Forensic Accounting and Fraud Examination Final Exam Quiz Answers

Forensic Accounting and Fraud Examination Final Exam Quiz Answers

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Forensic Accounting and Fraud Examination Final Exam Quiz Answers

Final Exam Quiz Answers

Question 1)
The acronym “M.I.C.E.”, as typical motivations of fraud perpetrators, stands for:

  • Money, Ideology, Coercion, and Environment.
  • Money, Ideology, Coercion, and Ego.
  • Money, Image, Capability, and Environment.
  • Motive, Ideology, Coercion, and Ego.

Question 2)
Which of the following is the most frequent ways that fraud is initially detected?

  • Internal Audit
  • External Audit
  • Tips
  • By Accident

Question 3)
The main deterrent for fraud in the corporate environment:

  • remains the internal audit team.
  • is the threat of getting caught.
  • remains the external audit team.
  • is the effectiveness of the SEC and FBI investigators.

Question 4)
Which of the following is NOT an example of financial statement fraud?

  • The sales manager records as a sale in 20X0, finished goods shipped on January 1, 20X1, the day after year-end in order to earn a large bonus.
  • The treasurer transfer money from one bank account to another in order to mask a shortage.
  • The CEO insists that the payment for current year accrued bonuses be deferred to the next fiscal year.
  • The financial controller increases monies in the reserve account in order to meet analysts’ expectations regarding earnings.

Question 5)
One major difference between fraud and a mistake is:

  • Conversion (benefit to the perpetrator)
  • Cover-up
  • Concealment
  • The act

Question 6)
Which of the following acts would be considered a fraud act (in contrast to an abuse)?

  • Surfing the Internet while at work.
  • Using sick leave to see a child’s play at school.
  • Removing small amounts of cash from the cash register till.
  • Taking a long lunch or break.

Question 7)
In terms of the definition of occupational fraud and abuse, who is an employee?

  • Respectable business and professional men.
  • Any trust violator.
  • Any person who receives regular and periodic compensation from an organization for his or her labor.
  • Only rank and file workers.

Question 8)
Fraud can be committed by:

  • intentional misapplication of accounting principles that guide the disclosure of financial information.
  • omission of events, transactions, or other significant information in the notes related to the financial statements.
  • alteration of the underlying accounting data.
  • All of the choices are correct.

Question 9)
Auditing is responsible for:

  • litigation support and redemption.
  • risk assessment and calculation of damages.
  • business valuation and risk assessment.
  • risk assessment and internal controls.

Question 10)
While a fraud examiner’s objective is to determine whether fraud has occurred and who is likely responsible, the financial forensics investigator’s MAIN objective is to:

  • gather the required financial and nonfinancial evidence to examine the allegations independently and determine their accuracy.
  • attempt to gather sufficient evidence to support or refute an audit opinion.
  • determine whether the allegations are reasonable based on both the financial and non-financial evidence.
  • calculate financial impact based on a specific formula(s).

Question 11)
Which of the following is NOT one of the three-pronged processes of remediation?

  • The prevention and detection of a fraud that has already occurred.
  • The recovery of losses through insurance, the legal system, or other means.
  • Support for the legal process as it tries to resolve the matter in the legal environment.
    The modification of operational processes, procedures, and internal controls to minimize the chances of a similar fraud recurring.

Question 12)
One of the most important contributions of criminology to the study of fraud is:

  • the M.I.C.E. concept.
  • the fraud triangle.
  • the relationship of punishment to remediation.
  • none of the above.

Question 13)
Signs of pressure that would prompt an individual to commit fraud include:

  • A wealthy brother
  • Success at work
  • A change in home value
  • Both “a” and “c”

Question 14)
Which of the following is the most likely reason, as suggested by Cressey, that an employee tries to solve a financial problem in secret?

  • because they are afraid of losing the approval of those around them.
  • because they are afraid of getting arrested.
  • because they worry that someone else will want part of the money they steal.
  • because they are afraid they will have to go back to college.

Question 15)
The Fraud Triangle consists of: pressure, opportunity, and rationalization.

  • True
  • False

Question 16)
From the list below, create the typical fraud perpetrator profile.

  • Male, high school education, young, general labor, and with the company for years.
  • Female, high school education, young, general labor, and relatively new to the company.
  • Male, post-secondary education, middle aged, professional, and with the company for years.
  • Female, post-secondary education, middle aged, professional, and relatively new to the company.

Question 17)
As compensation of the perpetrator increases, the losses associated with the perpetrator rise. This is most likely because:

  • the perpetrator has a greater appreciation of costly pleasures.
  • the perpetrator has greater access to company funds and assets.
  • the perpetrator has a higher cost of status and image.
  • the perpetrator can coerce others into the scheme.

