Accounting 418-Exam 2 QUESTIONS-Chapters 6-10
Which of the following would likely not be a potential target for accepting bribes in a big-rigging scheme? A product assurance representative An accounts payable clerk A contracting official The engineer in charge of the project's technical specifications
An accounts payable clerk
An employee causes his organization to purchase merchandise that it does not need. This is an example of what type of scheme? Purchasing and receiving scheme False billing scheme Unconcealed larceny scheme Asset requisition scheme
False billing scheme
Fred Weaver is the contracts manager for a city government. In order for anyone to do business with the municipality, he or she must pay Fred 10 percent of the total amount of the contract. This type of corruption is known as: Bribery Economic extortion A conflict of interest Bid-rigging
Economic extortion
Permitting employees to book their own travel using their own credit card is an effective internal control over expense reimbursement schemes. True False
False
The primary approach for preventing conflicts of interest schemes is to develop and implement which of the following? A voucher system A company ethics policy A document retention program An anonymous reporting mechanism to receive tips and complaints
A company ethics policy
In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. How was he caught? He purchased one too many high-ticket items for his son and this was brought to the attention of the CEO. A new president was hired and he found Chesterly out while reviewing the accounting records. Chesterly became ill and the receipts for personal items were found while he was out sick. The internal auditors found Chesterly out during an audit of his cost center's expenses.
A new president was hired and he found Chesterly out while reviewing the accounting records.
Which of the following procedures can be used to prevent mischaracterized expense reimbursement schemes? A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed. Employees should be required to sign their expense reports before being reimbursed. The internal audit department should review all expense reports under a certain dollar amount. None of the above
A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed.
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. How did the investigation get started? A whistleblower called the GSA's hotline to report that inspectors in New Jersey were receiving bribes for certifying the furniture. A series of articles in a Washington, D.C., newspaper led to a congressional investigation. An audit conducted by the GSA found a high rate of return of modular furniture during a six-month period. A senator had his desk collapse when he threw his sub-committee's budget on his desk after a hearing.
A series of articles in a Washington, D.C., newspaper led to a congressional investigation.
An altered or forged receipt can indicate what type of expense reimbursement scheme? Mischaracterized expense reimbursements Fictitious expense reimbursements Overstated expense reimbursements All of the above
All of the above
Daisy McMillan works as the office manager for Timball and Lewis, a medium-sized law firm. One afternoon, she went to the hardware store to purchase a few maintenance items for the office. While there, she also bought her husband a hammer as a birthday present. At the register, the items, including the hammer, totaled $63. She paid for all the items together and received both a carbon copy receipt and a separate credit card receipt. Back at the office, she carefully scratched additional numbers on to the carbon copy receipt to increase the total price to $168 and turned in the altered receipt for reimbursement. Several weeks later, she turned in the credit card receipt along with another reimbursement request for the $63. What type of expense reimbursement fraud did she commit? Overstated expense reimbursement Multiple reimbursements Mischaracterized expense reimbursement All of the above
All of the above
Expense reimbursement schemes include which of the following? Multiple reimbursements Mischaracterized expenses Overstated expenses All of the above
All of the above
Greg Manor is the sales manager at County Arts & Crafts Supply. Recently he has received several complaints from customers who claim they were not given a receipt for their purchases. What type of scheme might this situation indicate? Skimming False refunds False voids All of the above
All of the above
Running a computer program that compares adjustments to inventory to the void/refund transactions summarized by employee can detect which of the following schemes? Register disbursement schemes Cash larceny schemes Skimming schemes All of the above
All of the above
To deter kickback schemes, an organization should implement which of following procedures? Separate the purchasing, authorization, and cash disbursements functions. Track purchase levels by vendor. Compare the prices paid for goods and services to market rates. All of the above
All of the above
Unexplained increases in inventory shrinkage can be a red flag that signals which type of fraud scheme? Fictitious refunds Inventory larceny Sales skimming All of the above
All of the above
Which of the following analyses can be used to identify ghost employee schemes? Identifying employees who have no withholding taxes taken out Comparing actual payroll expenses to budgeted expenses Comparing employees who have the same Social Security number, bank account, or physical address All of the above
All of the above
Which of the following can be used to conceal a false refund scheme? Destroying register tapes Issuing refunds below the review limit Forcing inventory totals All of the above
All of the above
Which of the following computer audit tests can be used to detect an inventory misappropriation scheme? Identifying inventory receipts in the receiving system that do not agree to the receipts per the accounts payable system Identifying inventory shipments delivered to an address that is not designated as a business address Identifying inventory with a negative quantity balance All of the above
All of the above
Which of the following computer audit tests can be used to detect ghost employee schemes? Extract users who can write checks and also add new employees in the payroll and timecard system. Extract all employees without a social security number. Compare employees reported per timecard system to the payroll system. All of the above
All of the above
Which of the following is a red flag indicating that an employee may be receiving kickbacks? The purchase of inferior-quality inventory or merchandise An unusually high volume of purchases from a particular vendor The payment of purchase amounts that are frequently above market rates All of the above
All of the above
Which of the following is a type of register disbursement scheme? Fictitious refunds Overstated refunds False voids All of the above
All of the above
Which of the following methods can be used to conceal inventory shrinkage on a company's books? Creating fictitious sales and receivables Writing off inventory as obsolete Physical padding All of the above
All of the above
Which of the following methods can be used to perpetrate a fictitious expense reimbursement scheme? Creating counterfeit receipts Stealing blank receipts Submitting expenses that were paid by a third party All of the above
All of the above
Which of the following procedures can be used to detect mischaracterized expense reimbursement schemes? Compare the dates of claimed reimbursable business expenses to the employees' work schedules. Compare current expense reimbursement levels to amounts for prior years. Compare current expense reimbursement levels to budgeted amounts. All of the above
All of the above
Which of the following procedures can be used to prevent and detect a register disbursement scheme? Randomly call customers who have returned merchandise or voided sales. Restrict access to the control key or management code that authorizes reversing transactions. Place signs around the store encouraging customers to ask for and examine their receipts. All of the above
All of the above
Which of the following schemes can be detected by identifying vendor addresses that are not designated as a business address? Shell company schemes Kickback schemes Conflicts of interest All of the above
All of the above
Which of the following is not considered a red flag of a fictitious expense reimbursement scheme? An employee repeatedly uses the company credit card for business travel expenses. An employee's reimbursement requests are always for round-dollar amounts. An employee submits reimbursement requests that consistently fall just below the reimbursement limit. An employee frequently requests reimbursement for high-dollar items that he claims were paid for in cash.
