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314 Cards in this Set
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Which of the following best describes the objective of a fraud examination? a. To make recommendations to management about how to prevent fraud b. To determine whether financial statements are free of misstatements due to fraud c. To express an opinion on the guilt or innocence of a suspect d. To determine whether a crime has been committed, and if so, who is responsible |
d. To determine whether a crime has been committed, and if so, who is responsible |
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Which of the following is not a part of the fraud theory approach? a. Analyze available data. b. Develop “what-if” scenarios. c. Identify who committed the fraud. d. Refine the hypothesis. |
c. Identify who committed the fraud. |
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Once sufficient predication has been established, what is the first step a fraud examiner following the fraud theory approach should take? a. Create a hypothesis. b. Analyze data. c. Interview witnesses. d. Interview the suspect. |
b. Analyze data. |
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The discipline of fraud examination includes all of the following except: a. Writing investigative reports b. Determining the guilt of the suspect c. Testifying to findings d. Interviewing witnesses |
b. Determining the guilt of the suspect |
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Fraud examination differs from auditing in that fraud examination is: a. Recurring b. Adversarial c. General in scope d. All of the above |
b. Adversarial |
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Predication, although important, is not required in a fraud examination. a. True b. False |
b. False |
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In a fraud examination, evidence is usually gathered in a manner that moves from general to specific. a. True b. False |
a. True |
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Which of the following is the correct order for a fraud examiner to interview witnesses? a. Corroborative witnesses, neutral third-parties, co-conspirators, suspect b. Suspect, co-conspirators, corroborative witnesses, neutral third-parties c. Neutral third-parties, corroborative witnesses, co-conspirators, suspect d. Suspect, corroborative witnesses, co-conspirators, neutral third-parties |
c. Neutral third-parties, corroborative witnesses, co-conspirators, suspect |
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In order to prove that fraud occurred, four elements must be present. Which of the following is not one of those elements? a. A material false statement b. Knowledge that the statement was false c. Reliance on the false statement by the victim d. Intent to cause the victim damages |
d. Intent to cause the victim damages |
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The basic tenet of Edwin Sutherland’s theory of differential association is that crime is passed on genetically; that is, the offspring of criminals commit crimes because their parents did. a. True b. False |
b. False |
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Who developed the Fraud Scale? a. Joseph T. Wells b. W. Steve Albrecht c. Richard C. Hollinger d. Donald R. Cressey |
b. W. Steve Albrecht |
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Which of the following is not one of the legs of the Fraud Triangle? a. Situational environment b. Perceived non-sharable financial need c. Perceived opportunity d. Rationalization |
a. Situational environment |
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According to Cressey, the perceived opportunity to commit fraud consists of two elements: general information and technical skill. a. True b. False |
a. True |
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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: a. Undue family or peer pressure b. Lack of recognition of job performance c. Living beyond one’s means d. Lack of appreciation by management |
c. Living beyond one’s means |
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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: a. Lack of clear lines of authority b. Inadequate attention to detail c. Lack of an internal audit function d. Placing too much trust in key employees |
d. Placing too much trust in key employees |
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Research in the Hollinger-Clark study suggests that the best way to deter employee theft is by: a. Increasing sanctions imposed on occupational fraudsters b. Increasing the perception of detection c. Strengthening internal controls d. Communicating the organization’s fraud policies to employees |
b. Increasing the perception of detection |
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According to the results of the Hollinger-Clark study, employees steal primarily because of: a. Job dissatisfaction b. Greed c. Informal organizational structures d. Economic pressures |
a. Job dissatisfaction |
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In the 2012 Report to the Nations on Occupational Fraud and Abuse, the category that committed the smallest percentage of occupational fraud was: a. Managers b. Employees c. Owners/Executives d. External parties |
d. External parties |
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In the 2012 Report to the Nations on Occupational Fraud and Abuse, the median loss in schemes committed by males was higher than the median loss in schemes committed by females. a. True b. False |
a. True |
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In the 2012 Report to the Nations on Occupational Fraud and Abuse, most frauds were initially detected during an external audit. a. True b. False |
b. False |
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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. a. True b. False |
a. True |
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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. a. True b. False |
b. False |
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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? a. Larceny b. Embezzlement c. Fraud d. All of the above |
d. All of the above |
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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? a. Yes b. No |
a. Yes |
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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? a. Fraud b. Abuse c. Embezzlement d. Larceny |
b. Abuse |
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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? a. Motive b. Perceived opportunity c. Rationalization d. Non-sharable financial need |
d. Non-sharable financial need |
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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? a. Motive b. Perceived opportunity c. Rationalization d. Non-sharable financial need |
c. Rationalization |
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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? a. Larceny b. Embezzlement c. Conversion d. All of the above |
d. All of the above |
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Richard Moore is the controller for Ajax Company. Recently, he suffered several large losses at the race track, causing him to incur enormous personal debts. Which type of non-sharable financial problem best describes Richard’s situation? a. Business reversal b. Physical isolation c. Violation of ascribed obligations d. Status gaining |
c. Violation of ascribed obligations |
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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? a. Marie Riley, the primary suspect b. Jose Rodriguez, an accounts receivable clerk who filled in for Riley while she was on vacation c. Sean Miles, a regular customer of the company, whose complaint about his account balance prompted the investigation d. Thomas Banks, Riley’s supervisor, who is suspected of helping Riley cover up the fraud in exchange for a portion of the proceeds |
c. Sean Miles, a regular customer of the company, whose complaint about his account balance prompted the investigation |
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____________________ is the theft of cash from a victim entity prior to its entry in an accounting system. a. A fictitious disbursement b. Skimming c. Larceny d. Conversion |
b. Skimming |
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To a fraudster, the principle advantage of skimming is the difficulty with which the scheme is detected. a. True b. False |
a. True |
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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. a. True b. False |
b. False |
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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? a. Larceny b. Skimming c. Concealed expenses d. Fraudulent disbursements |
c. Concealed expenses |
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Methods of skimming sales include which of the following? a. Conducting unauthorized sales after hours b. Rigging the cash register so that the sale is not recorded c. Posting a sale for less than the amount collected d. All of the above |
d. All of the above |
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Skimming can be either an on-book scheme or an off-book scheme, depending on whether cash or a check is stolen. a. True b. False |
b. False |
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Which of the following procedures would not be useful in preventing and detecting sales skimming schemes? a. Comparing register tapes to the cash drawer and investigating discrepancies b. Summarizing the net sales by employee and extracting the top employees with low sales c. Installing video cameras at cash entry points d. Offering discounts to customers who do not get receipts for their purchases |
a. Comparing register tapes to the cash drawer and investigating discrepancies |
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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. a. True b. False |
b. False |
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Which of the following techniques is not used to conceal sales skimming schemes? a. Lapping b. Inventory padding c. Destroying records of transaction d. Recording false voids |
d. Recording false voids |
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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? a. Receivables skimming b. Shell company c. Unrecorded sales d. None of the above |
c. Unrecorded sales |
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Skimming receivables is generally more difficult to conceal than skimming sales. a. True b. False |
a. True |
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The concealment of receivables skimming can be difficult because: a. The audit trail must be destroyed. b. The incoming payments are expected. c. Inventory must be padded to conceal shrinkage. d. All of the above |
b. The incoming payments are expected. |
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Receivables skimming can be concealed through: a. Lapping b. Force balancing c. Document destruction d. All of the above |
d. All of the above |
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A method of concealing receivables skimming by crediting one account while abstracting money from a different account is known as: a. Account substitution b. Kiting c. Lapping d. Plugging |
c. Lapping |
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Procedures that can be used to prevent and/or detect receivables skimming include which of the following? a. Reconciling the bank statement regularly b. Mandating that employees take annual vacations c. Performing a trend analysis on the aging of customer accounts d. All of the above |
d. All of the above |
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Mandating supervisory approval for write-offs or discounts can help prevent receivables skimming schemes. a. True b. False |
a. True |
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Which of the following computer audit tests can be used to detect skimming schemes? a. Summarizing by employee the difference between the cash receipt report and the sales register system b. Identifying unique journal entries to the cash account c. Joining the customer statement report file to the accounts receivable and reviewing for balance differences d. Extracting invoices paid by cash |
c. Joining the customer statement report file to the accounts receivable and reviewing for balance differences |
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Computing the percentage of assigned time to unassigned time for employees is one method to detect an employee skimming scheme. a. True b. False |
a. True |
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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. a. True b. False |
a. True |
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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. a. True b. False |
b. False |
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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? a. Larceny b. Sales skimming c. Fraudulent write-offs d. Plugging |
b. Sales skimming |
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Anne Mullens is the bookkeeper for DWG Refrigeration Repair. One afternoon while she was preparing the bank deposit, a customer came in to the office and paid his account in full with a $57 check. Rather than adding the check to the deposit, Anne pocketed $57 cash from the previously recorded amount and included the customer’s check in the money to be taken to the bank. What type of scheme did Anne commit? a. Larceny b. Kiting c. Skimming d. Currency balancing |
