Forensic Accounting Test Bank
Course Introduction
Forensic Accounting is an interdisciplinary course that explores the application of accounting principles and investigative techniques to detect, prevent, and resolve financial fraud and white-collar crime. Students will learn how to analyze financial records, uncover discrepancies, and interpret complex financial data for use in legal proceedings and litigation support. The course covers topics such as fraud detection methods, legal concepts related to financial crime, investigative procedures, and the role of forensic accountants as expert witnesses. Through case studies and real-world scenarios, students will develop analytical skills and gain a comprehensive understanding of the critical role forensic accounting plays in maintaining transparency and accountability in both public and private sectors.
Recommended Textbook
Fraud Examination 3rd Edition by W. Steve Albrecht
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Chapter 1: The Nature of Fraud
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Q1) Convicted criminals in a _____ case will likely be required to pay restitution and damage payments.
A) Civil
B) Criminal
Answer: A
Q2) What is the difference between civil and criminal prosecution as it relates to fraud ?
A) They have a different purpose.
B) They have different burdens of proof.
C) Only civil prosecution can result in restitution and monetary payments
D) All of the above
E) A and B
Answer: E
Q3) Which of the following statements is most true?
A) Fraud is often less harmful than robbery because it affects fewer people.
B) Fraud usually involves smaller amounts of money than robbery.
C) Fraud always involves deception, confidence and trickery where robbery is more violent and traumatic.
D) Organizational losses from fraud are less than losses from robbery.
Answer: C
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Page 3
Chapter 2: Why People Commit Fraud
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Sample Questions
Q1) Work-related pressures that people use to justify their actions include:
A) Dissatisfaction with their job
B) Believing that they are underpaid
C) Forced to work too many hours
D) All of the above
Answer: D
Q2) What is the most important element of the control environment?
A) Management's communication
B) Management's role and example
C) The hiring process
D) The internal audit department
Answer: B
Q3) Which of the following elements does not make up the fraud triangle?
A) Perceived Pressure
B) Greed
C) Perceived Opportunity
D) Rationalization
Answer: B
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4
Chapter 3: Fighting Fraud: An Overview
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Q1) Evidence that is gathered using interviewing techniques is referred to as:
A) Physical evidence
B) Interview evidence
C) Testimonial evidence
D) Observation evidence
Answer: C
Q2) Research shows that legal action is taken against fraud perpetrators in:
A) Almost all fraud cases.
B) More than half of fraud cases.
C) Less than half of fraud cases.
D) Almost no fraud cases.
Answer: C
Q3) Which one of the following was not discussed as a way to create a culture of honesty and integrity?
A) Offer rewards for honest behavior
B) Communicate expectations throughout the organization
C) Create a positive work environment
D) Hire the right kinds of employees
E) None of the above
Answer: A
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Chapter 4: Preventing Fraud
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Sample Questions
Q1) Fraud is prevented and reduced by:
A) Creating a culture of honesty, openness, and assistance
B) Terminating employees without prosecution
C) Eliminating opportunities to commit fraud
D) Both A and C
Q2) Which factors are crucial in creating a culture of honesty, openness, and assistance?
A) Hiring honest people and training them in fraud awareness
B) Creating a positive work environment
C) Disseminating a well understood and respected code of conduct or ethics
D) All of the above
Q3) The following are (is a) good control(s) for preventing fraud
A) Physical control/proper authorization
B) Segregation of Duties
C) Independent checks
D) Documents and records
E) Both A and B
Q4) True or False. Internal controls are "fraud proof".
A)True
B)False
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) In investigating fraud auditors should NOT
A) Collect documents supporting journal entries without questioning content
B) Understand business processes of the companies
C) Allow management to select samples of documents to analyze
D) Check all accounting entries made at year-end
Q2) Analytical anomalies include all of the following except which of the following?
A) Consistent cash shortages
B) Bottlenecks in inventory
C) Excess purchases
D) Unreasonably high expenses
Q3) Smart embezzlers realize that when making false journal entries, reducing
_____________ is not a good concealment method?
A) Time spent at work
B) Liabilities
C) Management interaction
D) Time spent making a journal entry
Q4) People who can delay gratification rarely embezzle.
A)True
B)False
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Chapter 6: Data-Driven Fraud Detection
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Q1) One of the major disadvantages of Benford's law in detecting fraud is:
A) You know exactly what you are looking for.
B) It is a fairly expensive method to use.
C) You have enormous amounts of information to sift through.
D) It only broadly identifies the possible existence of fraud and can include non-fraud factors.
Q2) A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers:
A) Inductive fraud detection
B) Deductive Fraud detection
C) Benford's law
D) Horizontal Analysis
E) Vertical Analysis
Q3) Which of the following is NOT a red flag for fraud committed by purchasing employees to purchase goods for personal use?