An employee repeatedly uses the company credit card for business travel expenses.
In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. How was his scheme detected? An exception report showed that Harkanell had claimed overtime hours for a period when there was no need to work overtime. The payroll department sent the timesheets for one pay period back to the supervisor for review when a suspicious number of hours had been indicated. An overtime audit was conducted revealing that Harkanell had worked an unusual number of hours compared to others in the department. The internal auditors received an anonymous tip.
An exception report showed that Harkanell had claimed overtime hours for a period when there was no need to work overtime.
Abe Wilson works as a city councilman in large city on the east coast. As part of his duties, he negotiated the purchase of some land in order to build a new water treatment plant for the city. The land was sold to the city by Jake Bryan for terms that were favorable to the city. After the sale was finalized, Bryan treated Abe and his wife to an all-expenses-paid Alaskan cruise. This type of fraud is known as: A conflict of interest Bribery An illegal gratuity Economic extortion
An illegal gratuity
In one of the cases in the textbook, Larry Gunter was a shipping clerk for a computer company that manufactured microprocessor chips. After learning that the chips were valuable, he stole three boxes and sold them to his girlfriend's father. Since the scheme worked so well the first time, he continued stealing and selling the chips, even letting a co-worker in on the scheme. How was the theft discovered? A security guard found the chips in a routine check of his work cart. An inventory manager filling an order noticed that many of the chips were missing. The auditors found the shortage when they conducted the annual inventory count. His co-worker notified the loss prevention department in exchange for a cash award.
An inventory manager filling an order noticed that many of the chips were missing.
Which of the following is not a red flag in a fraudulent shipment scheme? An increase in bad debt expense An unexplained decrease in the scrap account Unusually high levels of reorders for inventory items Shipments with missing sales documents
An unexplained decrease in the scrap account
In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. What triggered the investigation of Rita Mae King's activities? Her supervisor found an invoice for a trip that she booked showing she received an employee discount from Spicewood Travel. An employee from Spicewood Travel called King's office and left an urgent message for King to call them concerning a travel problem with a group she booked to the Cayman Islands. Another employee of her company found a business card that she had left in a fishbowl for a drawing showing that she was an employee of Spicewood Travel. Her former boyfriend called the loss prevention department's hotline and informed them that she was receiving kickbacks from Spicewood Travel.
Another employee of her company found a business card that she had left in a fishbowl for a drawing showing that she was an employee of Spicewood Travel.
Donna Boyd is an internal auditor for GDP, Inc., an electronics manufacturer. While conducting a routine review of the company's inventory costing, she discovers that the cost of one of the parts they use in manufacturing DVD players has been steadily increasing over the last six months and is now much higher than the general market price. Additionally, she notices that the company has been heavily favoring one specific supplier for that part. Based on these circumstances, what type of fraud scheme may be occurring at GDP? Kickbacks Conflict of interest Shell company Any of the above
Any of the above
Andy Kaplan is a foreman for JCP Enterprises, a regional construction company. He recently ordered some plumbing supplies from the company warehouse for an office building project he is overseeing. When the supplies arrived at the job site, however, he loaded them in his truck and took them home to use in remodeling his master bathroom. What kind of inventory theft scheme did Andy commit? False shipments Unconcealed larceny Asset requisition Misappropriation of intangible assets
Asset requisition
In one of the cases in the textbook, Swainler's Technology discovered that someone had stolen 1,400 hard drives from its computer warehouse. In order to collect on its theft insurance policy, the company had to show that the theft was an outside job. Before the insurance company paid Swainler's claim, it hired an independent investigator, who ultimately found that the hard drives were stolen and sold by Swainler's marketing manager, Frederic Boucher. Which of the following control weaknesses were present in the company? Because the company was run primarily on trust, many transactions were conducted without any documentation or controls. The surveillance cameras on the loading dock didn't work. Background checks were required only on senior executives and accounting personnel. All of the above
Because the company was run primarily on trust, many transactions were conducted without any documentation or controls.