c. Skimming |
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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: a. Force balancing b. Lapping c. Understating sales d. A forged endorsement scheme |
b. Lapping |
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Jason Herman works part-time as a retail clerk at a local bookstore. One night while his manager was out of town, Jason decided to keep the store open for a few extra hours. He reset the cash registers at the normal closing time, but continued making sales. Two hours later, when he closed for the night, he reset the registers again, removing all evidence that any extra transactions had been made, and pocketed the money from the after-hours sales. What kind of scheme did Jason commit? a. Register disbursement b. Force balancing c. Receivables skimming d. Unrecorded sales |
d. Unrecorded sales |
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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? a. Cash larceny b. Shell company c. Receivables skimming d. False refunds |
c. Receivables skimming |
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Cash misappropriations are divided into two broad groups: fraudulent disbursements schemes and cash receipts schemes. a. True b. False |
a. True |
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The two categories of cash receipts schemes are: a. Lapping and skimming b. Lapping and cash larceny c. Cash larceny and skimming d. Skimming and billing schemes |
c. Cash larceny and skimming |
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What is the primary difference between cash larceny and skimming? a. Cash larceny is an on-book scheme; skimming is an off-book scheme. b. Cash larceny is an off-book scheme; skimming is an on-book scheme. c. Cash larceny is a disbursement scheme; skimming is a cash receipts scheme. d. Cash larceny involves cash only; skimming can involve either cash or checks. |
a. Cash larceny is an on-book scheme; skimming is an off-book scheme. |
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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. a. True b. False |
b. False |
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Where do most larceny schemes involving cash occur? a. In the accounting department b. In the mailroom c. At the point of sale d. At off-site locations |
c. At the point of sale |
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Larceny schemes are generally more difficult to detect than skimming schemes. a. True b. False |
b. False |
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Which of the following methods can be used to conceal a larceny scheme that occurred at the point of sale? a. Falsifying the cash count b. Destroying the register tape c. Stealing from another employee’s register d. All of the above |
d. All of the above |
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If discrepancies are found between the sales records and the cash on hand, which of the following schemes might be occurring? a. Cash larceny at the point of sale b. Cash larceny from the deposit c. Fraudulent disbursements d. Sales skimming |
a. Cash larceny at the point of sale |
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The central weakness of a cash larceny scheme is the resulting imbalance in the organization’s accounting records. a. True b. False |
a. True |
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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. a. True b. False |
a. True |
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Methods for concealing larceny of receivables include which of the following? a. Lapping b. Stolen statements c. Reversing entries d. All of the above |
c. Reversing entries |
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Deposit lapping is considered an off-book scheme. a. True b. False |
b. False |
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All of the following are ways a fraudster might conceal cash larceny from the deposit except: a. Posting missing money as “deposits in transit” b. Deposit lapping c. Falsifying the bank copy of the deposit slip d. Destroying customer statements |
d. Destroying customer statements |
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The most important factor in preventing cash larceny from the deposit is: a. Separating the duties of the deposit function b. Having two employees deliver the deposit to the bank c. Having a visible management presence in the mailroom d. None of the above |
a. Separating the duties of the deposit function |
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Which of the following antifraud controls can help prevent and detect cash larceny from the deposit? a. Having two copies of the bank statement delivered to different persons in an organization b. Comparing the bank authenticated deposit slip with the general ledger posting of the day’s receipts c. Preparing the deposit slip to show each individual check and money order along with currency receipts d. All of the above |
d. All of the above |
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Which of the following computer audit tests would be the least useful in detecting a cash larceny scheme? a. Summarizing the difference between the cash receipt report and the sales register system by employee b. Summarizing the top sales producers by employee c. Summarizing discounts, returns, and cash receipt adjustments by employee d. Reviewing all unique journal entries in the cash accounts |
b. Summarizing the top sales producers by employee |
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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. a. True b. False |
a. True |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash larceny schemes had the largest median loss of all cash misappropriations. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash larceny schemes were the least common form of cash misappropriations. a. True b. False |
a. True |
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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? a. Sales skimming b. Larceny at the point of sale c. Lapping d. Larceny at the deposit |
b. Larceny at the point of sale |
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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): a. Deposit in transit b. Outstanding check c. Credit memo d. None of the above |
a. Deposit in transit |
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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: a. Making unsupported entries for the amount stolen b. Adjusting the account with a discount c. Destroying the records d. All of the above |
d. All of the above |
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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? a. Deposits in transit b. Deposit lapping c. Force balancing d. None of the above |
b. Deposit lapping |
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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? a. Large differences between sales records and cash on hand b. Unusual journal entries to the cash accounts c. A large number of small differences between sales records and cash on hand d. All of the above |
d. All of the above |
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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? a. Receivables skimming b. Deposit lapping c. Cash larceny of receivables d. Shell company |
c. Cash larceny of receivables |
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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. Which of the following red flags made the investigators suspect Laura? a. The security system showed that she was the last one to leave the bank on the day before the bags were stolen. b. She broke out in a rash when she was interviewed. c. During the interview she made a point of mentioning that the other teller had been having financial problems. d. All of the above |
b. She broke out in a rash when she was interviewed. |
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Categories of billing schemes include which of the following? a. Shell company schemes b. Larceny billing schemes c. Fictitious disbursements schemes d. All of the above |
a. Shell company schemes |
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When a billing scheme is occurring, the company’s expenses appear lower than they should, causing the financial statements to show falsely inflated profits. a. True b. False |
b. False |
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In a ______________ scheme, the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose. a. Purchasing b. Skimming c. Larceny d. Billing |
d. Billing |
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In the Fraud Tree, all of the following are categories of fraudulent disbursements except: a. Payroll schemes b. Cash larceny c. Check tampering d. Billing schemes |
b. Cash larceny |
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Fictitious entities created for the sole purpose of committing fraud are called: a. Ghost companies b. Non-accomplice vendors c. Shell companies d. “Rubber stamp” companies |
c. Shell companies |
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Most shell company schemes involve the purchase of goods rather than services. a. True b. False |
b. False |
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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. a. True b. False |
a. True |
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In order to start up a shell company, the fraudster will most likely need which of the following? a. Certificate of incorporation b. Mailing address c. Bank account d. All of the above |
d. All of the above |
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Producing an invoice that looks professional is the most difficult part of a shell company scheme. a. True b. False |
b. False |
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Warning signs of a shell company scheme include which of the following? a. Invoices lacking details of the items purchased b. A vendor that is not listed in the phone book c. An unexpected and significant increase in “consulting expenses” d. All of the above |
d. All of the above |
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A pass-through scheme is usually undertaken by someone who works in which department? a. Accounts payable b. Receiving c. Purchasing d. Accounts receivable |
c. Purchasing |
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Which of the following actions is least likely to help prevent and detect schemes involving fraudulent invoices from non-accomplice vendors? a. Marking “paid” on every voucher that has been paid b. Verifying vendor address changes before disbursements are issued c. Matching all bank statement items to canceled checks d. Separating the duties of purchasing, authorizing, and distributing payments |
c. Matching all bank statement items to canceled checks |
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____________________ are schemes in which the employee intentionally mishandles payments that are owed to legitimate vendors. a. Pass-through schemes b. Pay-and-return schemes c. Shell company schemes d. Switch-and-swap schemes |
b. Pay-and-return schemes |
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In a shell company scheme, which of the following methods might a fraudster use to get a phony invoice approved for payment? a. Collusion b. A “rubber stamp” supervisor c. Falsification of purchase orders and receiving reports d. Any of the above |
d. Any of the above |
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Purchasing personal items using an organization’s money is what type of scheme? a. Larceny scheme b. Billing scheme c. Pay-and-return scheme d. Skimming scheme |
b. Billing scheme |
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Which of the following controls can be used to prevent or detect personal purchases on company credit cards? a. Having credit card statements sent directly to someone with signature authority on the account for review and payment b. Requiring employees to receive store credits rather than cash when returning items they purchased with the company’s credit card c. Monitoring credit card expenses for unexplained increases in purchasing levels d. All of the above |
c. Monitoring credit card expenses for unexplained increases in purchasing levels |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the most common fraudulent disbursement schemes were: a. Billing schemes b. Check tampering schemes c. Payroll schemes d. Register disbursement schemes |
a. Billing schemes |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, billing schemes were the second most costly type of fraudulent disbursements schemes. a. True b. False |
a. True |
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Which of the following computer audit tests can be used to detect billing schemes? a. Extracting manual checks and summarizing by vendor and issuer b. Extracting a sample of vendor open invoices for confirmation with the vendor c. Extracting delivery addresses that do not correspond to company locations d. All of the above |
d. All of the above |
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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: a. Pay-and-return scheme b. Pass-through scheme c. Inventory-markup scheme d. Non-accomplice vendor scheme |
b. Pass-through scheme |
