Questions and Answers of Fraud Examination

Some complaints and tips turn out to be unjustified. (True/False)
Auditors can best help detect fraud in conversion. (True/False)
The fraud elements consist of concealment, conversion, and completion. (True/False)
It is safe to assume that fraud has not occurred if one or more elements of the fraud triangle cannot be observed. (True/False)
Psychopaths feel no guilt because they have no conscience. (True/False)
First-time offenders usually exhibit no psychological changes. (True/False)
As fraud perpetrators become more confident in their fraud schemes, they steal and spend increasingly larger amounts. (True/False)
Most people who commit fraud use the embezzled funds to save for retirement. (True/False)
Analytical fraud symptoms are the least effective way to detect fraud. (True/False)
Internal control is composed of the control environment, the accounting system, and control procedures (activities). (True/False)
Internal control weaknesses give employees opportunities to commit fraud. (True/False)
A check is an example of a source document. (True/False)
Recording an expense is a possible way to conceal the theft of cash. (True/False)
Analytical anomalies are present in every fraud. (True/False)
Alerting vendors and contractors to company policies often results in:a. Loss of interest in the organization by vendors.b. Discovery of current frauds and the prevention of future frauds.c. Strained
Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?a. Lack of anonymity.b. Pressure to comply.c. Culture.d. Lack of awareness.
Which of the following is not a recognized method of eliminating fraud opportunities?a. Having good internal controls.b. Monitoring employees.c. Creating an expectation of punishment.d. Engendering
The “tone at the top” is an important element in fighting fraud which involves:a. Doing a good job of integrity risk assessment.b. Having a positive organization where effective fraud teaching
Which of the following is the typical fraud model that describes most firms?a. Fraud incident, assessing risk, investigation, reporting.b. Fraud incident, investigation, action, resolution.c.
Which of the following is usually the most effective tool in preventing and detecting fraud?a. Discouraging collusion between employees and customers or vendors.b. Effective investigations of fraud
Which of the following aspects of fraud usually results in the largest savings?a. Fraud prevention.b. Fraud detection.c. Fraud investigation.d. It is impossible to tell.
Which of the following factors generally results ina high-fraud environment?a. Hiring honest people.b. Providing an EAP.c. Autocratic management.d. Both a and b.
A company’s control environment includes:a. The tone that management establishes toward what is honest and acceptable behavior.b. Corporate hiring practices.c. Having an internal audit
The single most effective tool in preventing and detecting fraud is usually:a. Monitoring employees.b. Having a good system of internal controls.c. Having a well-written company code of ethics.d.
Which of the following personnel and operating policies contribute to high-fraud environments?a. Management by crisis.b. Rigid rules.c. High employee lifestyle expectations.d. Poor promotion
Which of the following factors contribute to creating a corporate culture of honesty and openness?a. Hiring honest people.b. Performing criminal background checks.c. Not having an open-door policy.d.
People will often be dishonest if they are placed in an environment of:a. Poor controls.b. High pressure.c. Low integrity.d. Loose accountability.e. All of the above.
Creating an expectation of punishment causes firm morale to deteriorate and often results in lower productivity. (True/False)
Not all possible controls should be implemented; rather, one must assess a control’s cost and benefits before implementation. (True/False)
The major role of employee assistance programs is to help employees recover from the damaging psychological effects of fraud. (True/False)
Tips and complaints are the most common way fraud is detected. (True/False)
The increasingly complex nature of business helps to decrease the number of collusive frauds. (True/False)
Even a good system of internal controls will often not be completely effective because of fallibilities of the people applying and enforcing the controls. (True/False)
Not prosecuting fraud perpetrators is cost effective both in the short run and the long run. (True/False)
The two elements in creating a positive work environment are (1) having an open-door policy and (2) having positive personnel and operating procedures. (True/False)
The two elements in creating a positive work environment are (1) having an open-door policy and (2) having positive personnel and operating procedures. (True/False)
When fraud is committed, the problem is often not a lack of controls, but the overriding of existing controls by management and others. (True/False)
A good internal control system within a company can ensure the absence of fraud. (True/False)
An important factor in creating a culture of honesty, openness, and assistance in the workplace is maintaining an employee assistance program. (True/False)
Studies show that a positive and honest work culture in a company does little to prevent fraud. (True/False)
Even with the right opportunity or significant pressure, most people would probably not steal or embezzle. (True/False)
Fred is a friend of yours and works with you at the same company. He is a well-respected and trusted employee. He has two young children and is a leader in his community. You have discovered that
Which of the following is true regarding the Sarbanes-Oxley Act of 2002:a. Companies with revenues exceeding $10 million must have a whistle-blower system in place.b. Public companies must have a
Factors that are usually associated with high levels of employee fraud include all of the following except:a. Negative feedback and lack of recognition of job performance.b. Perceived inequalities in
Arguments for taking legal action against perpetrators of fraud include:a. Huge cash settlements from prosecuting fraud are an excellent source of revenue.b. Legal action usually results in positive
Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be:a. Unproductive.b. Embarrassing.c. Expensive.d. All of the above.
