Forensics Exam 3

Fixed assets are subject to manipulation through several different schemes, including

Booking fictitious assets, misrepresenting asset valuation, improperly capitalizing items that should be expensed

Which of the following is not one of the five major classifications of financial statement fraud?

Channel Stuffing

Given the four criteria necessary for a sale to be complete which of the following is not one of those conditions?

Cash has been collected

Which of the following best describes the difference between skimming and cash larceny?

Cash larceny is an "on the books" scheme while skimming is an "off the books" scheme.

Which of the following forensic accountant's work product is last likely to provide relevant evidence for an investigation?

Examination of the employee handbook

A sales employee created a "dummy customer record. The sales employee then recorded phony refunds and then pocketed the cash. What procedure might catch this fraud?

Extracting customers with no telephone numbers or tax ID number

Of the following, choose the one that depicts a situation where liabilities and expenses are manipulated to make a company appear more profitable?

Failure to record payroll earned by employees but not paid as of period end

What is bribery defined as?

offering, giving, receiving, or soliciting anything of value of influence an official act

A final concealment strategy with stolen deposits is to carry the missing deposits in ______

transit

What are events occurring or becoming known after the close of the period that may have a significant effect on the financial statements?

Subsequent Events

Which of the following is likely to be least effective in detecting non cash misappropriations?

Summarizing inventory items valued at less than the retail price.

Which of the following is not typically a methodology to conceal the misuse of non cash assets?

Voiding sales at the warehouse liquidation location.

In a forensic accounting investigation, what are documents subjected to?

confirmation with external parties and fingerprint analysis

Which of the following is indicative of the actions of the forged maker perpetrator?

Issues two checks for the same invoice and fraudulently signs and cashes the second check.

Which of the following is an integral step in pay and return scheme?

Misappropriate the incoming check related to returned good and deposit it in a bank account other than the company's

Which improper asset valuation may inflate the current ratio

Valuing inventory at current retail prices

What are some ways to detect altered expense schemes?

1. Compare the expenses claimed to the credit card statement 2. Require a company issued credit card for all expense purchases 3. Require a full printed receipt, as opposed to a summary receipt

Red flags associated with improper asset valuation:

1. reoccurring negative cash flows from operations, or an inability to generate cash flows from operations, while reporting earnings and earnings growth 2. Significant declines in customer demand and increasing business failures in either the industry or the overall economy which there are reports of company growth 3. Unusual increase in gross margin or margin in excess of industry peers

What is an example of a ficticious maker?

A check on which the signature is forged

What is a pass through scheme?

A subcategory under shell company schemes. Perpetrating a pass-through scheme requires the ability to add vendors to the vendor master file. Actual goods or services are purchased by the shell company and resold

What are the areas of concern in determining incremental costs?

Allocated costs, accounting estimates, and the time value of money

Which of the following is not a typical method that employees use to overstate legitimate expenses of their expense reports?

Altering the delivery paperwork for inventory receipts at the warehouse

The discounted cash flows method requires what?

An estimate of future earnings or cash flows, an understanding of the duration of those cash flows, and the determination of an appropriate risk adjusted discount rate in determining Present Value

Which of the following is most consistent with illegal gratuities?

An illegal gratuity is not received as a result of an agreement to facilitate an action in advance of that action

Which of the following generally is not considered "something of value"

An obligation to make up hours derived from accidentally over using "banked" vacation hours

Which of the following is a key attribute of corruption schemes?

Corruption Schemes other than conflicts of interest usually involve at least one person outside of the organization acting to obtain some advantage inconsistent with their duties, responsibilities and relationship with the organization

Which of the following is not a technique to conceal inventory shrinkage?

Counting and valuing the physical inventory at the end of the year.

Which of the following is one of the five principal categories of check tampering?

Creation of check and altering the payee after the check is signed.

The legal framework for damages does not include which of the following?

Damages that can be converted to lost cash flows directly attributable to the act of the liable party

Which of the following is most accurately indicates why conflicts of interest create concern?

Decision makers can be influenced by a person with a conflict of interest without understanding the underlying motivations of the person

The venues where the fraud examiner or forensic accountant can expect to evaluated, scrutinized, and challenged include

Deposition testimony, trial testimony, meetings with counsel where they determine how to proceed with the case

Which of the following is most accurate with regard to the time value of money

Each engagement requires its own development and defense of the discount rate

Which of the following is not a type of damages that may ensue as a result of personal injury, wrongful death, and survivor actions

Family member medical costs

Which of the following most accurately identifies the significance of the "perception of detection"?

