Fraud Examination Final - Ch.8, 9, 10, 11, 14, 15

An audit is a method of what kind of investigation?

Concealment investigation

Concealment investigation

Computer searches and physical asset counts are methods for ___.

Secondary evidence may be used in all of the following instances except:

The original documents are too fragile to be handled.

DocLab is a division of which organization?

FBI

Moe owns a 24-hour convenience store. He has noticed that the amounts of liquor inventory purchases have gotten bigger and frequent lately. Nevertheless, sales provided by this particular item haven't increased. He is concerned that the two night-shift employees might be involved. The best method to use for this investigation is:

Concealment investigation

Non-sampling risk

The risk that an auditor examines a fraudulent check and does not recognize it as being fraudulent is called:

Methods for a concealment investigation do not include?

Honesty Testing

Bills of Laden, Sales Receipts, Titles, Insurance Policies

Concealment is generally accomplished by manipulating any of the following documents:

Which of the following is generally not an approach to investigate the concealment aspect of fraud?

Polygraph Tests

Which of the following is a common method used by auditors to look for the existence of fraud?

Gathering evidence and checking for fraud symptoms.

Which of the following should be used when ensuring that the documents are legitimate and accessible for trial?

Marking the evidence

The three most common ways to obtain documentary evidence are___.

By subpoena, search warrant, and voluntary consent.

Each of the following is true about concealment investigation EXCEPT:

Invigilation (tightening controls to establish a fraud-free baseline and closely supervising the suspects during an examination period) is considered a concealment investigation technique.

Which of the following is not a common way to obtain hard-to-get documentary evidence?

Force

What information cannot be obtained from an internet search?

A perpetrator’s purchase of expensive jewelry.

Searching through someone’s garbage is considered a legal activity when:

The trash has left the person’s home or sidewalk.

What are the “financial footprints” of investigating conversion that fraud investigators look for?

Changes in lifestyle, net wroth and assets.

Which is not a federal source of information?

Secretary of State

To effectively conduct conversion investigations, what is not necessary for a fraud examiner to understand?

The different types of audits that can be conducted

To effectively conduct conversion investigations, a fraud examiner must thoroughly understand all of the following:

how to search records for information, types of information available, and net worth method of spending and analyzing spending information.

Which of the following is an example of a state source of information?

Department of Motor Vehicles

All of the following federal agencies maintain information that can help fraud investigations:

Social Security Information, Dept. of Justice, Postal Service

Because the use of ____ is so common in frauds, the ____ can be a fraud investigators most important ally.

mail, Postal Service

Which of the following statements are true:

The amounts determined to be stolen using the net worth method are usually readily accepted as evidence by courts.

Net worth calculations tend to give a conservative estimate of stolen funds.

Both are correct statements

Funds from Unknown Sources equals:

Income - Funds from Known Sources

Under the "Net Worth Method," a person who has an increase in net worth of $100,000, known income of $80,000, and a salary of $60,000 would have unknown income of

$20,000 (100,000 - 80,000)

Which of the types of information do credit reporting agencies maintain?

1. Information of current and former employers

2. Account information

3. Marketing information such as customer breakdowns

4. Consumer information such as addresses and family members

In the sequence of reactions to a crisis, which is the most dangerous time to attempt to solve a fraud?

Anger

Which is not a reaction to crisis:

Apathy

Common Reactions to Crisis:

Denial, Depression, Barging, Acceptance

During which stage of the reactionary process is the most useful time to interview individuals who are dealing with fraud?

acceptance

Which is the last reaction in the predictable sequence of reactions?

Acceptance

Which is one of the most important personality traits of being an effective interviewer?

Outgoing

What is a characteristic for a good interviewer?

One who is able to get others to open up and share information.

All of the following are true concerning the preparation for an interview:

• Interview room should establish privacy

• Investigator should not suggest counsel present

EXCEPT: investigator must give Miranda warnings to the accused

Which item about the interviewee is not a fact that needs to be obtained while planning an interview?

Information about the interviewee’s legal counsel.

Which is not a characteristic of a good interview?

The interview is short in length, and interview is conducted as far away from the event as possible

Which is NOT a step in an admission-seeking interview?

Intimidation Tactics

Which is NOT an important Closing Question?

“In conclusion, what do you think should be done?”

What is NOT considered a basic strategy in admission-seeking interviews?

Minimizing sympathy

What is an element of a leading question?

It contains the answer in it.

Which of the following is TRUE concerning signed statements?

Declarants should read and sign the statements without undue delay.