A corruption scheme in which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, is known as: Bid pooling Bid rigging Bid division Bid diversion
Bid pooling
Julius Smith is a purchasing agent for a Louisiana state agency. He has a project budgeted for $24,000 that he would like to hire RGS Consultants to handle. Unfortunately for Julius and RGS Consultants, the state has a requirement that all projects over $10,000 must be sent out for competitive bids. In order to avoid the bidding process, Julius breaks the project into three component projects worth $8,000 each. RGS Consultants is subsequently awarded the contracts for all three projects. What type of bid-rigging scheme is this? Bid pooling Underbidding Bid splitting Bid diversion
Bid splitting
Register disbursement schemes are difficult to conceal because they cause the cash drawer to be out of balance with the cash register tape. True False
False
To deter inventory theft schemes, organizations should install security cameras in the warehouses without the employees' knowledge. False
False
Matching the vendor master file to the employee master file is a proactive computer audit test that can be used to detect which type of fraud scheme(s)? Bribery Shell company Both bribery and shell company None of the above
Both bribery and shell company
Johanna Pye is a hair stylist at Mamon Salon. The salon's policy states that stylists receive 40 percent of the revenue they generate as their compensation. Johanna grew tired of sharing her income with the salon and decided she wanted to make more money. She continued seeing her existing clients at the salon, but when new clients called for an appointment, Johanna lied and told them the salon was completely booked for the next few months. She then offered to come to their homes and cut their hair for 10 percent less than what the clients would be charged at the salon. She did not report the house call appointments to the salon, and was therefore able to keep all the income she generated from these side clients. This is an example of what type of scheme? Shell company Resource diversion Business diversion Double dealing
Business diversion
In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. What other frauds turned up in the investigation? Chesterly put his girlfriend on the payroll as a ghost employee. Chesterly skimmed some of the cash sales. Chesterly falsified sales figures to collect unearned bonuses. Chesterly cut special deals to his customers and received kickbacks in return.
Chesterly cut special deals to his customers and received kickbacks in return.
In one of the case studies in the textbook, Marcus Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. What changes to internal controls were made as a result of Lane's fraud? Enforcement of a new policy that business expenditures other than travel be charged to personal credit cards only Clarification and better enforcement of the policy that all travel be booked through the company travel agent using a designated company credit card Enforcement of a new policy that employees submit their travel expense reports for reimbursement within five days of returning from a trip All of the above
Clarification and better enforcement of the policy that all travel be booked through the company travel agent using a designated company credit card
The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal is known as: Official bribery Commercial bribery Conflict of interest Illegal gratuity
Commercial bribery
If an employee generates a much higher percentage of uncollected sales than his coworkers, what type of scheme might he be committing? Sales skimming Commission scheme Multiple reimbursement scheme Shell company scheme
Commission scheme
Jed Butler is an internal auditor for Billings Industries. Recently he ran a program that identified customer accounts which had previously been dormant for six months or more but had sales in the last two months of the year. What type of fraud would this test most likely reveal? Shell company scheme Pay-and-return scheme Commission scheme Personal purchases scheme
Commission scheme
Which of the following is not a type of corruption scheme? Bribery Conflict of interest Illegal gratuities Concealed payments
Concealed payments
Identifying trends in over-purchased and/or obsolete inventory over several periods is a proactive computer audit test that can be used to detect which of the following schemes? False purchases Corruption Overstated expenses None of the above
Corruption
Which of the following can be used to test for commission schemes? Extract manual checks and summarize by salesperson and amount. Compare hours reported per timecard system to payroll system. Extract customer sale balances that exceed the customer credit limit. None of the above
Extract customer sale balances that exceed the customer credit limit.
Which of the following computer audit tests can be used to detect purchasing and receiving schemes? Identifying dormant customer accounts for the past six months that show a sale in the last two months of the year Calculating the ratio of the largest sale to the next largest sale by customer Extracting all inventory coded as obsolete and possessing reorder points within the inventory system All of the above
Extracting all inventory coded as obsolete and possessing reorder points within the inventory system
To safeguard against expense reimbursement schemes, organizations should require that employee expense reports be reviewed and approved by a supervisor outside the requestor's department. True False
False
To safeguard against ghost employee schemes, the person in charge of entering new employees in the payroll system should also distribute the paychecks so that he or she can look for payments to unauthorized employees. True False
False
Which of the following is not a type of payroll scheme? Ghost employee scheme False deduction scheme Falsified hours and salary scheme Commission scheme
False deduction scheme
Nicolette Garrison works part-time at an independent record store. Whenever her friend, Jacob Barker, comes into the store during one of her shifts, he picks up a CD and brings it to the register where Nicolette is stationed. After ringing a "no sale" transaction on the cash register, Nicolette pretends to swipe Jacob's credit card for payment. She puts the CD in a bag and gives it to Jacob, who walks out without actually paying for the merchandise. What kind of scheme is being committed? Fake sale False refund Sales skimming Cash larceny
Fake sale
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes are the least common type of fraudulent disbursement schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, median losses due to register disbursement schemes were the highest of all the fraudulent disbursement schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, non-cash schemes occur more frequently than cash schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the least costly type of fraudulent disbursement schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the most common type of fraudulent disbursement schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, register disbursement schemes were the most frequently reported type of fraudulent disbursement scheme. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, schemes involving corruption were the least common of the three types of occupational fraud schemes. True False
