Fraud Examination 4th Edition by Albrecht – Test Bank

 

 

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Sample Test

 Chapter 03

TEST BANK > CONTROL PANEL > POOL MANAGER > POOL CANVAS
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Name Chapter 3–Fighting Fraud: An Overview
Description
Instructions Modify
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Question Research has shown that ______ detect most frauds.
Answer Auditors
Customers
Vendors
Employees
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Question All of the following are methods that organization can adopt to proactively eliminate fraud opportunities EXCEPT:
Answer Accurately identifying sources and measuring risks.
Implementing appropriate preventative and detective controls.
Creating widespread monitoring by employees.
Eliminating protections for whistle blowers.
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Question Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud investigation?
Answer Testimonial
Forensic
Documentary
Observational
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Question Which of the following is NOT a part of the evidence square?
Answer Management evidence
Documentary evidence
Testimonial evidence
Physical evidence
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Question All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT:
Answer top management that does not pay attention to behavior of employees.
lack of recognition of job performance.
unrealistically low pay.
low turnover.
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Question Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?
Answer Hiring right kind of employees
Security cameras
Peer evaluations
Ergonomics
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Question Which of the following is a component of the evidence square?
Answer Rationalization
Perceived pressure
Personal observation
Perceived opportunity
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Question Civil suits are usually quite rare in cases of employee fraud because:
Answer there is usually not enough evidence to prosecute.
employee fraud is a victimless crime.
it is difficult for a jury to unanimously decide on a conviction.
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perpetrators have usually spent the money.
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Question Which of the following key activities related to fraud, is the most important and cost-effective way to reduce losses from fraud?
Answer Follow-up legal action
Early fraud detection
Fraud investigation
Fraud prevention
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Question Which of the following element is one of the three basic elements of fraud motivation triangle?
Answer Concealment
Theft
Opportunity
Conversion
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Question Communicating expectations about honesty and integrity throughout a company includes all of the following elements EXCEPT:
Answer identifying appropriate values and ethics.
fraud awareness training.
consistent punishment for violators.
insisting that top management model appropriate behavior.
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Question In an organization, individuals who suspect fraud usually don’t come forward because they:
Answer are sure that perpetrator will get caught one day.
do not want to accuse someone.
fear being branded as a whistle-blower.
will loose their dignity in the workplace.
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Question Studies show that legal action against fraudsters is typically taken:
Answer Less than 25 percent of the time.
Less than 50 percent of the time.
More than 75 percent of the time.
At least 50 percent of the time.
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Question Which of the following is NOT one of the ways in which a fraud investigation must be conducted?
Answer Investigators should be experienced and objective professionals.
Investigators should closely guard all hypotheses regarding guilt or innocence of individuals being investigated.
Investigators should not keep management apprised of the investigations process.
Investigators must be sure to follow appropriate investigative techniques.
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Question Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee’s computer to use as evidence in the
case. Under which category of evidence would an email message fall?
Answer Testimonial evidence
Documentary evidence
Physical evidence
Personal observation
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Question Organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:
Answer helps in training employees about appropriate behavior.
often prompt smaller frauds.
pay big dividends.
helps in severely punishing fraud perpetrators.
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Question When perceived pressures and(or) opportunities are low, a person needs more ________ to commit fraud.
Answer support from people at workplace
rationalization
courage
motivation
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Question Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions, and there
are four levels in it. Which of the following level is NOT one among them.
Answer Personal ethical understanding
Corporate code of ethics
Application of ethics
Ethical courage
Ethical leadership
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Question Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions. Which of
the following represents the foundation of ethics according to this model?
Answer Personal ethical understanding
Ethical courage
Ethical leadership
Application of ethics to business situations
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Question A person may have very strong ethics in the way he or she treats family and friends, but not understand how failure to submit tax
withholdings to the government affects peoples’ lives or constitutes unethical or fraudulent behavior. This is an ethical issue encountered in which
level of the ethical maturity model?
Answer Personal ethical understanding
Ethical courage
Ethical leadership
Application of ethics to business situations
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Question Which level in the ethical maturity model can be summarized as “willingness to pay the price for ethics?”
