Financial Investigations
Review Questions
Course Introduction
Financial Investigations is a course designed to equip students with the knowledge and skills necessary to detect, analyze, and prevent financial crimes such as fraud, money laundering, embezzlement, and corruption. The curriculum covers fundamental investigative techniques, the legal and regulatory framework governing financial misconduct, and best practices for gathering and interpreting financial evidence. Through real-world case studies and practical exercises, students learn to trace financial transactions, identify suspicious activities, and leverage digital tools and forensic accounting methods in support of criminal and civil investigations. The course prepares students for careers in law enforcement, compliance, auditing, and corporate security by fostering a strong understanding of the ethical and procedural complexities involved in financial crime investigations.
Recommended Textbook
Forensic Accounting and Fraud Examination 1st Edition by Mary Jo Kranacher
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16 Chapters
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Chapter 1: Core Foundation Related to Fraud Examination and Financial
Forensics
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Sample Questions
Q1) The two primary functions of financial forensics are:
A) litigation advisory services and investigative services.
B) litigation advisory services and expert witness services.
C) post event auditing services and investigative services.
D) post event auditing services and expert witness services.
Answer: A
Q2) Explain the theory of the fraud triangle.
Answer: The fraud triangle provides an explanation for the conditions necessary for fraud to occur - perceived pressure, perceived opportunity, and rationalization.
Q3) M/C Fraud deterrence begins:
A) with the employer's internal controls.
B) in the employee's mind.
C) with the fraud examination.
D) with regulatory and legal actions such as PCAOB Auditing Standard No. 5, AICPA Statement on Auditing Standards SAS No. 99, and the Sarbanes-Oxley Act.
Answer: B
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Chapter 2: Careers in Fraud Examination and Financial Forensics
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Sample Questions
Q1) Regulatory agencies such the Financial Accounting Standards Board would not employ professionals with specialized knowledge, skills, training, education, and experience in fraud examination and financial forensics.
A)True
B)False
Answer: False
Q2) There are many accreditations mentioned in the chapter. Why are such accreditations considered important?
Answer: Accreditations by a recognized and respected body such as the American Institute of Certified Public Accountants AICPA or Society of Financial Examiners SOFE indicates that individual presenting those credentials has gone through a defined educational, experience, a testing cycle, and most likely a continuing professional education program to maintain a high degree of effectiveness in the area identified by the credential. This gives the individual or firm needing the services some degree of assurance and it gives the individual or firm a mediation body, the credentialing body, if questions arise during the engagement that cannot be answered to the individual or firm's satisfaction by the individual presenting the credential.
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Page 4
Chapter 3: Who Commits Fraud and Why: Criminology and Ethics
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Sample Questions
Q1) Which principle of ethical problems was championed by John Stuart Mills?
A) The Generalization Principle.
B) The Utilitarian Principle.
C) The Imperative Principle.
D) The Responsibility Principle.
Answer: B
Q2) Formal controls can be best described as the way an employee internalizes group norms of the organization.
A)True
B)False
Answer: False
Q3) Status gaining is most typically associated with which of the following?
A) perceived economic pay inequities.
B) no one to share a problem with.
C) revenge for unfair treatment in the workplace.
D) "keeping up with the Joneses" syndrome.
Answer: D
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Page 5
Chapter 4: Complex Frauds and Financial Crimes
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Sample Questions
Q1) The characteristics of a predator fraudster are:
A) Poorly educated
B) Divorced
C) Member of a minority group
D) None of the above
Q2) High net worth individuals are likely to use private banks.
A)True
B)False
Q3) Investment banks provide most of the banking services to high net worth individuals in the US.
A)True
B)False
Q4) Similarities between organized crime and terrorist organizations are:
A)Both use coercion as their main tool
B) Both use violence
C) Both seek ways to hide their illegal activities
D) All of the above
Q5) "Accidental" fraudsters are usually poor members of minority groups.
A)True
B)False
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Chapter 5: Cybercrime: Computer and Internet Fraud
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Q1) Computer crime and computer fraud are synonyms.
A)True
B)False
Q2) Computers offer cyber criminals efficient ways to hide fraudulent activities.
A)True
B)False
Q3) Computer crime involves the attempt to access data illegally.
A)True
B)False
Q4) The "computer as a symbol" involves using a computer to intercept data transmission.