A) Invoices without valid purchase order
B) Employee and vendor telephone numbers are the same
C) Invoices exceeding purchase order dollar amount ranked by dollar difference
D) Purchase orders with zero dollar amounts by buyer
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Page 8
Chapter 7: Investigating Theft Acts
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Q1) The best pattern to use to conduct a fraud/theft investigation includes:
A) Search public records, interview suspect, invigilation
B) Check personnel records, invigilation, interview suspect
C) Interview suspect, invigilation, interview former employers
D) Interview co-workers, interview former employers, interview suspect
Q2) In considering the fraud triangle plus inquiry approach to investigation, surveillance, invigilation, and physical evidence are all:
A) Theft act investigation methods
B) Conversion investigations methods
C) Inquiry investigation methods
D) Concealment investigations methods
Q3) Which of the following conditions is not necessary to conduct undercover operations:
A) The investigation can remain secretive
B) Large-scale collusion is likely
C) Subpoena has been issued by a court
D) Other investigation methods fail
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Chapter 8: Investigating Concealment
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Q1) Documents are often the incriminating evidence for fraud. Which of the following should be used when ensuring that the documents are legitimate and accessible for trial?
A) Photograph the evidence
B) Digitally enhance the evidence
C) Mark the evidence
D) Preserve the evidence in a non-transparent container
Q2) __________ are commonly used by attorneys involved in litigation to track documents
A) RFID tags
B) Bates numbers
C) Bar codes
D) All of the above
Q3) DocLab is a division of which organization?
A) US Marshals
B) FBI
C) CIA
D) ACFE
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Chapter 9: Conversion Investigation Methods
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Q1) You are investigating a fraud in which you suspect that one of your suppliers from another state has been giving bribes and kickbacks to your purchasing agent in exchange for a lucrative, exclusive contract. Which of the following agencies/individuals would be the most helpful in investigating this fraud?
A) The FBI because they have national jurisdiction and can investigate and prosecute violators from a different state.
B) The state attorney general for the supplier's state because they are responsible for enforcing all state civil and criminal laws.
C) Postal inspectors because the bribes and kickbacks were most likely made through the mail system; therefore, federal mail statutes apply.
D) The IRS because your purchasing agent is not too bright and probably reported the bribes and kickbacks as income on his tax returns.
Q2) The CIA is responsible to investigate matters:
A) Inside the United States
B) Outside the United States
C) Dealing with the President of the United States
D) All of the above
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Chapter 10: Inquiry Methods and Fraud Reports
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Sample Questions
Q1) The use of body movement to convey meaning is
A) Proxemic communication
B) Kinetic communication
C) Chronemic communication
D) Paralinguistic communication
Q2) Which of the following is the last reaction in the predictable sequence of reactions
A) Depression
B) Anger
C) Rationalization
D) Acceptance
Q3) The most effective theme of interviewing is:
A) that help is being sought
B) the motive for committing the fraud
C) the fraud and how it evolved
D) the suspect's involvement in the fraud
E) none of the above
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Chapter 11: Financial Statement Fraud
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Sample Questions
Q1) Which of the following is important to focus on when trying to detect financial statement fraud?
A) Management and Directors
B) The relationships of the company with other entities
C) Financial Results and Operating Characteristics
D) All of the above
Q2) Fraudulent related-party transactions are discovered by doing the following:
A) Examining large or unusual transactions.
B) Looking under the "fraudulent related-party transactions" in the notes to the financials.
C) Examining the actual existence of physical assets.
D) Examining the backgrounds of managers/board members for criminal records.
Q3) Understanding a company's relationships with financial institutions and bondholders is important because
A) it can indicate the extent to which the company is leveraged.
B) it can reveal how much investors will scrutinize management.
C) it can show fraudulent transactions from special purpose entities.
D) All of the above.
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Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Q1) Which of the following is necessary in order to determine if an analytical symptom exists?
A) Ratio analysis
B) A change statement
C) Vertical analysis
D) An expectation
Q2) According to a study sponsored by The Committee of Sponsoring Organizations (COSO), the most common way to manipulate revenue accounts is by:
A) Reclassifying expenses as revenues
B) Recording fictitious revenues
C) Inappropriately reducing sales returns and allowances
D) Prematurely recording revenue
Q3) Revenues and receivables can be manipulated by:
A) Fictitious sales
B) Topside journal entries
C) Misstating work completed on a long-term construction contract
D) Two of the above
E) All of the above
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Chapter 13: Liability, Asset, and Inadequate Disclosure
Frauds
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Q1) All of the following are examples of disclosure fraud except:
A) Failing to disclose contractual obligations
B) Failing to disclose information regarding loans to creditors
C) Inadequately disclosing significant accounting policies
D) Inadequately disclosing information about pensions
E) All of the above are examples of disclosure fraud
Q2) Which of the following is NOT a fraud scheme involving an asset account?
