IV. Payroll Schemes

31. For a ghost employee scheme to be successful, all of the following must happen, EXCEPT: A. A fictitious person or a real person who does not work for the victim must be added to the payroll. B. The ghost employee must be a fictitious person and not a real person. C. Timekeeping information must be collected for the ghost. D. A paycheck must be issued and delivered to the ghost.

32. What is the first step in a ghost employee scheme? A. Entering the ghost on the payroll B. Collecting timekeeping and wage rate information C. Issuing a paycheck to the ghost D. Delivering the paycheck to the ghost

33. Which of the following are the most likely suspects in a ghost employee scheme? A. Lower-level employees B. Managers and high-level employees C. Outside parties D. Customers

34. In a ghost employee scheme, distribution of paychecks is most difficult when the ghost is a(an): A. Fictitious person B. Accomplice C. Former employee D. Family member of the fraudster

35. __________ schemes are probably the most common method of misappropriating payroll funds. A. Falsified hours and salary B. Understating vacation C. Ghost employee D. Increasing commission rates

36. The only scheme in which BOTH salaried and hourly employees commit payroll fraud by falsifying their hours is: A. Falsification of hours B. Manipulating timekeeping information C. Understating leave and vacation D. Fraudulent reimbursement

37. When attempting to detect red flags of commission schemes, one would NOT expect to find which of the following if a commission scheme were being committed? A. A linear correlation between sales figures and commission expenses B. Inordinately high earnings by an individual salesperson C. A high number of uncollected sales D. Commission expenses increasing as a percentage of total sales

38. Blue, an insurance agent, was paid a percentage of the sales he generated on behalf of his company. Blue wrote policies to fictitious customers in order to increase his sales totals for the month. This is an example of: A. A falsified hours and salary scheme B. An expense reimbursement scheme C. A false billing scheme D. A commission scheme

39. Which of the following control procedures will NOT help prevent payroll fraud? A. Personnel records are maintained independently of payroll and timekeeping functions. B. Payroll checks are pre-numbered and issued in numerical sequence. C. The payroll accounting function is independent of the general ledger function. D. Those who prepare the payroll review and sign all payroll checks.

V. Expense Reimbursement Schemes

40. Per the Fraud Examiners Manual, which of the following is NOT a type of expense reimbursement scheme? A. Mischaracterized expenses B. Overstated expenses C. Multiple reimbursements D. Skimmed reimbursements

41. White booked a flight for a business trip with his company's travel agent. He filled out two expense reports for this trip, and on each report he requested reimbursement for the cost of the ticket. On one report, he attached his airline stub as support for the expense. On the other report, he attached the travel agency's invoice as support. What kind of scheme was White attempting? A. A false billing scheme B. A mischaracterized expense scheme C. An overstated expense scheme D. A multiple reimbursement scheme

42. Which of the following is a red flag of an expense reimbursement scheme? A. Expense reports that contain some but not all supporting documents of expenses B. Expense accounts that show sharp rises and falls from prior years C. Expenses are consistently submitted without round numbers D. Employees who pay high-dollar travel and entertainment expenses in cash

43. Which of the following is the most common form of expense reimbursement fraud? A. Submitting multiple expense reports for the same expense B. Submitting supporting documentation that reflects a higher cost than was actually paid for a business expense C. Seeking compensation for expenses that are not reimbursable under company policy D. Submitting an expense report for another employee's purchase

44. When employees are required to provide detailed expense reports, they will frequently do which of the following to get their expenses reimbursed? A. Falsify the nature of the expense B. Forge the approval of their supervisors before submitting C. Both A and B D. Submit a duplicate report from a previous date

45. Altered documents are less noticeable if the alterations are: A. Made with correction fluid B. On a photocopy C. Made with a typewriter D. Made using an ink pen

46. Overpurchasing schemes generally involve: A. Travel expenses B. Personal expenses C. Business expenses D. Equipment expenses

47. All of the following are prevention methods for overstated expense reimbursements, EXCEPT: A. Run expense reimbursements per employee looking for individuals whose travel and entertainment expenses appear to be out of line. B. Spot-check expense reports with vendors. C. Do not reimburse any expenses supported by a photocopied receipt without first verifying that the expense is legitimate. D. Only reimburse air travel expenses from itineraries supplied by travel agencies.

VI. Check and Payment Tampering Schemes

48. Which of the following best describes a check tampering scheme in which an employee misappropriates a signed check intended for a third party and converts the check by signing the third party's name on the back? A. A forged endorsement scheme B. A forged maker scheme C. A counterfeit check scheme D. An altered payee scheme

49. Which of the following is NOT a check disbursement control that will help prevent check tampering? A. Changes in vendor information should be verified. B. Bank statements should be reconciled and reviewed by different people. C. Check "cutting" and preparation should not be done by a signatory on the account. D. Bank reconciliations are only made by signatories on the account

. 50. Cain, the authorized signer on his company's accounts, prepared and signed a check payable to the company's plumber. He gave the check to Baker, his secretary, and asked her to mail the check to the plumber. Instead, Baker took the check home, signed the plumber's name on the back, and had her husband cash the check at their grocery store. Baker committed which of the following schemes? A. An altered payee scheme B. A forged endorsement scheme C. A forged maker scheme D. An authorized maker scheme

51. Which of the following is NOT designated as one of the five major categories of check tampering in the text? A. Forged maker schemes B. Forged endorsement schemes C. Altered payee schemes D. Counterfeit check schemes