False
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the median loss due to corruption schemes was the highest of the three types of occupational fraud schemes. True False
False
Because they leave a solid audit trail, expense reimbursement schemes are generally easier to detect than other types of fraud schemes. True False
False
If a government employee agrees to award a contract to a vendor in exchange for a promise of future employment, this is considered to be an illegal gratuity. True False
False
John Clark works as a land buyer for a city government. After negotiating the purchase of a parcel of land to be used for a new library, he asked the seller out for a coffee date, and she accepted. This situation is an example of an illegal gratuity. True False
False
Marsha Wood added her one-year-old niece, Jackie, to the payroll at JNC Company and began issuing paychecks in Jackie's name, even though Jackie did not work for the organization. Marsha's niece is not considered a ghost employee because she is a real individual rather than a fictitious person. True False
False
Running a computer program that identifies shipping documents with no associated sales order can detect which of the following non-asset cash misappropriation schemes? False shipments Purchasing and receiving schemes Unconcealed inventory larceny Asset requisition schemes
False shipments
Nicolas Barrens conspired with his manager to steal nearly $6,000 over 2 months from the grocery store where they worked. Each time Nicolas rang up a customer at the register, he asked the customer if he'd like a receipt. When a customer said no, Nicolas pretended to discard the receipt in the trash, but actually slipped the receipt into his pocket. At the end of his shift, he filled out a void slip for each of these sales and submitted them to his supervisor for approval. With the original receipt and the approved void slip, Nicolas removed cash from the register in the amount of the voided sales and split the proceeds with his supervisor. Nicolas committed what type of fraud scheme? Fictitious expenses False voids Skimming None of the above
False voids
Which of the following is not a method used to conceal false shipments of inventory? Creating false sales orders Falsely increasing the perpetual inventory Writing off the inventory as scrap Physical padding
Falsely increasing the perpetual inventory
Allison Duval, CFE, has been retained by National Mortgage Company to investigate some suspicious activity. As part of her examination, Duval compares the company's payroll expenses to budgeted projections and to prior years' totals. She also runs an exception report looking for any employees whose compensation has increased disproportionately over the prior year. She then compares the payroll files to the human resource files to test for differing salary rates. What type of scheme is Duval most likely looking for? Ghost employee scheme Payroll tampering scheme Commission scheme Falsified hours and salary scheme
Falsified hours and salary scheme
Jim Stevens is a payroll manager for a mid-sized insurance company in the southeast. Last year, his performance review was conducted late, so he received a retroactive pay increase. Because he was not authorized to access his own employee records, Stevens stole another employee's password and logged into the payroll system. He manipulated his records to keep the retroactive pay increase in effect in future periods, effectively doubling his intended pay raise. What type of fraud is this? Larceny of wages Falsified hours and salary scheme Commission scheme Ghost employee scheme
Falsified hours and salary scheme
Orange Publishing hired Moe McDonnell, CFE, to investigate some large variances in the company's labor costs. While looking through the payroll records for the shipping department, McDonnell noticed several employees who claimed extensive overtime during pay periods in which the company's incoming and outgoing shipments were minimal. McDonnell pulled the timesheets for these pay periods and noticed that those belonging to the suspect employees had signatures that didn't match the signatures on the other timesheets. What type of fraud might these findings indicate? Ghost employee scheme Commission scheme Falsified hours and salary scheme Overstated expenses scheme
Falsified hours and salary scheme
Linda Dudley, an employee of Bingham Company, was sent to an out-of-state conference to learn about the latest innovations in computer security. While she was at the seminar, her meals were picked up by a vendor hoping to get business from Bingham. Dudley also turned in receipts and requested reimbursement from her company for the same meals that the vendor paid for. What type of expense reimbursement fraud is this? Mischaracterized expense Overstated expense Fictitious expense None of the above
Fictitious expense
Daniel Isley works as an internal auditor for Atlantic Insurance Co. While reviewing the company's travel and entertainment expenses, Isley noticed that one employee had submitted several receipts from Chase's Restaurant for round-dollar amounts just under the company's reimbursement limit. Further, the receipts were consecutively numbered, but were submitted over a six-month period. What type of scheme did Isley most likely uncover? Fictitious expense reimbursement Multiple reimbursement Mischaracterized reimbursement None of the above
Fictitious expense reimbursement
Remy Lewis has just started working as a marketing research analyst for Commercial Casting Company in New York City. He is relocating his family to New York from North Carolina, but they haven't moved yet. Twice a month, the company pays for Lewis to travel to North Carolina to visit his family and help with the move. During the month of September, Lewis only visited his family once; however, he submitted expense reports for mileage for two separate trips to North Carolina and back. What type of scheme is this? Mischaracterized expense reimbursement Billing Fictitious expense reimbursement None of the above
Fictitious expense reimbursement
What type of expense reimbursement scheme occurs when an employee submits a receipt for an entertainment expense that a client paid for? Mischaracterized expense reimbursement Overstated expense reimbursement Fictitious expense reimbursement Duplicate reimbursement scheme
Fictitious expense reimbursement