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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 thepurchase 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? a. Larceny b. Pass-through scheme c. Personal purchases scheme d. Forged maker scheme |
c. Personal purchases scheme |
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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? a. Shell company b. Larceny c. Pass-through d. Pay-and-return |
d. Pay-and-return |
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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? a. Personal purchases scheme b. Shell company scheme c. Non-accomplice vendor scheme d. False purchase requisition scheme |
c. Non-accomplice vendor scheme |
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The internal auditor for the Bremer Group recently ran a computer audit test that showed that Ouetzen Company, one of the company’s listed vendors, doesn’t have a telephone number or a tax ID number. Of the choices given, what type of fraud does this situation most likely indicate? a. Larceny scheme b. Shell company scheme c. Non-accomplice vendor scheme d. Personal purchases scheme |
b. Shell company scheme |
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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? a. Match the vendor master file to the accounts receivable file b. Review payments with little or no sequence between invoice numbers c. Extract all employees without a social security number d. All of the above |
b. Review payments with little or no sequence between invoice numbers |
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Check tampering is unique from other fraudulent disbursement schemes because in a check tampering scheme: a. The perpetrator physically prepares the fraudulent check. b. The perpetrator must have access to a signature stamp in order to conceal the crime. c. The perpetrator submits a phony document in order to generate the fraudulent payment. d. The perpetrator must endorse the check in order to cash or deposit it. |
a. The perpetrator physically prepares the fraudulent check. |
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Check tampering includes both fraudulently preparing a company check for one’s own benefit and intercepting a company check that is intended for a third party and converting it for one’s own benefit. a. True b. False |
a. True |
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To successfully carry out and conceal a check tampering scheme, the fraudster must have: a. Access to the check stock b. Access to the bank statements c. The ability to forge signatures or alter other information on the check d. All of the above |
d. All of the above |
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Check tampering schemes involving checks made payable to “cash” are extremely difficult to resolve, as there is no way to tell who converted the check. a. True b. False |
b. False |
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Which of the following choices is not a category of check tampering? a. Forged maker schemes b. Altered payee schemes c. Unauthorized endorsement schemes d. Concealed check schemes |
c. Unauthorized endorsement schemes |
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The person who prepares and signs the check is known as the ______________ of the check. a. Author b. Endorser c. Payer d. Maker |
d. Maker |
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In which of the following schemes does the fraudster intercept and convert a company check made payable to a third party? a. Forged maker scheme b. Authorized maker scheme c. Altered payee scheme d. Concealed check scheme |
c. Altered payee scheme |
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In a forged maker scheme, the perpetrator fraudulently affixes the signature of an authorized maker to a check. a. True b. False |
a. True |
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Producing a counterfeit check using the company’s logo and bank account number is one type of concealed check scheme. a. True b. False |
b. False |
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Which of the following is not an effective control mechanism to safeguard an organization’s check stock? a. Boxes of blank checks should be sealed with security tape. b. Organizations should use check stock that is high-quality and distinctly marked. c. The employee in charge of the check preparation function should periodically verify the security of unused checks. d. Voided checks should be promptly destroyed. |
c. The employee in charge of the check preparation function should periodically verify the security of unused checks. |
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To prevent and detect forged maker schemes, an organization should: a. Separate the duties of check preparation and check signing. b. Rotate authorized check signers. c. Maintain a usage log for the signature stamp. d. All of the above |
d. All of the above |
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Which of the following procedures can help prevent and detect the theft and conversion of outgoing company checks? a. Train employees to look for dual endorsements on canceled checks. b. Chart the date of mailing for every outgoing check. c. Track changes made to vendor records. d. All of the above |
d. All of the above |
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Which of the following is not a type of altered payee scheme? a. “Tacking” on b. Forged maker c. Using erasable ink d. Leaving the payee designation blank |
b. Forged maker |
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To prevent altered payee schemes, the person who prepares the check should also review the check after it has been signed. a. True b. False |
b. False |
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Which of the following computer audit tests can be used to detect forged maker schemes? a. Extract checks that are out of sequence b. Extract manual checks and summarize by vendor and issuer c. Extract all checks payable to “cash” and summarize by issuer for reasonableness d. All of the above |
d. All of the above |
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Which type of check tampering scheme is usually the most difficult to defend against? a. Authorized maker b. Forged endorsement c. Concealed check d. Altered payee |
a. Authorized maker |
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Concealing a check tampering scheme generally means hiding both the identity of the perpetrator and the fact that the fraud ever occurred. a. True b. False |
a. True |
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Methods used to conceal check tampering schemes include all of the following except: a. Falsifying the disbursements journal b. Forced reconciliation c. Check kiting d. Re-altering the canceled checks |
c. Check kiting |
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Methods used to manipulate electronic payments include which of the following? a. Abusing legitimate access to the employer’s payment system b. Gaining access to the employer’s payment system through social engineering c. Exploiting weaknesses in the employer’s internal control over its electronic payment system d. All of the above |
d. All of the above |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, check tampering is the most common fraudulent disbursement fraud. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, check tampering has the lowest median loss of all fraudulent disbursement frauds. a. True b. False |
b. False |
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Mavis Bosman works as an accounts receivable clerk at Brooks Publishing. She steals an incoming check from a customer and cashes it at a grocery store by forging the endorsement on the back of the check. This is an example of a check tampering scheme. a. True b. False |
b. False |
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Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these checks and carefully changed them to appear payable to K. Diamond. She then endorsed the checks with her own name and deposited them into her personal bank account. What type of scheme did Kristen commit? a. Concealed check b. Payables skimming c. “Tacking on” d. Forged endorsement |
c. “Tacking on” |
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Vicky Rogers works in the accounts payable department at HDU, Inc. When checks are returned to the company for incorrect vendor addresses, she is supposed to research them, correct them, and then forward them to the proper address. Instead, Rogers decided to convert some of the returned checks for her own use. Based on the information provided, what type of check tampering scheme is this likely to be? a. Forged maker b. Forged endorsement c. Concealed check d. Authorized maker |
b. Forged endorsement |
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Melanie Diggers is an internal auditor for Atlantic Equipment Rental and Sales. While performing a routine review of one of the company’s bank accounts, she noticed an unusual “adjusting entry” to the account on the general ledger. She also found that several checks that had cleared the bank in the last few months were absent from the stack of canceled checks. She requested copies of these checks from the bank and discovered that they were all made payable to the company’s controller who has check signing authority on the account. The controller is also responsible for performing the bank reconciliation and recording month-end journal entries. Which of the following schemes do these signs most likely indicate? a. Concealed check scheme b. False voids scheme c. Authorized maker scheme d. Forged maker scheme |
c. Authorized maker scheme |
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Billy Hodges was in charge of preparing checks for the Lightner Company. He entered the payment information into the accounting system, and the completed checks were sent back to him to review. He then forwarded the checks to his supervisor for signing. In each batch of legitimate checks, Hodges would insert checks made payable to himself. When his supervisor was busy, he would take the stack of checks to him and ask him to sign them immediately in order to meet their cycle time deadline. The supervisor would inattentively sign the checks, and then Hodges would extract the checks he made payable to himself. This is an example of what type of check tampering scheme? a. Concealed check scheme b. Forged endorsement scheme c. Forged maker scheme d. Altered payee scheme |
a. Concealed check scheme |
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Mary Duncan is an internal auditor for the Western Realty Group. Recently, she ran a program that extracted checks that were out of the normal sequence. She found that four or five checks were written every month that fit this category. Based on the information given, which of the following schemes is likely occurring? a. Multiple reimbursement scheme b. Shell company scheme c. Personal purchases scheme d. Forged maker scheme |
d. Forged maker scheme |
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A _______________ is an individual on the payroll who does not actually work for the organization. a. Falsified employee b. Phantom employee c. Ghost employee d. Shell employee |
c. Ghost employee |
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Which of the following is not a type of payroll scheme? a. Ghost employee scheme b. False deduction scheme c. Falsified hours and salary scheme d. Commission scheme |
b. False deduction scheme |
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Marsha Wood added her one-year-old niece, Jackie, to the payroll at JNC Company and began issuing paychecks in Jackie’s name, even though Jackie did not work for the organization. Marsha’s niece is not considered a ghost employee because she is a real individual rather than a fictitious person. a. True b. False |
b. False |
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Which of the following is not necessary for a ghost employee scheme to succeed? a. Timekeeping and wage rate information must be collected. b. The ghost must be added to the payroll. c. The perpetrator must have access to a bank account in the ghost employee’s name. d. A paycheck must be issued to the ghost. |
c. The perpetrator must have access to a bank account in the ghost employee’s name. |
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To safeguard against ghost employee schemes, the person in charge of entering new employees in the payroll system should also distribute the paychecks so that he or she can look for payments to unauthorized employees. a. True b. False |
b. False |
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If a fraudster fails to remove a terminated employee from the payroll and collects the former employee’s fraudulent paychecks, he or she is committing a: a. Payroll larceny scheme b. Falsified hours and salary scheme c. Forged endorsement scheme d. Ghost employee scheme |
d. Ghost employee scheme |
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Salaried ghost employees are generally easier to create and more difficult to conceal than hourly ghost employees a. True b. False |
a. True |
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Which of the following analyses can be used to identify ghost employee schemes? a. Identifying employees who have no withholding taxes taken out b. Comparing actual payroll expenses to budgeted expenses c. Comparing employees who have the same Social Security number, bank account, or physical address d. All of the above |
d. All of the above |
