Fraud Exam 1 Study Guide

Which of the following people is most likely to have opportunities to commit fraud? a. Steve was just hired by his company but he is always acting suspicious b. Jane is a recent high school graduate who loves shopping. She is on the look out for a job. c. 62 year old Dave has loyally worked up his company's corporate ladder for the past 24 years d. Rob is a convicted bank robber who has been out of jail for 7 years and is working for a small firm whose manager knows about Rob's criminal background.

62 year old Dave has loyally worked up his company's corporate ladder for the past 24 years

A company was the victim of several frauds that totaled approximately $10 million in one year. With a profit margin of 10 percent, and assuming that the company's product sold for $1,000 per unit, how many additional units must the company sell to compensate for the fraud losses?

100,000

Generally applicants for CFE certification should have a minimum of a bachelor's degree or equivalent from an institution of higher learning. Alternatively if applicants do not have a bachelor's degree, they may substitute ______ months of fraud-related professional experience for each year of academic study.

24

Which of the following is NOT a true statement? a. All frauds involve financial or vice-related pressures. b. Almost every fraud involves rationalization. c. Perceived opportunity diminishes when fraud perpetrators are prosecuted.

All frauds involve financial or vice-related pressures.

An effective accounting system is designed to provide which of the following to help discover fraud? a. Set of controls b. An audit trail c. Set of accounting procedures d. Matching of expenses to revenues

An audit trail

A person may have very strong ethics in the way he or she treats family and friends, but not understand how failure to submit tax withholdings to the government affects peoples' lives or constitutes unethical or fraudulent behavior. This is an ethical issue encountered in which level of the ethical maturity model?

Application of ethics to business situations

Wilma participates in a fraud scheme by executing some derivative trades because she believed that a senior analyst knew more about complex derivative transactions than she did. These transactions were fraudulent in nature. Which type of power was employed to deceive Wilma?

Expert power

According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed in:

Form 8-K

Civil suits are usually quite rare in cases of employee fraud because:

perpetrators have usually spent the money.

The GDP in the economy of Ponziland was $5 billion in the year prior to the frauds (year 1). The economy were growing at 4 percent. Frauds during the year reduce aggregate income by $200 million. During the year, the economy has:

remained flat.

Individuals often participate in fraud because they believe that by not participating in the fraud scheme, they may lose their job. Which type of power is at play here?

Coercive power

Which of the following is NOT an element of a Ponzi scheme?

Collected money is invested

According to the study mentioned in the text, people who commit fraud are most similar to which of the following groups? a. Convicted felons b. College students c. Property offenders d. Animal lovers

College students

The word "con," which means to deceive, comes from the word:

Confidence.

Which one of the following is NOT a characteristic of a criminal proceeding? a. Only one claim may be heard at a time. b. Consequences include restitution and damage payments. c. Deals with offenses against society. d. Jury of 12 individuals.

Consequences include restitution and damage payments.

Which area of investigative method involves searching for ways in which perpetrators have spent or used their stolen assets?

Conversion

Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions, and there are four levels in it. Which of the following level is NOT one among them. a. Personal ethical understanding b. Application of ethics c. Ethical courage d. Ethical leadership e. Corporate code of ethics

Corporate code of ethics

Studies show that in advanced countries, levels of honesty are:

Decreasing

When fraud occurs, the most common reaction to those affected by the fraud is:

Denial

Which of the following is NOT a common financial pressure associated with fraud? a. Living beyond one's means b. High bills or personal debt c. Personal financial losses d. Desire to hurt employer financially

Desire to hurt employer financially

Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee's computer to use as evidence in the case. Under which category of evidence would an email message fall?

Documentary evidence

What is the overall term for the investigative technique that includes gathering evidence through data mining, audits, computer searches, net worth calculations, and financial statement analysis?

Documentary evidence

All of the following are methods that organization can adopt to proactively eliminate fraud opportunities EXCEPT: a. Eliminating protections for whistle blowers. b. Creating widespread monitoring by employees. c. Implementing appropriate preventative and detective controls. d. Accurately identifying sources and measuring risks.

