Fraud CH 1 2

In one of the case studies in the textbook, Stefan Winkler was the controller for a beverage company in south Florida. Money was collected by either the delivery drivers who brought in the cash and checks from their route customers (route deposits), or by credit customers who mailed in their payments (office deposits). Winkler stole cash from the route deposits and made up for it by using checks from the office deposits. How did Winkler conceal his crime?

All of the above: He altered electronic files He stole cash receipt journals, copies of customer checks, and deposit slips He removed his personnel file

Receivables skimming can be concealed through:

All of the above: Lapping Force balancing Document destruction

Procedures that can be used to prevent and/or detect receivables skimming include which of the following?

All of the above: Reconciling the bank statement regularly Mandating that employees take annual vacations Performing a trend analysis on the aging of customer accounts

Once sufficient predication has been established, what is the first step a fraud examiner following the fraud theory approach should take?

Analyze data

In one of the case studies in the textbook, Brian Lee, a top-notch plastic surgeon, collected payments from his patients without giving a cut to the clinic where he practiced. How was his fraud discovered?

By accident

Which of the following procedures would not be useful in preventing and detecting sales skimming schemes?

Comparing register tapes to the cash drawer and investigating discrepancies

In the Fraud Tree, asset misappropriations are broken down into cash and non-cash schemes. Which of the following is not considered a misappropriation of cash?

Concealed expenses

When Jill Michaels, an assistant to the director of procurement, moved into her new home, she used the company's flat bed truck to move her furnishings on an afternoon when her boss was out of town. Which of the following best describes Michael's act?

Abuse

Fraud examination differs from auditing in that fraud examination is:

Adversarial

Arthur Baxter, a manager in records retention for SWC Company, has ordered seven laptop computers for his department, even though he only has five employees. In addition to each laptop, he ordered extra copies of several software programs. When the equipment arrives, Baxter sends one of the extra laptops to his son who is a freshman at Eastern University and sells three of the original software packages to friends. Which of the following offenses could Baxter be charged with?

All of the above- larceny, embezzlement, conversion

Methods of skimming sales include which of the following?

All of the above: Conducting unauthorized sales after hours Rigging the cash register so that the sale is not recorded Posting a sale for less than the amount collected

The discipline of fraud examination includes all of the following except:

Determining the guilt of the suspect

In the 2012 Report to the Nations on Occupational Fraud and Abuse, the category that committed the smallest percentage of occupational fraud was:

External Parties

According to the 2012 Report to the Nations on Occupational Fraud and Abuse, skimming schemes are both the most common and the most costly type of cash misappropriation scheme.

False

In the 2012 Report to the Nations on Occupational Fraud and Abuse, most frauds were initially detected during an external audit.

False

In the 2012 Report to the Nations on Occupational Fraud and Abuse, most perpetrators of fraud had been previously charged with or convicted of a fraud-related offense.

False

Peggy Booth is the bookkeeper for an equipment rental company. After recording the cash sales and preparing the bank deposit, she takes $200 dollars from the total. This is an example of a skimming scheme.

False

Predication, although important, is not required in a fraud examination.

False

Skimming can be either an on-book scheme or an off-book scheme, depending on whether cash or a check is stolen.

False

The basic tenet of Edwin Sutherland's theory of differential association is that crime is passed on genetically; that is, the offspring of criminals commit crimes because their parents did.

False

To cover up a skimming scheme in which the employee takes cash from the register, the employee must make a voided sale in order for the register to balance.

False

In one of the case studies in the textbook, Brian Lee, a top-notch plastic surgeon, collected payments from his patients without giving a cut to the clinic where he practiced. How was he punished?

He was allowed to continue to practice at the clinic but was required to make full restitution.

In one of the case studies in the textbook, Brian Lee, a top-notch plastic surgeon, collected payments from his patients without giving a cut to the clinic where he practiced. What was his motivation for committing the fraud?

He was greedy

Which of the following is not a part of the fraud theory approach?

Identify who committed the fraud

Research in the Hollinger-Clark study suggests that the best way to deter employee theft is by:

Increasing the perception of detection

In order to prove that fraud occurred, four elements must be present. Which of the following is not one of those elements?

Intent to cause the victim damages

According to the results of the Hollinger-Clark study, employees steal primarily because of:

Job dissatisfaction

Which of the following computer audit tests can be used to detect skimming schemes?

Joining the customer statement report file to the accounts receivable and reviewing for balance differences

A method of concealing receivables skimming by crediting one account while abstracting money from a different account is known as:

Lapping

Sue Meyers was an accounts receivable clerk for an insurance broker. When premium payments were received, she would steal the check of every tenth customer and cash it at a liquor store. To conceal her scheme, she would credit the account of the customer that she stole from with a payment that was received from another customer's account. This is an example of:

Lapping

Joel Baker, a customer of ABC Electronics, stole a box containing computer games while the sales associate waited on another customer. Which of the following could Joel be charged with?