Question 18)
Which one of the following ways differentiates an act of fraud from a mistake/error?

  • Demonstrating that the employee concealed the act.
  • Showing that there were multiple incidents of the same act.
  • The destruction of evidentiary documents that describe the act.
  • All of the above.

Question 19)
Conversion can be shown to have occurred by:

  • Tracing the money to the defendant’s care
  • Tracing the money to the defendant’s department
  • Tracing the money to the defendant’s bank account
  • All of the above

Question 20)
Signs that an individual is a predator fraudster include:

  • Repeat offenses.
  • Takes advantage of sudden opportunity.
  • Frequent job turnover caused by boredom.
  • All of the above.

Question 21)
The difference between a predator fraudster and an accidental fraudster is:

  • The accidental fraudster does not seek opportunity; the predator fraudster does.
  • The predator fraudster is a repeat offender; the accidental fraudster is not.
  • The accidental fraudster is in need of funds; the predator fraudster is not.
  • Both “A” and “B”

Question 22)
Albrecht developed the fraud scale, which includes the following components:

  • situational pressures, personal integrity, and criminal record.
  • situational pressures, perceived opportunity, and personal integrity.
  • None of the above are the components for the fraud scale.
  • high personal debt, living beyond one’s means, drug or alcohol problems.

Question 23)
Which of the following is true concerning the fraud scale developed by Albrecht?

  • Situational pressures are not important when integrity is examined in the fraud scale.
  • The fraud diamond and its addition of capability, was based on criticism of both the fraud triangle and fraud scale.
  • Personal integrity was added, and rationalization was deleted from the fraud triangle.
  • None of the above are the components of the fraud scale.

Question 24)
To improve the effectiveness of the fraud triangle, Wolfe and Hermanson suggests which characteristic as an addition to the fraud triangle (making it the fraud diamond) ?

  • Capability
  • Capacity to steal
  • Integrity
  • Ego or entitlement.

Question 25)
Large frauds are typically associated with all of the following EXCEPT:

  • Lack of segregation of duties and responsibilities.
  • Placing undeserved trust in key employees.
  • Operating on a crisis basis
  • Working with management to set realistic goals

Question 26)
Intent is usually demonstrated by showing which of the following?

  • The act
  • The concealment
  • The cover-up
  • All of the above

Question 27)
Perpetrators of large frauds are likely to use the money for all of the following EXCEPT:

  • to purchase new homes.
  • to pay for expensive vacations.
  • to support extramarital affairs.
  • to pay taxes.

Question 28)
Overall, management must design, implement, and maintain:

  • an internal controls program to protect entity assets, liabilities, and owners’ equity.
  • internal controls to support effective and efficiency of operations, reliability of reporting, and compliance with laws and regulations.
  • an automated accounting system that implements each component of U.S. GAAP accounting principles.
  • All of the choices are correct.

Question 29)
From the statements below select the most correct.

  • Prevention and deterrence are typically more costly than attempting to remediate a fraud that has already occurred.
  • Fraud deterrence refers to creating environments in which people are prohibited from committing fraud.
  • Fraud detection refers to the process of preventing and discovering the presence of fraud.
  • Prevention and deterrence are typically more cost beneficial than attempting to remediate a fraud that has already occurred.

Question 30)
Fraud deterrence begins:

  • with the employer’s internal controls.
  • in the employee’s mind.
  • with the fraud examination.
  • with regulatory and legal actions such as PCAOB Auditing Standard No. 5, AICPA Statement on Auditing Standards (SAS) No. 99, and the Sarbanes–Oxley Act.

Question 31)
Segregation of duties, the most common internal control, is best described as which type of control?

  • preventative control.
  • detection control.
  • opportunity control.

Question 32)
Sources of information include:

  • Witnesses to an act of fraud.
  • Surveillance by private detectives.
  • Surveillance by police officers.
  • All of the above

Question 33)
A fraudster erases files from his hard drive. This is an example of data alteration.

  • True
  • False

Question 34)
When looking for fraud, credit card companies constantly mine data and look for transactions that are similar to historical patterns of fraud. Which of the following are examples of patterns that they use. (Mark all that apply)

  • Purchases of electronic items at a retailer in a large metropolitan area.
  • Multiple purchases at a store in a relatively short period of time.
  • Large purchases of “high-risk” items at a retailer from which the card holder has not previously purchased.

Question 35)
Red flags, symptoms of fraud, often go unnoticed or are not vigorously pursued because:

  • there is not supporting evidence of fraud.
  • the red flags are not associated with financial statement preparation.
  • there are many red flags in day-to-day operations that are not fraud indicators.
  • the audit committee is involved in other investigations.

