Fraud Examination
Midterm Exam
Course Introduction
Fraud Examination explores the methods and techniques used to detect, investigate, and prevent various types of occupational and financial fraud. The course covers fundamental concepts such as the nature of fraud, typical fraud schemes, and the behavioral symptoms of fraud perpetrators. Students will learn about the legal and ethical considerations in fraud investigations, the role of internal controls, interviewing witnesses and suspects, collecting evidence, and preparing fraud reports. Case studies and real-world examples help students develop practical skills to identify red flags, understand the investigative process, and apply professional standards in fraud examination.
Recommended Textbook
Forensic Accounting and Fraud Examination 1st Edition by Mary Jo Kranacher
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16 Chapters
916 Verified Questions
916 Flashcards
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Page 2
Chapter 1: Core Foundation Related to Fraud Examination and
Financial Forensics
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) While a fraud examiner's objective is to determine whether fraud has occurred and who is likely responsible, the financial forensics investigator's objective is to:
A) calculate financial impact based on formulaic assumptions.
B) determine whether the allegations are reasonable based on the financial evidence and, if so, the financial impact of the allegations.
C) Gather the required financial and nonfinancial evidence to examine the allegations independently and determine their financial impact.
D) attempt to gather sufficient evidence to support or refute the allegation and related damages.
Answer: B
Q2) Line employees are the principle perpetrators in approximately 39 percent of schemes, yielding company losses of approximately $150,000.
A)True
B)False
Answer: False
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Chapter 2: Careers in Fraud Examination and Financial
Forensics
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68 Verified Questions
68 Flashcards
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Sample Questions
Q1) The board of directors, as an important internal component of corporate governance, receives its authority from the appointing president/CEO.
A)True
B)False
Answer: False
Q2) According to Mr. Sam E. Antar former Crazy Eddie CFO and a convicted felon, too many audit committee members have no formal educational background in accounting and auditing, and no specialized training in fraud detection.
A)True
B)False
Answer: True
Q3) The Certified Internal Auditor CIA designation is:
A) recognized primarily in the United States.
B) the only globally accepted certification for internal auditors.
C) recognized primarily within the European Economic Community.
D) recognized primarily within Great Britain and Ireland.
Answer: B
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Page 4
Chapter 3: Who Commits Fraud and Why: Criminology and Ethics
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) The pending lawsuits in the notes to the financial statements of 10-Ks of most corporations are most likely all of the following except:
A) anti-trust actions.
B) intellectual property infringements.
C) tax claims.
D) RICO activities.
Answer: D
Q2) Describe occupational fraud and abuse.
Answer: Occupational fraud and abuse is defined as "the use of one's occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization's resources or assets." Occupational fraud and abuse involves a wide variety of conduct by executives, employees, managers, and principals of organizations, ranging from sophisticated investment swindles to petty theft. Common violations include asset misappropriation, fraudulent statements, corruption, pilferage, petty theft, False overtime, using company property for personal benefit, fictitious payroll, and sick time abuses.
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5
Chapter 4: Complex Frauds and Financial Crimes
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63 Verified Questions
63 Flashcards
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Sample Questions
Q1) The difference between a predator fraudster and an accidental one is:
A)The accidental fraudster does not seek opportunity, the predator does
B) The predator fraudster is a repeat offender; the accidental fraudster is not
C) The accidental fraudster is in need of funds; the predator fraudster is not
D) Both "a" and "b"
Q2) Describe the stages of money laundering and for each stage, provide an example.
Q3) "Churning" involves the sale and purchase of securities for the sole purpose of earning a commission.
A)True
B)False
Q4) Which of the following is an example of financial statement fraud:
A) The sales manager records as a sale shipments of goods on January 1, 20X1, the day after year-end
B) The financial controller capitalizes a large amount of expenses that should have been included on the income statement
C) The CEO insists that current year bonuses be deferred to the next fiscal year for payment
D) Both "a" and "b"
Q5) Explain how the Patriot Act enhances RICO.
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Chapter 5: Cybercrime: Computer and Internet Fraud
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6 Verified Questions
6 Flashcards
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Sample Questions
Q1) The "computer as a symbol" involves using a computer to intercept data transmission.
A)True
B)False
Q2) 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
Q3) Cyber-crime involves the use of cell phones.
A)True
B)False
Q4) Computers offer cyber criminals efficient ways to hide fraudulent activities.
