Fraud Exam 3 - Short version

2. Which of the following is not a type of payroll scheme?

a. Ghost employee scheme

b. False deduction scheme

c. Falsified hours and salary scheme

d. Commission scheme

B

3. Marsha Wood added her one-year-old niece, Jackie, to the payroll at JNC Company and began issuing paychecks in Jackie's name, even though Jackie did not work for the organization. Marsha's niece is not considered a ghost employee because she is a real individual rather than a fictitious person.

a. True

b. False

false

5. To safeguard against ghost employee schemes, the person in charge of entering new employees in the payroll system should also distribute the paychecks so that he or she can look for payments to unauthorized employees.

a. True

b. False

false

6. If a fraudster fails to remove a terminated employee from the payroll and collects the former employee's fraudulent paychecks, he or she is committing a:

a. Payroll larceny scheme

b. Falsified hours and salary scheme

c. Forged endorsement scheme

d. Ghost employee scheme

D

8. Which of the following analyses can be used to identify ghost employee schemes?

a. Identifying employees who have no withholding taxes taken out

b. Comparing actual payroll expenses to budgeted expenses

c. Comparing employees who have the same Social Security number, bank account, or physical address

d. All of the above

D

10. The most common method of misappropriating funds from the payroll is:

a. Overpayment of wages

b. Using a ghost employee

c. Overstating commissions

d. Theft of payroll deductions

A

11. Which of the following is not a method typically used by an employee to fraudulently inflate his or her hours in a manual timekeeping system?

a. Collusion

b. "Lazy manager" method

c. Forging the supervisor's signature

d. Manipulating the pay grade

D

12. If an employee generates a much higher percentage of uncollected sales than his coworkers, what type of scheme might he be committing?

a. Sales skimming

b. Commission scheme

c. Multiple reimbursement scheme

d. Shell company scheme

B

13. Which of the following controls will help prevent and detect falsified hours and salary schemes?

a. The duties of payroll preparation, authorization, and distribution are segregated.

b. Sick leave and vacation time are monitored for excesses by the payroll department.

c. Supervisors return authorized timecards to the employees for review before they are sent to the payroll department.

d. All of the above

A

15. Which of the following can be used to test for commission schemes?

a. Extract manual checks and summarize by salesperson and amount.

b. Compare hours reported per timecard system to payroll system.

c. Extract customer sale balances that exceed the customer credit limit.

d. None of the above

C

16. Comparing actual payroll expenses to budget projections can help identify falsified hours and salary schemes.

a. True

b. False

True

17. Comparing salaried employees' gross pay from one pay period to the next is one way of testing for payroll fraud.

a. True

b. False

True

18. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the most common type of fraudulent disbursement schemes.

a. True

b. False

False

20. Jim Stevens is a payroll manager for a mid-sized insurance company in the southeast. Last year, his performance review was conducted late, so he received a retroactive pay increase. Because he was not authorized to access his own employee records, Stevens stole another employee's password and logged into the payroll system. He manipulated his records to keep the retroactive pay increase in effect in future periods, effectively doubling his intended pay raise. What type of fraud is this?

a. Larceny of wages

b. Falsified hours and salary scheme

c. Commission scheme

d. Ghost employee scheme

B

21. Ellie Weaver works for the JAG Group as the customer service supervisor. When Joel Carter was hired into her department, she listed his start date as one month before he actually began work. Accordingly, the payroll department generated an extra paycheck for Carter, which Weaver intercepted and cashed at a liquor store. What type of fraud is this?

a. Forged endorsement scheme

b. Ghost employee scheme

c. Altered payee scheme

d. Falsified wages scheme

B

22. Jed Butler is an internal auditor for Billings Industries. Recently he ran a program that identified customer accounts which had previously been dormant for six months or more but had sales in the last two months of the year. What type of fraud would this test most likely reveal?

a. Shell company scheme

b. Pay-and-return scheme

c. Commission scheme

d. Personal purchases scheme

C

23. During a review of A+ Service's payroll records, Judy Penney, an internal auditor, noticed that Bradley Banks has no deductions taken from his paychecks for withholding taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Penney most likely uncover?

a. Ghost employee scheme

b. Falsified salary scheme

c. Fictitious vendor scheme

d. None of the above

A

24. Orange Publishing hired Moe McDonnell, CFE, to investigate some large variances in the company's labor costs. While looking through the payroll records for the shipping department, McDonnell noticed several employees who claimed extensive overtime during pay periods in which the company's incoming and outgoing shipments were minimal. McDonnell pulled the timesheets for these pay periods and noticed that those belonging to the suspect employees had signatures that didn't match the signatures on the other timesheets. What type of fraud might these findings indicate?

