14. Even with the best possible internal control system in place, its effectiveness still depends on what?

1. Also creating an expectation of punishment.
2. Identifying the nature of the risks involved and the losses that could result from these risks.
3. The competency and dependability of the people enforcing and monitoring it.
4. All of the above.
   1. Send letters to vendors and contractors letting them know about your fraud prevention program and that they will be required to sign 'Right to Audit' agreements

15. To discourage collusion, companies should:

1. Require mandatory job transfers / rotation
2. Regularly review employees who are responsible for large contracts or accounts
3. All of the above

16. Even with internal control procedures in place, many companies routinely experience fraud. Why?

1. Management overrides controls
2. Control procedures are not followed
3. Control procedures are not effective fraud-prevention tools
4. Lack of rewards for complying with control procedures
5. All of the above except C.

17. Research in psychology indicates that after people commit a crime (especially for the first time); they are overwhelmed by ________ and __________?

A. Guilt and fear.

B. Stress and insomnia.

C. Confidence and rationalization.

D. Defensiveness and guilt.

18. Upon committing fraud, what do most fraudsters do with their stolen funds?

1. Put them in savings
2. Spend them on extravagant items
3. Donate them to charities
4. Slowly give them back to the company
   1. Julie both writes expense cheques and takes in customers' cash

19. Which of the following is a problem resulting from inadequate segregation of duties?

1. Mpumi both orders office supplies and orders company cheques
2. Steve both records receivables and can write off bad accounts
3. Rebecca both types memos and orders lunch

20. In relation to fraud, mandating employee vacations of 2 weeks or longer annually is

effective because:

1. Employees who work too hard usually burn out and fraud is committed when people are tired and not thinking clearly
2. If people don't take vacations they will feel under-appreciated and think the company "owes them"
3. When fraudulent employees take a leave, their work usually must be performed by others and the fraud is more easily detected
4. None of the above

21. Edward, Gross and other criminologists have said that all organisations are inherently:

1. Criminal
2. Exploitative
3. Criminogenic
4. None of the above

22. Who has the primary responsibility for establishing and maintaining controls?

1. Primary responsibility for controls belongs to internal auditors. They are the ones who create the controls and investigate potential violations of the controls.
2. Primary responsibility rests with management. Management both conveys acceptable culture and has the final say in how fraud cases are treated.
3. Primary responsibility lies with employees. They are the ones most likely to witness violations and are responsible to watch for those violations.
4. Primary responsibility is not attributable to one person or group - all staff members must consider themselves responsible for the control environment.

23. ________________ is the crediting of one account through the abstraction of money

from another account.

1. Lapping
2. Skimming
3. Padding
4. Rigging

24. Which one of the four components of the exposure rectangle do external auditors

primarily focus on when looking for management fraud?

1. Management and directors
2. Company's relationship with other entities
3. The organization and its industry
4. Financial results and operating characteristics

25. Fraud in financial statements usually takes the form of:

I. Overstated assets or revenue

II. Understated liabilities and expenses

1. I only
2. II only
3. Both I and II
4. Neither I nor II
   1. Overstates, does not affect

26. When management overstates inventory, it _________ current year's income and

____________ the next year's income.

1. Overstates, overstates
2. Understates, overstates
3. Overstates, understates

27. When management creates fictitious revenues, it ______________current year's

income and _________________ the next year's income.

1. Overstates, does not affect
2. Overstates, overstates
3. Understates, overstates
4. Overstates, understates

28. Bribery schemes usually benefit the employee who accepts the

vendor bribe, but the company rarely suffers economic loss?

1. True
2. False

29. It is normally not a good idea to ask employees whether or not fraud is occurring

within their organisation because it makes the auditor look unprepared and ignorant

of what is going on within the company.

A. True

B. False

30. Why do you think there is so much fraud and corruption in the world?

1. Most people think they are 'good' even though they do bad things because they tend compare themselves to people like Hitler.
2. Most people think it's OK to lie, cheat, and steal as long as it's 'just a little'
3. Most people grow up never being taught ethics and morality
4. Many people do not think of the 'consequences' of their actions
5. All of the above