Billy Mitchell is the head cashier for a clothing store that specializes in men's silk suits. After losing big at the local dog track, Billy was in the hole financially. To cover his gambling debts, he started issuing numerous refund credits to his own credit card for amounts just below the store's review limit. This is an example of a __________________ scheme. Cash larceny Credit card skimming Fictitious refunds Understated reimbursement
Fictitious refunds
Leslie White, CFE, was called in to investigate suspicious activity at Anderson's Department Store. During her investigation, she ran a test to search for customer sales and refunds that occurred on the same day. She also summarized refunds by employee and extracted the names of all employees who can post both refunds and inventory adjustments. What type of scheme is Leslie most likely looking for? Skimming Unconcealed larceny Fraudulent reimbursements Fictitious refunds
Fictitious refunds
Manually altering entries in an organization's books in order to conceal fraud is called: Padding the books Forced reconciliation Shrinkage Fictitious reconstruction
Forced reconciliation
A _______________ is an individual on the payroll who does not actually work for the organization. Falsified employee Phantom employee Ghost employee Shell employee
Ghost Employee
During a review of A+ Service's payroll records, Judy Penney, an internal auditor, noticed that Bradley Banks has no deductions taken from his paychecks for withholding taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Penney most likely uncover? Ghost employee scheme Falsified salary scheme Fictitious vendor scheme None of the above
Ghost employee scheme
Ellie Weaver works for the JAG Group as the customer service supervisor. When Joel Carter was hired into her department, she listed his start date as one month before he actually began work. Accordingly, the payroll department generated an extra paycheck for Carter, which Weaver intercepted and cashed at a liquor store. What type of fraud is this? Forged endorsement scheme Ghost employee scheme Altered payee scheme Falsified wages scheme
Ghost employee scheme
If a fraudster fails to remove a terminated employee from the payroll and collects the former employee's fraudulent paychecks, he or she is committing a: Payroll larceny scheme Falsified hours and salary scheme Forged endorsement scheme Ghost employee scheme
Ghost employee scheme
Of the following, which is the best method for detecting the theft of inventory? Have the warehouse manager personally oversee bi-monthly inventory counts. Have someone from purchasing conduct inventory counts every quarter. Have a designated person in customer service follow-up with customers who have complained about short shipments. Match vendor addresses against employee addresses.
Have a designated person in customer service follow-up with customers who have complained about short shipments.
In one of the case studies in the textbook, Bob Walker was the head cashier for a discount drug store who perpetrated his fraud scheme by issuing fictitious refunds. What was Walker's motive for committing the crime? His wife became ill and needed money to pay for prescription drugs. He had been demoted from a management position and wanted to get back at the store. He lost a lot of money gambling and was too embarrassed to tell his wife. He had accumulated nearly $60,000 in credit card debt and was about to lose his house.
He had been demoted from a management position and wanted to get back at the store.
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. The investigators eventually focused on one particular regional inspector because: He vacationed in Europe with the vendor and charged the trip back to the government as a business related trip. He paid cash for a new home on the Jersey shore. He purchased eleven race horses. He had credit card charges of more than twice his annual salary during a six-month period.
He purchased eleven race horses.
In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. What red flag was present that should have made someone suspicious? He used erasable ink to record the hours on the timesheets. He showed up for work on a day he had off so he could personally turn in the timesheets. No one else in the department had overtime hours but Harkanell. All of the above
He showed up for work on a day he had off so he could personally turn in the timesheets.
In one of the case studies in the textbook, Bob Walker was the head cashier for a discount drug store who perpetrated his fraud scheme by issuing fictitious refunds. What happened to Walker? He was placed on probation and ordered to make full restitution. The store terminated his employment and accepted a promissory note for the amount stolen in return for not turning him over to the police. His parole for a previous conviction was revoked and he was returned to prison. He was arrested, but disappeared after making bail.
He was arrested, but disappeared after making bail.
In one of the cases in the textbook, Larry Gunter was a shipping clerk for a computer company that manufactured microprocessor chips. After learning that the chips were valuable, he stole three boxes and sold them to his girlfriend's father. Since the scheme worked so well the first time, he continued stealing and selling the chips, even letting a co-worker in on the scheme. How was Gunter punished? He was arrested, charged with grand theft and embezzlement, and sentenced to prison. He was indicted for receiving stolen property, placed on probation, and ordered to repay the company for the value of the stolen chips. The company fired him but agreed not to prosecute him if he repaid the money and did not go to the media. He wasn't, because he found out about the investigation and skipped town on the day he was to be arrested.
He was arrested, charged with grand theft and embezzlement, and sentenced to prison.
In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. How was the case resolved? He confessed to falsifying the overtime and was terminated. A civil suit was filed to recover the loss. He was convicted and sentenced to prison. None of the above
He was convicted and sentenced to prison.
In one of the case studies in the textbook, Marcus Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. How was he punished? He was convicted of grand theft and received probation. He resigned from the company and a civil suit was filed against him. He was terminated and agreed to pay the money back. He was allowed to resign and the company agreed not to seek a refund if it was kept quiet.
He was terminated and agreed to pay the money back.
In one of the case studies in the textbook, Katie Jordon was the "All-American Girl Next Door" working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. What was her motivation for stealing? Her boyfriend, a professional motocross racer, was injured in a race. She was getting married and needed money for the wedding. She blew the engine in her car and didn't have the money to replace it. She wanted to pay off her college loan early so she could save for a house.
Her boyfriend, a professional motocross racer, was injured in a race.
