Chapter 1 Pre Quiz & Homework

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

Not paying for goods purchased.

Fraud is considered to be:

A serious problem that continues to grow.

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

False

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

True

A fraud may be perpetrated through an unintentional mistake.

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

Bob, who works as a credit manager for a large bank, has a reputation for being a very hard worker. His convenient downtown apartment is located near the bank, which allows him to work undisturbed late into the night. Everyone knows that Bob loves his job because he has been with the bank for many years and hardly ever takes a vacation. He is a very strict credit manager and has the reputation for asking very difficult questions to loan applicants before approving any credit. Nancy, Bob's director, noticed that Bob had not taken a mandatory week-long vacation for a number of years. Nancy does not need to be concerned about Bob's failure to take vacation time, given Bob's history of being tough on approving credit for the bank.

False

You are a student at ABC University. You recently read in the school's daily newspaper about a terrific investment opportunity that promises to pay you a 44 percent annual return on your investment. Although you don't understand the complicated nature of the investment, several of your friends are investing money. You have an extra $5,000 that you earned last summer that you would like to invest, but you are a bit skeptical about the unusually high rate of return. An annual return of 44 percent is higher than average, but not unusual for investments that are highly complicated, suggesting that this probably is a good investment opportunity.

False

You are having lunch with another student. During the course of your conversation, you tell your friend about your new fraud examination class. After you explain the devastating impact of fraud on businesses today, she questions how people can commit so much fraud given the advances in technology over the past several years. Advances in technology have resulted in a significant reduction in the size and frequency of frauds in recent years.

False

You're telling your boyfriend about your classes for the new semester. He is very interested and intrigued by the idea of becoming a fraud detective, but he wants to know whether fraud detectives will have job security and the type of work that is available. Career opportunities in fraud examination and forensic accounting are available primarily through employment with federal or state government agencies.

False

Which of the following is not true of civil litigation?

It must be heard by 12 jurors.

You are a new summer intern working for a major professional services firm. During your lunch break each day, you and a fellow intern Bob eat at a local sandwich shop. One day, Bob's girlfriend joins you for lunch. When the bill arrives, Bob pays with a company credit card and writes the meal off as a business expense. Bob and his girlfriend continue to be "treated" to lunch for a number of days. You know Bob is well aware of a recent memo that came down from management stating casual lunches are not valid business expenses. When you ask Bob about the charges, he replies, "Hey, we're interns. Those memos don't apply to us. We can expense anything we want. " Which of the following statements regarding Bob's use of the company credit card is not true?

The amount charged for the nonbusiness lunches does not meet the minimum threshold for fraud.

A bookkeeper in a $3 million retail company had earned the trust of her supervisor, so various functions normally reserved for management were assigned to her, including the authority to authorize and issue customer refunds. She proceeded to issue refunds to nonexistent customers and created documents with false names and addresses. She adjusted the accounting records and stole about $15,000 cash. She was caught when an auditor sent routine confirmations to customers on a mailing list and received an excessive number of "return-to-sender" replies. The investigation disclosed a telling pattern. The bookkeeper initially denied accusations but admitted the crime upon presentation of the evidence. You are a lawyer for this retail company, and your client has asked your advice about whether to prosecute the bookkeeper criminally, civilly, or both. When employee fraud is detected, the employer company should, if possible, pursue both criminal prosecution and a civil lawsuit.

True

Clever, Inc., is a car manufacturer. Its 2018 income statement is as follows: Sales Revenue: $20,000 Less COGS: $10,000 Gross Margin: $10,000 Expenses: $8,000 Net Income: $2,000 Alexander, Inc., is a car rental agency based in Florida. Its 2018 income statement is as follows: Sales Revenue: $20,000 Expenses: $15,000 Net Income: $5,000 During 2018, both Clever, Inc., and Alexander, Inc., incurred a $1,000 fraud loss. Clever, Inc., will probably have to generate more revenue than Alexander, Inc., to recover the $1,000 fraud loss.

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

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

True