Fraud & Abuse 10.

“Intentional manipulation of financial statements”

Q&A #1 describes which kind of fraud?
1. Fraud is considered to be: a. Management fraud.
a. A serious problem that continues to grow. b. Criminal fraud.
b. A problem that affects very few individuals. c. Stock market fraud.
c. A mild problem that most businesses need not worry d. Bookkeeping fraud.
about. 11. Fraud perpetrators:
d. A problem under control. a. Look like other criminals.
2. People who commit fraud are usually: b. That look like most honest have profiles people.
a. New employees. c. Are usually very young.
b. Not well groomed and have long hair and tattoos d. Are none of the above
c. People with strong personalities 12. Which of the following is not one of the three elements
d. Trusted individuals. of the fraud?
3. “The use of one’s occupation for personal enrichment a. Perceived pressure.
through the deliberate misuse or misapplication of the b. Perceived opportunity.
employing organization’s resources or assets” is the c. Rationalization.
definition of which of the following types of fraud? d. Intelligence.
a. Employee embezzlement or occupational fraud. 13. Which of the following is a common perceived pressure?
b. Investment scams. a. The ability to outsmart others.
c. Management fraud. b. Opportunity to cheat others.
d. Vendor fraud. c. A financial need.
4. Investment scams most often include: d. The ability to “borrow” money by committing fraud.
a. An action by top management against employees. 14. If pressures and opportunities are high and personal
b. Worthless investments or assets sold to unsuspecting integrity is low, the chance of fraud is:
investors. a. High
c. An overcharge for purchase goods. b. Medium.
d. Nonpayment of invoices for goods purchased by c. Low.
customers. d. Very low.
5. Which of the following is not an element of fraud? 15. Which of the following is probably the least common
a. False representation. type of fraud pressure?
b. Accidental behavior. a. Vices.
c. Damage to a victim. b. Work-related pressures.
d. Intentional or reckless behavior. c. Financial pressures.
6. What is the best way to minimize fraud expense within an d. Pressures to outsmart peers.
organization? 16. Fraud opportunity involves:
a. Effective early detection of fraud. a. Opportunity to conceal fraud.
b. Effective investigation of fraudulent behavior. b. Opportunity to avoid being punished for fraud.
c. Effective prevention of fraud. c. Opportunity to commit fraud.
d. Effective research of fraud. d. All of the above.
7. What is the most important element in successful fraud e. None of the above.
schemes? 17. Which of the following is not one of the three elements
a. Promised benefits. for the control system of an organization?
b. Confidence in the perpetrator. a. The control environment.
c. Profitable activities. b. The accounting system.
d. Complexity. c. Management.
8. Which of the following is not a form of vendor fraud? d. Control activities or procedures.
a. Overcharging for purchased goods. 18. Which of the following non-control factors provides
b. Shipment of inferior goods. opportunities for fraud?
c. Non-shipment of goods even though payment has been a. Inability to judge the quality of performance.
made. b. Lack of access to, or asymmetrical, information.
d. Not paying for goods purchased. c. Failure to discipline fraud perpetrators.
9. Fraud fighting can include which of the following type(s) d. Lack of an audit trail.
of careers? e. All of the above provide opportunities for fraud.
a. Professors. 19. Which of the following is not a primary control activity?
b. Lawyers. a. Use of documents and records to create an audit trail.
c. CPA firms. b. Independent checks.
d. All of the above. c. Decreasing work-related pressure.
d. Physical safeguards.
20. On what element of the fraud triangle do most fraud- c. An individual handling marketable securities is responsible
fighters usually focus all or most of their fraud preventive for making the purchases,
efforts? recording the purchases, and reporting any discrepancies and
a. Perceived pressure. gains/losses to senior management.
b. Perceived opportunity. d. The assignment of responsibility and accountability in the
c. Power structure. accounts receivable department
d. Rationalization. is not clear.
21. Which of the following is not an internal control activity 29. Which of the following is an indicator of possible
(procedure)? financial reporting fraud being perpetrated
a. System of authorizations. by management of a manufacturer?
b. Appropriate hiring procedures. a. A trend analysis discloses (1) sales increases of 50% and (2)
c. Independent checks. cost of goods sold increases of 25%.
d. Documents and records. b. A ratio analysis discloses cost of goods sold is 50% of sales.
e. All of the above are internal control activities. c. A cross-sectional analysis of common size statements
22. The most effective way to reduce losses from fraud is: discloses (1) the firm’s percentage
a. Detecting fraud early. of cost of goods sold to sales is 40% and (2) the industry
b. Implementing proactive fraud detection programs. average percentage of cost of
c. Preventing fraud from occurring. goods sold to sales is 50%.
d. Severely punishing fraud perpetrators. d. A cross-sectional analysis of common size statements
23. Because of the ability to override internal controls, it is discloses (1) the firm’s percentage
usually most difficult to prevent which type of fraud? of cost of goods sold to sales is 50% and (2) the industry
a. Investment scams. average percentage of cost of
b. Fraud committed by a company president. goods sold to sales is 40%.
c. Employee fraud. 30. When comparing perpetrators who have embezzled an
d. Customer fraud. organization’s funds with perpetrators of financial
24. All of the following are ways to create a culture of statement fraud (falsified financial statements), those who
honesty and high ethics except: have falsified financial statements are less likely to
a. Creating a positive work environment. a. Have experienced an autocratic management style.
b. Hiring the right kind of employees b. Be living beyond their obvious means of support.
c. Having top management model appropriate behavior. c. Rationalize the fraudulent behavior.
d. Eliminating opportunities for fraud. d. Use organizational expectations as justification for the act.
25. The tone at the top when related to fraud usually refers
to management’s attitude about:
a. How management labels appropriate behavior.
b. Management’s attitude about fraud prosecution.
c. Management’s attitude about employee absenteeism.
d. How management models appropriate behavior.
26. Which of the four types of evidence includes
interrogation and honesty testing?
a. Testimonial.
b. Documentary.
c. Physical.
d. Personal observation.
27. The three elements present in most cases of fraud are:
a. Theft act, rationalization, and opportunity.
b. Pressure, opportunity, and conversion.
c. Theft act, concealment, and conversion.
d. Theft act, pressure, and opportunity.
28. Red flags are conditions that indicates a higher
likelihood of fraud. Which of the following is not considered
a red flag?
a. Management has delegated the authority to make
purchases under a certain value to
subordinates.
b. An individual has held the same cash-handling job for an
extended period without any
rotation of duties.