A)True
B)False
Q5) Cyber-crime involves the use of cell phones.
A)True
B)False
Q6) An employee, having authorized access to a work computer, commits fraud while using the computer. This is an example of a computer crime.
A)True
B)False
Page 7
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Chapter 6: Legal, Regulatory, and Professional Environment
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Q1) As long as a nonpublic entity is conducting the interview, an employee does not have the right to have a lawyer present during the interview.
A)True
B)False
Q2) What are the three major types of negotiated remedies and how do they differ?
Q3) If the victims or others with a stake in the outcome of a fraud trial are not satisfied with the results of the criminal justice system, they may pursue their claim through the civil justice system.
A)True
B)False
Q4) PCAOB Auditing Standard No. 3 AS3, Audit Documentation, requires that audit engagement documentation should include a list of all EXCEPT:
A)significant fraud risk factors.
B)the auditors response.
C)the results of the auditors related procedures.
D)List of the internal controls.
Q5) What are the factors that affect the decision to prosecute an entity?
Q6) What approaches are used by investigators to obtain documents?
Q7) In the criminal justice system, how is probation different from parole?
Page 8
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Chapter 7: Fraud Detection: Red Flags and Targeted Risk Assessment
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Sample Questions
Q1) Overall, management must design, implement, and maintain:
A) an internal controls program to protect entity assets, liabilities, and owners' equity.
B) internal controls and financial reporting processes to produce timely financial and nonfinancial information that reflects the underlying economics of the business.
C) an accounting system that is in full compliance with U.S. GAAP accounting principles.
D) All of the choices are correct.
Q2) Most of a company's information systems feed directly into the general ledger and other aspects of the accounting system.
A)True
B)False
Q3) Even though independent auditors are "independent," management is still responsible for cooperation in order for them to complete their work.
A)True
B)False
Q4) What is the role of the external auditor in the financial reporting process?
Q5) Generally, how is the problem of management override and collusion addressed?
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Chapter 8: Detection and Investigations
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Q1) Lexis-Nexis is a tool used to corroborate net income.
A)True
B)False
Q2) A colleague witnesses the defendant counting a large amount of cash. The defendant is accused of theft. This evidence is:
A) Circumstantial and relevant
B) Circumstantial and irrelevant
C) Direct and relevant
D) None of the above
Q3) Which government agency handles export and import licenses:
A) Commerce department
B) Department of the Treasury
C) Department of State
D) None of the above
Q4) Searching for changes in behavior patterns prior to and after a crime is a form of invigilation.
A)True
B)False
Q5) Circumstantial evidence
Q6) Direct evidence
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Chapter 9: Effective Interviewing and Interrogation
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Q1) A liar often will use emotionally provocative terms such as "steal," "lie," and "crime."
A)True
B)False
Q2) As a general rule, private employers conducting an internal investigation are required to give Miranda warnings.
A)True
B)False
Q3) General rules for conduction an introductory interview for potential suspects include all EXCEPT:
A) Discussing the source of the allegations
B) Seeking continuous agreement
C) Ask non-sensitive questions
D) Conduct the interview under conditions of privacy
Q4) An attorney will often request that the fraud professional or forensic accountant attend the deposition of key witnesses who have knowledge of, or should have knowledge of, the financial transactions and how they are reflected in the books and records.
A)True
B)False
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Chapter 10: Using Information Technology for Fraud
Examination and Financial Forensics
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Q1) There are two major ways to test IT systems - the "black-box" approach, and the "white-box" approach, which utilizes a relatively small dataset to test the system.
A)True
B)False
Q2) Data mining and knowledge discovery software is generally classified into two general categories: public domain and commercial applications.
A)True
B)False
Q3) Which of the following would be considered a batch control for payroll?
A) A total on FICA taxes withheld.
B) A total on Federal Income taxes withheld.
C) A total on employee hours.
D) A total on state income tax withheld.
Q4) What computer functions can make recovering deleted files more difficult?
Q5) The graphic 10-4 is called an:
A) Association matrix
B) Link chart
C) Familial chart
D) Grouping chart
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Chapter 11: Cash Receipt Schemes and Other Asset
Misappropriations
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Sample Questions
Q1) If a fraudster has a hand in both ends of the receipting process, he or she can falsify records to conceal the theft of receivables payments. This technique is called:
A) Lapping
B) Kiting
C) Force balancing
D) Debiting the wrong account
Q2) Writing off inventory and other assets is a relatively common way for fraudsters to remove assets from the books before or after they are stolen.