A)True
B)False
Q5) Computer crime involves the attempt to access data illegally.
A)True
B)False
Q6) Computer crime and computer fraud are synonyms.
A)True
B)False
Page 7
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Chapter 6: Legal, Regulatory, and Professional Environment
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52 Verified Questions
52 Flashcards
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Sample Questions
Q1) How did the Sarbanes-Oxley Act address corporate governance and public accounting responsibilities?
Q2) In the criminal justice system, individuals can be named as defendants, but businesses and other organizations may not be prosecuted.
A)True
B)False
Q3) The normal order of discovery includes the following steps in what sequence?
1) Interrogatories
2) Attorneys take depositions
3) Request to produce documents
4) Requests for admission
A) 1, 3, 2, 4
B) 2, 1, 4, 3
C) 4, 3, 2, 1
D) 1, 2, 3, 4
Q4) The ________ Amendment prohibits unreasonable searches and seizures.
A) Fifth
B) Fourth
C) Sixth
D) Fourteenth
Page 8
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Chapter 7: Fraud Detection: Red Flags and Targeted Risk Assessment
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71 Verified Questions
71 Flashcards
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Sample Questions
Q1) Earnings management may:
A) increase current period net income.
B) decrease current period net income.
C) may involve "consuming" prior period reserves for current period performance.
D) All of the choices are correct.
Q2) The second step to develop an approach to fraud detection is to:
A) develop an understanding of the control environment.
B) develop a system of internal controls.
C) define the authority of the audit committee.
D) identify the members of internal audit and the audit committee.
Q3) A fraudster, aided by the digital age, can easily minimize the amount of information captured concerning his nefarious activities.
A)True
B)False
Q4) The fraud examiner categorizes schemes in three ways, Category 1, Category 2, and Category 3. Explain each category.
Q5) What are some red flags that may indicate that fraud is occurring?
Q6) What are the main components of the fraud risk assessment process?
Q7) What are the primary responsibilities of management?
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Chapter 8: Detection and Investigations
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) Joe Jones is suspected of gambling heavily and not reporting the gains. He also pays for all expenditures with cash currency. A method that can be used to detect such gains would be:
A) Examining bank records
B) Examining lifestyle choices
C) Examining receipts at places where Joe does business
D) All of the above
Q2) Two separate defendants are charged with conspiring to commit fraud. Each has chosen to be tried separately. In the first trial evidence is admitted that demonstrates the defendant attempted to conceal her act of stealing cash. At the second trial, the prosecuting attorney can:
A) Admit the same evidence
B) Refer to the evidence used at the first trial
C) Draw a link between the first trial and the second trial
D) None of the above
Q3) Interviewing and interrogation are synonyms.
A)True
B)False
Q4) Types of evidence
Q5) Direct evidence
10
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Chapter 9: Effective Interviewing and Interrogation
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Sample Questions
Q1) Which of the following questions is NOT appropriate for an interviewer to ask?
A) Is there anything that I have forgotten to ask?
B) Is there anything else you would like to add for the record?
C) Is there anyone else I should speak with about the issues we have covered?
D) Do you think embezzling is a crime?
Q2) Which of the following is NOT a typical closing question in an interview?
A) "You knew Ms. Jones had some financial problems, is that right?"
B) "If you were trying to resolve this issue, what would you do?"
C) "Ms. Collins, this is just a standard question. Do you feel that I have treated you fairly in this interview?"
D) "What is your position in the company?"
Q3) As a general rule, private employers conducting an internal investigation are required to give Miranda warnings.
A)True
B)False
Q4) A murderer is condemned to death. He has to choose between three rooms. The first is full of raging fires, the second is full of assassins with loaded guns, and the third is full of lions that haven't eaten in three years. Which room is safest for him?
Q5) What are some of the reasons that persons often fail to identify lies?
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Chapter 10: Using Information Technology for Fraud
Examination and Financial Forensics
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57 Verified Questions
57 Flashcards
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Sample Questions
Q1) Recovering deleted files is not considered difficult, provided that the file has not been overwritten or corrupted and that the drive has not been repartitioned or reformatted. A)True
B)False
Q2) 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
Q3) List two commercial data extraction and analysis software and list four functions of this software.
Q4) ACL and IDEA are examples of commercially available data mining software. A)True B)False
Q5) A married couple goes to a movie. During the movie, the husband strangles the wife. He is able to get her body home without attracting attention. How is this possible?
Q6) How is case management software used in an investigation?