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Which of the following procedures will not help prevent ghost employee schemes? a. The personnel records are maintained separately from the payroll and timekeeping functions. b. The personnel department conducts background and reference checks on all prospective employees before hiring the. c. The person responsible for hiring new employees also supervises the payroll function. d. The personnel department verifies all changes to the payroll. |
c. The person responsible for hiring new employees also supervises the payroll function. |
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The most common method of misappropriating funds from the payroll is: a. Overpayment of wages b. Using a ghost employee c. Overstating commissions d. Theft of payroll deductions |
a. Overpayment of wages |
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Which of the following is not a method typically used by an employee to fraudulently inflate his or her hours in a manual timekeeping system? a. Collusion b. “Lazy manager” method c. Forging the supervisor’s signature d. Manipulating the pay grade |
d. Manipulating the pay grade |
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If an employee generates a much higher percentage of uncollected sales than his coworkers, what type of scheme might he be committing? a. Sales skimming b. Commission scheme c. Multiple reimbursement scheme d. Shell company scheme |
b. Commission scheme |
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Which of the following controls will help prevent and detect falsified hours and salary schemes? a. The duties of payroll preparation, authorization, and distribution are segregated. b. Sick leave and vacation time are monitored for excesses by the payroll department c. Supervisors return authorized timecards to the employees for review before they are sent to the payroll department. d. All of the above |
a. The duties of payroll preparation, authorization, and distribution are segregated. |
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Which of the following computer audit tests can be used to detect ghost employee schemes? a. Extract users who can write checks and also add new employees in the payroll and timecard system. b. Extract all employees without a social security number. c. Compare employees reported per timecard system to the payroll system. d. All of the above |
d. All of the above |
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Which of the following can be used to test for commission schemes? a. Extract manual checks and summarize by salesperson and amount. b. Compare hours reported per timecard system to payroll system. c. Extract customer sale balances that exceed the customer credit limit. d. None of the above |
c. Extract customer sale balances that exceed the customer credit limit. |
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Comparing actual payroll expenses to budget projections can help identify falsified hours and salary schemes. a. True b. False |
a. True |
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Comparing salaried employees’ gross pay from one pay period to the next is one way of testing for payroll fraud. a. True b. False |
a. True |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the most common type of fraudulent disbursement schemes. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the least costly type of fraudulent disbursement schemes. a. True b. False |
b. False |
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Jim Stevens is a payroll manager for a mid-sized insurance company in the southeast. Last year, his performance review was conducted late, so he received a retroactive pay increase. Because he was not authorized to access his own employee records, Stevens stole another employee’s password and logged into the payroll system. He manipulated his records to keep the retroactive pay increase in effect in future periods, effectively doubling his intended pay raise. What type of fraud is this? a. Larceny of wages b. Falsified hours and salary scheme c. Commission scheme d. Ghost employee scheme |
b. Falsified hours and salary scheme |
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Ellie Weaver works for the JAG Group as the customer service supervisor. When Joel Carter was hired into her department, she listed his start date as one month before he actually began work. Accordingly, the payroll department generated an extra paycheck for Carter, which Weaver intercepted and cashed at a liquor store. What type of fraud is this? a. Forged endorsement scheme b. Ghost employee scheme c. Altered payee scheme d. Falsified wages scheme |
b. Ghost employee scheme |
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Jed Butler is an internal auditor for Billings Industries. Recently he ran a program that identified customer accounts which had previously been dormant for six months or more but had sales in the last two months of the year. What type of fraud would this test most likely reveal? a. Shell company scheme b. Pay-and-return scheme c. Commission scheme d. Personal purchases scheme |
c. Commission scheme |
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During a review of A+ Service’s payroll records, Judy Penney, an internal auditor, noticed that Bradley Banks has no deductions taken from his paychecks for withholding taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Penney most likely uncover? a. Ghost employee scheme b. Falsified salary scheme c. Fictitious vendor scheme d. None of the above |
a. Ghost employee scheme |
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Orange Publishing hired Moe McDonnell, CFE, to investigate some large variances in the company’s labor costs. While looking through the payroll records for the shipping department, McDonnell noticed several employees who claimed extensive overtime during pay periods in which the company’s incoming and outgoing shipments were minimal. McDonnell pulled the timesheets for these pay periods and noticed that those belonging to the suspect employees had signatures that didn’t match the signatures on the other timesheets. What type of fraud might these findings indicate? a. Ghost employee scheme b. Commission scheme c. Falsified hours and salary scheme d. Overstated expenses scheme |
c. Falsified hours and salary scheme |
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Allison Duval, CFE, has been retained by National Mortgage Company to investigate some suspicious activity. As part of her examination, Duval compares the company’s payroll expenses to budgeted projections and to prior years’ totals. She also runs an exception report looking for any employees whose compensation has increased disproportionately over the prior year. She then compares the payroll files to the human resource files to test for differing salary rates. What type of scheme is Duval most likely looking for? a. Ghost employee scheme b. Payroll tampering scheme c. Commission scheme d. Falsified hours and salary scheme |
d. Falsified hours and salary scheme |
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Because they leave a solid audit trail, expense reimbursement schemes are generally easier to detect than other types of fraud schemes. a. True b. False |
b. False |
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Expense reimbursement schemes include which of the following? a. Multiple reimbursements b. Mischaracterized expenses c. Overstated expenses d. All of the above |
d. All of the above |
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Claiming personal travel as a business expense is an example of what type of expense reimbursement scheme? a. Multiple reimbursements b. Overstated expense reimbursements c. Mischaracterized expense reimbursements d. Altered expense reimbursements |
c. Mischaracterized expense reimbursements |
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Which of the following procedures can be used to prevent mischaracterized expense reimbursement schemes? a. A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed. b. Employees should be required to sign their expense reports before being reimbursed. c. The internal audit department should review all expense reports under a certain dollar amount. d. None of the above |
a. A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed. |
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Which of the following procedures can be used to detect mischaracterized expense reimbursement schemes? a. Compare the dates of claimed reimbursable business expenses to the employees’ work schedules. b. Compare current expense reimbursement levels to amounts for prior years. c. Compare current expense reimbursement levels to budgeted amounts. d. All of the above |
d. All of the above |
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If an employee submits a photocopy of a receipt as support for a business expense, the expense should be independently verified before it is reimbursed. a. True b. False |
a. True |
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An altered or forged receipt can indicate what type of expense reimbursement scheme? a. Mischaracterized expense reimbursements b. Fictitious expense reimbursements c. Overstated expense reimbursements d. All of the above |
d. All of the above |
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Permitting employees to book their own travel using their own credit card is an effective internal control over expense reimbursement schemes. a. True b. False |
b. False |
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Which of the following methods can be used to perpetrate a fictitious expense reimbursement scheme? a. Creating counterfeit receipts b. Stealing blank receipts c. Submitting expenses that were paid by a third party d. All of the above |
d. All of the above |
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What type of expense reimbursement scheme occurs when an employee submits a receipt for an entertainment expense that a client paid for? a. Mischaracterized expense reimbursement b. Overstated expense reimbursement c. Fictitious expense reimbursement d. Duplicate reimbursement scheme |
c. Fictitious expense reimbursement |
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Which of the following is not considered a red flag of a fictitious expense reimbursement scheme? a. An employee repeatedly uses the company credit card for business travel expenses. b. An employee’s reimbursement requests are always for round-dollar amounts. c. An employee submits reimbursement requests that consistently fall just below the reimbursement limit. d. An employee frequently requests reimbursement for high-dollar items that he claims were paid for in cash. |
a. An employee repeatedly uses the company credit card for business travel expenses. |
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To safeguard against expense reimbursement schemes, organizations should require that employee expense reports be reviewed and approved by a supervisor outside the requestor’s department. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes are the least common type of fraudulent disbursement schemes. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes have a lower median loss than check tampering schemes. a. True b. False |
a. True |
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Donna Holbrook, an administrative assistant at Mason Enterprises, charged some office supplies to the company credit card. Several weeks later, she attached the store receipt from the purchase to an expense report and requested reimbursement from the company. This is an example of which type of expense reimbursement scheme? a. Overstated expense b. Multiple reimbursement c. Mischaracterized expense d. Over-purchased reimbursement |
b. Multiple reimbursement |
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Daniel Isley works as an internal auditor for Atlantic Insurance Co. While reviewing the company’s travel and entertainment expenses, Isley noticed that one employee had submitted several receipts from Chase’s Restaurant for round-dollar amounts just under the company’s reimbursement limit. Further, the receipts were consecutively numbered, but were submitted over a six-month period. What type of scheme did Isley most likely uncover? a. Fictitious expense reimbursement b. Multiple reimbursement c. Mischaracterized reimbursement d. None of the above |
a. Fictitious expense reimbursement |
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Charlene DiAngelo is a sales manager for Northwest Paper & Plastics. On April 11, she took some clients out for a business lunch to discuss a potential contract. When she returned to the office, she made a photocopy of her restaurant receipt. Using correction fluid, she changed the date on the photocopy to read June 11. She submitted the original restaurant receipt with a reimbursement request on April 11 and held on to the photocopy for 2 months. On June 12, she submitted the altered photocopy along with a second reimbursement request. What type of fraud scheme did DiAngelo commit? a. Altered receipt b. Fictitious expense reimbursement c. Billing d. Multiple reimbursement |
d. Multiple reimbursement |
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Kevin Chitry, a sales executive for CIT Manufacturing, frequently took clients out for dinner and shows when they came to town to tour the plant. He usually paid for these expenses himself and submitted the receipts to his supervisor for approval and reimbursement. Occasionally, however, he also took his family out to restaurants and rock concerts and included these expenses in his reimbursement requests by indicating that he was entertaining a client. This type of fraud is known as a(n): a. Overstated expense reimbursement b. Mischaracterized expense reimbursement c. Fictitious expense reimbursement d. Altered receipt reimbursement |
