fraud - assignment 1
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 months
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
Approximately ____ of all frauds are committed by an individual acting alone. The remaining ____ involve collusion and often involve the ____ thefts.
71%, 29%, largest
Which of the following is a true statement?
A fraud perpetrator may start entertaining coworkers more often and more lavishly.
Which of the following should employers always obtain from the applicant to obtain information from references?
A hold harmless agreement
Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her means?
A person closely monitors his/her investments.
Identify a situation that could usually lead to a conflict of interest.
A purchase manager in the company runs an operation that produces the raw materials required by the company.
There are three simple procedures that small business owners should do on a timely basis to prevent fraud when they can't afford sufficient employees to guarantee effective segregation of duties. Which of the following is NOT one among them?
Allow one key employee to operate the bank account personally.
What does the following journal entry indicate? Legal Expense..................2,900 Cash...............................2,900
An attorney was paid $2,900 in cash.
An effective accounting system is designed to provide which of the following to help discover fraud?
An audit trail
Which of the following is a possible indication that fraud may be present?
An employee's lifestyle changes suddenly.
Which individual listed is most likely to commit financial statement fraud in order to benefit an organization?
An executive
_____ are relationships in financial or nonfinancial data that do not make sense, such as an unreasonable change in a volume, mix, or price
Analytical anomalies
An auditor noticed that Company B had an exorbitant increase in sales and drastic decreases in its inventory and accounts receivables. This statement symbolizes which fraud symptom?
Analytical anomaly
Increased scrap, excessive purchases, and physical abnormalities are examples of:
Analytical anomaly
Transactions happening at odd times or places; being performed by people who would not normally participate; or including odd procedures are typically associated with which type of fraud symptom?
Analytical anomaly
Which of the following is NOT a perceived pressure that can lead to employee fraud?
Anticipated actual financial reports that are below published expectations
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
Who in an organization is NOT in a good position to recognize fraud during the theft act?
Auditors
How does a smart embezzler manipulate accounting records to conceal fraud?
By increasing expenses
How is the confidence element established in a Ponzi scheme?
By paying returns to investors initially
To be successful, plaintiffs in civil cases must prove their case by which of the following?
By the preponderance of the evidence
Which of the following questions should be avoided during a job interview?
Can you tell me your birth date?
The most effective way to involve employees in the monitoring process is to provide a protocol for which of the following?
Communication
In which stage do auditors have a good chance of detecting fraud, if the audit samples include altered documents and miscounts?
Concealment
Which one of the following is NOT a characteristic of a criminal proceeding?
Consequences include restitution and damage payments.
Modeling and labeling are subcomponents of which fraud-related element of an organization?
Control environment
which of the following describes the overall tone of the organization that management establishes through its modeling and labeling, organization, communication, and other activities?
Control environment
Lifestyle changes of fraud perpetrators are related to which of the following fraud elements?
Conversion
____ focuses more on creating a culture of openness than eliminating opportunities.
Creating a positive work environment
Which of the following indicates proactive fraud auditing?
Creating an awareness among employees that their actions can be reviewed at any time
Which of the following statements is NOT true?
Criminal convictions are only successful if there is overwhelming, undeniable proof that the perpetrator "intentionally" stole money or other assets.
Which of the following is NOT a common financial pressure associated with fraud?
Desire to hurt employer financially
Document symptoms to some extent can signal that embezzlement is taking place. Which among the following usually does NOT point to some problem with the source documents?
Different names or addresses of payees or customers
Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud investigation?
Documentary
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
Given below are the profit margins and fraud-related losses of four economies. Which economy will have to generate the maximum dollar amount of additional revenues to recover the loss to aggregate income? Economy A: 10%, $225 million Economy B: 10%, $150 million Economy C: 5%, $100 million Economy D: 2%, $50 million
Economy D
Which of the following help employees deal with substance abuse (alcohol and drugs), gambling, money management, and health, family, and personal problems?
Employee Assistance Programs
Which of the following is the most common type of occupational fraud?
Employee embezzlement
Which of the following is a result of the presence of fraud prevention controls within an organization?
Employees are less likely to commit fraud.
Which level in the ethical maturity model can be summarized as a "willingness to pay the price for ethics"?
Ethical courage
Which is the highest level in the ethical maturity model?
Ethical leadership
Which of the following would NOT be acceptable as fraud-related experience to satisfy the education requirements to apply for CFE certification?
Experience in the Human Resources department of an organization
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
Greed, living beyond one's means, and high bills all describe what type of fraud-related pressure?
Financial
According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed on:
Form 8-K.
Which of the following statements is true?
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.
Which of the following key activities related to fraud is the most important and cost-effective way to reduce losses from fraud?
Fraud prevention
Which method will result in the biggest savings?
Fraud prevention--including EAP plans.
Which of the following is an example of a whistle-blowing system?