Eliminating protections for whistle blowers.

Which of the following is the most common type of occupational fraud? a. Financial statement fraud b. Employee embezzlement c. Mail fraud d. Investment fraud

Employee embezzlement

Which of the following statements is true? a. Losses from fraud are less than losses from robbery. b. Fraud always involves deception, confidence and trickery. c. Fraud is more violent and traumatic than robbery. d. Fraud usually results from unintentional errors.

Fraud always involves deception, confidence and trickery.

Which of the following is a common example of vendor fraud?

Fraud perpetrated through collusion between buyers and vendors

Customer fraud includes all of the following EXCEPT: a. Fraud perpetrated through collusion between buyers and vendors. b. Do not pay for goods purchased. c. Deceive organization into giving them something they should not. d. Get something for nothing.

Fraud perpetrated through collusion between buyers and vendors.

Fraud statistics come from all of the following sources EXCEPT:

Fraud perpetrator

According to the study mentioned in the text, which of the following is true about fraud perpetrators compared to property offenders? a. Fraud perpetrators are more educated than property offenders b. Fraud perpetrators are much younger than property offenders c. Fraud perpetrators are more likely to be caught than property offenders d. Fraud perpetrators are more likely to be men than property offenders

Fraud perpetrators are more educated than property offenders

The most common fraud committed on behalf of an organization is:

Fraudulent financial reporting

Which of the following is NOT one of the major types of fraud classification schemes?

Government fraud

Research on honesty shows that individuals fall into three groups: (1) those who will almost always be honest, (2) those who are situationally honest, and (3) those who will always be dishonest. Which of these groups is (are) the biggest?

Group 2 (40%)

Which of the following is an example of an authorization control procedure?

Password protection

The ACFE does NOT include which of the major categories of occupational fraud listed below?

Pension fraud

Which racial group is most likely to commit fraud?

People of every race commit fraud

Which of the following is NOT one of the key elements common to all frauds? a. Perceived inequality b. Perceived opportunity c. Perceived pressure d. Rationalization

Perceived inequality

An employee who has the responsibilities of both writing checks and making bank deposits would have ____.

Perceived opportunity

Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?

Perceived opportunity

Which of the following is a component of the evidence square? a. Perceived pressure b. Perceived opportunity c. Rationalization d. Personal observation

Personal observation

The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.

Physical evidence

Which of the following is a prerequisite for a fraud investigation? a. Rationalization b. Predication c. A specific allegation of fraud against another party d. Consistent bottom-line improvement

Predication

To be successful, plaintiffs in civil cases must prove their case by which of the following? a. To the standard of prima facie. b. Beyond a reasonable doubt. c. To a degree of reasonable mitigation. d. Preponderance of evidence.

Preponderance of evidence.

What is the most cost-effective way to minimize the cost of fraud?

Prevention

Perpetrators of some fraud schemes often target conspiracy theorists, promising access to the "secret" investments used by the Rothschilds or Saudi royalty and offer triple-digit returns. Such schemes are best described as:

Prime bank schemes.

Which of the following statements is TRUE? a. Audits of books and records rarely discover frauds. b. The presence of auditors provides a major deterrent effect. c. External auditors are usually specifically trained to detect fraud. d. Less than 5 percent of all frauds are detected by auditors.

The presence of auditors provides a major deterrent effect.

Government agencies such as the FBI, FDIC, IRS, or various health agencies publish fraud statistics from time to time. Which of the following observations concerning such statistics is true? a. They provide only those statistics related to their jurisdiction. b. They usually provide a total picture in the areas for which they have responsibility. c. Such information is rarely used. d. Generally, their statistics are complete.

They provide only those statistics related to their jurisdiction.

A company is a victim of a $414 million fraud. At that time its profit margin is 10%. How much additional revenue should the company generate in order to recover the effect on net income?

$4.14 billion

In the past, most frauds were detected:

by accident.

