MBA 710: Spr 2023 - Xiang (Gail) Gao - Modules 1-3

The following data can be used to perform benchmarking.

a. Industry data

b. Budget data

c. All the other three choices are correct.

d. Historical data

c. All the other three choices are correct.

Match social security number to the employee name to see if there are multiple names under one social security number. This is a _________.

a. Compliance verification

b. Duplicate testing.

c. Bench-marking

b. Duplicate testing.

Why do we need to identify the amounts just below the threshold?

a. Fraudster creates random number.

b. Fraudster try to avoid internal control by using the number lower than threshold and maximize his/her benefit from fraud.

c. Fraudster always use large number.

b. Fraudster try to avoid internal control by using the number lower than threshold and maximize his/her benefit from fraud.

Why do we need to look into the round-dollar payment?

a. Round dollar payment should happen frequently.

b. Fraudster does not want to conceal the transaction.

c. Real transactions do not occur in simple round numbers.

c. Real transactions do not occur in simple round numbers.

Benford's law can be used to detect fraud because:

a. The fraudster can easily replicate the nature pattern.

b. The frequency of the nature numbers has pattern.

c. The frequency of the nature numbers are random.

b. The frequency of the nature numbers has pattern.

Why do we need to understand how the data is generated when we perform the analysis?

a. (Garbage in, garbage out.) If the data is not generated or structured properly, the results are meaningless.

b. We need to interview before run the analysis.

c. We can look the data randomly.

a. (Garbage in, garbage out.) If the data is not generated or structured properly, the results are meaningless.

Data analytics is the best way of detecting fraud or fraud prevention.

True or False

False

Prevention is more important than detection.

True or False

True

Which category of occupational fraud is the most common fraud?

a. Corruption

b. Financial statement fraud

c. Asset misappropriation

c. Asset misappropriation

Which category of fraud is the costliest occupational fraud?

a. Financial statement fraud

b. Asset misappropriation

c. Corruption

a. Financial statement fraud

Please match the fraud detection method to active/passive method.

IT controls

Active

Please match the fraud detection method to active/passive method.

By police

Passive

Please match the fraud detection method to active/passive method.

Confession

Passive

Please match the fraud detection method to active/passive method.

Surveillance/Monitoring

Active

Please match the fraud detection method to active/passive method.

Management review

Active

Please match the fraud and its definition

A scheme in which an incoming payment is stolen from an organization before it is recorded on the organization's books and records (e.g., employee accepts payment from a customer but does not record the sale and instead pockets the money)

Skimming

Please match the fraud and its definition

A fraudulent disbursement scheme in which an employee causes his or her employer to issue a payment by making false claims for compensation (e.g., employee claims overtime for hours not worked; employee adds ghost employees to the payroll)

Payroll Scheme

Please match the fraud and its definition

A scheme in which an employee misuses his or her influence in a business transaction in a way that violates his or her duty to the employer in order to gain a direct or indirect benefit (e.g., schemes involving bribery or conflicts of interest)

Corruption

Please match the fraud and its definition

A fraudulent disbursement scheme in which an employee makes a claim for reimbursement of fictitious or inflated business expenses (e.g., employee files fraudulent expense report, claiming personal travel, nonexistent meals)

Expense Reimbursements Scheme

Which of the fraud is not a sub-schemes under asset misappropriation?

a. Conflict of interest

b. Expense reimbursements

c. Check and payment tampering

d. Cash larceny

a. Conflict of interest

The most common way of detection of occupational fraud initially is?

a. Internal audit

b. By accident

c. Account reconciliation

d. Tips

d. Tips

What is the top one control weakness in nonprofit organizations?

a. lack of management review

b. lack of internal audit

c. override of existing internal controls

d. lack of internal controls

d. lack of internal controls

Created fraudulent physical documentation, altered physical documents, create fraudulent transactions in the accounting system are common ways used to conceal the frauds.

True or False

True

What type of organization is the most often victims of occupational fraud?

a. Private company

b. Public company

c. Government

d. Nonprofit

a. Private company

What level of authority committed the most occupational fraud?

a. Other

b. Employee

c. Manager

d. Owner/executive

b. Employee

Most perpetrators have a degree of?

a. Postgraduate degree

b. University degree

c. High school

d. Some university

b. University degree

More than half of frauds were committed by two or more fraudsters working in collusion.

