Forensic Accounting and Fraud Examination Week 3 Quiz Answers

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Forensic Accounting and Fraud Examination Week 3 Quiz Answers

Week 3 Quiz Answers

Question 1)
Sources of information include:

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

Question 2)
With regard to financial data analysis and effective fraud detection, which of the following statements is INACCURATE.

• Historical comparisons are extremely important.
• If there is an unexplained and dramatic increase in an item from one period to the next, it is a red flag, or badge, that indicates fraud.
• Financial data analysis is an extremely sophisticated endeavor.
• Not only is necessary to understand what data is available and how to capture it, but you also have to know what you are looking for.

Question 3)
With regard to the review of accounting estimates:

• prior years’ estimates should be examined for consistency.
• significant changes in estimating procedures are prohibited.
• the concealment of fraud through estimates is hard since all estimates can be directly tied to the individual responsible for them.
• All of the choices are correct.

Question 4)
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 above

Question 5)
Considering Benford’s law/analysis, which of the following statements is NOT accurate?

• Benford analysis is a data mining tool based on statistics.
• Benford analysis works on any numerical data set.
• Frank Benford was a physicist in the 1920s.
• For Benford analysis, there must be no built-in maximum or minimum values.

Question 6)
Word searches in textual analysis to identify potentially anomalous behavior include all but the following:

• Adjustment
• Override
• Write-off
• Success

Question 7)
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 8)
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 9)
The key to successful fraud detection and investigation using digital tools and techniques requires:

• a targeted approach.
• a systems-type approach.
• access to data warehouses and data mining tools such as Access, ACL, or IDEA.
• a results-driven approach.

Question 10)
When attempting to capture data that a fraudster has tried to delete from a device, such as a computer hard drive or mobile phone, the forensic expert should

• Duplicate the device using forensic hardware/software.
• Turn off the device using the manufacturer’s on/off switch.
• Use specialized software/hardware to retrieve the deleted data.

Question 2)
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 in order to recognize when something is not normal.

Question 5)
Red flags, symptoms of fraud, often go unnoticed or are not vigorously pursued because:

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

Question 7)
Which of the following statements is correct with regards to text analysis of data

• Machine assisted review of emails containing words potentially indicative of fraud can help identify schemes before they occur.
• Automated text analysis avoids the need for examination of the human element.
• Careful analysis of management statements and other official company communications cannot reveal areas where the company may be avoiding discussing sensitive issues.
• Text data exists is used most effectively at corporate headquarters among top organization executives.

Question 8)
The functions of data extraction and analysis software tools include all EXCEPT:

• Compliance verification
• Duplicate searches
• Input into inventory system
• Correlations analysis

Question 9)
Each of the following failures may occur within internal controls except:

• Duties are separated, but people work together to circumvent controls (collusion).
• Username/Passwords belonging to others are taken, and used to commit fraud.
• All industries are struggling with the concept of “big data.”
• Adequate controls may not be in place.

Question 1)
Some of the key ways to effectively detect fraud include each of the following EXCEPT:

• Understanding software tools and their ability to identify anomalies
• Using properly vetted accounting software general ledger packages, such as “off-the-shelf” software
• Unusual increases or decreases in account balances
• Having an expectation for what the data should look like

Question 4)
Red flags indicating predication include:

• The individual handling cash is undergoing a divorce
• The individual disbursing checks is divorced
• The individual receiving cash is sick
• None of the above

Question 5)
Data mining also known as “big data” analysis relies on which of the following.

• Big data analysis requires at least 10 years of details.
• Data mining works best on detailed data.
• Big data is an excellent analysis approach for the theoretical classroom but produces results too messy for the real world.
• Data mining works best when analyzing small sets of data

Question 6)
When using red flags as a basis for further investigation:

• each fraud will have some unique attributes.
• each fraud has common 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 7)
Which of the following statements is correct with regards to text analysis of data

• Machine assisted review of emails containing words potentially indicative of fraud can help identify schemes before they occur.
• Automated text analysis avoids the need for examination of the human element.
• Careful analysis of management statements and other official company communications cannot reveal areas where the company may be avoiding discussing sensitive issues.
• Text data exists is used most effectively at corporate headquarters among top organization executives.

Question 9)
Which of the following is a professional term or description when individuals work together to circumvent controls to conduct a fraudulent act

• Sharing passwords
• Sharing usernames
• Collusion
• Circumventing controls is reflective of adequate controls

Question 10)
Which of the following software tools cannot be used in “big data” analysis.

• Microsoft Excel
• Camtasia
• SAS
• IDEA

Question 3)
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. (May have more than one correct answer)

• A. Purchases of electronic items at a retailer in a large metropolitan area.
• B. 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 4)
Which of the following statements about adjusting journal entries is NOT correct?

• Adjusting journal entries, especially those that increase income and increase assets or decrease liabilities should receive greater scrutiny by auditors.
• Adjusting journal entries, especially those that are significant in amount, close to year end and increase income should receive greater scrutiny by auditors.
• Unusual, significant, one-time adjusting journal entries are seldom cause for greater scrutiny by auditors.
• Auditors will often review adjusting journal entries, giving greater scrutiny to those increasing income.

Question 6)
One of the foundations upon which text analysis was developed, is that many frauds

• are Concealed from the victim
• have attributes consistent with the triangle of fraud action
• involve collusion
• are devoid of communication among perpetrators

Question 8)
Generally, what is the correct statement with regard to “big data”?

• All industries are struggling with the concept of “big data.”
• Servers across the country process tens of thousands of “big data” transactions each day
• The “big data” challenge today is how to effectively collect data.
• Predators exploit “big data” to commit some of the largest frauds in history

Question 10)
Which of the following is NOT a type of an analysis that is possible with big data?

• Timing or timelines of activities
• Ratio analysis
• Pattern identification and recognition
• Data sorts

Question 3)
What might be an explanation for accounts receivable (what your customers owe you) to have increased by 20%, based on a year ago, while bad debt expense (what your customers cannot pay) increased 50% (Select all that are feasible):

• The sales department began to selling to customers that are not creditworthy.
• Inventory costs are increasing, leading to the increase in sales.
• An employee “sold” and shipped items to himself, then wrote off the debt.

Question 9)
Which of the following best describes text analysis?

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

Question 10)
Which of the following is most accurate with regard to files deleted from a computer’s hard drive prior to the arrival of fraud examiners or forensic accountants?

• The data is lost and as a result to perpetrator may get away with their crime.
• It is an effective tool for perpetrators who are close to getting caught to hide their crimes.
• Always turn on all computers and electronic devices when you arrive at a crime scene to retrieve deleted data and files.
• Contemporary computer programs almost always allow deleted data and files to be successfully retrieved.

Question 1)
Fraud professionals and forensic accountants use the term “red flag” to indicate:

• that they are looking for symptoms and badges of fraud.
• that all personnel will be investigated.
• that evidence of fraud or abuse have been located and identified.
• that a person or group of people has been identified as possible fraudsters or abuser.

Question 3)
Red flags, anomalies, badges or indicators of fraud might include all but the following.

• Shortages
• Excess waste and scrap
• Deviations from specifications
• Correlated financial and non-financial numbers

Question 7)
With regard to text analysis, which of the following is NOT correct:

• Data exists in many forms and in many locations.
• Public records, despite their availability, are not generally a reliable source of information.
• Social media can lead to valuable information about individuals or businesses
• Company policies often allow for search of personal electronic devices such as smart phones and tablets