Fraud Examination Finals
When a billing scheme is occurring, the company's expenses appear lower than they should, causing the financial statements to show falsely inflated profits.
False
Which of the following actions is least likely to help prevent and detect schemes involving fraudulent invoices from non-accomplice vendors?
Matching all bank statement items to canceled checks
In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. What was the first sign that there were more problems than the initial expense reimbursement fraud?
The administrative assistant suddenly left town when requested to be interviewed.
In the 2012 Report to the Nations on Occupational Fraud and Abuse, financial statement fraud had a higher median loss than asset misappropriation and corruption schemes.
True
Invoices that are submitted by shell companies can be for fictitious goods or services or for items that were actually sold to the victim company.
True
Mandating supervisory approval for write-offs or discounts can help prevent receivables skimming schemes.
True
Running a report that summarizes user access for the sales, accounts receivable, cash receipt, and general ledger systems during non-business hours might identify a cash larceny scheme.
True
To a fraudster, the principle advantage of skimming is the difficulty with which the scheme is detected.
True
To prevent cash larceny through falsification of cash counts, an independent employee should verify the cash count in each register or cash box at the end of each shift.
True
In a fraud examination, evidence is usually gathered in a manner that moves from general to specific. T/F
True
Which of the following techniques is not used to conceal sales skimming schemes?
Recording false voids
The most important factor in preventing cash larceny from the deposit is:
Separating the duties of the deposit function
According to Cressey, the perceived opportunity to commit fraud consists of two elements: general information and technical skill. T/F
True
Peggy Booth is the bookkeeper for an equipment rental company. After recording the cash sales and preparing the bank deposit, she takes $200 dollars from the total. This is an example of a skimming scheme.
False
Which of the following antifraud controls can help prevent and detect cash larceny from the deposit?
All of the above (Having two copies of the bank statement delivered to different persons in an organization, Comparing the bank authenticated deposit slip with the general ledger posting of the day's receipts, Preparing the deposit slip to show each individual check and money order along with currency receipts)
Predication, although important, is not required in a fraud examination. T/F
False
When Jill Michaels, an assistant to the director of procurement, moved into her new home, she used the company's flat bed truck to move her furnishings on an afternoon when her boss was out of town. Which of the following best describes Michael's act?
Abuse
Fraud examination differs from auditing in that fraud examination is:
Adversarial
Methods of skimming sales include which of the following?
All of the above (Conducting unauthorized sales after hours, Rigging the cash register so that the sale is not recorded, Posting a sale for less than the amount collected)
In one of the case studies in the textbook, Albert Miano, the facilities supervisor for a popular magazine, submitted phony invoices. When Miano received the checks for the phony invoices, he forged the contractor's signature. He then endorsed the check in his own name. What controls weaknesses did the company have that facilitated Miano's scheme?
All of the above (Employees in the accounts payable department did not follow departmental procedures., Accounts payable never checked signatures on the invoices against the authorized signatures on file., Miano was allowed to pick up the approved invoices from the administrative vice-president's office and deliver them to the accounts payable department.)
Which of the following computer audit tests can be used to detect billing schemes?
All of the above (Extracting manual checks and summarizing by vendor and issuer, Extracting a sample of vendor open invoices for confirmation with the vendor, Extracting delivery addresses that do not correspond to company locations)
Which of the following methods can be used to conceal a larceny scheme that occurred at the point of sale?
All of the above (Falsifying the cash count, Destroying the register tape, Stealing from another employee's register)
Skimming involves the theft of money that has already appeared on a victim's books, while cash larceny involves stealing money before it has been recorded.
False
Warning signs of a shell company scheme include which of the following?
All of the above (Invoices lacking details of the items purchased, A vendor that is not listed in the phone book, An unexpected and significant increase in "consulting expenses")
Victor Jackson, CFE, was hired by BRS Carpet and Tile to investigate possible cash larceny at the point of sale. Which of the following red flags should he look for?
All of the above (Large differences between sales records and cash on hand, Unusual journal entries to the cash accounts, A large number of small differences between sales records and cash on hand)
Jeff Lewis is an accounts receivable clerk for FTB Industries. As customers pay off their balances, Lewis posts the payments but pockets the money. He can conceal his theft by:
All of the above (Making unsupported entries for the amount stolen, Adjusting the account with a discount, Destroying the records)
Procedures that can be used to prevent and/or detect receivables skimming include which of the following?
All of the above (Reconciling the bank statement regularly, Mandating that employees take annual vacations, Performing a trend analysis on the aging of customer accounts)
In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. Which of the following red flags were found during the investigation?