Answer Ethical positioning
Ethical courage
Personal ethical understanding
Application of ethics to business situations
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Question Which is the highest level in the ethical maturity model?
Answer Ethical leadership
Ethical courage
Personal ethical understanding
Application of ethics to business situations
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Question Which of the following is the largest employee group in most organizations?
Answer Employees who display ethical leadership
Group of employees who will always be honest
Group of employees who will be dishonest anytime it benefits them
Swing group of employees who could be honest or dishonest
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Question Which of the following is true of the “swing group” of employees in organizations?
Answer Individuals in this group have situational ethics.
Individuals in this group are dishonest at all times.
Individuals in this group do not know how to translate their ethical values to the business world.
Individuals in this group completely lack ethical courage.
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Question Research on honesty shows that individuals fall into three groups:
(1) those who will almost always be honest,
(2) those who are situationally honest, and
(3) those who will always be dishonest.
Which of these groups is (are) the biggest?
Answer Group 1 (50%)
Group 2 (40%)
Group 3 (45%)
Groups 1 and 3 (35% each)
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Question Which legislation makes it compulsory for every public company to have a code of conduct to convey expectations about what is and is
not appropriate for its directors and officers?
Answer Sherman Act
Glass-Steagall Act
Sarbanes Oxley Act
Gramm-Leach-Bliley Act
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Question Which of the following statements is TRUE?
Answer External auditors are usually specifically trained to detect fraud.
Audits of books and records rarely discover frauds.
Less than 5 percent of all frauds are detected by auditors.
The presence of auditors provides a major deterrent effect.
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Question In the ethical maturity model, instilling in others a desire to develop ethical awareness and courage is referred to as:
Answer Personal codes of ethics.
Ethical motivation.
Ethical leadership.
Application of ethics to business situations.
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Question In the past, most frauds were detected:
Answer by surveillance and undercover operations.
by accident.
by providing ways for people to report suspicions of fraud.
by examining transaction records and documents to determine if there are anomalies that could represent fraud.
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Question In recent years, organizations have implemented a number of initiatives to more proactively detect fraud. The first and most common
proactive fraud detection approach has been to:
Answer install reporting hotlines.
conduct undercover operations.
introduce round-the-clock invigilation.
collect physical evidence.
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Question Which of the following is an example of a whistle-blowing system?
Answer Bulletin board service
Supervisor intervention
Removing middle management layer
Fraud reporting hotline
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Question Which of the following is a prerequisite for a fraud investigation?
Answer Predication
A specific allegation of fraud against another party
Consistent bottom-line improvement
Rationalization
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Question Although there are multiple approaches to fraud investigation, most investigators tend to rely heavily on ______.
Answer invigilation
surveillance
interviews
honesty tests
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Question Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation, and honesty tests?
Answer Documentary evidence
Testimonial evidence
Physical evidence
Personal observation
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Question Some of the most common investigative techniques for gathering this evidence include data mining, audits, computer searches, net worth
calculations, and financial statement analysis.
Answer Documentary evidence
Testimonial evidence
Physical evidence
Personal observation
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Question Investigative techniques under which approach include invigilation, surveillance, and covert operations?
Answer Documentary evidence
Testimonial evidence
Physical evidence
Personal observation
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Question All of the following are part of the fraud element triangle EXCEPT:
Answer Theft act
Concealment
Conversion
Layering
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Question Which investigative method would be used to catch a fraud perpetrator while he/she is actually receiving a kickback?
Answer Theft act
Concealment
Conversion
Layering
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Question Which investigative method involves searching for ways in which perpetrators have spent or used their stolen assets?
Answer Theft act
Concealment
Conversion
Layering
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Question The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.
Answer Management evidence
Testimonial evidence
Physical evidence
Personal observation
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Question The most effective way to involve employees in the monitoring process is to provide a protocol for:
Answer communication.
personality.
leadership skills.
behavior.
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Question _______ refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe a fraud has
occurred, is occurring, or will incur.
Answer Suspension
Probation
Predication
Retaliation
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Question Which of the following statements is NOT true?
Answer It is much more difficult to get a criminal conviction than it is to get a judgment in a civil case.