Larceny

In a study by Steve Albrecht, Marshall Romney, and Keith Howe, participants were asked to rank personal characteristics as motivating factors that contributed to fraud. The highest ranked factor was:

Living beyond ones means

In one of the case studies in the textbook, Stefan Winkler was the controller for a beverage company in south Florida. Money was collected by either the delivery drivers who brought in the cash and checks from their route customers (route deposits), or by credit customers who mailed in their payments (office deposits). Winkler stole cash from the route deposits and made up for it by using checks from the office deposits. Which of the following red flags were present that could have alerted the company to the fraud?

Missing deposit slips

Which of the following is the correct order for a fraud examiner to interview witnesses?

Neutral third-parties, corroborative witnesses, co-conspirators, suspect

Eddie Dolan is the manager of shipping and receiving and has been working at the UFA Company for twenty years. He rarely calls in sick and gets good performance reviews every year. For the past year, his wife's company, ABC Co., has been in serious financial trouble. ABC Co. likely will not be able to make the payroll for next month and may have to close down. Which leg of the Fraud Triangle best applies to Dolan's situation?

Non-sharable financial need

In a study by Steve Albrecht, Marshall Romney, and Keith Howe, participants were asked to rank characteristics of the organizational environment that contributed to fraud. The highest ranked factor was:

Placing too much trust in key employees

Alice Durant works in the accounts payable department for the BC Group. She recently found out that Della Granger, another A/P clerk, received a bigger raise than she did, even though Durant has been with the company longer and frequently has to correct Granger's errors. Which leg of the Fraud Triangle best applies to Durant's situation?

Rationalization

Myra Manning, CFE, was hired to investigate some suspicious activity at Arizona Medical Supply after one of the company's largest customers complained several times that its account statements do not reflect all the payments it has made. While examining the accounts receivable activity, Myra noticed a significant rise in the volume of overdue accounts during the last 6 months. What type of scheme might this situation indicate?

Receivables skimming

Which of the following techniques is not used to conceal sales skimming schemes?

Recording false voids

George Albert was a property manager for a large apartment complex while he was going to college. One of his duties was to collect rent from the tenants. If rent was paid after the third of the month, a late fee was tacked on to the amount due. When a tenant paid his rent late, George would backdate the payment, record and remit only the rent portion to his employers, and pocket the late fee. This is an example of what type of fraud?

Sales Skimming

Samantha Lewis, CFE, is conducting an investigation into possible skimming of the accounts receivable at Southwest Paint and Supply Co. If Lewis plans to interview all of the following parties, whom should she interview first?

Sean Miles, a regular customer of the company, whose complaint about his account balance prompted the investigation

Which of the following is not one of the legs of the Fraud Triangle?

Situational environment

Anne Mullens is the bookkeeper for DWG Refrigeration Repair. One afternoon while she was preparing the bank deposit, a customer came in to the office and paid his account in full with a $57 check. Rather than adding the check to the deposit, Anne pocketed $57 cash from the previously recorded amount and included the customer's check in the money to be taken to the bank. What type of scheme did Anne commit?

Skimming

____________________ is the theft of cash from a victim entity prior to its entry in an accounting system.

Skimming

The concealment of receivables skimming can be difficult because:

The incoming payments are expected

Which of the following best describes the objective of a fraud examination?

To determine whether a crime has been committed, and if so, who is responsible

According to Cressey, the perceived opportunity to commit fraud consists of two elements: general information and technical skill.

True

Asset misappropriations are broken down into two categories: cash schemes and non-cash schemes. According to the 2012Report to the Nations on Occupational Fraud and Abuse, cash schemes are much more common than non-cash schemes.

True

Computing the percentage of assigned time to unassigned time for employees is one method to detect an employee skimming scheme.

True

In a fraud examination, evidence is usually gathered in a manner that moves from general to specific.

True

In the 2012 Report to the Nations on Occupational Fraud and Abuse, financial statement fraud had a higher median loss than asset misappropriation and corruption schemes.

True

In the 2012 Report to the Nations on Occupational Fraud and Abuse, the median loss in schemes committed by males was higher than the median loss in schemes committed by females.

True

Mandating supervisory approval for write-offs or discounts can help prevent receivables skimming schemes.

True

Skimming receivables is generally more difficult to conceal than skimming sales.

True

To a fraudster, the principle advantage of skimming is the difficulty with which the scheme is detected.

True

Jason Herman works part-time as a retail clerk at a local bookstore. One night while his manager was out of town, Jason decided to keep the store open for a few extra hours. He reset the cash registers at the normal closing time, but continued making sales. Two hours later, when he closed for the night, he reset the registers again, removing all evidence that any extra transactions had been made, and pocketed the money from the after-hours sales. What kind of scheme did Jason commit?

Unrecorded sales

The customer service department at JNC, Inc. has been receiving phone calls from customers for whom there is no record. This is a red flag of what type of scheme?

Unrecorded sales

Richard Moore is the controller for Ajax Company. Recently, he suffered several large losses at the race track, causing him to incur enormous personal debts. Which type of non-sharable financial problem best describes Richard's situation?

Violation of ascribed obligations

Who developed the Fraud Scale?

W. Steve Albrecht

While conducting a routine internal audit, Sally Franks overheard one of the company's purchasing agents bragging about receiving a substantial discount on a new SUV from the company's supplier of fleet cars. Is there sufficient predication to initiate a fraud examination?

Yes