The three elements of fraud are:a. Theft act, rationalization, and opportunity.b. Pressure, opportunity, and conversion.c. Theft act, concealment, and conversion.d. Theft act, pressure, and
Which of the four types of evidence includes interrogation and honesty testing?a. Testimonial.b. Documentary.c. Physical.d. Personal observation.
“Predication of fraud” is defined as:a. Reasonable belief that fraud has occurred.b. Irrefutable evidence that fraud has been committed.c. Motivation for committing fraud.d. Punishment of fraud
Drawbacks to establishing a hotline for employees to report fraud include all of the following except:a. Expense.b. Many incidents reported are hoaxes motivated by grudges.c. Fraud symptoms reported
Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is:a.
Research shows that fraud occurs less frequently when employees feel:a. Abused by management.b. Threatened.c. Challenged with unreasonable performance goals.d. Ownership in the organization.
The tone at the top when related to fraud usually refers to management’s attitude about:a. Office parties.b. Fraud prosecution.c. Employee absenteeism.d. How it models and labels appropriate
All of the following are ways to create a culture of honesty and high ethics except:a. Creating a positive work environment.b. Hiring the right kind of employees.c. Having top management model
To prevent fraud from reoccurring, most organizations and other fraud victims should:a. Take no legal action.b. Pursue civil remedies.c. Pursue criminal remedies.d. Pursue either civil or criminal
Usually, for everyone involved—especially victims—the investigation of fraud is very:a. Pleasant and relaxing.b. Educational.c. Exciting.d. Traumatic and difficult.
An investigative approach that includes testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the:a. Investigative square of evidence.b.
Which of the following refers to the circumstances, taken as a whole, that would lead a reasonable prudent professional to believe fraud has occurred, is occurring, or will occur?a. Evidential
It is most difficult to prevent which type of fraud?a. Investment scams.b. Fraud committed by a company president.c. Employee fraud.d. Customer fraud.
Most frauds start small and:a. If not detected, continue to get larger.b. Usually decrease in amount.c. Remain steady and consistent.d. None of the above.