Understanding a company’s relationships with financial institutions and bondholders is important because:

it can indicate the extent to which the company is leveraged

If a law firm no longer wants to conduct business with a client, after long years of profitable business, this may be a warning sign for:

financial statement fraud occurring

The ___ is the most likely executive to orchestrate and commit fraud.

CEO

Which organizational characteristic is a red flag for fraud:

An audit committee comprised mainly of insiders.

Lifestyle changes are usually not factors in detecting:

financial statement fraud

Fraudulent related-party transactions are discovered by doing the following:

Examining large or unusual transactions

Relationships with related parties are heavily investigated for fraud because:

They allow for other than arms-length transactions

If during an audit, fraudulent financial reporting is found, who is most likely to have committed the fraud?

Top Management

Frauds are more likely to occur in what kind of environment?

Smaller companies where one or two individuals have almost all control in decision making.

Which of the following is not a common red flag for financial statement fraud?

Previous net losses

Common financial statement fraud red flags?

Missing Documents, out of balance general ledger, unexpected analytical relationships

In addition to changes in financial statements, which of the following can indicate financial statement fraud has occurred?

Information in the footnotes to the financial statements.

What are NOT common ways that financial statement fraud is perpetrated?

Overstating Liabilities

In which of the following situations is fraud most likely to occur?

Small companies with autocratic leadership

A characteristic prevalent in most frauds:

The company CEO was the perpetrator

The termination of an auditor-auditee relationship can be caused by all but which of the following?

State government mandate to break long term audit relationships.

Causes of a termination of an auditor-auditee relationship

Failure of the client to pay, disagreements, auditor’s suspicion of fraud

Financial Statement fraud is usually committed by:

Upper Management

______ must model ______ behavior for others to follow.

Management, ethical

Worldcom's fraud was caused by

overstated cash flows by recording operating expenses as capital expenses

What led to large accounting frauds in the early 2000s?

Individual and collective greed involving management, auditors, accountants, bankers, lawyers, and rating agencies

Enron’s principal method of financial statement fraud…

overstated earnings with related party transactions, special purpose entities, and off balance sheet transactions.

Four types of corruption

Bribery, conflicts of interest, extortion, and illegal gratuities

Types of Fraudulent Disbursement

Expense reimbursement scheme, check tampering, payroll schemes

Check Tampering is a form of…

committing disbursement fraud

Understating sales by recording false or larger-than reality sales discounts

An example of theft of cash through skimming

What would NOT be an example of a billing scheme?

Making a claim for reimbursement of a fictitious or inflated business expenses

Thefts of inventory are divided into which of the following two groups:

Larceny and misuse

Which is not one of the four types of corruption?

Larceny

Bid-rigging is a form of:

Bribery

Intercepting checks intended for a third party and convert the checks to cash for their own use

An example of Check Tampering

A conflict of interest is corruption that can be defined as:

An employee having an undisclosed economic or personal stake in a transaction that adversely affects the company.

According to the text, skimming is a subset of which type of asset misappropriation?

Theft of cash

Claiming personal travel as a business expense, altering a receipt to reflect higher amount than was actually paid, or submitting fictious receipts is an example of ?

Expense reporting fraud (occupational fraud type)

Which of the following is one of the three main categories of occupational fraud?

Corruption

Which of the following disbursement fraud schemes occurs most frequently?

Billing Schemes

Credit Reporting Agencies

TransUnion, Equifax, and Experian are examples of:

Largest Type of consumer fraud:

Identity Theft

Cookies on the Word Wide Web can be used to…

gather personal and confidential information about a consumer

The elderly are often targets for consumer fraud because…

they are trusting, embarrassed, or lonely

Which organization should the victims of identity theft contact first?

Federal Trade Commission

A Nigerian money offer email scam is a form of…

Foreign advance-fee scam

A Nigerian money offer scam normally does all of the following

States urgent need, makes victim feel as only recipient, tries to build confidence and trust with victim

Demographics susceptible to consumer fraud:

uneducated, elderly, gullible, trusting

Snake oil plans usually include…

miracle products

A clearing house scam involves the victim receiving a letter that…

falsely claims the writer represents a foreign bank

Product testing scams are frauds that…

ask consumers to review “new” products for a price.

Consumer fraud is described as any fraud that…

takes place against an individual

Red flags for potential investment scams…

pressure to get in on an early investment, business with history of bankruptcy, use of special tax loophole

True or False: Multi-level Marketing Companies are illegal in the United States

False

Multi-level Marketing schemes have been dubbed…

Ponzi Schemes

When representatives of MLMs are required to buy large, expensive amounts of inventory:

Front Loading

A method that uses the internet to steal information…

Phishing

A method where criminals watch consumers from a nearby location to view credit cards or PIN numbers:

Shoulder Surfing