52. Tia, a bookkeeper for a small company, typed out checks to a local vendor and her boss signed them. She then used the erase function on her typewriter to delete the vendor's name and insert her own. She also changed the amounts of the checks in the same manner. Then she cashed the checks. What kind of scheme did Tia commit? A. A forged endorsement scheme B. An altered payee scheme C. A forged maker scheme D. A concealed check scheme

53. Per the Fraud Examiners Manual, which of the following is a red flag that indicates a check tampering scheme has been or is currently occurring? A. Voided checks that are stored and kept for future referral B. Checks payable to cash C. An unexplained decrease in operating expenses D. Journal entries to accounts receivables

54. Forged checks are generally written to: A. The perpetrator B. An accomplice C. Vendors D. Cash 55. The most common method used to forge a check is: A. Photocopied forgeries B. Automatic check-signing instruments C. Free-hand forgery D. Hired professional forger

56. Which of the following is the least common check tampering scheme? A. Concealed check schemes B. Altered payee schemes C. Forged endorsement schemes D. Forged maker schemes

57. Per the Fraud Examiners Manual, which of the following check tampering schemes are the most difficult to defend against? A. Concealed check schemes B. Altered payee schemes C. Forged endorsement schemes D. Authorized maker schemes

58. ________ are hidden images that can be seen only when the check is held at an angle. This image is very difficult to reproduce. A. Rainbow foil bars B. Holographic safety borders C. Watermark backers D. Chrome coloring marks

59. Internal controls that help prevent electronic payment tampering include all of the following EXCEPT: A. Segregating payment entry and approval responsibilities B. Changing online payment system passwords often C. Monitoring and reconciling accounts weekly D. Segregating bank accounts

VII. Register Disbursement Schemes

60. What happens when an employee records a fictitious refund of goods at his cash register? A. The victim company's inventory is understated. B. A disbursement from the register is unrecorded. C. The victim company's inventory is overstated and a disbursement from the register is recorded. D. The victim company's inventory is unreported and a disbursement from the register is overstated.

61. When an employee rings a fraudulent refund on a register, Per the Fraud Examiners Manual, which of the following is a method used to conceal inventory shortages? A. Applying false debits to perpetual inventory B. Keeping obsolete assets as part of inventory C. Forcing inventory totals D. Charging assets to existing liability accounts

62. Which of the following is NOT a red flag of fraudulent register disbursements? A. Gaps in the sequence of transactions on register tape B. Multiple cashiers operate from a single cash drawer with separate access codes C. Refunds of merchandise for which there is no record of a sale D. Multiple refunds or voids for amounts just under the review limit

63. Which of the following is the most common form of fraudulent register disbursement? A. Refunding a completely nonexistent sale B. Removing merchandise from the stockroom before it has been sold C. Refunding merchandise for more than it is worth and pocketing the difference D. Disguising borrowed merchandise as a sale and later returning it for a refund

64. Voided sales schemes usually target: A. Fictitious sales transactions B. Actual sales transactions C. Small organizations D. Large organizations

65. When an employee resorts to destroying transaction records, they are trying to: A. Prevent the theft from being discovered B. Prevent the identity of the thief from being discovered C. Deflect the suspicion onto others D. Make the loss look accidental

66. Per the Fraud Examiners Manual, which of the following can be used in the prevention of register disbursement schemes? A. Look for transactions that are not round numbers. B. Whomever works the register should be responsible for preparing register count sheets and comparing them to register totals. C. Supervisors should adhere to company policy of performing cash counts on a specific date and time. D. Access codes should be kept secure

VIII. Inventory, Supplies, and Fixed Assets

67. Falsifying incoming shipments of inventory can best be classified as what type of scheme? A. Purchasing and receiving scheme B. Larceny scheme C. Asset transfer scheme D. Pass-through scheme

68. Which of the following is an example of the misuse of a fixed asset? A. Unconcealed larceny B. False documentation used to justify the shipment of merchandise C. An employee uses company equipment to run a side business D. Removal of an item before shipment so it can be taken home later

69. White made personal use of a company vehicle while on an out-oftown assignment. He provided false written and oral information regarding the nature of the use of the vehicle. The vehicle was returned unharmed. What type of fraud did White commit? A. A fraudulent statement scheme B. A misappropriation of a noncash asset C. An expense reimbursement scheme D. A theft of a noncash asset

70. __________ is the unaccounted for reduction in a company's inventory that results from theft. A. Defalcation B. Shrinkage C. Skimming D. Padding

71. Which of the following actions might be taken to prevent and detect unconcealed larceny of noncash assets? A. Segregate the requisition and receipt of inventory but not disbursements. B. Perform a trend analysis by comparing cost of goods sold to assets on hand. C. Conduct a current analysis of inventory to look for significant shrinkage. D. Educate employees about theft and how it can affect everyone in the organization.

72. Which of the following is an example of a red flag for an inventory theft scheme? A. A decrease in the cost of goods sold as a percentage of sales B. A decrease in the cost of bad debt expense C. A decrease in the number of uncollectible sales D. An increase in the level of inventory shrinkage

73. If the cost of goods sold increases by a disproportionate amount relative to sales and no changes occur in the prices, quantities purchased, or quality of products purchased, the cause of the disproportionate increase in cost of goods might be: A. Ending inventory has been depleted by theft B. Inventory has been charged with embezzlement C. Both A and B D. None of the above

74. Per the Fraud Examiners Manual, which of the following are able to be sampled on a statistical basis? A. Perpetual inventory records B. Shipping reports C. Job cost sheets D. All of the above

75. The purchasing department should operate independently of which of the following? A. Inventory control B. Cash disbursements C. Shipping department D. All of the above