True or False

True

Internal control weaknesses were responsible for nearly half of the frauds.

True or False

True

Please match the items to the elements of the fraud triangle.

The employee complains the salary is below the average of the industry.

Rationalization

Please match the items to the elements of the fraud triangle.

The company does not separate the role of order and payment in the purchasing department.

Opportunity

Please match the items to the elements of the fraud triangle.

The employee has too many medical bills and student loans to pay.

Pressure

Which of the following schemes is the theft of cash from a company before the transaction is entered into the accounting system?

a. Larceny

b. False reimbursement

c. Skimming

d. A fictitious disbursement

c. Skimming

Which of the following is the method used as skimming sales?

a. Conducting unauthorized sales after hours

b. Rigging the cash register so that the sale is not recorded

c. Posting a sale for less than the amount collected

d. All of the above

d. All of the above

Which of the following methods is NOT used to conceal sales skimming?

a. Inventory padding

b. Lapping

c. Destroying records of transaction

d. Record false voids

d. Record false voids

Please match the terms to their definition

A method used to conceal cash larceny. The perpetrator processes false transactions to void a sale or to refund cash, which causes sales records to reconcile to the amount of cash on hand after the theft.

Reversing transactions

Please match the terms to their definition

A method of concealing the theft of cash designed for accounts receivable by crediting one account while abstracting money from a different account. This process must be continuously repeated to avoid detection.

Lapping

Please match the terms to their definition

A method of concealing receivables skimming whereby the fraudster falsifies accounts totals to conceal the theft of funds.

Force balancing

Please match the terms to their definition

A method of concealing deposit theft that occurs when an employee steals part or all of the deposit from one day and then replaces it with receipts from subsequent days.

Deposit lapping

Mike is the bookkeeper for ABC company. One afternoon while she was preparing the bank deposit, a customer came in to the office and paid his account in full with a $57 check. Rather than adding the check to the deposit, Mike pocketed $57 cash from the previously recorded amount and included the customer's check in the money to be taken to the bank. What type of scheme did Mike commit?

a. Larceny

b. Skimming

c. Force balancing

d. Kiting

b. Skimming

Lily was an accounts receivable clerk for an insurance broker. When premium payments were received, she would steal the check of every tenth customer and cash it at a liquor store. To conceal her scheme, she would credit the account of the customer that she stole from with a payment that was received from another customer's account. This is an example of:

a. Understate sales

b. Lapping

c. Force balancing

d. False reimburse

b. Lapping

Procedures that can be used to prevent and/or detect receivables skimming include which of the following?

a. Reconciling the bank statement regularly

b. Mandating that employees take annual vacations

c. Performing a trend analysis on the aging of customer accounts

d. All of the above

d. All of the above

What are the analytical procedures to detect larceny?

a. Review the accounts

b. Analyze returns and allowance and match these transactions to inventory

c. Analyze return and allowance, and match against the numbers with total sales to the the variation

d. All of the above

d. All of the above

What are the internal controls to prevent larceny?

a. Mandatory vacation and rotation of roles

b. Surprise cash counts

c. Segregation of cash receipt, bank deposit, deposit reconciliation, posting of deposit and cash disburse

d. All of the above

d. All of the above

The two categories of cash receipts schemes are:

a. Skimming and billing schemes

b. Cash larceny and skimming

c. Lapping and skimming

d. Lapping and cash larceny

b. Cash larceny and skimming

How cash larceny can be concealed?

a. Falsifying the cash count

b. Destroying the register tape

c. Stealing from another employee's register

d. All of the above

d. All of the above

How receivable larceny can be concealed?

a. Lapping

b. Stolen statements

c. Reversing entries

d. All of the above

d. All of the above

The most effective way to prevent cash larceny from the deposit is:

a. Having a visible management presence in the mailroom

b. Having two employees deliver the deposit to the bank

c. Separating the duties of the deposit function

d. None of the above

c. Separating the duties of the deposit function

James stole $500 from the company deposit while on the way to the bank. He can conceal the theft by recording the missing amount on the bank reconciliation as a(n):

a. Larceny when deposit in transit

b. Outstanding check

c. None of the above

d. Credit memo

a. Larceny when deposit in transit

Mike works in a store. He had a bad habit of helping himself to cash from the deposit on the way to the bank. He covered his tracks by substituting a check from the next day's deposit for the amount he stole from the previous day's deposit. This is an example of what type of concealment?