Fraud reporting hotline
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 a sign of a positive work environment?
Having positive personnel and operating procedures
Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?
Hiring the right kind of employees
What are the key attributes for a low-fraud environment?
Honesty, openness, and assistance
Which of the following should be emphasized in an employee reporting program? I. Fraud, waste, and abuse occur in few companies. II. The company actively encourages employees with information to come forward. III. The name of the employee reporting the fraud must be known. IV. The report need not be made to one's immediate supervisor.
II and IV
Which of the following should be emphasized in an employee reporting program?
II and IV II. The company actively encourages employees with information to come forward. IV. The report need not be made to one's immediate supervisor.
A good fraud auditing involves four steps. Which of the following is the correct sequence?
Identifying fraud risk exposures; identifying the fraud symptoms of each exposure; building audit programs to proactively look for symptoms and exposures; and investigating fraud symptoms identified.
What is the most widely recognized way to deter fraud?
Implement a good system of controls.
Which of the following is NOT a primary reason for increased size and number of frauds?
Increased centralization of businesses
Which of the following is a highly suspicious financial statement relationship?
Increased revenues with decreased receivables
Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?
Independent checks
Which of the following is true of the "swing group" of employees in organizations?
Individuals in this group have situational ethics
According to the text, which of the following is a consideration that influences the risk of fraud when identifying a company's fraud risks?
Industry characteristics
Which of the following is NOT a proactive hiring procedure?
Instilling in employees a desire to develop ethical awareness and courage to do the right thing
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 NOT a primary control procedure to minimize the occurrence of fraud?
Internal audit department
Which of the following observations concerning occupational fraud is NOT true?
It usually involves two or more employees
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?
It usually involves two or more employees.
Jim was a crook. He embezzled $450,000 from his employer. When his employer found out about his misdeeds, before even conducting a thorough investigation, he went and gave all the details to a local newspaper agency. The next day Jim read his own story, with his own name, in the newspaper. Which of the following is correct?
Jim may have been misrepresented in the story by the newspaper agency and the company might face legal consequences.
Fraud examiners must be able to recognize signals that a journal entry may have been manufactured to conceal a fraud. Which of the following is a common journal entry fraud symptom?
Journal entries made near the end of an accounting period
Which of the following is NOT a characteristic of management fraud?
Kickbacks or bribes
A fraud perpetrator used the float time between banks to give the impression that he had money in his accounts. Which crime is he committing?
Kiting
Company X has a good whistle-blowing program in place. Sara used the whistle-blowing system to alert management about a fraud being committed by a senior employee in the human resources department. The company investigated the allegation and punished the fraudster. However, Sara was shocked to find later that everyone on her team knew that she was the one who blew the whistle. What could be a major issue with the program at the company?
Lack of adherence to anonymity policies
Allowing the clerk who checked out customer A to handle a return by that same individual without presenting the receipt would NOT be an example of which of the following weaknesses in internal controls?
Lack of an adequate accounting system
Which of the following factors creates an opportunity for fraud?
Lack of an audit trial
Which of the following is true about legal action taken by organizations that are the victims of fraud?
Legal action is taken in fewer than half of frauds committed.
Which of the following is FALSE concerning legal actions by organizations regarding fraud?
Legal action stops future frauds
What is the strongest factor in deterring future fraud activity?
Legal prosecution
Which of the following fraud symptoms is often the easiest to detect?
Lifestyle changes
Which of the following is NOT an example of a fraud-fighting career?
Maintaining the security of public records
Which of the following frauds is usually the most expensive?
Management (financial statement) fraud
Which of the following is NOT a part of the evidence square?
Management evidence
Which of the following best describes an action that can cause a whistle-blowing system in place in the organization to fail?
Management is slow to act on reports of suspected fraud.
Which of the following possible actions may discourage an employee from reporting suspected fraudulent activities?
Management promises no prosecution of the individual if guilty.
What is the most important element in a control environment?
Management's role and example
Which of the following skills would be LEAST beneficial in a career as a fraud-fighting professional?
Mechanical skills
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 is NOT one of them
Memorization of the corporate code of ethics
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 is NOT one of them?
Memorization of the corporate code of ethics
Which of the following is an example of accounting anomaly fraud symptom?
Missing documents
Which of the following observations is true?
Most fraud perpetrators have profiles that are similar to those of other people.
Which of the following observations is true?
No internal control structure can ever be completely effective, regardless of the care followed in its design and implementation.
Which of the following allows managers and others to become aware of employees' pressures, problems, and rationalizations, thus enabling them to take fraud prevention steps?
Open-door policies
Which of the following is NOT an analytical fraud symptom?
Overriding of existing controls
The ACFE does NOT include which of the following major categories of occupational fraud?
Pension fraud
Which of the following explains the Pygmalion effect?
People generally perform according to a leader's expectations
Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?