a. Ghost employee scheme

b. Commission scheme

c. Falsified hours and salary scheme

d. Overstated expenses scheme

C

1. 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

2. Check tampering includes both fraudulently preparing a company check for one's own benefit and intercepting a company check that is intended for a third party and converting it for one's own benefit.

a. True

b. False

True

3. To successfully carry out and conceal a check tampering scheme, the fraudster must have:

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

4. Check tampering schemes involving checks made payable to "cash" are extremely difficult to resolve, as there is no way to tell who converted the check.

a. True

b. False

False

5. Which of the following choices is not a category of check tampering?

a. Forged maker schemes

b. Altered payee schemes

c. Unauthorized endorsement schemes

d. Concealed check schemes

C

7. In which of the following schemes does the fraudster intercept and convert a company check made payable to a third party?

a. Forged maker scheme

b. Authorized maker scheme

c. Altered payee scheme

d. Concealed check scheme

C

8. In a forged maker scheme, the perpetrator fraudulently affixes the signature of an authorized maker to a check.

a. True

b. False

True

9. Producing a counterfeit check using the company's logo and bank account number is one type of concealed check scheme.

a. True

b. False

False

10. Which of the following is not an effective control mechanism to safeguard an organization's check stock?

a. Boxes of blank checks should be sealed with security tape.

b. Organizations should use check stock that is high-quality and distinctly marked.

c. The employee in charge of the check preparation function should periodically verify the security of unused checks.

d. Voided checks should be promptly destroyed.

C

11. To prevent and detect forged maker schemes, an organization should:

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

12. Which of the following procedures can help prevent and detect the theft and conversion of outgoing company checks?

a. Train employees to look for dual endorsements on canceled checks.

b. Chart the date of mailing for every outgoing check.

c. Track changes made to vendor records.

d. All of the above

D

13. Which of the following is not a type of altered payee scheme?

a. "Tacking" on

b. Forged maker

c. Using erasable ink

d. Leaving the payee designation blank

B

14. To prevent altered payee schemes, the person who prepares the check should also review the check after it has been signed.

a. True

b. False

False

15. Which of the following computer audit tests can be used to detect forged maker schemes?

a. Extract checks that are out of sequence

b. Extract manual checks and summarize by vendor and issuer

c. Extract all checks payable to "cash" and summarize by issuer for reasonableness

d. All of the above

D

16. Which type of check tampering scheme is usually the most difficult to defend against?

a. Authorized maker

b. Forged endorsement

c. Concealed check

d. Altered payee

A

17. Concealing a check tampering scheme generally means hiding both the identity of the perpetrator and the fact that the fraud ever occurred.

a. True

b. False

True

18. Methods used to conceal check tampering schemes include all of the following except:

a. Falsifying the disbursements journal

b. Forced reconciliation

c. Check kiting

d. Re-altering the canceled checks

C

22. Mavis Bosman works as an accounts receivable clerk at Brooks Publishing. She steals an incoming check from a customer and cashes it at a grocery store by forging the endorsement on the back of the check. This is an example of a check tampering scheme.

a. True

b. False

False

23. Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these checks and carefully changed them to appear payable to K. Diamond. She then endorsed the checks with her own name and deposited them into her personal bank account. What type of scheme did Kristen commit?

a. Concealed check

b. Payables skimming

c. "Tacking on"

d. Forged endorsement

C

24. Vicky Rogers works in the accounts payable department at HDU, Inc. 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, Rogers 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. Forged maker

b. Forged endorsement

c. Concealed check

b. Authorized maker

B

25. Melanie Diggers is an internal auditor for Atlantic Equipment Rental and Sales. While performing a routine review of one of the company's bank accounts, she noticed an unusual "adjusting entry" to the account on the general ledger. She also found that several checks that had cleared the bank in the last few months were absent from the stack of canceled checks. She requested copies of these checks from the bank and discovered that they were all made payable to the company's controller who has check signing authority on the account. The controller is also responsible for performing the bank reconciliation and recording month-end journal entries. Which of the following schemes do these signs most likely indicate?

a. Concealed check scheme

b. False voids scheme

c. Authorized maker scheme

d. Forged maker scheme

C

26. Billy Hodges was in charge of preparing checks for the Lightner Company. He entered the payment information into the accounting system, and the completed checks were sent back to him to review. He then forwarded the checks to his supervisor for signing. In each batch of legitimate checks, Hodges would insert checks made payable to himself. When his supervisor was busy, he would take the stack of checks to him and ask him to sign them immediately in order to meet their cycle time deadline. The supervisor would inattentively sign the checks, and then Hodges would extract the checks he made payable to himself. This is an example of what type of check tampering scheme?

