acc 660 fraud chapter 6

1 What is the main difference between errors and fraud in data analysis?

Errors are unintentional and widespread; fraud is intentional and usually isolated.

2 Why is audit sampling ineffective for detecting fraud?

Fraud is usually rare and concentrated, making it likely to be missed by sampling.

3 What approach is recommended instead of sampling for detecting fraud?

Full-population analysis.

4 What is the purpose of the proactive method of fraud detection?

To proactively search for fraud without relying on tips.

5 What are the six steps in the proactive fraud detection process?

Understand the business, identify possible frauds, catalog symptoms, gather data, analyze results, investigate symptoms.

6 What is the focus of Step 1 in proactive fraud detection?

Understanding the business through tours, interviews, reviews, and observation.

7 What is done during Step 2 of the fraud detection process?

Identify types of frauds and who might commit them.

8 What types of fraud symptoms are considered in Step 3?

Accounting anomalies, internal control weaknesses, analytical errors, lifestyle changes, behavior changes, tips.

9 What happens in Step 4 of the fraud detection process?

Use technology like SQL or software to gather data matching symptoms.

10 What are typical tools used to analyze fraud-related data?

ACL, IDEA, ActiveData, SAS, SPSS.

11 What is the benefit of data-driven fraud detection?

The investigator takes initiative and doesn't wait for tips.

12 What is a drawback of data-driven fraud detection?

It can be costly and time-intensive.

13 What is ODBC and its purpose?

Open Database Connectivity; it allows real-time querying of corporate data.

14 What formats are used in text import for data analysis?

CSV, TSV, fixed-width, XML, EBCDIC.

15 What is a simplified data warehouse?

A storage of imported data in analysis applications.

16 What is Benford's Law used for?

Detecting anomalies in digit distributions.

17 What is a key advantage of Benford's Law?

It is inexpensive to use.

18 What is a limitation of Benford's Law?

It casts a wide net and may yield false positives.

19 What is digital analysis?

Analyzing the distribution of digits in data for irregularities.

20 What is outlier investigation?

Focusing on values that significantly deviate from the norm.

21 What is stratification in data analysis?

Breaking down data into smaller subtables for deeper analysis.

22 What is summarization in data analysis?

Aggregating subtable results into summary records.

23 What is time trend analysis used for?

Detecting unusual patterns over time.

24 What is fuzzy matching?

Matching text strings that aren't exact, using Soundex or n-grams.

25 What does the Matosas matrix show?

Which contracts have red flag indicators.

26 What is one advantage of the Matosas matrix?

It helps link symptoms to specific fraud schemes.

27 What are the four ways to analyze financial statements for fraud?

Period-to-period comparison, ratio analysis, vertical analysis, horizontal analysis.

28 Why is the statement of cash flows unique?

It is already a change statement and doesn't need to be converted.

29 What is vertical analysis?

Expressing financial items as a percentage of a base item.

30 What is horizontal analysis?

Comparing line items across periods to spot unusual changes.