b. Mischaracterized expense reimbursement |
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Linda Dudley, an employee of Bingham Company, was sent to an out-of-state conference to learn about the latest innovations in computer security. While she was at the seminar, her meals were picked up by a vendor hoping to get business from Bingham. Dudley also turned in receipts and requested reimbursement from her company for the same meals that the vendor paid for. What type of expense reimbursement fraud is this? a. Mischaracterized expense b. Overstated expense c. Fictitious expense d. None of the above |
c. Fictitious expense |
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Daisy McMillan works as the office manager for Timball and Lewis, a medium-sized law firm. One afternoon, she went to the hardware store to purchase a few maintenance items for the office. While there, she also bought her husband a hammer as a birthday present. At the register, the items, including the hammer, totaled $63. She paid for all the items together and received both a carbon copy receipt and a separate credit card receipt. Back at the office, she carefully scratched additional numbers on to the carbon copy receipt to increase the total price to $168 and turned in the altered receipt for reimbursement. Several weeks later, she turned in the credit card receipt along with another reimbursement request for the $63. What type of expense reimbursement fraud did she commit? a. Overstated expense reimbursement b. Multiple reimbursements c. Mischaracterized expense reimbursement d. All of the above |
d. All of the above |
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As the manager of a local auto-parts store, Manny Ortega was responsible for reimbursing employees when they purchased supplies for the store with their own money. When employees brought Ortega their receipts for reimbursement, he would often alter the receipts to show a larger amount. Then he would ring a “no sale” on the cash register, remove the full amount per the altered receipt, and pocket the excess. Because the employee received the expected amount and the register totals remained in balance, Ortega was able to continue this scheme for nearly 2 years before being caught. What type of fraud did Ortega commit? a. Overstated expense reimbursement scheme b. Mischaracterized expense reimbursement scheme c. Register disbursement scheme d. None of the above |
a. Overstated expense reimbursement scheme |
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Phil O’Hara is an internal auditor for the Shield Corporation. Recently he ran a report that listed payments to employees for business expenses that occurred while the employee was on vacation. What type of fraud scheme is Phil most likely to find? a. Cash larceny b. Forged expenses c. Overstated expense reimbursement d. Mischaracterized expense reimbursement |
d. Mischaracterized expense reimbursement |
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Remy Lewis has just started working as a marketing research analyst for Commercial Casting Company in New York City. He is relocating his family to New York from North Carolina, but they haven’t moved yet. Twice a month, the company pays for Lewis to travel to North Carolina to visit his family and help with the move. During the month of September, Lewis only visited his family once; however, he submitted expense reports for mileage for two separate trips to North Carolina and back. What type of scheme is this? a. Mischaracterized expense reimbursement b. Billing c. Fictitious expense reimbursement d. None of the above |
c. Fictitious expense reimbursement |
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Register disbursement schemes are different from skimming and larceny at the register in that they: a. Are on-book schemes, where as skimming and larceny are off-book schemes b. Require the use of an accomplice c. Leave a record of the removal of money on the register tape d. All of the above |
c. Leave a record of the removal of money on the register tape |
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Which of the following is a type of register disbursement scheme? a. Fictitious refunds b. Overstated refunds c. False voids d. All of the above |
d. All of the above |
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When an employee perpetrates a credit card refund scheme, the perpetual inventory will show a greater amount than the physical inventory. a. True b. False |
a. True |
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An excessive number of reversing sales transactions at the register is an indicator of which of the following schemes? a. Skimming b. Register disbursement c. Pass-through scheme d. Multiple reimbursements |
b. Register disbursement |
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Register disbursement schemes are difficult to conceal because they cause the cash drawer to be out of balance with the cash register tape. a. True b. False |
b. False |
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Which of the following can be used to conceal a false refund scheme? a. Destroying register tapes b. Issuing refunds below the review limit c. Forcing inventory totals d. All of the above |
d. All of the above |
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For the perpetrator, the most dangerous part of a typical register disbursement scheme is often: a. Physically removing the cash from the register and carrying it out of the store b. Adjusting the cash register tape to match the cash count c. Replacing the returned merchandise in the physical inventory d. Forging the customer receipt as documentation for the reversing transaction |
a. Physically removing the cash from the register and carrying it out of the store |
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To safeguard against false voids schemes, companies should require a copy of the customer’s receipt from the initial purchase as documentation for voided sales. a. True b. False |
a. True |
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Which of the following tests can be used to detect register disbursement schemes? a. Extract the top 10 employees with the lowest sales activity. b. Identify and examine unique journal entries in the cash accounts. c. Identify customer sales posted to one credit card and refunds posted to another credit card. d. None of the above |
c. Identify customer sales posted to one credit card and refunds posted to another credit card. |
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Running a computer program that compares adjustments to inventory to the void/refund transactions summarized by employee can detect which of the following schemes? a. Register disbursement schemes b. Cash larceny schemes c. Skimming schemes d. All of the above |
d. All of the above |
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According to the textbook, the best way for an organization to prevent fraudulent register disbursements is to: a. Have each employee compare the cash in his or her register drawer to the register tape at the end of each shift. b. Maintain appropriate separation of duties. c. Have a policy requiring photocopied receipts for sales refunds. d. All of the above |
b. Maintain appropriate separation of duties. |
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Which of the following procedures can be used to prevent and detect a register disbursement scheme? a. Randomly call customers who have returned merchandise or voided sales. b. Restrict access to the control key or management code that authorizes reversing transactions. c. Place signs around the store encouraging customers to ask for and examine their receipts. d. All of the above |
d. All of the above |
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Sara Michaels works as a sales associate in the shoe department at a large chain department store. To supplement her income, Sara processed multiple fictitious refunds on sales made to customers. This is an example of what type of asset misappropriation? a. Register disbursement fraud b. Pay and return scheme c. Skimming scheme d. Cash larceny scheme |
a. Register disbursement fraud |
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Billy Mitchell is the head cashier for a clothing store that specializes in men’s silk suits. After losing big at the local dog track, Billy was in the hole financially. To cover his gambling debts, he started issuing numerous refund credits to his own credit card for amounts just below the store’s review limit. This is an example of a __________________ scheme. a. Cash larceny b. Credit card skimming c. Fictitious refunds d. Understated reimbursement |
c. Fictitious refunds |
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Leslie White, CFE, was called in to investigate suspicious activity at Anderson’s Department Store. During her investigation, she ran a test to search for customer sales and refunds that occurred on the same day. She also summarized refunds by employee and extracted the names of all employees who can post both refunds and inventory adjustments. What type of scheme is Leslie most likely looking for? a. Skimming b. Unconcealed larceny c. Fraudulent reimbursements d. Fictitious refunds |
d. Fictitious refunds |
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Meredith Chapman works as a retail clerk at a children’s clothing store. When a customer returns an item for a cash refund, Meredith enters an amount greater than the actual refund into the register, pays the customer the amount owed for the returned merchandise, and keeps the excess cash for herself. What type of scheme is Meredith committing? a. Overstated expenses b. Cash larceny c. Overstated refunds d. Skimming |
c. Overstated refunds |
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Greg Manor is the sales manager at County Arts & Crafts Supply. Recently he has received several complaints from customers who claim they were not given a receipt for their purchases. What type of scheme might this situation indicate? a. Skimming b. False refunds c. False voids d. All of the above |
d. All of the above |
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Nicolas Barrens conspired with his manager to steal nearly $6,000 over 2 months from the grocery store where they worked. Each time Nicolas rang up a customer at the register, he asked the customer if he’d like a receipt. When a customer said no, Nicolas pretended to discard the receipt in the trash, but actually slipped the receipt into his pocket. At the end of his shift, he filled out a void slip for each of these sales and submitted them to his supervisor for approval. With the original receipt and the approved void slip, Nicolas removed cash from the register in the amount of thevoided sales and split the proceeds with his supervisor. Nicolas committed what type of fraud scheme? a. Fictitious expenses b. False voids c. Skimming d. None of the above |
b. False voids |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, register disbursement schemes were the most frequently reported type of fraudulent disbursement scheme. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, median losses due to register disbursement schemes were the highest of all the fraudulent disbursement schemes. a. True b. False |
b. False |
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Borrowing a company asset for personal use without permission, even if it is returned unharmed, is a form of non-cash asset misappropriation. a. True b. False |
a. True |
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Which of the following is not a red flag in a fraudulent shipment scheme? a. An increase in bad debt expense b. An unexplained decrease in the scrap account c. Unusually high levels of reorders for inventory items d. Shipments with missing sales documents |
b. An unexplained decrease in the scrap account |
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Manually altering entries in an organization’s books in order to conceal fraud is called: a. Padding the books b. Forced reconciliation c. Shrinkage d. Fictitious reconstruction |
b. Forced reconciliation |
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To prevent fraudulent shipments of merchandise, organizations should: a. Match every receiving slip to an approved purchase order. b. Match every outgoing shipment to a sales order. c. Make sure that all increases to perpetual inventory records are supported by proper source documents. d. All of the above |
b. Match every outgoing shipment to a sales order |
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Which of the following methods can be used to conceal inventory shrinkage on a company’s books? a. Creating fictitious sales and receivables b. Writing off inventory as obsolete c. Physical padding d. All of the above |
d. All of the above |
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An employee causes his organization to purchase merchandise that it does not need. This is an example of what type of scheme? a. Purchasing and receiving scheme b. False billing scheme c. Unconcealed larceny scheme d. Asset requisition scheme |
b. False billing scheme |
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An unexplained increase in uncollectible accounts receivable may be a warning sign of a non-cash asset misappropriation scheme involving false shipments of inventory. a. True b. False |
a. True |