Which of the following tests can be used to detect register disbursement schemes? Extract the top 10 employees with the lowest sales activity. Identify and examine unique journal entries in the cash accounts. Identify customer sales posted to one credit card and refunds posted to another credit card. None of the above
Identify customer sales posted to one credit card and refunds posted to another credit card.
___________________ is the offering, giving, receiving, or soliciting of something of value as a reward for a favorable decision. Business diversion Economic extortion Illegal gratuity Commercial bribery
Illegal gratuity
Ben Rogers works as a cashier for Tillis Sporting Goods. One afternoon, he asked his sister Dawn to come into the store. When she arrived, Ben put three watches, two fishing reels, and four pairs of sunglasses in a sack and gave it to her. Dawn walked out of the store, sold two of the watches, and returned to the store later to return the other items for a refund. What type of asset misappropriation has been committed? Sales skimming Pay-and-return scheme False refund scheme Inventory larceny scheme
Inventory larceny scheme
In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. What happened to the furniture manufacturing company? It was charged with making false certifications and fined $2 million. It lost its contract with the GSA and went bankrupt. It was bought by another company. All of the above
It lost its contract with the GSA and went bankrupt.
Register disbursement schemes are different from skimming and larceny at the register in that they: Are on-book schemes, where as skimming and larceny are off-book schemes Require the use of an accomplice Leave a record of the removal of money on the register tape All of the above
Leave a record of the removal of money on the register tape
In one of the cases in the textbook, Joe Anderson, a part-time shoe salesperson at a department store, perpetrated a fictitious returns scheme using third-party credit cards. What happened as the result of the investigation? Anderson was terminated and promised to pay back all the fraudulent proceeds. The department store recovered most of its losses through its bonding company. Local and federal charges for embezzlement and financial transaction card fraud were brought against Anderson and 27 co-conspirators. All of the above
Local and federal charges for embezzlement and financial transaction card fraud were brought against Anderson and 27 co-conspirators.
According to the textbook, the best way for an organization to prevent fraudulent register disbursements is to: Have each employee compare the cash in his or her register drawer to the register tape at the end of each shift. Maintain appropriate separation of duties. Have a policy requiring photocopied receipts for sales refunds. All of the above
Maintain appropriate separation of duties.
Which of the following is not a method typically used by an employee to fraudulently inflate his or her hours in a manual timekeeping system? Collusion "Lazy manager" method Forging the supervisor's signature Manipulating the pay grade
Manipulating the pay grade
To prevent fraudulent shipments of merchandise, organizations should: Match every receiving slip to an approved purchase order. Match every outgoing shipment to a sales order. Make sure that all increases to perpetual inventory records are supported by proper source documents. All of the above
Match every outgoing shipment to a sales order.
Kevin Chitry, a sales executive for CIT Manufacturing, frequently took clients out for dinner and shows when they came to town to tour the plant. He usually paid for these expenses himself and submitted the receipts to his supervisor for approval and reimbursement. Occasionally, however, he also took his family out to restaurants and rock concerts and included these expenses in his reimbursement requests by indicating that he was entertaining a client. This type of fraud is known as a(n): Overstated expense reimbursement Mischaracterized expense reimbursement Fictitious expense reimbursement Altered receipt reimbursement
Mischaracterized expense reimbursement
Phil O'Hara is an internal auditor for the Shield Corporation. Recently he ran a report that listed payments to employees for business expenses that occurred while the employee was on vacation. What type of fraud scheme is Phil most likely to find? Cash larceny Forged expenses Overstated expense reimbursement Mischaracterized expense reimbursement
Mischaracterized expense reimbursement
Claiming personal travel as a business expense is an example of what type of expense reimbursement scheme? Multiple reimbursements Overstated expense reimbursements Mischaracterized expense reimbursements Altered expense reimbursements
Mischaracterized expense reimbursements
Charlene DiAngelo is a sales manager for Northwest Paper & Plastics. On April 11, she took some clients out for a business lunch to discuss a potential contract. When she returned to the office, she made a photocopy of her restaurant receipt. Using correction fluid, she changed the date on the photocopy to read June 11. She submitted the original restaurant receipt with a reimbursement request on April 11 and held on to the photocopy for 2 months. On June 12, she submitted the altered photocopy along with a second reimbursement request. What type of fraud scheme did DiAngelo commit? Altered receipt Fictitious expense reimbursement Billing Multiple reimbursement
Multiple reimbursement
Donna Holbrook, an administrative assistant at Mason Enterprises, charged some office supplies to the company credit card. Several weeks later, she attached the store receipt from the purchase to an expense report and requested reimbursement from the company. This is an example of which type of expense reimbursement scheme? Overstated expense Multiple reimbursement Mischaracterized expense Over-purchased reimbursement
Multiple reimbursement
Which of the following is a type of kickback scheme? Improper disclosure Overbilling Turnaround sale Extortion
Overbilling
The most common method of misappropriating funds from the payroll is: Overpayment of wages Using a ghost employee Overstating commissions Theft of payroll deductions
Overpayment of wages
As the manager of a local auto-parts store, Manny Ortega was responsible for reimbursing employees when they purchased supplies for the store with their own money. When employees brought Ortega their receipts for reimbursement, he would often alter the receipts to show a larger amount. Then he would ring a "no sale" on the cash register, remove the full amount per the altered receipt, and pocket the excess. Because the employee received the expected amount and the register totals remained in balance, Ortega was able to continue this scheme for nearly 2 years before being caught. What type of fraud did Ortega commit? Overstated expense reimbursement scheme Mischaracterized expense reimbursement scheme Register disbursement scheme None of the above