a. Concealed check scheme

b. Forged endorsement scheme

c. Forged maker scheme

d. Altered payee scheme

A

27. Mary Duncan is an internal auditor for the Western Realty Group. Recently, she ran a program that extracted checks that were out of the normal sequence. She found that four or five checks were written every month that fit this category. Based on the information given, which of the following schemes is likely occurring?

a. Multiple reimbursement scheme

b. Shell company scheme

c. Personal purchases scheme

d. Forged maker scheme

D

1. Cash misappropriations are divided into two broad groups: fraudulent disbursements schemes and cash receipts schemes.

a. True

b. False

True

2. The two categories of cash receipts schemes are:

a. Lapping and skimming

b. Lapping and cash larceny

c. Cash larceny and skimming

d. Skimming and billing schemes

C

3. What is the primary difference between cash larceny and skimming?

a. Cash larceny is an on-book scheme; skimming is an off-book scheme.

b. Cash larceny is an off-book scheme; skimming is an on-book scheme.

c. Cash larceny is a disbursement scheme; skimming is a cash receipts scheme.

d. Cash larceny involves cash only; skimming can involve either cash or checks.

A

4. Skimming involves the theft of money that has already appeared on a victim's books, while cash larceny involves stealing money before it has been recorded.

a. True

b. False

False

5. Where do most larceny schemes involving cash occur?

a. In the accounting department

b. In the mailroom

c. At the point of sale

d. At off-site locations

C

6. Larceny schemes are generally more difficult to detect than skimming schemes.

a. True

b. False

False

7. Which of the following methods can be used to conceal a larceny scheme that occurred at the point of sale?

a. Falsifying the cash count

b. Destroying the register tape

c. Stealing from another employee's register

d. All of the above

D

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

a. Cash larceny at the point of sale

b. Cash larceny from the deposit

c. Fraudulent disbursements

d. Sales skimming

A

9. The central weakness of a cash larceny scheme is the resulting imbalance in the organization's accounting records.

a. True

b. False

True

10. To prevent cash larceny through falsification of cash counts, an independent employee should verify the cash count in each register or cash box at the end of each shift.

a. True

b. False

True

11. Methods for concealing larceny of receivables include which of the following?

a. Lapping

b. Stolen statements

c. Reversing entries

d. All of the above

C

12. Deposit lapping is considered an off-book scheme.

a. True

b. False

False

13. All of the following are ways a fraudster might conceal cash larceny from the deposit except:

a. Posting missing money as "deposits in transit"

b. Deposit lapping

c. Falsifying the bank copy of the deposit slip

d. Destroying customer statements

D

14. The most important factor in preventing cash larceny from the deposit is:

a. Separating the duties of the deposit function

b. Having two employees deliver the deposit to the bank

c. Having a visible management presence in the mailroom

d. None of the above

A

15. Which of the following antifraud controls can help prevent and detect cash larceny from the deposit?

a. Having two copies of the bank statement delivered to different persons in an organization

b. Comparing the bank authenticated deposit slip with the general ledger posting of the day's receipts

c. Preparing the deposit slip to show each individual check and money order along with currency receipts

d. All of the above

D

16. Which of the following computer audit tests would be the least useful in detecting a cash larceny scheme?

a. Summarizing the difference between the cash receipt report and the sales register system by employee

b. Summarizing the top sales producers by employee

c. Summarizing discounts, returns, and cash receipt adjustments by employee

d. Reviewing all unique journal entries in the cash accounts

B

20. Jan Ashley worked for the R&S Department Store as a sales associate in the fine linens department. As she would give change back to a customer for cash sales, she would also pull out a $10 bill and slip it in her pocket. She concealed her scheme by issuing one false refund at the end of her shift for the total amount she stole that day. This is an example of what type of scheme?

a. Sales skimming

b. Larceny at the point of sale

c. Lapping

d. Larceny at the deposit

B

21. Dorothy McNally stole $232 from the company deposit while on the way to the bank. She can conceal the theft by recording the missing amount on the bank reconciliation as a(n):

a. Deposit in transit

b. Outstanding check

c. Credit memo

d. None of the above

A

22. Jeff Lewis is an accounts receivable clerk for FTB Industries. As customers pay off their balances, Lewis posts the payments but pockets the money. He can conceal his theft by:

a. Making unsupported entries for the amount stolen

b. Adjusting the account with a discount

c. Destroying the records

d. All of the above

D

23. Mel Turner, the runner for a small bookstore, 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. Deposits in transit

b. Deposit lapping

c. Force balancing

d. None of the above

B

24. Victor Jackson, CFE, was hired by BRS Carpet and Tile to investigate possible cash larceny at the point of sale. Which of the following red flags should he look for?