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Of the following, which is the best method for detecting the theft of inventory? a. Have the warehouse manager personally oversee bi-monthly inventory counts. b. Have someone from purchasing conduct inventory counts every quarter. c. Have a designated person in customer service follow-up with customers who have complained about short shipments. d. Match vendor addresses against employee addresses. |
c. Have a designated person in customer service follow-up with customers who have complained about short shipments. |
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To deter inventory theft schemes, organizations should install security cameras in the warehouses without the employees’ knowledge. a. True b. False |
b. False |
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Which of the following procedures would be least helpful in preventing larceny of non-cash assets? a. Segregating the duties of sales and accounts payable b. Installing surveillance cameras in the warehouse and on sales floors c. Creating access logs to track employees that enter restricted areas d. Employing security guards at the entrance of the warehouse |
a. Segregating the duties of sales and accounts payable |
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The unaccounted-for reduction in the company’s inventory that results from theft is called: a. Physical defalcation b. Spoilage c. Shrinkage d. Misappropriation of intangible assets |
c. Shrinkage |
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Unexplained increases in inventory shrinkage can be a red flag that signals which type of fraud scheme? a. Fictitious refunds b. Inventory larceny c. Sales skimming d. All of the above |
d. All of the above |
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Which of the following computer audit tests can be used to detect purchasing and receiving schemes? a. Identifying dormant customer accounts for the past six months that show a sale in the last two months of the year b. Calculating the ratio of the largest sale to the next largest sale by customer c. Extracting all inventory coded as obsolete and possessing reorder points within the inventory system d. All of the above |
c. Extracting all inventory coded as obsolete and possessing reorder points within the inventory system |
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Which of the following computer audit tests can be used to detect an inventory misappropriation scheme? a. Identifying inventory receipts in the receiving system that do not agree to the receipts per the accounts payable system b. Identifying inventory shipments delivered to an address that is not designated as a business address c. Identifying inventory with a negative quantity balance d. All of the above |
d. All of the above |
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Running a computer program that identifies shipping documents with no associated sales order can detect which of the following non-asset cash misappropriation schemes? a. False shipments b. Purchasing and receiving schemes c. Unconcealed inventory larceny d. Asset requisition schemes |
a. False shipments |
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Which of the following is not a method used to conceal false shipments of inventory? a. Creating false sales orders b. Falsely increasing the perpetual inventory c. Writing off the inventory as scrap d. Physical padding |
b. Falsely increasing the perpetual inventory |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, non-cash schemes occur more frequently than cash schemes. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash schemes have a higher median loss than non-cash schemes. a. True b. False |
a. True |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the theft of which type of non-cash asset was the least common but caused the highest median loss? a. Equipment b. Proprietary information c. Securities d. Inventory |
c. Securities |
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Andy Kaplan is a foreman for JCP Enterprises, a regional construction company. He recently ordered some plumbing supplies from the company warehouse for an office building project he is overseeing. When the supplies arrived at the job site, however, he loaded them in his truck and took them home to use in remodeling his master bathroom. What kind of inventory theft scheme did Andy commit? a. False shipments b. Unconcealed larceny c. Asset requisition d. Misappropriation of intangible assets |
c. Asset requisition |
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Nicolette Garrison works part-time at an independent record store. Whenever her friend, Jacob Barker, comes into the store during one of her shifts, he picks up a CD and brings it to the register where Nicolette is stationed. After ringing a “no sale” transaction on the cash register, Nicolette pretends to swipe Jacob’s credit card for payment. She puts the CD in a bag and gives it to Jacob, who walks out without actually paying for the merchandise. What kind of scheme is being committed? a. Fake sale b. False refund c. Sales skimming d. Cash larceny |
a. Fake sale |
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Ben Rogers works as a cashier for Tillis Sporting Goods. One afternoon, he asked his sister Dawn to come into the store. When she arrived, Ben put three watches, two fishing reels, and four pairs of sunglasses in a sack and gave it to her. Dawn walked out of the store, sold two of the watches, and returned to the store later to return the other items for a refund. What type of asset misappropriation has been committed? a. Sales skimming b. Pay-and-return scheme c. False refund scheme d. Inventory larceny scheme |
d. Inventory larceny scheme |
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Ace Electronics is a company that sells computers, televisions, home entertainment centers, DVD players, and other electronic equipment. A downturn in the market has caused severe financial problems in the company. In order to fool the auditors as they begin their inventory count, several of Ace’s managers have begun stacking empty boxes in the warehouse to create the illusion of extra inventory. This scheme is known as: a. Forced reconciliation b. Physical padding c. Inventory shuffling d. Misappropriation of intangible assets |
b. Physical padding |
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To supplement her income, Jeanne Lester decided to start her own bookkeeping business while still working as an office assistant at Howe & Lyon, a small CPA firm. Not having much start-up capital for her new business, she used her phone at work to contact clients and her work computer to print invoices and client letters. However, she ordered and paid for her own office supplies and used her own postage stamps to mail the invoices and letters. From the information given, has Jeanne misappropriated any of the firm’s assets? a. Yes b. No |
a. Yes |
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Which of the following is not a type of corruption scheme? a. Bribery b. Conflict of interest c. Illegal gratuities d. Concealed payments |
d. Concealed payments |
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___________________ is the offering, giving, receiving, or soliciting of something of value as a reward for a favorable decision. a. Business diversion b. Economic extortion c. Illegal gratuity d. Commercial bribery |
c. Illegal gratuity |
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The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal is known as: a. Official bribery b. Commercial bribery c. Conflict of d. Illegal gratuity |
b. Commercial bribery |
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Which of the following is a type of kickback scheme? a. Improper disclosure b. Overbilling c. Turnaround sale d. Extortion |
b. Overbilling |
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A corruption scheme in which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, is known as: a. Bid pooling b. Bid rigging c. Bid division d. Bid diversion |
a. Bid pooling |
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To deter kickback schemes, an organization should implement which of following procedures? a. Separate the purchasing, authorization, and cash disbursements functions. b. Track purchase levels by vendor. c. Compare the prices paid for goods and services to market rates. d. All of the above |
d. All of the above |
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The key component to most kickback schemes is: a. Forged endorsements b. Counterfeit invoices c. Price inflation d. Stealing customer statements |
c. Price inflation |
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Which of the following is a red flag indicating that an employee may be receiving kickbacks? a. The purchase of inferior-quality inventory or merchandise b. An unusually high volume of purchases from a particular vendor c. The payment of purchase amounts that are frequently above market rates d. All of the above |
d. All of the above |
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To facilitate a bribery scheme, a fraudster might divert company funds to a non-company account from which the illegal payments can be made. This account is called a: a. Slush fund b. Petty cash fund c. Bid pool d. None of the above |
a. Slush fund |
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To safeguard against kickback schemes, which of the following procedures should an organization implement? a. Have an employee in the purchasing department review the organization’s payment patterns on a quarterly basis. b. Establish a written policy specifying that employees cannot accept more than $500 annually in gifts from customers or suppliers. c. Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction. d. All of the above |
c. Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction |
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Which of the following would likely not be a potential target for accepting bribes in a big-rigging scheme? a. A product assurance representative b. An accounts payable clerk c. A contracting official d. The engineer in charge of the project’s technical specifications |
b. An accounts payable clerk |
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The typical bid-rigging scheme committed during the need recognition phase of the contract negotiation process involves defining a “need” that can be met only by a certain supplier or contractor. a. True b. False |
a. True |
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Which of the following is a red flag that might indicate that a bid-rigging scheme is occurring? a. The contract price is unusually low. b. A high bid is followed by amendments that reduce the payments to the contractor. c. The losing bidders become sub-contractors on the project. d. Many more bidders responded to the request for proposals than expected. |
c. The losing bidders become sub-contractors on the project. |
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If a government employee agrees to award a contract to a vendor in exchange for a promise of future employment, this is considered to be an illegal gratuity. a. True b. False |
b. False |
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The primary approach for preventing conflicts of interest schemes is to develop and implement which of the following? a. A voucher system b. A company ethics policy c. A document retention program d. An anonymous reporting mechanism to receive tips and complaints |
b. A company ethics policy |
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If an employee approves payment on an invoice that originates from a real company in which he or she has a hidden economic interest, this is considered to be a conflict of interest scheme. a. True b. False |
a. True |
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Which of the following schemes can be detected by identifying vendor addresses that are not designated as a business address? a. Shell company schemes b. Kickback schemes c. Conflicts of interest d. All of the above |
d. All of the above |
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Extracting round-dollar payments and summarizing them by vendor can help detect both corruption and billing schemes. a. True b. False |
a. True |
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Identifying trends in over-purchased and/or obsolete inventory over several periods is a proactive computer audit test that can be used to detect which of the following schemes? a. False purchases b. Corruption c. Overstated expenses d. None of the above |
b. Corruption |
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Matching the vendor master file to the employee master file is a proactive computer audit test that can be used to detect which type of fraud scheme(s)? a. Bribery b. Shell company c. Both bribery and shell company d. None of the above |
c. Both bribery and shell company |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, schemes involving corruption were the least common of the three types of occupational fraud schemes. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the median loss due to corruption schemes was the highest of the three types of occupational fraud schemes. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, bribery schemes occurred more often than other types of corruption schemes. a. True b. False |
b. False |