Only a preponderance of the evidence (more than 50 percent) is necessary to win a civil case.
Criminal convictions are only successful if there is 100 percent proof that the perpetrator “intentionally” stole money or other assets.
Civil actions are quite rare in cases of employee fraud because perpetrators have usually spent the money they stole.
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Question Which one of the following was NOT discussed as a way to create a culture of honesty and integrity?
Answer Offer rewards for honest behavior
Communicate expectations throughout the organization
Hire the right kinds of employees
Create a positive work environment
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Question Research in moral development strongly suggests that honesty can be best reinforced when:
Answer expectations of honesty are implied.
fraud perpetrators are given a second chance.
fraud perpetrators are severely punished.
a proper example is set by management.
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Chapter 04

TEST BANK > CONTROL PANEL > POOL MANAGER > POOL CANVAS
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Name Chapter 4–Preventing Fraud
Description
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Question Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?
Answer System of authorizations
Segregation of duties
Independent checks
Physical safeguards
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Question Which of the following would usually be an environment conducive to fraud?
Answer Low turnover
Reactive rather than proactive management
Supportive rather than rivalrous relationships
Long-term business focus
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Question One of the most important responsibilities of an employer is the hiring and retention of employees. Which situation below reflects the
current market scenario?
Answer High turnover, high loyalty
High turnover, low loyalty
Low turnover, high loyalty
Low turnover, low loyalty
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Question One way to create and communicate clear expectations about what is and is not acceptable in an organization is:
Answer having conflicting personnel and operating policies.
creating an expectation of punishment.
following a reactive management style.
to have a clearly defined code of conduct in place.
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Question Preventive controls that provide early fraud detection opportunity include:
Answer independent checks.
segregation of duties.
documents and records.
lack of proper authorization
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Question What is the most widely recognized way to deter fraud?
Answer Interview every employee on a regular basis.
Implement a good system of controls.
Keep management involved in company procedures.
Threaten employees that on being caught, he/she will be fired.
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Question Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her lifestyle?
Answer A person owns several expensive cars.
A person closely monitors his/her investments.
A person who hosts extravagant parties in their $500,000 home.
A person who owns a multimillion dollar art collection.
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Question In order to detect fraud at the earliest, a manager should pay attention to:
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Answer present lifestyle.
past conduct.
attitude toward work.
absenteeism.
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Question Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?
Answer Investigation & follow-up
Education & training
Tone at the top
Proactive fraud detection
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Question An operating condition that can contribute to a higher risk of fraud is ________ .
Answer management by crisis
high company loyalty
flexible rules
proper authorization
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Question A good internal control system includes:
Answer hostile work environments.
rigid rules.
segregation of duties.
following strict hiring procedures.
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Question What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?
Answer Fraud incident
Resolution
Investigation
Action
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Question Which of the following is a sign of a positive work environment?
Answer Rigid rules followed by the organization
Managers who don’t care about or pay attention to honesty
Autocratic or dictatorial management
Having positive personnel and operating procedures
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Question Approximately ____ of all frauds are committed by individual acting alone. The remaining ____ involves collusion and often involve the
____ thefts.
Answer 63%, 37%, smallest
71%, 29%, biggest
47%, 53%, smallest
18%, 82%, biggest
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Question An employee recently bought five new cars and remodeled his/her home. These facts would be considered as a:
Answer lifestyle symptom.
accounting anomaly.
unusual behavior.
analytical symptom.
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Question Fraud is most commonly detected by:
Answer monitoring employees.
auditors.
discouraging collusion.
tips and complaints.
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Question Which of the following environments will be LEAST conducive to fraud?
Answer Perceived inequalities in the organization and inadequate pay
Unreasonable budget expectations
Proactive management
High employee turnover
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Question A good fraud auditing involves four steps. Which of the following is the correct sequence?
Answer Identifying fraud risk exposures; building audit programs to proactively look for symptoms and exposures; investigating fraud
symptoms identified; and identifying the fraud symptoms of each exposure.
Identifying fraud risk exposures; identifying the fraud symptoms of each exposure; building audit programs to proactively look for
symptoms and exposures; and investigating fraud symptoms identified.
