be proof "beyond a reasonable doubt" that the perpetrator intentionally stole assets.

True

Despite intense measures meant to impede it, fraud appears to be one of the fastest growing crimes in the United States.

True

Effective hiring policies that discriminate between marginal and highly ethical individuals contribute to an organization's success in preventing fraud.

True

Employee transfers, audits, and mandatory vacations are all ways to provide independent checks on employees.

True

Even a good system of internal controls will often not be completely effective because of fallibilities of the people applying and enforcing the controls.

True

Fraud can be perpetrated to benefit oneself or to benefit one's organizations.

True

Fraud is a crime that is seldom observed.

True

Fraud is difficult to detect because some fraud symptoms often cannot be differentiated from non-fraud factors that appear to be symptoms.

True

Fraud losses generally reduce a firm's income a dollar for dollar basis.

True

Fraud perpetrators are often those who are at least suspected and most trusted.

True

Fraud perpetrators often live beyond their means since their income does not support their lifestyle.

True

Fraud perpetrators who manipulate accounting records to conceal embezzlements often attempt to balance the accounting equation by recording expenses.

True

Fraud prevention includes taking steps to create and maintain a culture of honesty and high ethics.

True

Internal control is composed of the control environment, the accounting system, and control procedures (activities).

True

Internal control weaknesses give employees opportunities to commit fraud.

True

It is safe to assume that fraud has not occurred if one or more elements of the fraud triangle cannot be observed.

True

Legal action taken by an organization can affect the probability of whether fraud will reoccur.

True

Management fraud is deception perpetrated by an organization's top management.

True

Manufacturing companies with a profit margin of 10% must usually generate about 10 times as much revenue as the dollar amount from the fraud in order to restore net income to its pre-fraud level.

True

Many companies hide their losses from fraud rather than make them public.

True

Many frauds are allowed to be perpetrated because victims don't have access to information possessed by the perpetrators.

True

Many organizations merely dismiss dishonest employees because of the expense and time involved in prosecuting them.

True

Most investigators rely heavily on interviews to obtain the truth.

True

Most people agree that fraud-related careers will be in demand in the future.

True

Most people who commit fraud are under financial pressure.

True

Nearly all individuals and organizations are subject to pressures and can rationalize.

True

New whistle-blowing laws have helped make tips and complains more effective.

True

No matter how well an organization has developed a culture of honesty and high ethics, most organizations will still have some fraud.

True

Not all possible controls should be implemented; rather, one must assess a control's cost and benefits before implementation.

True

Once fraud has been committed, there are no winners.

True

Once predication is present, an investigation is usually undertaken to determine whether or not fraud is actually occurring.

True

One of the most common responses to fraud is disbelief.

True

Organizations often want to avoid embarrassment and expense, so they terminate fraudulent employees without having them prosecuted further.

True

Organizations that want to prevent fraud must make it easy for employees and others to report suspicious activity.

True

Perpetrators use trickery, confidence, and deception to commit fraud.

True

Psychopaths feel no guilt because they have no conscience.

True

Recording an expense is a possible way to conceal the theft of cash.

True

Research has shown that it is employees and managers, not auditors, who detect most frauds.

True

Some complaints and tips turn out to be unjustified.

True

The ACFE is a nonprofit organization dedicated to the prevention and dedication of fraud throughout the world.

True

The greater the perceived opportunity or more intense the pressure, the less rationalization it takes for someone to commit fraud.

True

The three elements of the fraud triangle are a perceived pressure, a perceived opportunity, and rationalization.

True

The three elements of the fraud triangle by which the investigative techniques are often classified are (1) the theft act, (2) concealment efforts, and (3) conversion methods

True

The two elements in creating a positive work environment are (1) having an open-door policy and (2) having positive personnel and operating procedures

True

When fraud is committed, criminal prosecution usually proceeds first.

True

When fraud is committed, the problem is often not a lack of controls, but the overriding of existing controls by management and others.

True

When hiring, it is usually difficult to know which employees are capable of committing fraud, especially without performing background checks.

True

When perpetrators are convicted of fraud, they often serve jail sentences and/or pay fines.

True

Tips and complaints are the most common way fraud is detected.

true