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Stanley Block works in the IT department at Towery, Inc. After finding out that the company is planning to purchase four more computers for the accounting department, Stanley bought four computers from a friend for $1,200. Then, using his brother’s name and address as vendor information, he resold the computers to Towery for $2,300. This type of scheme is known as a(n): a. Over-purchase sale b. Resource diversion sale c. Double-sided sale d. Turnaround sale |
d. Turnaround sale |
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Johanna Pye is a hair stylist at Mamon Salon. The salon’s policy states that stylists receive 40 percent of the revenue they generate as their compensation. Johanna grew tired of sharing her income with the salon and decided she wanted to make more money. She continued seeing her existing clients at the salon, but when new clients called for an appointment, Johanna lied and told them the salon was completely booked for the next few months. She then offered to come to their homes and cut their hair for 10 percent less than what the clients would be charged at the salon. She did not report the house call appointments to the salon, and was therefore able to keep all the income she generated from these side clients. This is an example of what type of scheme? a. Shell company b. Resource diversion c. Business diversion d. Double dealing |
c. Business diversion |
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Fred Weaver is the contracts manager for a city government. In order for anyone to do business with the municipality, he or she must pay Fred 10 percent of the total amount of the contract. This type of corruption is known as: a. Bribery b. Economic extortion c. A conflict of interest d. Bid-rigging |
b. Economic extortion |
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Abe Wilson works as a city councilman in large city on the east coast. As part of his duties, he negotiated the purchase of some land in order to build a new water treatment plant for the city. The land was sold to the city by Jake Bryan for terms that were favorable to the city. After the sale was finalized, Bryan treated Abe and his wife to an all-expenses-paid Alaskan cruise. This type of fraud is known as: a. A conflict of interest b. Bribery c. An illegal gratuity d. Economic extortion |
c. An illegal gratuity |
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John Clark works as a land buyer for a city government. After negotiating the purchase of a parcel of land to be used for a new library, he asked the seller out for a coffee date, and she accepted. This situation is an example of an illegal gratuity. a. True b. False |
b. False |
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Julius Smith is a purchasing agent for a Louisiana state agency. He has a project budgeted for $24,000 that he would like to hire RGS Consultants to handle. Unfortunately for Julius and RGS Consultants, the state has a requirement that all projects over $10,000 must be sent out for competitive bids. In order to avoid the bidding process, Julius breaks the project into three component projects worth $8,000 each. RGS Consultants is subsequently awarded the contracts for all three projects. What type of bid-rigging scheme is this? a. Bid pooling b. Underbidding c. Bid splitting d. Bid diversion |
c. Bid splitting |
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Donna Boyd is an internal auditor for GDP, Inc., an electronics manufacturer. While conducting a routine review of the company’s inventory costing, she discovers that the cost of one of the parts they use in manufacturing DVD players has been steadily increasing over the last six months and is now much higher than the general market price. Additionally, she notices that the company has been heavily favoring one specific supplier for that part. Based on these circumstances, what type of fraud scheme may be occurring at GDP? a. Kickbacks b. Conflict of interest c. Shell company d. Any of the above |
d. Any of the above |
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According to COSO’s study, Fraudulent Financial Reporting: 1998-2007, which of the following is the most likely to commit financial statement fraud? a. Organized criminals b. Mid-level employees c. The chief executive officer and/or chief financial officer d. Lower-level employees |
c. The chief executive officer and/or chief financial officer |
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Which of the following is a reason that a chief executive officer might commit financial statement fraud? a. To receive or increase a performance bonus b. To avoid termination due to poor performance c. To conceal the company’s true performance d. All of the above |
d. All of the above |
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Senior management is most likely to understate business performance in the financial statements for which of the following reasons? a. To reduce the value of an owner-managed business for purposes of a divorce settlement b. To comply with loan covenants c. To increase the value of a corporate unit whose management is planning a buyout d. To trigger performance-related compensation or earn-out payments |
a. To reduce the value of an owner-managed business for purposes of a divorce settlement |
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Which of the following is not a reason that senior management would overstate business performance to meet certain objectives? a. To meet a lender’s criteria for granting/extending loan facilities b. To meet or exceed the earnings or revenue growth expectations of stock market analysts c. To reduce current expectations so that future growth will be better perceived and rewarded d. To increase the amount of financing available from asset-based loans |
c. To reduce current expectations so that future growth will be better perceived and rewarded |
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If a fraudster manipulates the assumptions used to calculate depreciation charges in order to increase earnings to a desired figure, which general method of financial statement fraud is the fraudster using? a. Going outside the accounting system b. Beating the accounting system c. Going around the accounting system d. Playing the accounting system |
d. Playing the accounting system |
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When a fraudster feeds fictitious information into the accounting system in order to manipulate reported results, this is called: a. Going outside the accounting system b. Beating the accounting system c. Going around the accounting system d. Playing the accounting system |
b. Beating the accounting system |
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If a fraudster uses his computer to produce fictitious financial statements while completely ignoring the data in the accounting system, this is an example of what general financial statement fraud method? a. Beating the accounting system b. Playing the accounting system c. Going outside the accounting system d. None of the above |
c. Going outside the accounting system |
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The conceptual framework for financial reporting includes several assumptions that underlie generally accepted accounting principles. Which of the following is one of these assumptions? a. Economic entity b. Relevance c. Matching d. Comparability |
a. Economic entity |
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Fraudulent manipulation of the going concern assumption usually results from an organization trying to conceal its terminal business situation. a. True b. False |
a. True |
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Intentionally reporting product sales in the financial statements for the period prior to when they actually occurred is a violation of which generally accepted accounting principle? a. Periodicity b. Matching c. Historical cost d. Revenue recognition |
d. Revenue recognition |
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The financial statements for DRG Industries contain a misstatement that is so significant that reasonable investors would likely make a different investment decision if they were given the correct information. What concept of GAAP applies to this situation? a. Full disclosure b. Revenue recognition c. Materiality d. Cost-benefit |
c. Materiality |
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Walden Industries is being sued by a former employee for wrongful termination. It is probable that the company will lose the case and be ordered to pay the plaintiff a significant sum of money. If Walden fails to report this information somewhere in its financial statements, it is violating the GAAP concept of: a. Materiality b. Full disclosure c. Matching d. Cost-benefit |
b. Full disclosure |
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The conservatism constraint for financial reporting states that, if there is any doubt, companies should aim to avoid overstating assets and income. a. True b. False |
a. True |
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A company’s financial statements are the responsibility of: a. The independent auditors b. The shareholders c. The accounting department d. Management |
d. Management |
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The term “financial statement” does not include a statement of cash receipts and disbursements, because this type of presentation violates the required use of accrual accounting under GAAP. a. True b. False |
b. False |
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Which of the following is not one of the provisions established under the Sarbanes-Oxley Act? a. Code of ethics for senior financial officers b. Management assessments of internal controls c. The creation of the Public Accounting Standards Board d. Criminal penalties for altering documents |
c. The creation of the Public Accounting Standards Board |
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As the result of the Sarbanes-Oxley Act, the Securities Exchange Commission has implemented which of the following rules? a. New standards of professional conduct for attorneys b. Insider trades during pension fund blackout periods c. Conditions for use of non-GAAP financial measures d. All of the above |
d. All of the above |
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Which of the following is a duty of the Public Company Accounting Oversight Board? a. Registering accounting firms that audit publicly traded companies b. Establishing or adopting standards relating to audits of publicly traded companies c. Enforcing compliance with professional standards and securities laws relating to public company audits d. All of the above |
d. All of the above |
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Investigating registered public accounting firms and their employees, conducting disciplinary hearings, and imposing sanctions where justified are duties of which of the following bodies? a. General Accounting Office’s Oversight Board b. Public Company Accounting Oversight Board c. AICPA’s Accounting Standards Board d. SEC’s Subcommittee on Corporate Governance |
b. Public Company Accounting Oversight Board |
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Under Sarbanes-Oxley, chief executive officers and chief financial officers are required to personally certify annual and quarterly SEC filings. Which of the following is an item that they must certify in their reports? a. They have disclosed to the audit committee any material control weakness. b. The financial statements were prepared in conformity with GAAP. c. The company’s internal controls have prevented or detected all material instances of fraud during the last year. d. All of the above |
a. They have disclosed to the audit committee any material control weakness. |
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The Sarbanes-Oxley Act provides that members of the audit committee may receive compensation for consulting or advisory work only if approved by a majority of the board members. a. True b. False |
b. False |
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The Sarbanes-Oxley Act placed restrictions on the types of services that public accounting firms are allowed to perform for audit clients. Which of the following services are public audit firms now expressly prohibited from performing for their audit clients? a. Quarterly review services b. Tax services c. Bookkeeping services d. All of the above |
c. Bookkeeping services |
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Under Sarbanes-Oxley, pubic accounting firms must rotate the lead partner or the partner reviewing the audit every year. a. True b. False |
b. False |
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The civil and criminal protections for whistleblowers under Sarbanes-Oxley apply only to employees of publicly traded companies. a. True b. False |
b. False |
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Vanessa Armstrong was the chief financial officer for D&G Technologies, a publicly traded corporation. During the 20X1 fiscal year, she caused the company’s financial statements to violate reporting requirements by including a significant overstatement of revenue so that she would receive a large performance bonus. When her transgression came to light, the company was required to issue restated financial statements for 20X1. Under the provisions of Sarbanes-Oxley, Vanessa must reimburse the company for any bonus she received during the 12 months after the 20X1 financials were initially filed. a. True b. False |
a. True |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the most common type of occupational fraud is financial statement fraud. a. True b. False |
b. False |