Question 36)
When using red flags as a basis for further investigation:

  • each fraud will have some unique attributes.
  • each fraud has exactly the same elements making identification easier.
  • red flags prove of very limited value due to their massive number in day-to-day operations.
  • All of the choices are correct.

Question 37)
When searching for breakdowns of internal controls by collusion and fraud, auditors:

  • should check all journal entries made on holidays, weekends, and late at night.
  • should discuss with employees any journal entry which has been made to reduce liabilities or increase owners’ equity.
  • should verify all journal entries and values associated with consolidations which resulted for work within spreadsheets.
  • should obtain an understanding of the internal control processes regarding journal entries and other adjustments.

Question 38)
The transfer of funds obtained illegally from a US bank to another US bank is an example of:

  • Integration
  • Layering
  • Placement
  • None of the above

Question 39)
Duplicate searches in data extraction and analysis software could be used to discover:

  • Invoices that have been paid twice
  • Missing employees
  • Missing invoices
  • Stolen inventory

Question 40)
Which of the following best describes text analysis?

  • a systems-type approach to fraud detection relying on the text of the software code.
  • a targeted approach to fraud detection that searches for emotion in text.
  • an approach to infer meaning from words and phrases and the way in which they are used.
  • data mining tools such as Access, ACL, or IDEA that identify obscure relationships.

Question 41)
The Fraud Triangle is generally present when an accidental fraudster commits fraud. The three legs represent perceived or actual instances of concepts. Which of the following is NOT one of the legs of the Fraud Triangle?

  • Opportunity
  • Predictability
  • Pressure
  • Rationalization

Question 42)
Which of the following is/are applicable to the “Predator”, but not the “Accidental” fraudster? (Mark all that apply)

  • Pressure
  • Opportunity
  • Arrogance
  • Criminal Mindset

Question 43)
The biggest advantage investigators have when tracing the flow of illegal funds is:

  • Most illegal funds consist of electronic transfers, making detection easier.
  • Most illegal funds at some time flow through a bank in the US making detection easier.
  • Most illegal funds return to the persons performing the laundering making detection easier.
  • Most illegal funds are converted to hard assets making detection easier.

Question 44)
Which of the following is NOT a concern to those in the battle against money laundering?

  • De-materialization of money – Anything of value – goods and services (real estate, jewels, precious metals, on-line accounts)
  • New forms of value – loyalty points traded for drugs
  • Dis-intermediation – banks not center of transactions – e.g., bit-coin
  • All of the above are concerns for law enforcement

Question 45)
Which is generally considered the lowest threshold for ethical decision making?

  • A professional code of ethics of an accounting organization.
  • Codes of conduct or directives about what is best for society.
  • The law.
  • The underlying values that guide society.

Question 46)
With regard to Cynthia Cooper and Betty Vinson, both from WorldCom, which of the following is correct?

  • Cynthia Cooper went to jail for her role in whistle-blowing because she divulged WorldCom trade secrets.
  • Betty Vinson and Cynthia Cooper both went to jail for their roles in blowing the whistle on WorldCom.
  • Betty Vinson, though less celebrated, played an important role in helping Cynthia Cooper uncover and report the WorldCom fraud.
  • Betty Vinson, even though she went to jail for her role in WorldCom, could be considered a victim.

Question 47)
Which is the following is NOT a best practice for an effective whistleblower program?

  • The tip hotline must be available and publicly known.
  • The tip hotline must be open to any type of inappropriate behavior.
  • Legitimate employee concerns must be taken seriously.
  • The tipster needs to identify themselves because of the need to ask follow-up questions during the investigation.

Question 48)
With regard to Cynthia Cooper and Betty Vinson, both from WorldCom, which of the following is FALSE?

  • Betty Vinson and Cynthia Cooper both played important roles in the WorldCom fraud.
  • Betty Vinson, even though she went to jail for her role in WorldCom, could be considered a victim.
  • Cynthia Cooper was named a Time Magazine Person of the Year for her role in whistle-blowing.
  • Cynthia Cooper, though celebrated as a hero for her role in WorldCom, suffered no ill effects from her courage and high ethical standards.

Question 49)
Which of the following are the three stages of money laundering?

  • Assessment
  • Integration
  • Placement
  • Layering

Question 50)
With regard to changes pertaining to money laundering, which of the following changes is NOT a concern to those in the battle against money laundering?