How is the confidence element established in a Ponzi scheme?

By paying returns to investors initially.

Which of the following is NOT a common rationalization of fraud perpetrators? a. The organization owes me b. I'm only borrowing the money c. No one will get hurt d. No one will care

No one will care

Organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:

pay big dividends.

Which of the following creates opportunities for fraud?

Inability to judge quality of performance

A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?

Income statement.

Which of the following is true of the "swing group" of employees in organizations? a. Individuals in this group lack ethical courage. b. Individuals in this group do not know how to translate their ethical values to the business world. c. Individuals in this group are dishonest most of the time. d. Individuals in this group have situational ethics.

Individuals in this group have situational ethics.

What is required to prove fraud, as opposed to negligence?

Intent

Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?

Internal audit department

Which of the following is true of why fraud should be detected early?​ a. ​Fraud is often obvious and more easily detected when first committed. b. ​Most frauds start small and get larger over time. c. ​When top management is the perpetrator, preventions can be implemented once the fraud has been discovered. d. ​Determining motive is a strong tool to prevent similar frauds in the future.

Most frauds start small and get larger over time.

Which of the following observations concerning occupational fraud is NOT true?

It usually involves two or more employees

Which of the following is NOT a characteristic of management fraud?

Kickbacks or bribes.

A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts. Which crime is he committing?

Kiting

Which of the following factors creates an opportunity for fraud? a. The organization owes it to me b. Lack of an audit trail c. Living beyond one's means d. Greed

Lack of an audit trail

What is the strongest factor in deterring future fraud activity?

Legal prosecution

Studies reveal that honesty levels in advanced countries are decreasing. What do these findings indicate for the future regarding fraud?

Less perceived opportunity will have to be present.

Which of the following is NOT an example of a fraud-fighting career? a. Working for the criminal investigation division of the IRS. b. Defending an organization being sued in a civil case. c. Maintaining the security of public records. d. Serving as an expert witness.

Maintaining the security of public records.

What is the most important element in a control environment?

Management's role and example

Which is following observations is TRUE?

Most fraud perpetrators have profiles that are similar to those of other people

All of the following are part of the fraud element triangle EXCEPT: a. Theft act b. Concealment c. Conversion d. Rationalization

Rationalization

Which of the following about rationalization is NOT true?

Rationalizing is unnecessary when there are multiple opportunities present to commit fraud

_____ is the ability of the perpetrator to relate to the potential co-conspirator.

Referent power

Which legislation makes it compulsory for every public company to have a code of conduct to convey expectations about what is and is not appropriate for its directors and officers?

Sarbanes Oxley Act

Who are the primary victims of financial statement fraud?

Stockholders

Which of the following is NOT a possible control activity?

Supervisory review of each task completed by employees

Which of the following is the largest employee group in most organizations? a. Group of employees who will always be honest b. Group of employees who will be dishonest anytime it benefits them c. Swing group of employees who could be honest or dishonest d. Employees who display ethical leadership

Swing group of employees who could be honest or dishonest

Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation, and honesty tests?

Testimonial evidence

___________ requires every public company to have a code of ethics to help deter wrongdoing.

The Sarbanes-Oxley legislation

​Which of the following statements is false? a. ​Many fraud perpetrators believe their rationalizations to be true. b. ​The bigger the fraud act, the more believable the rationalization. c. ​Half-truths are often a part of rationalization. d. ​Perceived rationalizations are a part of the fraud triangle.

The bigger the fraud act, the more believable the rationalization.

​Which of the following statements regarding fraud on behalf of an organization is true? a. ​Middle management is usually the perpetrator. b. ​This type of fraud benefits top executives as it generally increases stock price. c. ​This type of fraud includes inflating expenses in order to save of corporate income taxes. d. ​Financial statement fraud is common among publicly-traded companies who must meet the public's expectations.

This type of fraud benefits top executives as it generally increases stock price.