a. Large differences between sales records and cash on hand

b. Unusual journal entries to the cash accounts

c. A large number of small differences between sales records and cash on hand

d. All of the above

D

25. Danielle Boyle, CFE, was hired to investigate some suspicious activity in the accounts receivable department at Red Technologies. While examining the company's accounting records, she noticed several payments posted to customers' accounts that were later reversed with journal entries to "courtesy discounts." What type of scheme might this situation indicate?

a. Receivables skimming

b. Deposit lapping

c. Cash larceny of receivables

d. Shell company

C

1. Categories of billing schemes include which of the following?

a. Shell company schemes

b. Larceny billing schemes

c. Fictitious disbursements schemes

d. All of the above

A

2. When a billing scheme is occurring, the company's expenses appear lower than they should, causing the financial statements to show falsely inflated profits.

a. True

b. False

False

3. In a ______________ scheme, the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose.

a. Purchasing

b. Skimming

c. Larceny

d. Billing

D

4. In the Fraud Tree, all of the following are categories of fraudulent disbursements except:

a. Payroll schemes

b. Cash larceny

c. Check tampering

d. Billing schemes

B

7. Invoices that are submitted by shell companies can be for fictitious goods or services or for items that were actually sold to the victim company.

a. True

b. False

True

8. In order to start up a shell company, the fraudster will most likely need which of the following?

a. Certificate of incorporation

b. Mailing address

c. Bank account

d. All of the above

D

10. Warning signs of a shell company scheme include which of the following?

a. Invoices lacking details of the items purchased

b. A vendor that is not listed in the phone book

c. An unexpected and significant increase in "consulting expenses"

d. All of the above

D

11. A pass-through scheme is usually undertaken by someone who works in which department?

a. Accounts payable

b. Receiving

c. Purchasing

d. Accounts receivable

C

12. Which of the following actions is least likely to help prevent and detect schemes involving fraudulent invoices from non-accomplice vendors?

a. Marking "paid" on every voucher that has been paid

b. Verifying vendor address changes before disbursements are issued

c. Matching all bank statement items to canceled checks

d. Separating the duties of purchasing, authorizing, and distributing payments

C

13. ____________________ are schemes in which the employee intentionally mishandles payments that are owed to legitimate vendors.

a. Pass-through schemes

b. Pay-and-return schemes

c. Shell company schemes

d. Switch-and-swap schemes

B

14. In a shell company scheme, which of the following methods might a fraudster use to get a phony invoice approved for payment?

a. Collusion

b. A "rubber stamp" supervisor

c. Falsification of purchase orders and receiving reports

d. Any of the above

D

15. Purchasing personal items using an organization's money is what type of scheme?

a. Larceny scheme

b. Billing scheme

c. Pay-and-return scheme

d. Skimming scheme

B

16. Which of the following controls can be used to prevent or detect personal purchases on company credit cards?

a. Having credit card statements sent directly to someone with signature authority on the account for review and payment

b. Requiring employees to receive store credits rather than cash when returning items they purchased with the company's credit card

c. Monitoring credit card expenses for unexplained increases in purchasing levels

d. All of the above

C

19. Which of the following computer audit tests can be used to detect billing schemes?

a. Extracting manual checks and summarizing by vendor and issuer

b. Extracting a sample of vendor open invoices for confirmation with the vendor

c. Extracting delivery addresses that do not correspond to company locations

d. All of the above

D

20. Sally Fuller is a buyer for GWA publishing company. Her job is to purchase supplies and services for the printing of technical manuals. Her brother sets up a printing company, and Sally hires him to print most of these manuals for GWA. However, rather than actually printing the manuals, her brother hires another printer to do the work, then sells the printed manuals to GWA at a 50 percent markup. As a result, his prices are much higher than the other printers who serve GWA. This type of scheme is most likely a:

a. Pay-and-return scheme

b. Pass-through scheme

c. Inventory-markup scheme

d. Non-accomplice vendor scheme

B

21. Eli Adams is an accounts payable clerk for MJF Productions. By forging signatures, he was able to procure a company credit card. He recently bought home stereo equipment and put it on his company credit card. When the credit card statement arrived at MJF, Eli prepared a check to the credit card company and buried the purchase in the monthly expenses of the company's largest cost center, knowing that his manager is generally inattentive when approving payments. What type of fraud is this?