Fear of getting caught is a critical aspect of effective deterrence

What are two of the most common fraud schemes involving accounts receivable?

Fictitious receivables and failure to write-off accounts receivable as bad debts

Which of the following is not a method to prevent and detect the theft and alteration of outgoing company checks?

Hand each paycheck to the employee while checking appropriate identification.

Which of the following is most accurate with regard to fraud prevention and fraud deterrence?

Fraud Deterrence is about creating an environment where fraud is less likely to occur

Which of the following is not a common reason why senior management might overstate or understate business performance

High levels of personal debt leading to a need for the executive to generate cash

Which of the following red flags is seldom associated with cash register fraud?

Higher than expected uncollectible receivables

Explain what is meant by human factor?

Human Failings have led trusted people to violate that trust

Which of the following is a typical benchmark for calculating lost profits?

Industry averages

For a ghost employee, which of the following is not one of the four primary steps needed to make this scheme work?

Input a valid home address for the ghost

Which of the following best describes the key attribute of kickback schemes?

Kickback schemes always involve at least one person inside the organization and one person outside the organization

What is a method of concealing the theft of cash which involves the crediting of one account through the abstraction of money from another account?

Lapping

Which of the following is not a method for committing and concealing a sales skimming scheme

Lapping

In order to pursue a claim for legal damages successfully, the injured party must prove what?

Liability and damages

Valuations can be developed to address a number of issues, relating to:

Liquidations, mergers and acquisitions, bankruptcy, and divorce

Which of the following is not correct regarding bid rigging schemes?

Lost bids are always part of a bid rigging scheme

Which of the following is not a type of commercial damages?

Lost expenditures

Which of the following is not a methodology by which financial statement fraud is committed?

Manipulation of accounting regulations

Which of the following is not a fictitious revenue scheme?

Matching expenses to revenues

From the conceptual framework for financial reporting, which concept permits management to account from transactions in any manner they please?

No concept allows this

Which of the following is the first step to form a shell company?

Obtain a certificate of incorporation from the state.

Economic extortion schemes are committed when

One person demands payment from another, typically with the implication that harm will come if the payment isn't made

Which of the following red flags is commonly associated with fictitious expense reimbursement schemes?

Patterns when expense reimbursements are for the same amount

Which of the following is most likely the least effective methodology to detect cash larceny?

Visit the store and interview customers concerning their shopping experience.

What is the main purpose of practice aids in forensic and valuation services?

Provide useful information and guidance to practicing professionals

Which of the following best describes the contribution of ratio analysis to a forensic accounting or fraud examination engagement?

Ratio analysis may provide red flags or symptoms of fraudulent activity

Public records include

Real and personal property records, criminal and civil litigation records, stock trading activities for public companies by executives

What are red flags that fraudulent expense reporting is occurring?

Receipt numbers from the same place that are consecutive even though they occur over a long period of time, expense amounts ending in zero and expense amounts consistently under the threshold for requiring a receipt

Which of the following is not likely to deter financial statement fraud?

Reducing the amount of inventory on hand

What is the fraud in the form of falsified returns can be detected by physical inventories

Register Disbursement Fraud

Related to financial reporting disclosures, even when reported, which of the following still requires careful examination by the anti fraud professional?

Related Party Transactions

Which of the following is likely the least effective methodology to detect sales or accounts receivable skimming?

Review the accounts receivable employee personnel records for prior terminations for fraudulent activity

What is the internal control procedure that is most effective in preventing skimming?

Segregation of Duties

Which of the following is not one of the five major categories of fraudulent disbursements?

Shell Company Schemes

Which of the following best describes skimming?

Skimming involves the theft of cash prior to the cash entering the company's bank account and accounting system

Which of the following is not a methodology for the skimming of receivables and its related concealment

Voiding a sale after the customer leaves the premises

Which of the following is not a decision that needs to be made with regard to quantifying lost revenues and increased expenses

The appropriate regression software

What are some reasons senior managers issue fraudulent financial statements?

To conceal true business performance, to preserve personal status/control, To maintain personal income/wealth flowing from salary, bonus, and stock

What is the best way to prevent and detect conflicts of interest?

Transparent and full disclosure

Which of the following is a non-cash asset misappropriation scheme?

Using a company computer to operate an internet commerce site after business hours.

What is force balancing?

When a fraudster has a hand in both ends of the receipting process, he or she can falsify records to conceal the theft of receivables payments.

Related party transactions occur when

a company does business with another entity whose management or operating policies can be controlled, or significantly influenced, by the company or by some other common party