Financial statement fraud is typically committed by:

Top management

Which of the following is NOT an element of a good control environment? a. Appropriate hiring b. Trust c. Management's communication d. Modeling

Trust

Research in moral development strongly suggests that honesty can be best reinforced when:

a proper example is set by management.

Employee embezzlement can be direct or indirect. Indirect fraud occurs when:

an employee receives a kickback from a vendor.

Civil claims begin when one party files a complaint against another, usually for the purpose of:

being awarded financial restitution

One way that criminal law differs from civil law is that it:

must yield a unanimous verdict.

Which of the following statements is NOT true? a. It is much more difficult to get a criminal conviction than it is to get a judgment in a civil case. b. Civil actions are quite rare in cases of employee fraud because perpetrators have usually spent the money they stole. c. Criminal convictions are only successful if there is overwhelming, undeniable proof that the perpetrator "intentionally" stole money or other assets. d. A preponderance of the evidence (more than 50 percent) is necessary to win a civil case.

c. Criminal convictions are only successful if there is overwhelming, undeniable proof that the perpetrator "intentionally" stole money or other assets.

​Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?

capability

In fraud prosecution cases, ______ matter consists of the underlying data and all corroborating information available.

evidential

Which of the following would NOT be acceptable as fraud-related experience to satisfy the education requirements to apply for CFE certification?​ a. ​experience in the Human Resources department of an organization b. ​auditor (internal or external) c. ​investigator for law enforcement agency or private sector d. ​paralegal for a prosecuting attorney

experience in the Human Resources department of an organization

Management fraud is often referred to as:

financial statement fraud.

The theory behind _____ is that if people know their work or activities will be monitored by others, the opportunity to commit and conceal a fraud will be reduced.

independent checks

Communicating expectations about honesty and integrity throughout a company includes all of the following elements EXCEPT: a. fraud awareness training. b. insisting that top management model appropriate behavior. c. consistent punishment for violators. d. identifying appropriate values and ethics.

insisting that top management model appropriate behavior.

In recent years, organizations have implemented a number of initiatives to more proactively detect fraud. The first and most common proactive fraud detection approach has been to:

install reporting hotlines.

The Anti-Kickback Act of 1986 intends to prevent:

the giving or receiving of any thing of value by a subcontractor to a prime contractor in contracts.

The elements of fraud include all of the following EXCEPT: a. the misrepresentation is known to the victim. b. the misrepresentation is intentional. c. the victim must sustain damages. d. a material point is misrepresented.

the misrepresentation is known to the victim.

Which of the following is NOT a work-related pressure? a. ​insufficient/little recognition for work performance b. ​wanting to appear successful c. ​fear of losing one's job d. ​getting overlooked for a promotion

wanting to appear successful

Which of the following is NOT a primary way fraud can be detected early? a. ​someone reports suspicious activity b. ​watching those employees whose honesty test results were suspicious c. ​finding anomalies in the financial records d. ​by accident

watching those employees whose honesty test results were suspicious

Segregation of duties, as a control procedure, is most often used

when cash is involved.

​Which of the following is true about legal action taken by organizations who are the victims of fraud? a. ​Civil action sends a message to others not to commit fraud. b. ​Legal criminal action is brought the the victim organization. c. ​Legal action is taken in fewer than half of frauds committed. d. ​Civil action is a good way to get restitution.

​Legal action is taken in fewer than half of frauds committed.

Which individual listed is most likely to commit financial statement fraud in order to benefit an organization? a. an executive b. ​a floor manager (line supervisor) c. ​the company Treasurer d. ​an internal auditor

​an executive

Which of the following is NOT a perceived pressure that can lead to employee fraud?​ a. ​frustration with a co-worker b. ​experiencing high medical bills because of illness in family c. ​anticipated actual financial reports that are below published expectations d. ​a challenge to beat the system

​anticipated actual financial reports that are below published expectations

Which of the following skills would be least beneficial in a career as a fraud-fighting professional?​ a. ​data entry clerk b. ​sales experience c. ​auto mechanic d. ​journalist

​auto mechanic