a. Larceny

b. Pass-through scheme

c. Personal purchases scheme

d. Forged maker scheme

C

22. Charles Dieter and Joey Davis worked together to steal nearly $50,000 from Valdosta Medical Supply. Charles, an accounts payable clerk, deliberately overpaid a few of the company's vendors. He then called the vendors, explained the "mistake," and asked for the excess to be refunded. Joey, a mailroom employee, intercepted the incoming refund checks and cashed them. The two men split the proceeds. What type of scheme did Charles and Joey commit?

a. Shell company

b. Larceny

c. Pass-through

d. Pay-and-return

D

23. Abby Watkins works in the accounts payable department for SVX Company. Recently, she set up a payment to Pacific Industries for invoice number 7001a, which is unlike any invoice number she has seen from Pacific in the past. The voucher contains a purchase order that backs up the invoice, but it looks like a photocopy. Additionally, the accounting system shows that invoice number 7001 from Pacific was for a slightly different amount and has already been paid. Pacific Industries is an established vendor with SVX, but the payment address has recently been changed to a P.O. Box in the vendor file. What type of fraud does this situation most likely indicate?

a. Personal purchases scheme

b. Shell company scheme

c. Non-accomplice vendor scheme

d. False purchase requisition scheme

C

24. The internal auditor for the Bremer Group recently ran a computer audit test that showed that Ouetzen Company, one of the company's listed vendors, doesn't have a telephone number or a tax ID number. Of the choices given, what type of fraud does this situation most likely indicate?

a. Larceny scheme

b. Shell company scheme

c. Non-accomplice vendor scheme

d. Personal purchases scheme

B

25. Nicolas Hill, CFE, has been hired to look into suspicious activity at Mason & Jefferson, LLC. The company's controller has reason to believe that the company has fallen victim to a shell company scheme. As part of his investigation, Nicolas should do which of the following?

a. Match the vendor master file to the accounts receivable file

b. Review payments with little or no sequence between invoice numbers

c. Extract all employees without a social security number

d. All of the above

B

1. ____________________ is the theft of cash from a victim entity prior to its entry in an accounting system.

a. A fictitious disbursement

b. Skimming

c. Larceny

d. Conversion

B

2. To a fraudster, the principle advantage of skimming is the difficulty with which the scheme is detected.

a. True

b. False

True

3. Peggy Booth is the bookkeeper for an equipment rental company. After recording the cash sales and preparing the bank deposit, she takes $200 dollars from the total. This is an example of a skimming scheme.

a. True

b. False

False

4. In the Fraud Tree, asset misappropriations are broken down into cash and non-cash schemes. Which of the following is not considered a misappropriation of cash?

a. Larceny

b. Skimming

c. Concealed expenses

d. Fraudulent disbursements

C

5. Methods of skimming sales include which of the following?

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

6. Skimming can be either an on-book scheme or an off-book scheme, depending on whether cash or a check is stolen.

a. True

b. False

False

7. Which of the following procedures would not be useful in preventing and detecting sales skimming schemes?

a. Comparing register tapes to the cash drawer and investigating discrepancies

b. Summarizing the net sales by employee and extracting the top employees with low sales

c. Installing video cameras at cash entry points

d. Offering discounts to customers who do not get receipts for their purchases

A

8. To cover up a skimming scheme in which the employee takes cash from the register, the employee must make a voided sale in order for the register to balance.

a. True

b. False

B

9. Which of the following techniques is not used to conceal sales skimming schemes?

a. Lapping

b. Inventory padding

c. Destroying records of transaction

d. Recording false voids

D

10. The customer service department at JNC, Inc. has been receiving phone calls from customers for whom there is no record. This is a red flag of what type of scheme?

a. Receivables skimming

b. Shell company

c. Unrecorded sales

d. None of the above

C

11. Skimming receivables is generally more difficult to conceal than skimming sales.

a. True

b. False

True

12. The concealment of receivables skimming can be difficult because:

a. The audit trail must be destroyed.

b. The incoming payments are expected.

c. Inventory must be padded to conceal shrinkage.

d. All of the above

B

13. Receivables skimming can be concealed through:

a. Lapping

b. Force balancing

c. Document destruction

d. All of the above

D

14. A method of concealing receivables skimming by crediting one account while abstracting money from a different account is known as:

a. Account substitution

b. Kiting

c. Lapping

d. Plugging

C

15. 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

16. Mandating supervisory approval for write-offs or discounts can help prevent receivables skimming schemes.

a. True

b. False

True

18. Computing the percentage of assigned time to unassigned time for employees is one method to detect an employee skimming scheme.

a. True

b. False

True