A)True
B)False
Q3) A common skimming scheme is to take unrecorded checks that the perpetrator has stolen and substitute them for receipted currency.
A)True
B)False
Q4) "Death by a thousand cuts" involves stealing cash one thousand dollars at a time.
A)True
B)False
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Chapter 12: Cash Disbursement Schemes
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Q1) Which of the following would prevent a ghost employee scheme:
A) Separation of payroll and personnel functions
B) Separation of timekeeping and payroll functions
C) Separation of timekeeping and supervisor functions
D) None of the above
Q2) A commission scheme can be detected by:
A) Examining sales return patterns
B) Examining sales over a certain amount
C) Examining sales returns
D) All of the above
Q3) Register disbursement fraud in the form of falsified returns can be detected by:
A) Inventory counts
B) Cash counts
C) Examination of return receipts
D) All of the above
Q4) An employee intercepts a legitimate check made payable to a vendor and changes the payee name to his name. This is an example of a forged maker.
A)True
B)False
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Chapter 13: Corruption and the Human Factor
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Q1) Perhaps the most common indicator of collusive bidding practices is an unusually low contract price.
A)True
B)False
Q2) ________ is a process by which several bidders conspire to split up contracts and ensure that each gets a certain amount of work.
A) Blind bidding
B) Bid pooling
C) Expropriation
D) Splitting the pot
Q3) ________ schemes involve the submission of invoices for goods and services that are either overpriced or completely fictitious.
A) Conflicts of interest
B) Economic extortion
C) Kickback
D) Illegal gratuities
Q4) Describe the features of an effective fraud reporting program within a company.
Q5) List the four major corruption schemes.
Q6) Why is it problematic for an organization to set standards that are too high?
Page 15
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Chapter 14: Financial Statement Fraud
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Q1) Fixed assets are subject to manipulation through several schemes. Which of the following is NOT such a scheme?
A) Booking fictitious assets
B) Misrepresenting asset valuation
C) Improperly capitalizing inventory and startup costs
D) Booking at historical cost
Q2) Accurate financial statements are the responsibility of company's external accountants.
A)True
B)False
Q3) Which of the following is NOT a valid reason for a senior manager to issue fraudulent financial statements?
A) To conceal true business performance
B) To preserve personal status/control
C) To maximize tax liability
D) To maintain personal income/wealth flowing from salary, bonus, stock and stock options.
Q4) List four steps to reduce the opportunity to commit financial statement fraud.
Q5) How are fictitious revenue schemes committed?
Q6) What is the conceptual framework for financial reporting?
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Chapter 15: Consulting, Litigation Support, and Expert
Witnesses: Damages, Valuations, and Other Engagements
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Q1) In some cases, documents are not only subjected to confirmation with external transaction participants but also subjected to fingerprint analysis and procedures for forgery and/or fictitious or altered documents.
A)True
B)False
Q2) ________ value is used to describe the price of an asset, assuming that a willing buyer and willing seller can come to terms under normal market conditions.
A) Book
B) Liquidation
C) Market
D) Investment
Q3) Compare two methods that can be used to develop estimates of lost sales and incremental expenses.
Q4) In litigation advisory services, accountants use their knowledge, skills, abilities, experience, training, and education to support legal actions.
A)True
B)False
Q5) What are the various categories and calculations used in ratio analysis?
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Chapter 16: Remediation and Litigation Advisory Services
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Q1) "Following the money" and "tracing the money" are identical activities and may have legal ramifications on amounts available for recovery.
A)True
B)False
Q2) The control environment also excludes:
A) Integrity and ethical values
B) A passive board of directors and audit committee
C) Periodic assessment of the organizational structure
D) Human resource policies and practices that facilitate a good control environment
Q3) A deposition is a post-trial process by which the parties to a civil litigation are allowed to examine the other side's fact witnesses and expert witnesses.
A)True
B)False
Q4) The function of a deposition EXCLUDES:
A) Test or confirm theories and hypotheses
B) Develop a record under oath and thereby "freeze" a witness's testimony
C) Prove the defendant's guilt
D) Move the case toward settlement or trial
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