a. Force balancing

b. None of the above

c. Deposits in transit

d. Deposit lapping

d. Deposit lapping

If discrepancies are found between the sales records and the cash on hand, which of the following schemes might be occurring?

a. Sales skimming

b. Fraudulent disbursements

c. Cash larceny from the deposit

d. Cash larceny at the point of sale

d. Cash larceny at the point of sale

Check tampering is unique from other fraudulent disbursement schemes because in a check tampering scheme:

a. The perpetrator physically prepares the fraudulent check.

b. The perpetrator must have access to a signature stamp in order to conceal the crime.

c. The perpetrator submits a phony document in order to generate the fraudulent payment.

d. The perpetrator must endorse the check in order to cash or deposit it.

a. The perpetrator physically prepares the fraudulent check.

Which of the condition(s) should be met when the fraudster successfully carries out and conceal a check tampering scheme?

a. Access to the check stock

b. Access to the bank statements

c. The ability to forge signatures or alter other information on the check

d. All of the above

d. All of the above

David intercepted and converted a company check made payable to a third party. This is a ___scheme?

a. Forged maker scheme

b. Authorized maker scheme

c. Altered payee scheme

d. Concealed check scheme

c. Altered payee scheme

Which of the following is(are) an effective control(s) to prevent and detect forged maker scheme?

a. Separate the duties of check preparation and check signing.

b. Rotate authorized check signers.

c. Maintain a usage log for the signature stamp.

d. All of the above

d. All of the above

Please match the terms to the definitions.

A check tampering scheme in which an employee with signatory authority on a company account writes fraudulent checks for his own benefit and signs his own name as the maker.

Authorized maker scheme

Please match the terms to the definitions.

A check tampering scheme in which an employee intercepts a company check intended for a third party and converts the check by signing the third party's name and converts the check by signing the third party's name on the endorsement line of the check.

Forged endorsement scheme

Please match the terms to the definitions.

A check tampering scheme in which an employee intercepts a company check intended for a third party and alters the payee designation so that the check can be converted by the employee or an accomplice.

Altered payee scheme

Please match the terms to the definitions.

A method of concealing a check tampering scheme by manipulating the bank reconciliation so that the bank balance and the book balance match.

Forced reconciliation

How could electronic payments be manipulated?

a. Abusing legitimate access to the employer's payment system

b. Gaining access to the employer's payment system through social engineering

c. Exploiting weaknesses in the employer's internal control over its electronic payment system

d. All of the above

d. All of the above

Lily works in the accounts payable department at ABC Company. When checks are returned to the company for incorrect vendor addresses, she is supposed to research them, correct them, and then forward them to the proper address. Instead, Lily decided to convert some of the returned checks for her own use. Based on the information provided, what type of check tampering scheme is this likely to be?

a. Authorized maker

b. Forged maker

c. Forged endorsement

d. Concealed check

c. Forged endorsement

What are the red flags for check tampering?

a. Void checks

b. Missing checks

c. Checks payable to employees

d. All of the above

d. All of the above

In the case study in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time Phillips began writing checks to himself that had nothing to do with payroll. Control weaknesses that facilitated the commission of this fraud include which of the following?

a. The bank statements were sent directly to Phillips.

b. Phillips had check signing authority.

c. There was no separation of duties between accounts payable and the treasury department.

d. All of the above

a. The bank statements were sent directly to Phillips.

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children's school, was also a thief. As one of two people allowed to sign checks on the organization's bank accounts, she learned early on that she could forge the second person's signature without anyone becoming suspicious. How was she finally caught?

a. A co-worker contacted the organization's executive director when she found that a company check had been written to the children's school for Robinson's personal items.

b. The auditors discovered her fraud during an annual audit of the books.

c. Robinson's husband tipped off the audit committee after he became suspicious of some of Robinson's purchases.

d. New officers were elected, and they took the accounting books from her.

d. New officers were elected, and they took the accounting books from her.