Which of the following is not a proactive way for a company to eliminate fraud opportunities?a. Severely punishing fraud perpetrators.b. Assessing risks.c. Implementing appropriate preventive and
The best way for management to model appropriate behavior is to:a. Enforce a strict code of ethics.b. Set an example of appropriate behavior.c. Train employees about appropriate behavior.d. Make
To successfully prevent fraud, an organization must:a. Identify internal control weaknesses.b. Explicitly consider fraud risks.c. Take proactive steps to create the right kind of environment.d. All
The most effective way to reduce losses from fraud is:a. Detecting fraud early.b. Implementing proactive fraud detection programs.c. Preventing fraud from occurring.d. Severely punishing fraud
Most fraud perpetrators have a long history of dishonesty and deceit. (True/False)
Since fraud prevention programs are so costly, despite being ethically superior, they almost always result in higher costs and thus lower net income than using only a strong system of fraud
Since complete fraud prevention is impossible because it requires changing actual human behavior, successful companies should forgo fraud prevention and instead focus on strong fraud detection
In order to create a culture of honesty and confidentiality, persons aware of fraudulent activity should be encouraged to tell only the CEO. (True/False)
Criminal conviction is much more difficult to achieve than a civil judgment because there must be proof “beyond a reasonable doubt” that the perpetrator intentionally stole assets. (True/False)
Organizations often want to avoid embarrassment and expense, so they terminate fraudulent employees without having them prosecuted further (True/False)
The three elements of the fraud triangle by which the investigative techniques are often classified are (1) the theft act, (2) concealment efforts, and (3) conversion methods. (True/False)
Fraud is difficult to detect because some fraud symptoms often cannot be differentiated from nonfraud factors that appear to be symptoms. (True/False)
Frauds typically start large and get smaller as the perpetrator tries to conceal his dishonest acts. (True/False)
Expectations about punishment must be communicated randomly among work groups if fraud is to be prevented. (True/False)
Effective hiring policies that discriminate between marginal and highly ethical individuals contribute to an organization’s success in preventing fraud. (True/False)
Fraud prevention includes taking steps to create and maintain a culture of honesty and high ethics. (True/False)
Investigating fraud is the most cost-effective way to reduce losses from fraud. (True/False)
Legal action taken by an organization can affect the probability of whether fraud will reoccur. (True/False)
Physical evidence includes evidence gathered from paper, computers, and other written documents. (True/False)
Most investigators rely heavily on interviews to obtain the truth. (True/False)
Once predication is present, an investigation is usually undertaken to determine whether or not fraud is actually occurring. (True/False)
If a perpetrator is not caught, his confidence in the scheme will decrease, and he will become less and less greedy.. (True/False)
Organizations that want to prevent fraud must make it easy for employees and others to report suspicious activities. (True/False)
Research has shown that it is employees and managers, not auditors, who detect most frauds. (True/False)
No matter how well an organization has developed a culture of honesty and high ethics, most organizations will still have some fraud. (True/False)
Developing a positive work environment is of little importance when creating a culture of honesty. (True/False)
Fraud prevention involves two fundamental activities: (1) a hotline for tips and (2) assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities
Once fraud has been committed, there are no winners. (True/False)
Which of the following is an example of referent power?a. Fear that you may lose your job.b. Your friend asks you to do a special favor for him or her.c. The offer of a job promotion.d. Your teacher
Which of the following is an example of legitimate power?a. The offer of valuable stock options.b. A decision to participate in fraud based upon fear.c. Your boss tells you to do something.d. You do
Which of the following is not an element of most frauds?a. Taking the assets.b. Concealment.c. Breaking and entering.d. Conversion.
Which of the following is not a way that management can establish a good control environment?a. Having a clear organizational structure.b. Proper training.c. Communicating openly.d. Appropriate
Which of the following is not a common vice that motivates people to commit fraud?a. Gambling.b. Drugs.c. Expensive extramarital relationships.d. Alcohol.e. All of the above are vices that motivate
Which of the following is not a control activity (procedure)?a. System of authorizations.b. Appropriate hiring procedures.c. Independent checks.d. Documents and records.e. All of the above are
On what element of the fraud triangle do most fraud-fighters usually focus all or most of theirpreventive efforts?a. Perceived pressure.b. Perceived opportunity.c. Perceived weak internal controls.d.
It is the and of existing controls, not the of controls, that allows most frauds to be perpetrated.a. Existence, use, lack.b. Lack, ignoring, existence.c. Overriding, ignoring, lack.d. Overriding,
Which of the following is not a primary control procedure?a. Use of documents and records to create an audit trail.b. Independent checks.c. Decreasing work-related pressure.d. Physical safeguards.
Which of the following kinds of pressure is most often associated with fraud?a. Work-related pressure.b. Financial pressure.c. Vice pressure.d. All of the above.
How frequently do most people rationalize?a. Often.b. Sometimes.c. Rarely.d. Never.
Who generally has the highest risk of becoming a fraud victim?a. Businessperson.b. Older, less educated people.c. College students.d. None of the above.

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