All of the above (Some vendors didn't have street addresses or telephone numbers., Invoices were received for just under the amount that required two authorized signatures., Some of the checks were cashed at check cashing companies.)
In one of the case studies in the textbook, Stefan Winkler was the controller for a beverage company in south Florida. Money was collected by either the delivery drivers who brought in the cash and checks from their route customers (route deposits), or by credit customers who mailed in their payments (office deposits). Winkler stole cash from the route deposits and made up for it by using checks from the office deposits. How did Winkler conceal his crime?
All of the above (He altered electronic files, He stole cash receipt journals, copies of customer checks, and deposit slips, and he removed his personal file)
Arthur Baxter, a manager in records retention for SWC Company, has ordered seven laptop computers for his department, even though he only has five employees. In addition to each laptop, he ordered extra copies of several software programs. When the equipment arrives, Baxter sends one of the extra laptops to his son who is a freshman at Eastern University and sells three of the original software packages to friends. Which of the following offenses could Baxter be charged with?
All of the above (Larceny, Embezzlement, Conversion)
Receivables skimming can be concealed through:
All of the above: Lapping, Force balancing, Document destruction
Once sufficient predication has been established, what is the first step a fraud examiner following the fraud theory approach should take?
Analyze data.
In a shell company scheme, which of the following methods might a fraudster use to get a phony invoice approved for payment?
Any of the above (Collusion, A "rubber stamp" supervisor, Falsification of purchase orders and receiving reports)
Where do most larceny schemes involving cash occur?
At the point of sale
In one of the case studies in the textbook, Brian Lee, a top-notch plastic surgeon, collected payments from his patients without giving a cut to the clinic where he practiced. How was his fraud discovered?
By accident
In a ______________ scheme, the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose.
Billing
Purchasing personal items using an organization's money is what type of scheme?
Billing scheme
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the most common fraudulent disbursement schemes were:
Billing schemes
To cover up a skimming scheme in which the employee takes cash from the register, the employee must make a voided sale in order for the register to balance.
False
The two categories of cash receipts schemes are:
Cash larceny and skimming
If discrepancies are found between the sales records and the cash on hand, which of the following schemes might be occurring?
Cash larceny at the point of sale
What is the primary difference between cash larceny and skimming?
Cash larceny is an on-book scheme; skimming is an off-book scheme.
Danielle Boyle, CFE, was hired to investigate some suspicious activity in the accounts receivable department at Red Technologies. While examining the company's accounting records, she noticed several payments posted to customers' accounts that were later reversed with journal entries to "courtesy discounts." What type of scheme might this situation indicate?
Cash larceny of receivables
Which of the following procedures would not be useful in preventing and detecting sales skimming schemes?
Comparing register tapes to the cash drawer and investigating discrepancies
In the Fraud Tree, asset misappropriations are broken down into cash and non-cash schemes. Which of the following is not considered a misappropriation of cash?
Concealed expenses
According to the 2012 Report to the Nations on Occupational Fraud and Abuse, skimming schemes are both the most common and the most costly type of cash misappropriation scheme.
False
In the 2012 Report to the Nations on Occupational Fraud and Abuse, most perpetrators of fraud had been previously charged with or convicted of a fraud-related offense.
False
Larceny schemes are generally more difficult to detect than skimming schemes.
False
Most shell company schemes involve the purchase of goods rather than services.
False
Dorothy McNally stole $232 from the company deposit while on the way to the bank. She can conceal the theft by recording the missing amount on the bank reconciliation as a(n):
Deposit in transit
Mel Turner, the runner for a small bookstore, had a bad habit of helping himself to cash from the deposit on the way to the bank. He covered his tracks by substituting a check from the next day's deposit for the amount he stole from the previous day's deposit. This is an example of what type of concealment?
Deposit lapping
All of the following are ways a fraudster might conceal cash larceny from the deposit except:
Destroying customer statements
The discipline of fraud examination includes all of the following except:
Determining the guilt of the suspect
In the 2012 Report to the Nations on Occupational Fraud and Abuse, the category that committed the smallest percentage of occupational fraud was:
External parties
In one of the case studies in the textbook, Bill Gurado was a branch manager for a consumer-loan finance company in New Orleans who decided to help himself to the daily deposits. Instead of depositing the money into the company's bank account, he deposited the money to his own personal account. How was the case settled?
Gurado was terminated and he immediately paid back the money.
In one of the case studies in the textbook, Bill Gurado was a branch manager for a consumer-loan finance company in New Orleans who decided to help himself to the daily deposits. Instead of depositing the money into the company's bank account, he deposited the money into his own personal account. How was Gurado's fraud discovered?
He suspected he was on the verge of being caught, called the company's president, and confessed that he had taken the money.