Page 12
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Chapter 11: Cash Receipt Schemes and Other Asset
Misappropriations
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55 Verified Questions
55 Flashcards
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Sample Questions
Q1) How are noncash assets misappropriated?
Q2) Which of the following is not typical receivables skimming scheme?
A) Lapping
B) Force balancing
C) Cashier theft
D) Fraudulent write offs
Q3) Which computer audit step could catch a false shipment scheme?
A) Shipping documents with no associated sales order
B) Shipping documents with an associated sales order
C) Shipping documents that have been independently approved by management
D) Receipts in the receiving system that do not agree to the payables invoice
Q4) What types of company assets are typically misused?
Q5) This procedure involves the crediting of one account through the abstraction of money from another account.
A) Kiting
B) Lapping
C) Force balancing
D) Stolen statements
Q6) List three proactive computer audit steps for detecting skimming from page 304306. Page 13
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Page 14
Chapter 12: Cash Disbursement Schemes
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Sample Questions
Q1) After an invoice is vouched, a check is generated by the computer: The next step should be:
A) Having accounts payable mail the check to the vendor
B) Having Purchasing mail the check to the vendor
C) Having the cashier mail the check to the vendor
D) Any of the above
Q2) One way fast food restaurants discourage the pocketing of cash by cashiers is:
A) Having two separate windows: one for ordering and one for payment
B) Requiring employees issue a receipt
C) Offering a cash reward to customers who do not receive a receipt
D) Both "a" and "c"
Q3) "Rubberstamping," in shell company situations means that a rubber stamp is used for signatory purposes.
A)True
B)False
Q4) An employee intercepts a blank check and forges the treasurer's signature to conceal that the check is payable to the employee. This is an example of a forged maker.
A)True
B)False
Page 15
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Chapter 13: Corruption and the Human Factor
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Sample Questions
Q1) A conflict of interest occurs when an employee, manager, or executive has an economic or personal interest in a transaction that adversely affects the organization.
A)True
B)False
Q2) How do bribery and illegal gratuities differ?
Q3) In this scheme, an employee started his own business that would compete directly with his employer.
A) Turnaround sale
B) Economic extortion
C) Business diversion
D) Illegal gratuity
Q4) Illegal gratuities are similar to bribery schemes, except that something of value is given to an employee to reward a decision rather than influence it.
A)True
B)False
Q5) What is the defined as "something of value?"
Q6) A woman had two sons who were born on the same hour of the same day of the same year, but they were not twins. How could this be?
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Chapter 14: Financial Statement Fraud
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54 Verified Questions
54 Flashcards
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Sample Questions
Q1) Which of the following is NOT a red flag associated with improper disclosures?
A) A strong, independent audit committee
B) Domination of management by a single person or small group
C) Rapid growth or unusual profitability, especially compared to other companies in the same industry
D) Significant related-party transactions not in the ordinary course of business
Q2) This Periodicity assumption uses the principle of dividing economic activity into specific time intervals, such as monthly, quarterly, and annually as well as a five year time period.
A)True
B)False
Q3) Improper capitalization of expenses was one of the key methods financial statement fraud allegedly used by:
A) Enron
B) Tyco
C) Raptor
D) WorldCom
Q4) What are the four classifications of 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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Sample Questions
Q1) ________ can have a significant negative impact on award calculation amounts in personal injury and wrongful death over time.
A) Deflation
B) Inflation
C) The payback period
D) The accounting rate of return
Q2) What is the purpose of practice aids in forensic and valuation services?
Q3) What are the different types of consulting and litigation support activities for fraud and forensic professionals?
Q4) Generally, damages result from a:
A) Tort
B) Breach of contract
C) Either A or B
D) None of the above
Q5) The amount of loss in commercial damages may be affected by all EXCEPT:
A) The general economy
B) The conditions of the industry
C) The damages entity's completive environment
D) Compliance with GAAP
Q6) What are the different types of commercial damages? Page 18
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Chapter 16: Remediation and Litigation Advisory Services
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Sample Questions
Q1) Corporate governance is the set of processes, customs, and policies that affect the way an organization is directed.
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 company should develop a system of internal controls that provides absolute assurance that assets are protected and financial statements are fairly presented.
A)True
B)False
Q4) The Frye Rule makes an opinion inadmissible even if that opinion has general acceptance in the scientific community.
A)True
B)False
Q5) When may an expert's opinion be subject to challenge?
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