Overstated expense reimbursement scheme
Meredith Chapman works as a retail clerk at a children's clothing store. When a customer returns an item for a cash refund, Meredith enters an amount greater than the actual refund into the register, pays the customer the amount owed for the returned merchandise, and keeps the excess cash for herself. What type of scheme is Meredith committing? Overstated expenses Cash larceny Overstated refunds Skimming
Overstated refunds
Ace Electronics is a company that sells computers, televisions, home entertainment centers, DVD players, and other electronic equipment. A downturn in the market has caused severe financial problems in the company. In order to fool the auditors as they begin their inventory count, several of Ace's managers have begun stacking empty boxes in the warehouse to create the illusion of extra inventory. This scheme is known as: Forced reconciliation Physical padding Inventory shuffling Misappropriation of intangible assets
Physical padding
For the perpetrator, the most dangerous part of a typical register disbursement scheme is often: Physically removing the cash from the register and carrying it out of the store Adjusting the cash register tape to match the cash count Replacing the returned merchandise in the physical inventory Forging the customer receipt as documentation for the reversing transaction
Physically removing the cash from the register and carrying it out of the store
The key component to most kickback schemes is: Forged endorsements Counterfeit invoices Price inflation Stealing customer statements
Price inflation
To safeguard against kickback schemes, which of the following procedures should an organization implement? Have an employee in the purchasing department review the organization's payment patterns on a quarterly basis. Establish a written policy specifying that employees cannot accept more than $500 annually in gifts from customers or suppliers. Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction. All of the above
Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction.
An excessive number of reversing sales transactions at the register is an indicator of which of the following schemes? Skimming Register disbursement Pass-through scheme Multiple reimbursements
Register disbursement
Sara Michaels works as a sales associate in the shoe department at a large chain department store. To supplement her income, Sara processed multiple fictitious refunds on sales made to customers. This is an example of what type of asset misappropriation? Register disbursement fraud Pay and return scheme Skimming scheme Cash larceny scheme
Register disbursement fraud
The typical bid-rigging scheme committed during the need recognition phase of the contract negotiation process involves defining a "need" that can be met only by a certain supplier or contractor. True False
True
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the theft of which type of non-cash asset was the least common but caused the highest median loss? Equipment Proprietary information Securities Inventory
Securities
Which of the following procedures would be least helpful in preventing larceny of non-cash assets? Segregating the duties of sales and accounts payable Installing surveillance cameras in the warehouse and on sales floors Creating access logs to track employees that enter restricted areas Employing security guards at the entrance of the warehouse
Segregating the duties of sales and accounts payable
In one of the case studies in the textbook, Katie Jordon was the "All-American Girl Next Door" working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. What happened to Jordon? The company terminated her employment but failed to press charges against her in order to keep things quiet. She was convicted but served no jail time. She skipped town and a warrant was issued for her arrest. She took out a loan for the amount stolen and paid the company back in lieu of the company pressing charges against her.
She was convicted but served no jail time.
The unaccounted-for reduction in the company's inventory that results from theft is called: Physical defalcation Spoilage Shrinkage Misappropriation of intangible assets
Shrinkage
To facilitate a bribery scheme, a fraudster might divert company funds to a non-company account from which the illegal payments can be made. This account is called a: Slush fund Petty cash fund Bid pool None of the above
Slush fund
In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. He was caught, however, and his lifestyle came to a halt. What was the most likely reason that the company didn't have Chesterly prosecuted? Chesterly was well liked by everyone and, with new management coming in, the company thought that prosecuting him would have a negative impact on morale. Chesterly's wife became seriously ill and the company felt that it would have been too much of a blow to her recovery if he were in prison. Some of the company's customers were believed to have been involved in Chesterly's schemes. He agreed to mortgage his home to repay the money.
Some of the company's customers were believed to have been involved in Chesterly's schemes.
To safeguard against false voids schemes, companies should require a copy of the customer's receipt from the initial purchase as documentation for voided sales. True False
True
When an employee perpetrates a credit card refund scheme, the perpetual inventory will show a greater amount than the physical inventory. True False
True
In one of the case studies in the textbook, Bob Walker was the head cashier for a discount drug store who perpetrated his fraud scheme by issuing fictitious refunds. How was the fraud discovered? The bookkeeper noticed an unusually large number of policy overrides by Walker. The internal auditor developed a computer program that identified cashiers with an unusually high number of returns. The store manager caught Walker pocketing cash. An anonymous tip from the company's hotline came into the asset protection department.
The bookkeeper noticed an unusually large number of policy overrides by Walker.
Which of the following controls will help prevent and detect falsified hours and salary schemes? The duties of payroll preparation, authorization, and distribution are segregated. Sick leave and vacation time are monitored for excesses by the payroll department. Supervisors return authorized timecards to the employees for review before they are sent to the payroll department. All of the above
The duties of payroll preparation, authorization, and distribution are segregated.