In one of the case studies in the textbook, Brian Lee, a top-notch plastic surgeon, collected payments from his patients without giving a cut to the clinic where he practiced. What was his motivation for committing the fraud?
He was greedy.
In one of the case studies in the textbook, Laura Grove was the head teller at a bank in Tennessee. As the head teller, she had the authority to open the night depository along with another teller. For security reasons, each teller only had half of the combination to the vault. In the end, Grove opened the vault and stole two deposit bags worth approximately $16,000. How was she ultimately caught?
Her husband found the bank's money and turned her in.
Research in the Hollinger-Clark study suggests that the best way to deter employee theft is by:
Increasing the perception of detection
In order to prove that fraud occurred, four elements must be present. Which of the following is not one of those elements?
Intent to cause the victim damages
According to the results of the Hollinger-Clark study, employees steal primarily because of:
Job dissatisfaction
Which of the following computer audit tests can be used to detect skimming schemes?
Joining the customer statement report file to the accounts receivable and reviewing for balance differences
A method of concealing receivables skimming by crediting one account while abstracting money from a different account is known as:
Lapping
Sue Meyers was an accounts receivable clerk for an insurance broker. When premium payments were received, she would steal the check of every tenth customer and cash it at a liquor store. To conceal her scheme, she would credit the account of the customer that she stole from with a payment that was received from another customer's account. This is an example of:
Lapping
Joel Baker, a customer of ABC Electronics, stole a box containing computer games while the sales associate waited on another customer. Which of the following could Joel be charged with?
Larceny
Jan Ashley worked for the R&S Department Store as a sales associate in the fine linens department. As she would give change back to a customer for cash sales, she would also pull out a $10 bill and slip it in her pocket. She concealed her scheme by issuing one false refund at the end of her shift for the total amount she stole that day. This is an example of what type of scheme?
Larceny at the point of sale
In a study by Steve Albrecht, Marshall Romney, and Keith Howe, participants were asked to rank personal characteristics as motivating factors that contributed to fraud. The highest ranked factor was:
Living beyond one's means
In one of the case studies in the textbook, Stefan Winkler was the controller for a beverage company in south Florida. Money was collected by either the delivery drivers who brought in the cash and checks from their route customers (route deposits), or by credit customers who mailed in their payments (office deposits). Winkler stole cash from the route deposits and made up for it by using checks from the office deposits. Which of the following red flags were present that could have alerted the company to the fraud?
Missing deposit slips
Which of the following controls can be used to prevent or detect personal purchases on company credit cards?
Monitoring credit card expenses for unexplained increases in purchasing levels
Which of the following is the correct order for a fraud examiner to interview witnesses?
Neutral third-parties, corroborative witnesses, co-conspirators, suspect
Abby Watkins works in the accounts payable department for SVX Company. Recently, she set up a payment to Pacific Industries for invoice number 7001a, which is unlike any invoice number she has seen from Pacific in the past. The voucher contains a purchase order that backs up the invoice, but it looks like a photocopy. Additionally, the accounting system shows that invoice number 7001 from Pacific was for a slightly different amount and has already been paid. Pacific Industries is an established vendor with SVX, but the payment address has recently been changed to a P.O. Box in the vendor file. What type of fraud does this situation most likely indicate?
Non-accomplice vendor scheme
Eddie Dolan is the manager of shipping and receiving and has been working at the UFA Company for twenty years. He rarely calls in sick and gets good performance reviews every year. For the past year, his wife's company, ABC Co., has been in serious financial trouble. ABC Co. likely will not be able to make the payroll for next month and may have to close down. Which leg of the Fraud Triangle best applies to Dolan's situation?
Non-sharable financial need
Sally Fuller is a buyer for GWA publishing company. Her job is to purchase supplies and services for the printing of technical manuals. Her brother sets up a printing company, and Sally hires him to print most of these manuals for GWA. However, rather than actually printing the manuals, her brother hires another printer to do the work, then sells the printed manuals to GWA at a 50 percent markup. As a result, his prices are much higher than the other printers who serve GWA. This type of scheme is most likely a:
Pass-through scheme
Charles Dieter and Joey Davis worked together to steal nearly $50,000 from Valdosta Medical Supply. Charles, an accounts payable clerk, deliberately overpaid a few of the company's vendors. He then called the vendors, explained the "mistake," and asked for the excess to be refunded. Joey, a mailroom employee, intercepted the incoming refund checks and cashed them. The two men split the proceeds. What type of scheme did Charles and Joey commit?
Pay-and-return
____________________ are schemes in which the employee intentionally mishandles payments that are owed to legitimate vendors.
