Intro to Fraud Exam- Spring 2020 (exam 1)

What is the best way to minimize fraud expense within an organization?

Effective prevention of fraud.

"The use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets" is the definition of which of the following types of fraud?

Employee embezzlement or occupational fraud.

The tone at the top when related to fraud usually refers to management's attitude about:

How management models appropriate behavior.

Most frauds start small and:

If not detected, continue to get larger.

Future careers in fraud will most likely be:

In high demand and financially rewarding

Which of the following is not an important element of fraud?

Intelligence

Which of the following is not true regarding the ACFE.

It has roughly 12,000 members throughout the world.

Which of the following is not true of civil litigation?

It must be heard by 12 jurors.

Studying fraud will help you:

Learn evidence-gathering skills, avoid high-risk and fraudulent activities, and learn valuable interviewing skills

Factors that are usually associated with high levels of employee fraud include all of the following except:

Long and difficult hours shared equally by everyone in the organization

Civil law performs which of the following functions?

remedy for violation of private rights

"Intentional manipulation of financial statements" describes which kind of fraud?

Management fraud.

The best way for management to model appropriate behavior is to:

Set an example of appropriate behavior.

Which of the following is not a proactive way for a company to eliminate fraud opportunities?

Severely punishing fraud perpetrators.

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

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 on a dollar-for-dollar basis.

True

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

True

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

True

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

True

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

True

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

True

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

True

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

True

Most investigators rely heavily on interviews to obtain the truth.

True

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

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 by those around the fraud.

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 activities.

True

Perpetrators use trickery, confidence, and deception to commit fraud

True

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

True

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

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

When fraud is committed, criminal prosecution usually proceeds before civil litigation.

True

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

True

People who commit fraud are usually:

Trusted individuals

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

True

To successfully prevent fraud, an organization must:

-Identify and remedy internal control weaknesses. -Explicitly consider fraud risks. -Take proactive steps to create the right kind of environment.

Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be:

-Unproductive -Embarrassing -Expensive

All of the following are ways to create a culture of honesty and high ethics except: A: Eliminating opportunities for fraud. B: Creating a positive work environment. C: Having top management model appropriate behavior. D: Hiring the right kind of employees.

A

Which of the following characters is least likely to be involved in a fraud?

A long-haired teenager wearing leather pants

Fraud is considered to be:

A serious problem that continues to grow.

Which of the following is not an element of fraud?

Accidental behavior

Which of the following is required to become a CFE?

An individual must commit to abide by a strict code of professional conduct and ethics. Be an associate member, in good standing, of the ACFE. Be of high moral character.

Which of the following is not an example of employee embezzlement?

Angry employees vandalizing the building with spray paint.

Why does fraud seem to be increasing at such an alarming rate?

Computers, the Internet, and technology make fraud easier to commit.

What is the most important element in successful fraud schemes?

Confidence in the perpetrator.

A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the:

Evidence square.

Which of the following is not a common type of fraud?

Executives embezzling from petty cash.

A fraud may be perpetrated through an unintentional mistake.

False

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

False

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

False

All frauds that are detected by organizations are made public.

False

Because 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

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

False

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

False

Fraud involves using physical force to take something from someone.

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

Identity theft is an example of employee embezzlement.

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 who commit fraud.

False

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

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

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

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 Certified Fraud Examiner (CFE) and a Certified Public Accountant (CPA).

False

Unintentional errors in financial statements are a form of fraud.

False

Because of the ability to override internal controls, it is usually most difficult to prevent which type of fraud?

Fraud committed by a company president.

Which of the following statements is true?

Fraud is often labeled the fastest growing type of crime

Which of the following is the least reliable resource for fraud statistics?

Fraud perpetrators.

Which of the following is not a form of vendor fraud?

Not paying for goods purchased

Research shows that fraud occurs less frequently when employees feel:

Ownership in the organization.

Which of the following refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe fraud has occurred, is occurring, or will occur?

Prediction

Corporate employee fraud-fighters:

Prevent, detect, and investigate fraud within a company.

The most effective way to reduce losses from fraud is:

Preventing fraud from occurring

Fraud fighting can include which of the following type(s) of careers?

Professors. Lawyers. CPA firms

The best argument for taking legal action against fraud perpetrators is:

Prosecution of perpetrators discourages future occurrences of fraud.

Which of the following is true regarding the Sarbanes-Oxley Act of 2002:

Public companies must have a whistle-blower system in place.

To prevent fraud from recurring, most organizations and other fraud victims should:

Pursue either civil or criminal action, depending on the circumstances, or both.

"Predication of fraud" is defined as:

Reasonable belief that fraud has occurred or is occurring.

Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is:

Teaching employees to monitor and report fraud.

Which of the four types of evidence includes interrogation and honesty testing?

Testimonial

The three elements present in most cases of fraud are:

Theft act, concealment, and conversion

Drawbacks to establishing a hotline for employees to report fraud include all of the following except:

This method for finding fraud is outdated.

Usually, for everyone involved—especially victims—the investigation of fraud is very:

Traumatic and difficult.

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

True

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

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

Investment scams most often include:

Worthless investments or assets sold to unsuspecting investors.

Which of the following is not an example of vendor fraud?

a vendor has much higher prices than its competitors