chapter 3 acc 660 fraud

1. Q: What are the four general ways organizations fight fraud?

A: A: Fraud prevention, early detection, investigation, and legal action.

2. Q: Why is fraud prevention important?

A: A: It is the most cost-effective way to reduce fraud losses.

3. Q: What are two major components of effective fraud prevention?

A: A: Creating a culture of honesty and assessing and mitigating fraud risks.

4. Q: What does 'tone at the top' refer to?

A: A: Management modeling ethical behavior and setting an example.

5. Q: How can hiring reduce fraud risk?

A: A: By selecting honest employees with good values and background checks.

6. Q: Why is communicating expectations important?

A: A: It ensures employees understand that dishonesty will not be tolerated.

7. Q: What contributes to a positive work environment?

A: A: Fair pay, good communication, positive reinforcement, and management support.

8. Q: What does assessing and mitigating fraud risk involve?

A: A: Identifying sources of risk and implementing controls to reduce them.

9. Q: What types of controls help mitigate fraud risk?

A: A: Preventive and detective controls, monitoring, and auditing.

10. Q: Who should perform independent checks in an organization?

A: A: Internal and external auditors.

11. Q: What is fraud detection?

A: A: Identifying symptoms or red flags that may indicate fraud.

12. Q: What are the three primary ways to detect fraud?

A: A: By chance, through tips/complaints, and proactive examination of records.

13. Q: What is predication in fraud examination?

A: A: A reasonable basis to believe fraud has occurred, is occurring, or will occur.

14. Q: Why is predication necessary before investigating?

A: A: To avoid harming reputations and wasting resources.

15. Q: What is the purpose of a fraud investigation?

A: A: To determine the truthŠwhether fraud occurred or not.

16. Q: What risks exist if investigations aren't properly conducted?

A: A: Innocent people harmed, guilty go free, and victims can't recover.

17. Q: What are common fraud investigation methods?

A: A: Interviews, computer data analysis, document review.

18. Q: What are the four types of evidence in the Evidence Square?

A: A: Testimonial, documentary, physical, and personal observation.

19. Q: What is testimonial evidence?

A: A: Information gathered from people through interviews.

20. Q: What is documentary evidence?

A: A: Paper, electronic, or printed material related to fraud.

21. Q: What is physical evidence?

A: A: Tangible items linked to the fraud (e.g., altered documents, tools).

22. Q: What is personal observation evidence?

A: A: What investigators see, hear, or sense directly.

23. Q: What is the primary objective of a fraud investigation?

A: A: To determine the truth of the matter in question.

24. Q: How should hypotheses about fraud be handled during an investigation?

A: A: They should be kept confidential and carefully guarded.

25. Q: Who should be informed about the investigation's progress?

A: A: Only those with a clear need to know.

26. Q: Why must investigators corroborate all findings?

A: A: To ensure accuracy and reduce the risk of false conclusions.

27. Q: What principles should guide investigative techniques?

A: A: Objectivity, fairness, and avoidance of questionable tactics.

28. Q: What are the three legal options after fraud is discovered?

A: A: No action, civil action, or criminal action.

29. Q: What is the goal of civil action?

A: A: To recover money or assets from fraud perpetrators.

30. Q: What can criminal action result in?

A: A: Fines, prison, or restitution agreements.

31. Q: Who typically pursues criminal action?

A: A: Law enforcement or government agencies.

32. Q: Why might a company choose not to pursue legal action?

A: A: To avoid bad publicity, cost, or if recovery is unlikely.

33. Q: What is the most ethical response to fraud once discovered?

A: A: Investigate fairly and take appropriate legal action.

34. Q: What should be done to maintain evidence integrity?

A: A: Handle carefully, document chain of custody, and secure storage.

35. Q: What are some consequences of mishandling an investigation?

A: A: Loss of credibility, legal liability, and justice not served.

36. Q: Why should organizations have fraud response plans?

A: A: To act quickly and correctly when fraud is suspected.

37. Q: How does early detection reduce fraud losses?

A: A: It limits damage and improves recovery chances.

38. Q: What is one major benefit of employee fraud hotlines?

A: A: They encourage tips that can detect fraud early.

39. Q: Why is it important to foster a culture of honesty?

A: A: It deters dishonest behavior and encourages ethical choices.

40. Q: What does the Ethics Development Model illustrate?

A: A: How values and behavior are shaped by environment and leadership.

41. Q: What is the role of external auditors in fraud prevention?

A: A: Provide independent checks and improve accountability.

42. Q: How should communication be handled after fraud is found?

A: A: Discreetly and only with authorized individuals.

43. Q: What type of fraud detection is purely accidental?

A: A: Detection by chance.

44. Q: What is an example of proactive fraud detection?

A: A: Analyzing records for anomalies.

45. Q: What does it mean to 'create widespread monitoring'?

A: A: Involve all employees in observing and reporting suspicious activity.

46. Q: How do internal controls relate to fraud risk?

A: A: They reduce opportunities and increase chances of detection.

47. Q: Why must investigators be experienced and objective?

A: A: To conduct fair and legally sound investigations.

48. Q: What does independent corroboration mean?

A: A: Verifying evidence from more than one reliable source.

49. Q: What is a reason organizations use preventive controls?

A: A: They reduce the chance of fraud occurring.

50. Q: What might a poor hiring process lead to?

A: A: Bringing in individuals more likely to commit fraud.

51. Q: Why is handling fraud cases consistently important?

A: A: It reinforces ethical standards and deters future fraud.

52. Q: What does modeling ethical behavior involve?

A: A: Leaders demonstrating honesty in daily actions.

53. Q: How does failure to act on fraud harm a company?

A: A: It damages morale, invites further fraud, and ruins trust.

54. Q: What is the foundational level of the Ethics Development Model?

A: Personal Ethical Understanding

55. Q: Which part of the Ethics Development Model involves willingness to pay the price for ethics?

A: Ethical Courage

56. Q: According to the Ethics Development Model, what is the highest level of ethical development?

A: Ethical Leadership

57. Q: According to the Honesty of Employees model, which group is influenced the most by the environment or policies?

A: Swing Group

58. Q: Which group will be honest regardless of company policies?

A: Honest Employees

59. Q: According to the Elements of Fraud, which of the following is NOT part of the Fraud Motivation Triangle?

A: Theft Act

60. Q: What are the three components of the Fraud Element Triangle?

A: Theft Act, Conversion, Concealment

61. Q: Which type of evidence includes documents, emails, and computer records?

A: Documentary Evidence

62. Q: Evidence that is seen, heard, or felt by the investigator is known as:

A: Personal Observation

63. Q: What is a key requirement for investigators conducting fraud investigations?

A: They must be experienced and objective