Building audit programs that proactively check for symptoms and exposures; identifying fraud risk exposures; identifying the fraud
symptoms of each exposure; and investigating fraud symptoms identified.
Identifying the fraud symptoms of each exposure; identifying fraud risk exposures; investigating fraud symptoms identified; and building
audit programs to proactively look for symptoms and exposures.
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Question ____ focuses more on creating a culture of openness than eliminating opportunities.
Answer Proactive auditing
Installing good internal controls
Monitoring employees
Creating a positive work environment
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Question The last step of the fraud fighting model is follow-up. What is the likely outcome when a company allow perpetrators to go unprosecuted?
Answer The company will avoid bad publicity.
The perpetrator and others in the company will commit fraud again in the future.
The perpetrator will be saved from pain and embarrassment and having learned his or her lesson will not commit fraud again.
Management will send a signal that fraud will not be tolerated.
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Question Which of the following should be emphasized in an employee-reporting program?
I. Fraud, waste, and abuse occur in very few companies.
II. The company actively encourages employees with information to come forward.
III. The employee’s name must be disclosed.
IV. The report need not be made to one’s immediate supervisor.
Answer II and III.
I, II, III, and IV.
I, II, and IV.
II and IV.
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Question Which method will result in biggest savings?
Answer Fraud prevention–including EAP plans.
Fraud detection–including audit proactively, monitoring.
Investigation–including criminal prosecution.
Promotion–including raising rank or position.
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Question The correct order of the six elements of the fraud fighting model is:
Answer Tone at the Top; Education and Training; Proactive Detection; Integrity Risk and Controls; Reporting and Monitoring; Investigation and
Follow-up.
Tone at the Top; Education and Training; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and
Follow-up.
Education and Training; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and Follow-up; Tone
at the Top.
Education and Training; Tone at the Top; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and
Follow-up.
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Question A “right-to-audit” clause:
Answer provide rights to the vendor to audit the company’s books at any time.
gives an external auditor the right to audit the company’s books.
should not be used because it isn’t an effective tool in fraud investigation.
alerts vendors that the company reserves the right to audit the vendor’s books at any time.
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Question When only a very small amount of money has been embezzled:
Answer taking no action is the best course of action.
the perpetrator should be punished by publishing the details of the fraud in the local newspapers.
the perpetrator should be prosecuted.
the company should transfer the perpetrator to a position with more supervision.
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Question Jim was a crook. He embezzled $450,000 from his employer. When his employer found out about his misdeeds, before even conducting a
thorough investigation, he went and gave all the details to a local newspaper agency. The next day Jim read his own story, with his own name, in the
newspaper. Which of the following is correct?
Answer The company did the right thing by publishing Jim’s identity in the newspaper because it punished him for stealing as well as served
a warning to his neighbors who might also be at the risk of being defrauded.
The company should not have put Jim’s name and story in the paper because when other employees will come to know about it, they
might leave the organization.
Jim may have been misrepresented in the story by the newspaper agency and the company might face legal consequences.
Publishing the story in the newspaper was a wrong thing to do because only employees were supposed to know about the fraud.
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Question Who has the primary responsibility for establishing and maintaining good internal controls?
Answer Primary responsibility for controls belongs to internal auditors. They are the ones who create the controls and investigate potential
violations of the controls.
Primary responsibility rests with management. Management both conveys acceptable culture and has the final say in how fraud cases
are treated.
Primary responsibility lies with employees. They are the ones most likely to witness violations and are responsible to watch for those
violations.
Primary responsibility is not attributable to one person or group of people within an organization. Each member of an organization must
consider himself or herself personally responsible for the organization’s control environment.
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Question What does the acronym “EAP” stand for?
Answer Entrepreneurial Assistance Program
Employee Assistance Program
Ethical Awareness Program
Employee Anti-fraud Program
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Question What are the key attributes for a low-fraud environment?
Answer Rules, consequences, and fear.
Recognition, remorse, and restitution.
Honesty, openness, and assistance.
Opportunity, incentive, and rationalization.
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Question Which of the following should employers always obtain from the applicant to obtain information from references?