Pay-and-return schemes
Eli Adams is an accounts payable clerk for MJF Productions. By forging signatures, he was able to procure a company credit card. He recently bought home stereo equipment and put it on his company credit card. When the credit card statement arrived at MJF, Eli prepared a check to the credit card company and buried the purchase in the monthly expenses of the company's largest cost center, knowing that his manager is generally inattentive when approving payments. What type of fraud is this?
Personal purchases scheme
In a study by Steve Albrecht, Marshall Romney, and Keith Howe, participants were asked to rank characteristics of the organizational environment that contributed to fraud. The highest ranked factor was:
Placing too much trust in key employees
A pass-through scheme is usually undertaken by someone who works in which department?
Purchasing
Alice Durant works in the accounts payable department for the BC Group. She recently found out that Della Granger, another A/P clerk, received a bigger raise than she did, even though Durant has been with the company longer and frequently has to correct Granger's errors. Which leg of the Fraud Triangle best applies to Durant's situation? Motive
Rationalization
Myra Manning, CFE, was hired to investigate some suspicious activity at Arizona Medical Supply after one of the company's largest customers complained several times that its account statements do not reflect all the payments it has made. While examining the accounts receivable activity, Myra noticed a significant rise in the volume of overdue accounts during the last 6 months. What type of scheme might this situation indicate?
Receivables skimming
Methods for concealing larceny of receivables include which of the following?
Reversing entries
Nicolas Hill, CFE, has been hired to look into suspicious activity at Mason & Jefferson, LLC. The company's controller has reason to believe that the company has fallen victim to a shell company scheme. As part of his investigation, Nicolas should do which of the following?
Review payments with little or no sequence between invoice numbers
George Albert was a property manager for a large apartment complex while he was going to college. One of his duties was to collect rent from the tenants. If rent was paid after the third of the month, a late fee was tacked on to the amount due. When a tenant paid his rent late, George would backdate the payment, record and remit only the rent portion to his employers, and pocket the late fee. This is an example of what type of fraud?
Sales skimming
Samantha Lewis, CFE, is conducting an investigation into possible skimming of the accounts receivable at Southwest Paint and Supply Co. If Lewis plans to interview all of the following parties, whom should she interview first?
Sean Miles, a regular customer of the company, whose complaint about his account balance prompted the investigation
In one of the case studies in the textbook, Laura Grove was the head teller at a bank in Tennessee. As the head teller, she had the authority to open the night depository along with another teller. For security reasons, each teller only had half of the combination to the vault. In the end, Grove opened the vault and stole two deposit bags worth approximately $16,000. How was the case settled?
She was prosecuted but received probation in lieu of prison time.
Fictitious entities created for the sole purpose of committing fraud are called:
Shell companies
Categories of billing schemes include which of the following?
Shell company schemes
Which of the following is not one of the legs of the Fraud Triangle?
Situational environment
____________________ is the theft of cash from a victim entity prior to its entry in an accounting system.
Skimming
Which of the following computer audit tests would be the least useful in detecting a cash larceny scheme?
Summarizing the top sales producers by employee
The concealment of receivables skimming can be difficult because:
The incoming payments are expected.
In one of the case studies in the textbook, Albert Miano, the facilities supervisor for a popular magazine, submitted phony invoices. When Miano received the checks for the phony invoices, he forged the contractor's signature. He then endorsed the check in his own name. How was the fraud caught?
The new chief of internal audit found it by accident.
In one of the case studies in the textbook, a Southeastern medical college was plagued with fraudulent activity. What started as an investigation into some suspicious expense reimbursement activity eventually led to the discovery of a fictitious company that was set up to fraudulently bill the college for supplies that never existed. How was the case resolved?
The perpetrator was convicted and placed on probation, and partial restitution was ordered.
Which of the following best describes the objective of a fraud examination?
To determine whether a crime has been committed, and if so, who is responsible
Asset misappropriations are broken down into two categories: cash schemes and non-cash schemes. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash schemes are much more common than non-cash schemes.
True
Cash misappropriations are divided into two broad groups: fraudulent disbursements schemes and cash receipts schemes.
True
Computing the percentage of assigned time to unassigned time for employees is one method to detect an employee skimming scheme.
True
The customer service department at JNC, Inc. has been receiving phone calls from customers for whom there is no record. This is a red flag of what type of scheme?
Unrecorded sales
Who developed the Fraud Scale?
W. Steve Albrecht
While conducting a routine internal audit, Sally Franks overheard one of the company's purchasing agents bragging about receiving a substantial discount on a new SUV from the company's supplier of fleet cars. Is there sufficient predication to initiate a fraud examination?
Yes