Perceived opportunity
Investigative techniques under which approach include invigilation, surveillance, and covert operations?
Personal observation
What is the most cost-effective way to minimize the cost of fraud?
Prevention
Which of the following environments will be LEAST conducive to fraud?
Proactive management
Which of the following acts by management could discourage someone from reporting an observed act of fraud?
Providing a clear list of possible consequences
Which term refers to people who commit a fraud or other crime and do not feel guilt or stress
Psychopaths
Which term refers to people who commit a fraud or other crime and do not feel guilt or stress?
Psychopaths
Which of the following usually motivates embezzlers to indulge in a fraudulent activity?
Pursuit of immediate gratification
Who do criminologists compare fraudsters to in relation to repeat offenses and why?
Rapists. They repeat their crimes because they are not severely punished.
Which of the following about rationalization is NOT true?
Rationalizing is unnecessary when there are multiple opportunities present to commit fraud.
Which of the following would usually be an environment conducive to fraud?
Reactive rather than proactive management
An employee decides to steal cash from his/her employer. What would be the best way to conceal such a fraud?
Recording the stolen cash as an expense
_____ is the ability of the perpetrator to relate to the potential co-conspirator.
Referent power
Which of the following is a step that organizations should undertake while recruiting employees?
Require candidates to certify that all information on their résumé is accurate
Which of the following actions would most likely create an opportunity for fraud?
Requiring one password code for each entire department to enter the storeroom
A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a fraud scheme. Which type of power is the fraud perpetrator using?
Reward power
Which of the following is NOT a common accounting anomaly fraud symptom?
Rounding adjustments
Which of the following is an analytical fraud symptom?
Significant increase or decrease in account balances
Which of the following appears to be common to most embezzlers who are caught?
Spending on lifestyle improvements
Which of the following is a control problem related to segregation of duties?
Steve records receivables and writes off bad debts
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?
Swing group of employees who could be honest or dishonest
___________ require(s) every public company to have a code of ethics to help deter wrongdoing.
The Sarbanes-Oxley legislation
Which of the following is NOT an example of a control weakness or violation?
The employees know who has responsibility for each business activity. Procedures to follow are in place
Which of the following is NOT an example of a control weakness or violation?
The employees know who has responsibility for each business activity. Procedures to follow are in place.
Documents and records are an important control activity. Which of the following statements concerning this activity is true?
The entire accounting system serves as a documentary control.
Which of the following is a true statement regarding the fraud scale depicted in the text?
The greater the perceived opportunity to commit fraud, the less rationalization it takes to commit fraud.
What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?
The perpetrator may commit another fraud in the future.
Which of the following statements is accurate?
The presence of auditors provides a major deterrent effect.
In most organizations, coworkers and others have knowledge or suspicions that fraud is occurring but do not come forward with their information. There are several major reasons for this hesitancy. Which of the following is NOT one among them?
The suspicious action is not affecting their work
In most organizations, coworkers and others have knowledge or suspicions that fraud is occurring but do not come forward with their information. There are several major reasons for this hesitancy. Which of the following is NOT one among them?
The suspicious action is not affecting their work.
Which of the following observations concerning collusive frauds is true?
They are usually slower to develop than frauds committed by one individual.
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?
They provide only those statistics related to their jurisdiction.
Which of the following statements regarding fraud on behalf of an organization is true?
This type of fraud benefits top executives as it generally increases stock price.
Which legal code makes the bribing of public officials illegal?
Title 18, U.S. Code Section 201
Which of the following is NOT a work-related pressure?
Wanting to appear successful
Which of the following questions should be answered when considering fraud risk and fraud prevention?
Which employees are in the best position to commit fraud?
An employee who has the responsibilities of both writing checks and making bank deposits would have ____ to commit fraud.
a perceived opportunity
which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her means?
a person closely monitors his/her investments.
Research in moral development strongly suggests that honesty can be BEST reinforced when:
a proper example is set by management
Recording an expense to conceal fraud involves making a fictitious journal entry. A faulty journal entry is an example of which fraud symptom?
accounting anomaly
A "right-to-audit" clause:
alerts vendors that the company reserves the right to audit the vendor's books at any time.
Employee embezzlement can be direct or indirect. Indirect fraud occurs when:
an employee receives a kickback from a vendor
______ fraud symptoms are procedures or relationships that are unusual or that do not make sense.
analytical
Every fraud is comprised of all the following elements EXCEPT
assault
Every fraud is comprised of all the following elements EXCEPT:
assault
Which category of individuals is the least likely to detect fraud at the conversion stage?
auditors
Civil claims begin when one party files a complaint against another, usually for the purpose of:
being awarded financial restitution
The following are all elements of Title 26, U.S. Code Section 7201 EXCEPT:
bribes paid may be deducted as business expenses.