A) Inappropriately capitalizing marketing costs
B) Using market values rather than book values to record assets
C) Not recording depreciation
D) All of the above are schemes involving asset accounts
Q3) All of the following are ways to detect disclosure fraud except:
A) A tip or a complaint
B) Making inquiries of management regarding related-party transactions, and other liabilities
C) Identifying inconsistencies between disclosures and information in the financials
D) Searching for analytical symptoms in the financial statements
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Chapter 14: Fraud Against Organizations
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Q1) Which of the following is the best example of theft of cash through skimming?
A) Preparing fraudulent checks
B) Understating sales by recording false or larger-than reality sales discounts
C) Setting up dummy companies
D) Stealing cash after it has already been recorded
Q2) Asset misappropriation is defined as theft that is committed by
A) Offering, giving, receiving, or soliciting anything of value to influence an official act.
B) Demanding payment from a vendor in order to make or influence a decision in a vendor's favor.
C) Deceiving individuals into putting their money into a fake investment.
D) Stealing receipts, stealing assets on hand, or by committing any type of disbursement fraud.
Q3) When an employee demands payment from a vendor in order to conduct business with the vendor, he or she is committing a ________.
A) Bribery scheme
B) Conflict of interest scheme
C) Economic extortion scheme
D) Illegal gratuity scheme
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Chapter 15: Consumer Fraud
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Q1) Product testing scams are frauds that:
A) Ask consumers to review "new" products for a price
B) Do not include money since testing is involved
C) Involve mystery shopping products
D) Mail stuffing scams
Q2) Cover up or concealment actions involve any actions:
A) That keep an investigator warm during a surveillance
B) That are used to keep a potential fraudster unaware of invigilation
C) That are used to cover the financial footprints of a perpetrator
D) That cover up the investigative steps of a fraud investigator
Q3) Accumulating documentation is part of which stage of the identity theft cycle?
A) The action stage
B) The discovery stage
C) The trial stage
D) The concealment stage
Q4) Which act provides exact procedures for correcting mistakes on credit reports?
A) Fair Credit Billing Act
B) Fair Debt Collection Practices Act
C) The Gramm-Leach-Bliley Act
D) Fair Credit Reporting Act
Page 17
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Chapter 16: Bankruptcy, Divorce, and Tax Fraud
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Q1) When a bankrupt company only listed address and phone number as a post office box and an answering service, we may see this as a flag of what type of fraud?
A) Illegal concealment of assets
B) Planned bankruptcy fraud
C) Fraudulent transfers
D) None of the above
Q2) All of the following are examples of ways to conceal assets in a bankruptcy or divorce fraud except:
A) Not reporting sales on the debtor's books but dispersing them to another entity
B) Damaging or hiding the books and records of the debtor
C) Dispersing cash received from receivables to third party
D) Not disclosing interests held in other partnerships, corporations, or other assets
E) All of the above are ways to conceal assets
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18
Chapter 17: Fraud in E-Commerce
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Q1) Using techniques to gain passwords and other personal information directly from victims is known as:
A) Social engineering
B) Spoofing
C) Data theft
D) Customer impersonation
Q2) A risk assessment should:
A) Identify the risk of doing business with e-business partners
B) Focus only on financial data
C) Be avoided at all cost
D) Cover only non-technological areas
Q3) Which of the following examples illustrates sniffing?
A) A fraudster impersonating a customer and buying equipment on the customer's account.
B) A fraudster viewing design data of a special project that is being transferred over a network.
C) A fraudster using another employee's passwords to access sensitive information.
D) An internet site mimicking another site by using .com instead of .org.
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Chapter 18: Legal Follow-Up
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Q1) Carolyn Laney has just been convicted of mail fraud in a U.S. District Court. She is not satisfied with the ruling. What can she do next?
A) Appeal to the Supreme Court
B) Appeal to the 12 U.S. Courts of Appeals
C) Appeal to a state appellate court
D) Nothing; verdicts from the district courts cannot be appealed
Q2) A written declaration given under oath is known as:
A) an affidavit
B) an admission
C) a deposition
D) a testimony
Q3) What most weakens an expert witness' credibility?
A) Bringing notes, work papers, or other material to the witness stand.
B) Appearing pompous or aggressive.
C) Lack of preparation.
D) Boring the jury with windy explanations and technical jargon.
Q4) Which type of trial uses pre-trial depositions?
A) Criminal
B) Civil
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