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According to the 2012 Report to the Nations on Occupational Fraud and Abuse, losses due to financial statement frauds are higher than other occupational fraud schemes. a. True b. False |
a. True |
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Which of the following is not an example of financial statement fraud? a. Falsification of material financial records, supporting documents, or business transactions b. Unintentional misapplication of accounting principles c. Deliberate omission of material disclosures d. All of the above are examples of financial statement fraud |
b. Unintentional misapplication of accounting principles |
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Staff Accounting Bulletin Topic 13, “Revenue Recognition,” indicates that revenue is considered realized or realizable and earned when four criteria are met. Which of the following is one of these criteria? a. Collectability is reasonably assured. b. Goods have been scheduled to be delivered or services have been scheduled to be rendered within the current fiscal period. c. The seller has located alternate buyers. d. All of the above are criteria for revenue recognition. |
a. Collectability is reasonably assured |
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Recording revenue from a sale even though the rights and risks of ownership have not yet passed to the purchaser is an example of what type of fictitious revenue scheme? a. Partial sale b. Circumstantial sale c. Tentative sale d. Sale with conditions |
d. Sale with conditions |
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Which of the following is a red flag associated with fictitious revenues? a. An unusual decrease in gross margin b. An unusual decline in the number of days’ purchases in accounts payable c. Several unusual and highly complex sales transactions recorded close to the period end d. Recurring losses while reporting increasing cash flows from operations |
c. Several unusual and highly complex sales transactions recorded close to the period end |
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While conducting the annual audit of Bluebird Company’s financial statements, Elsie Finnegan, CFE, CPA, came across some fishy findings. The company recorded several large and unusual sales at the end of the fiscal year to customers Elsie had never heard of. Further, all of these sales occurred within the company’s specialty division, which had previously been in danger of closing due to recurring losses. Based on these findings, what type of financial statement fraud is likely occurring? a. Expense omission b. Unrecorded warranties c. Fictitious revenues d. All of the above |
c. Fictitious revenues |
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An unusual growth in the number of days’ sales in receivables can be a red flag for which of the following financial statement fraud schemes? a. Timing differences b. Fictitious revenues c. Improper asset valuation d. All of the above |
d. All of the above |
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Sharpe Medical Supply, Inc. has suffered a recent slow-down in sales and is in danger of showing a loss for the 20X1 fiscal year. To boost income, the sales manager encourages two of the company’s largest customers to overbuy several slow-moving products at deep discounts. He also offers them extended payment terms, some of which delay payment until the end of 20X2. This is an example of what type of scheme? a. Channel stuffing b. Discount extension c. Sales re-routing d. Long-term contracts |
a. Channel stuffing |
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The preferred and easiest method of concealing liabilities and expenses is to simply fail to record them. a. True b. False |
a. True |
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An organization that seeks to fraudulently minimize its net income due to tax considerations may do so by: a. Recording fictitious revenues b. Omitting existing liabilities c. Expensing capitalized expenditures d. Underestimating warranty repairs expense |
c. Expensing capitalized expenditures |
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It is more difficult to manipulate construction contracts that use the percentage of completion method than contracts that use the completed contract method. a. True b. False |
b. False |
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Capitalizing revenue-based expenses as depreciable assets will cause income to be ____________ in the current period and _______________ in future periods. a. Understated; overstated b. Understated; understated c. Overstated; understated d. Overstated; overstated |
c. Overstated; understated |
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Which of the following is a red flag associated with concealed liabilities and expenses? a. Gross margin significantly lower than industry average b. An unusual increase in the number of days’ purchases in accounts payable c. An unusual change in the relationship between fixed assets and depreciation d. Significant reductions in accounts payable while competitors are stretching out payments to vendors |
d. Significant reductions in accounts payable while competitors are stretching out payments to vendors |
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An inability to generate cash flows from operations while reporting earnings and earnings growth is a red flag for which of the following financial statement fraud schemes? a. Improper asset valuation b. Fictitious revenues c. Concealed liabilities and expenses d. All of the above |
d. All of the above |
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GAAP strictly prohibits companies from engaging in all related-party transactions because, without an arm’s-length business negotiation process, the company may suffer economic harm and ultimately injure unsuspecting shareholders. a. True b. False |
b. False |
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Management has an obligation to disclose to the shareholders any fraud that is committed by the company’s employees or vendors. a. True b. False |
b. False |
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At the suggestion of the external auditors, the audit committee of Alpha Technologies called in Bryce Miller, CFE, to investigate some suspected improprieties. During his investigation, Bryce learns that the company has been involved in several highly-complex transactions with related parties that do not appear to have any logical business purpose. Further, Alpha’s organizational structure is overly complex and involves some unusual legal entities with overlapping lines of authority. Bryce also discovers four large bank accounts in the Cayman Islands that have no clear business justification. When questioned about these situations, the company’s CEO treats them as unimportant and refuses to provide any further explanation. What type of financial statement fraud scheme do Bryce’s findings most likely indicate? a. Fictitious revenues b. Improper asset valuation c. Improper disclosures d. Concealed expenses |
c. Improper disclosures |
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Recurring attempts by management to justify marginal or inappropriate accounting treatments on the basis of materiality is a red flag associated with which type of financial statement fraud? a. Improper disclosures b. Fictitious revenues c. Concealed liabilities d. None of the above |
a. Improper disclosures |
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Which of the following is a common target for improper asset valuation schemes? a. Accounts receivable b. Business combinations c. Inventory valuation d. All of the above |
d. All of the above |
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An unusual change in the relationship between fixed assets and depreciation is a red flag associated with which type of financial statement fraud scheme? a. Timing differences b. Improper asset valuation c. Improper disclosure d. All of the above |
b. Improper asset valuation |
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Which of the following is an example of improper asset valuation? a. Fictitious accounts receivable b. Understating assets c. Misclassifying assets d. All of the above |
d. All of the above |
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According to SAS 99 (AU 240), “Consideration of Fraud in a Financial Statement Audit,” the auditor should ask management about the risks of fraud and how they are addressed. Which of the following is not described as an issue that the auditor should ask management about? a. Whether management has knowledge of fraud or suspected fraud b. Management’s understanding of the risk of fraud c. Whether and how management communicates the company’s financial results to its employees d. Programs that the entity has established to prevent, deter, or detect fraud |
c. Whether and how management communicates the company’s financial results to its employees |
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According to AU 240, fraud involving senior management should be reported directly to the shareholders as soon as the fraud is documented. a. True b. False |
b. False |
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AU 240 requires auditors to document :a. Any specific risks of material misstatement due to fraud that were identified b. The discussion among engagement personnel regarding the susceptibility of the entity’s financial statements to material misstatement due to fraud c. The reasons supporting the auditor’s conclusion if the auditor has not identified improper revenue recognition as a risk d. All of the above |
d. All of the above |
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Vertical analysis is also known as “common sizing” of financial statements. a. True b. False |
a. True |
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In the vertical analysis of an income statement, _____________ is assigned 100 percent, with all other items expressed as a percentage thereof. a. Gross sales b. Net sales c. Net income d. Gross margin |
b. Net sales |
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The technique for analyzing the percentage change in individual financial statement items from one accounting period to the next is known as: a. Ratio analysis b. Vertical analysis c. Horizontal analysis d. Correlation analysis |
c. Horizontal analysis |
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The textbook lists several ways to reduce the pressures to commit financial statement fraud, including: a. Avoiding setting unachievable financial goals b. Maintaining accurate and complete internal accounting records c. Having confidential reporting mechanisms to communicate inappropriate behavior d. Maintaining accurate personnel records including background checks on new employees |
a. Avoiding setting unachievable financial goals |
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Establishing clear and uniform accounting procedures with no exception clauses can help reduce financial statement fraud by addressing which side of the fraud triangle? a. Pressures to commit fraud b. Opportunity to commit fraud c. Rationalizations of financial statement fraud d. Non-sharable problems |
b. Opportunity to commit fraud |
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Promoting strong values, based on integrity, throughout the organization can help reduce financial statement fraud by addressing which side of the fraud triangle? a. Non-sharable financial needs b. Opportunity to commit fraud c. Pressure to commit fraud d. Rationalization of fraud |
d. Rationalization of fraud |
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Bill Raymond is the CEO of the Drummond Group, a consulting group in the Carolinas. Sales have increased at least five percent every year for the past seven years. Unfortunately, the company has hit a slump this year, and revenue is far less than anticipated. However, in order to receive his performance bonus, Bill must show a sales increase of at least seven percent. When the financials are released, sales have increased by exactly seven percent. Which of the following ratio analyses would be most helpful in revealing that Bill included bogus sales in the company’s financials? a. Inventory turnover b. Receivable turnover c. Debt-to-equity ratio d. Quick ratio |
b. Receivable turnover |
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Sally Lauren is the external auditor for Modus Industries, a public company that manufactures disk drives. As she analyzes the numbers, she finds that the quick ratio, which has typically remained consistent, increased from 1.7 to 2.3 over the previous year. What type of financial statement fraud scheme could be occurring? a. Inflated inventory b. Omitted expenses c. Fictitious accounts receivable d. None of the above |
c. Fictitious accounts receivable |
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Scott Ruskin is the CEO of Decatur Materials. The company has been struggling for the last few years and is in danger of defaulting on several of its bank loan covenants. Scott is facing significant pressure from the board of directors to turn the company around. Unless he meets all of the financial goals for the year, he will be out the door without a golden parachute. To improve the financial appearance of the company, Scott undertakes a scheme to boost the balance sheet by faking inventory. The analysis of what financial ratio would most likely bring this scheme to light? a. Quick ratio b. Collection ratio c. Inventory turnover d. Profit margin |
c. Inventory turnover |