In the past, most frauds were detected:
by accident
Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?
capability
____________ is the ability of the fraud perpetrator to make an individual perceive punishment if he or she does not participate in the fraud.
coercive power
According to the study mentioned in the text, people who commit fraud are most similar to which of the following groups?
college students
the most effective way to involve employees in the monitoring process is to provide a protocol for which of the following?
communication
The word "con," which means to deceive, comes from the word:
confidence
Studies show that in advanced countries, levels of honesty are:
decreasing
Research has shown that ______ detect most frauds.
employees
Which level in the ethical maturity model can be summarized as a "willingness to pay the price for ethics"?
ethical courage
In the ethical maturity model, instilling in others a desire to develop ethical awareness and courage is referred to as:
ethical leadership
In fraud prosecution cases, ______ matter consists of the underlying data and all corroborating information available.
evidential
Which of the following is NOT a fraud symptom related to internal control weaknesses?
excessive turnover of executives
In an organization, individuals who suspect fraud usually don't come forward because they:
fear being branded as a whistle-blower.
Poor credit could become a ____ that could lead to fraud.
financial pressure
Management fraud is often referred to as:
financial statement fraud
Fraud statistics come from all of the following sources EXCEPT:
fraud perpetrators.
Which of the following is NOT one of the major types of fraud classification schemes?
government fraud
Research in psychology indicates that when people commit a crime (especially for the first time), they are initially overwhelmed by ____ and ____.
guilt and fear
One way to create and communicate clear expectations about what is and is not acceptable in an organization is:
having a clearly defined code of conduct in place
One way to create and communicate clear expectations about what is and is not acceptable in an organization is
having a clearly defined code of conduct in place.
One of the most important responsibilities of an employer is the hiring and retention of employees. Which of the following situations reflects the current market scenario?
high turnover, low loyalty
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:
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
Although there are multiple approaches to fraud investigation, most investigators tend to rely heavily on:
interviews
All transactions related to specific accounts, such as cash or inventory, are summarized in the:
ledger
An employee recently bought three new cars and remodeled his/her home. These facts would be considered as a:
lifestyle symptom.
All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT:
low turnover
Fraud in companies such as WorldCom, Enron, Waste Management, Sunbeam, Rite-Aid, Phar-Mor, and Parmalat are examples of:
management fraud.
Which of the following scenarios is least conducive to fraud?
mandatory vacation time
Which of the following is NOT a common rationalization of fraud perpetrators?
no one will care
Which of the following was NOT discussed as a way to create a culture of honesty and integrity?.
offer rewards for honest behavior
Which of the following is one of the three basic elements of the fraud motivation triangle?
opportunity
When management fraud occurs, companies usually:
overstate assets and net income.
organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:
pay big dividends
Civil suits are usually quite rare in cases of employee fraud because:
perpetrators have usually spent the money
The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.
physical evidence
According to Max Weber, ______ is the probability that a person can carry out his or her own will despite resistance.
power
_______ refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe a fraud has occurred, is occurring, or will incur.
predication
Which of the following is a prerequisite for a fraud investigation?
prediction
In order to detect fraud at the earliest, a manager should pay attention to:
present lifestyle
All of the following are part of the fraud element triangle EXCEPT:
rationalization
When perceived pressures and/or opportunities are low, a person needs more ________ to commit fraud.
rationalization
Customer fraud includes all of the following EXCEPT:
receiving improper payments through collusion between buyers and vendors
Many individuals, when persuaded by a trusted friend to participate in fraud, will rationalize the actions as being justifiable. Which type of power is being employed in such situations?
referent power
The GDP in the economy of Ponziland was $5 billion in the year prior to the frauds (Year 1). The economy was growing at 4 percent. Frauds during the year reduce aggregate income by $200 million. During the year, the economy has:
remained flat
What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?
resolution
A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a fraud scheme. Which type of power is the fraud perpetrator using?
reward 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
A good internal control system includes:
segregation of duties.
Preventive controls include:
segregation of duties.
Who are the primary victims of financial statement fraud?
stockholders
Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation, and honesty tests?
testimonial evidence
The Anti-Kickback Act of 1986 intends to prevent:
the giving or receiving of anything of value by a subcontractor to a prime contractor in U.S. government contracts.
The elements of fraud include all of the following EXCEPT:
the misrepresentation is known to the victim.
When only a very small amount of money has been embezzled:
the perpetrator should be prosecuted
hen only a very small amount of money has been embezzled:
the perpetrator should be prosecuted.
Most fraud perpetrators have profiles that look like:
those of other honest people.
Fraud is most commonly detected by:
tips and complaints.
Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?
tone at the top
The correct order of the six elements of the fraud-fighting model is:
tone at the top; education and training; integrity risk and controls; reporting and monitoring; proactive detection; investigation and follow-up.
Which of the following is NOT an element of a good control environment?
trust