  • bit-coin and other forms of “electronic money”
  • prepaid value cards (e.g., Visa debit card)
  • mobile payments
  • All of the other choices are a concern for law enforcement

Question 51)
Financial statement fraud consists of:

  • Recognizing revenues not yet earned
  • Inappropriate entries to reserve accounts
  • Capitalizing expenses when inappropriate
  • All of the other choices are correct

Question 52)
Financial statement fraud is complex because:

  • More than one account is usually affected
  • More than one person is usually involved
  • Most people do not have access to the source documents and therefore cannot detect the fraud
  • All of the other choices are correct

Question 53)
Which of the following best describes situations with complex frauds and financial crimes

  • Organizations associated with complex frauds and financial crimes often dismantle legitimate businesses.
  • Organizations associated with complex frauds and financial crimes often involve single individuals acting alone.
  • Organizations associated with complex frauds and financial crime can be described as employing a large number of accidental fraudsters.
  • Organizations associated with complex frauds and financial crime often mix illegal activities with legitimate business activities.

Question 54)
The key to successful fraud detection and investigation using digital tools and techniques requires which approach?

  • A systems-type approach.
  • A targeted approach.
  • A results-driven approach.
  • The approach is not relevant if you have access to data warehouses and data mining tools such as Access, ACL, or IDEA

Question 55)
The functions of data extraction and analysis software tools include all EXCEPT:

  • Sorting
  • Input into payroll system
  • Verifying multiples of a number
  • Correlations analysis

Question 56)
Which of the following is correct, when considering the phrase “Following the money”? Select all that apply.

  • Requires knowledge of every place the money has been
  • Is often difficult to do given the use of foreign banks for layering
  • Often requires access to foreign bank accounts

Question 57)
Analytical anomalies include all of the following except:

  • transactions too small or too large for normal activity.
  • explained cash shortages.
  • excessive purchases.
  • excessive debit and credit memos.

Question 58)
Anomalies are:

  • most often red flags that indicate fraud is present.
  • part of the day-to-day operations for most companies.
  • seldom seen in companies with good internal controls and procedures.

Question 59)
Data can be altered by:

  • Changing numbers on a check; e.g. making a “3” an “8”
  • Destroying supporting detail
  • Making copies and submitting them as the original
  • All of the other answers are correct

Question 60)
Common violations pertaining to occupational fraud and abuse include all of the following except:

  • asset misappropriation.
  • corruption.
  • financial reporting fraud.
  • All of these are common violations.

Extra Questions

Question 4)
Which of the following is an example of financial statement fraud?

  • The sales manager records as a sale in 20X0, goods shipped on January 1, 20X1, the day after year-end.
  • The financial controller capitalizes a large amount of expenses that should have been included on the income statement.
  • The CEO insists that the payment for current year bonuses be deferred to the next fiscal year.

Question 5)
The most distinguishing difference between an accidental fraudster and a predator is which of the following:

  • there are few differences: accidental fraudsters, like predators, are nasty persons.
  • both have high personal debt, live beyond their means, or have drug or alcohol problems.
  • the predator seeks out opportunity to commit fraud.
  • predators steal larger amounts than accidental fraudsters.

Question 18)
Which of the following is most accurate concerning a predator?

  • Predators are less likely to be concerned with auditors because auditors are not fraud examiners.
  • Predators are probably more comfortable dealing with authorities and anti-fraud mechanisms, like audits, than accidental fraudsters are.
  • The predator steals within one year of arriving at an organization.
  • Chief Executive and Chief Financial Officers could never be predators because of their respect in the business world.

Question 33)
Why is it difficult for entry-level employees to be forensic accountants?

  • Only senior level employees can know how to run the statistical software used to detect fraud
  • Data are usually only available to senior level employees.
  • There needs to be a level of accounting knowledge of what is normal, to recognize when something is not normal.

Question 39)
Duplicate searches in data extraction and analysis software could be used to discover:

  • Invoices that have been paid twice
  • Missing employees
  • Missing invoices
  • Stolen inventory

Question 2)
Upon discovering fraud, internal auditors:

  • must fully investigate it and determine perpetrator(s), value, damage, and recommend possible action.
  • should only continue their investigation if the fraud is in the present or immediately previous period.
  • have an obligation to notify the board of directors when the incidence of significant fraud has been established to a reasonable degree of certainty.
  • must provide the audit committee and the board of directors with a preliminary written statement detailing the known facts and presenting reasonable suspicions as to perpetrators, values, methods, and time periods affected.

Question 3)
The difference between fraud and errors is:

  • The materiality of the value involved.
  • Intent of those involved.
  • Whether it affects owners’ equity or not.
  • All of the choices are correct.

Question 4)
Financial statement fraudsters often:

  • Start as accidental fraudsters and progress to predator fraudsters.
  • Rely on collusion to mask the fraud.
  • Frequently go from company to company committing the same type of fraud.
  • All of the above.

Question 31)
Three of the various objectives of an internal control program are:

  • fraud elimination, fraud deterrence, and fraud mitigation.
  • fraud prevention, fraud deterrence, and fraud mitigation.
  • fraud prevention, fraud deterrence, and fraud detection.
  • fraud deterrence, fraud detection, and fraud prosecution.

 

 

 

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