Answer A verbal authorization
A hold harmless agreement
A privacy statement
A no-objection certificate
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Question Which of the following is a step that organizations should undertake while recruiting employees?
Answer Conduct a covert investigation on the background of each candidate.
Consider the candidate’s word as truth to ensure a culture of trust and honesty.
Require candidates to certify that all information on their résumé is accurate.
Verify the candidate’s race, age, and religion during the interview.
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Question Recruitment interview questions that deal with an applicant’s race, sex, age, religion, color, national origin, or disability:
Answer are allowed in most circumstances.
are allowed as long as the interviewee is not offended.
are prohibited unless the criterion is pre-approved by the company management.
are usually prohibited unless the criterion is a bona fide occupational qualification.
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Question Which of the following questions should be avoided during a job interview?
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Answer How old are you?
If the opportunities in your previous assignment were good, why did you leave it?
Assume that a colleague is not cooperating with you. What steps will you take to correct it?
What motivates you at work?
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Question Which of the following explains the Pygmalion effect?
Answer 99% of frauds in organizations are committed by 1% of their employees.
The probability of fraud detection increases with the number of people involved.
People generally perform according to a leader’s expectations.
Absence of controls leads to increased incidents of dishonesty.
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Question Which of the following allows managers and others to become aware of employees’ pressures, problems, and rationalizations thus
enabling them to take fraud prevention steps?
Answer Office grapevine
Open door policies
Code of ethics
Pygmalion effect
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Question Identify a situation that could usually lead to a conflict of interest.
Answer A manager has to choose between two of his best employees for the post of assistant manager.
A sales supervisor has to allocate targets to her team members, based on revenue generation probability per region.
A market analyst is asked to create a comparative growth forecast for four firms in an industry.
A purchase manager in a company runs an operation that produces the raw materials required by the company.
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Question Which of these help employees deal with substance abuse (alcohol and drugs), gambling, money management, and health, family, and
personal problems?
Answer Employee Assistance Programs
Equal Employment Opportunity Programs
Employees Anonymous Programs
Whistle-Blowing Programs
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Question The _____ is the overall tone of the organization that management establishes through its modeling and labeling, organization,
communication, and other activities.
Answer detection framework
risk mitigation channel
support network
control environment
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Question Which of the following is the foundation for all other components of internal control, providing discipline and structure?
Answer Open door policy
Control environment
Whistle-blowing system
Surveillance
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Question Which of the following observations is true?
Answer The effectiveness of an ideal control system should be independent of the people enforcing it.
No internal control structure can ever be completely effective, regardless of the care followed in its design and implementation.
A control system by itself can provide absolute assurance that all fraud will be prevented.
The type of control activities include reactive controls and proactive controls.
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Question An organization has a policy requiring the dual counting of all incoming cash receipts. Which control activity is being used here?
Answer Segregation of duties
Proper authorizations
Physical safeguards
Documents and records
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Question An organization requires that employees in its accounting department take mandatory two-week long continuous vacations once a year. It
allows no exceptions to this rule. Which control activity is the company using?
Answer Segregation of duties
Proper authorizations
Physical safeguards
Independent checks
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Question Which of the following observations concerning collusive frauds is true?
Answer They are usually slower to develop than frauds committed by one individual.
Research indicates that majority of the frauds involve collusion.
Frauds involving collusion are usually the easiest to detect because of the involvement of multiple players.
Recent trends in business have dramatically decreased the number of collusive frauds.
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Question Identify a recent business trend that could be contributing to the increased number of collusive frauds.
Answer Reduced cost savings and product quality from using same suppliers.
Advances in technology that simplifies the process of conducting business.
Increasing frequency of supplier alliances, and closer relationships between buyers and suppliers.
Increased competition amongst suppliers that substantially erodes profit margins.
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Question Company X has a clearly communicated code of ethics and a whistle-blowing program. Sara used the whistle-blowing system to alert the
management about a fraud being committed by a senior employee in the human resource department. The company investigated the allegation and
punished the fraudster. However, Sara was shocked to find later that everyone in her team knew that she was the one who blew the whistle. What
could be a major issue with the program at the company?
Answer Unclear policies
Lack of awareness about the program
Management inaction
Lack of anonymity
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