Stanley Block works in the IT department at Towery, Inc. After finding out that the company is planning to purchase four more computers for the accounting department, Stanley bought four computers from a friend for $1,200. Then, using his brother's name and address as vendor information, he resold the computers to Towery for $2,300. This type of scheme is known as a(n): Over-purchase sale Resource diversion sale Double-sided sale Turnaround sale
Turnaround sale
In one of the case studies in the textbook, Marcus Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. How was his scheme detected? The internal auditor discovered it during a routine audit of expense reimbursements. The department's administrative assistant took a message from the travel agency about a trip that she knew Lane didn't take. Lane's manager received an anonymous tip. The external auditors discovered it while sampling expenses during their annual audit.
The internal auditor discovered it during a routine audit of expense reimbursements.
In one of the cases in the textbook, Swainler's Technology discovered that someone had stolen 1,400 hard drives from its computer warehouse. In order to collect on its theft insurance policy, the company had to show that the theft was an outside job. Before the insurance company paid Swainler's claim, it hired an independent investigator, who ultimately found that the hard drives were stolen and sold by Swainler's marketing manager, Frederic Boucher. How did the investigator identify Boucher's involvement? Boucher's ex-wife found out and contacted Swainler's board of directors. A former employee of Swainler's went to work for a competitor and told his manager about Boucher's involvement. The investigator found telephone calls made by Boucher to a warehouse where some of the stolen drives had been traced. Investigators found a large cash deposit in Boucher's bank account around the time that the drives went missing.
The investigator found telephone calls made by Boucher to a warehouse where some of the stolen drives had been traced.
Which of the following is a red flag that might indicate that a bid-rigging scheme is occurring? The contract price is unusually low. A high bid is followed by amendments that reduce the payments to the contractor. The losing bidders become sub-contractors on the project. Many more bidders responded to the request for proposals than expected.
The losing bidders become sub-contractors on the project.
Which of the following is not necessary for a ghost employee scheme to succeed? Timekeeping and wage rate information must be collected. The ghost must be added to the payroll. The perpetrator must have access to a bank account in the ghost employee's name. A paycheck must be issued to the ghost.
The perpetrator must have access to a bank account in the ghost employee's name
Which of the following procedures will not help prevent ghost employee schemes? The personnel records are maintained separately from the payroll and timekeeping functions. The personnel department conducts background and reference checks on all prospective employees before hiring them. The person responsible for hiring new employees also supervises the payroll function. The personnel department verifies all changes to the payroll.
The person responsible for hiring new employees also supervises the payroll function
In one of the cases in the textbook, Joe Anderson, a part-time shoe salesperson at a department store, perpetrated a fictitious returns scheme using third-party credit cards. Why was a fraud examination initiated? Another employee witnessed Anderson pocketing cash and reported the incident. The shoe department was losing money and had a high rate of returns on its shoes. The store's surveillance camera caught Anderson pocketing the money. Anderson credited the wrong account and the customer called up to inquire as to why her credit card had been credited.
The shoe department was losing money and had a high rate of returns on its shoes.
In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. Why didn't the company pursue legal action against King? The company didn't want the publicity so they quietly let her resign. The vice president of loss prevention recommended against criminal action because of King's age and her husband's ill health. There was not enough evidence to pursue a conviction. Spicewood Travel agreed to reimburse the company for overcharges if they wouldn't pursue criminal action against King.
The vice president of loss prevention recommended against criminal action because of King's age and her husband's ill health.
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, bribery schemes occurred more often than other types of corruption schemes. True False
True
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash schemes have a higher median loss than non-cash schemes. True False
True
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes have a lower median loss than check tampering schemes. True False
True
An unexplained increase in uncollectible accounts receivable may be a warning sign of a non-cash asset misappropriation scheme involving false shipments of inventory. True False
True
Borrowing a company asset for personal use without permission, even if it is returned unharmed, is a form of non-cash asset misappropriation. True False
True
Comparing actual payroll expenses to budget projections can help identify falsified hours and salary schemes. True False
True
Comparing salaried employees' gross pay from one pay period to the next is one way of testing for payroll fraud. True False
True
Extracting round-dollar payments and summarizing them by vendor can help detect both corruption and billing schemes. True False
True
If an employee approves payment on an invoice that originates from a real company in which he or she has a hidden economic interest, this is considered to be a conflict of interest scheme. True False
True
If an employee submits a photocopy of a receipt as support for a business expense, the expense should be independently verified before it is reimbursed. True False
True
Salaried ghost employees are generally easier to create and more difficult to conceal than hourly ghost employees True False
True
In one of the case studies in the textbook, Katie Jordon was the "All-American Girl Next Door" working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. How was her scheme discovered? An employee tipped off the main office when she saw the timesheets listing an employee that she had never heard of. When Jordon's boss made a routine visit to the office, he noticed that there was no sign of an assistant in the office. She was splitting the proceeds with her boyfriend, and he contacted the home office when she broke up with him. The auditors found it when they conducted a routine audit of all new acquisitions after being in business for one year.
When Jordon's boss made a routine visit to the office, he noticed that there was no sign of an assistant in the office.
To supplement her income, Jeanne Lester decided to start her own bookkeeping business while still working as an office assistant at Howe & Lyon, a small CPA firm. Not having much start-up capital for her new business, she used her phone at work to contact clients and her work computer to print invoices and client letters. However, she ordered and paid for her own office supplies and used her own postage stamps to mail the invoices and letters. From the information given, has Jeanne misappropriated any of the firm's assets? Yes No
Yes
