Deck 15: Fraud

Question 1

Which of the following definitions of fraud is NOT true?

A) Fraud is the known misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment.
B) Fraud is intentionally misstating or hiding the truth knowing that the recipient of that information will act on the information.
C) Fraud is a known false statement on which a victim relies on and suffers damages.
D) All of these answer choices are correct.

Answer 1

All of these answer choices are correct.

Question 2

According to the 2020 Association of Certified Fraud Examiners Report to the Nations, organizations lose around

A) 5% of their revenues to fraud.
B) 5% of their profits to fraud.
C) 15% of their revenues to fraud.
D) 15% of their profits to fraud.

Answer 2

5% of their revenues to fraud.

Question 3

Which of the following could help a company manage fraud?

A) Creating an anti-fraud culture
B) Establishing and maintaining an effective system of internal controls
C) Performing fraud risk assessments
D) All of these answer choices are correct.

Answer 3

All of these answer choices are correct.

Question 4

Which law or regulation requires companies to evaluate their systems of internal controls to prevent and detect fraud?

A) ACFE
B) SOX
C) CPA
D) CFE

Question 5

Which of the following is an example of external fraud?

A) A vendor offers to purchase football tickets for a purchasing officer if awarded a contract.
B) A purchasing agent awards a contract to a vendor owned by a friend.
C) A vendor bills the company for services that were never performed.
D) The company overstates the financial performance in publicly-issued financial statements.

Question 6

Which of the following represents an accurate definition of external fraud?

A) External fraud is fraud committed by owners, managers, or employees who use their positions to enrich themselves at the expense of the company.
B) External fraud is fraud committed by a company's accounting firm to misrepresent the financial status of the firm to the public.
C) External fraud is fraud committed by vendors who bribe purchasing agents to award contracts.
D) External fraud is fraud committed by customers, vendors or other outside parties against a company.

Question 7

Occupational fraud is committed by

A) owners.
B) management.
C) employees.
D) All of these answer choices are correct.

Question 8

Occupational fraud can

A) also be called internal fraud.
B) be committed by employees of the company seeking to enrich themselves at the expense of the company.
C) be committed in as many as 50 different ways.
D) All of these answer choices are correct.

Question 9

Juan Martin is a purchasing manager for North Industries. Juan Martin chose not to award a $1 million-dollar contract to his brother's firm because another firm was more qualified to perform the services required. What type of corruption scheme did Juan Martin avoid by choosing the most qualified vendor to provide services for North Industries?

A) Conflicts of interest
B) Illegal gratuities
C) Commercial bribery
D) Economic extortion

Question 10

Daniil is evaluating vendor bids for office furniture for his company's new building. A vendor called Daniil and offered season tickets to the professional basketball team's upcoming season if he were to consider awarding the contract to their firm. What type of fraud would be occurring if Daniil selects the vendor offering the season tickets?

A) Conflicts of interest
B) Illegal gratuities
C) Commercial bribery
D) Economic extortion

Question 11

Leylah threatens Alta, Inc. with awarding a contract to another vendor if Alta does not invite Leylah to the next Alta company retreat in Bali. What type of occupational fraud is Leylah committing?

A) Conflicts of interest
B) Illegal gratuities
C) Commercial bribery
D) Economic extortion

Question 12

Garbine, an internal auditor for XYZ, examined purchases made for the previous year. Garbine found that several contracts were awarded to the same vendor despite several bids coming in with more favorable terms. Upon questioning those in the purchasing department, Garbine learned that Amanda always handled the contracts with that vendor and seems to have received gifts from the vendor. What kind of corruption may be between Amanda and the vendor?

A) Conflicts of interest
B) Illegal gratuities
C) Bid rigging
D) Economic extortion

Question 13

Taylor's mother owns a commercial cleaning business that bid on the job for Taylor's office building. By awarding the cleaning contract to her mother's cleaning company without considering the competing bids, Taylor is engaging in what type of corruption?

A) Conflicts of interest
B) Illegal gratuities
C) Commercial bribery
D) Economic extortion

Question 14

Novak accepted an offer of payment from Iga to help sway a business decision. Who is in the wrong in this situation?

A) Novak is guilty of corruption.
B) Iga is guilty of bribery.
C) Both Novak and Iga are guilty.
D) Neither Novak nor Iga can be considered guilty without knowing the outcome of the decision.

Question 15

Alexander, the purchasing manager for Express Limited, recently received a luxury watch in the mail from Matteo, a salesman from VidStar. Alexander awarded a large contract to VidStar last week. Alexander should not accept the watch as it is a(n)

A) conflicts of interest.
B) illegal gratuities.
C) commercial bribery.
D) economic extortion.

Question 16

Ons is a purchasing agent for a large casino organization. The organization is reviewing many bids for security services. The two bids with the best cost benefit analysis are very close. Ons has informed one of the companies that they are the second choice but could be the first if they were to provide Ons with a vacation package for the weekend. What type of corruption is Ons guilty of in this situation?

A) Conflicts of interest
B) Illegal gratuities
C) Commercial bribery
D) Economic extortion

Question 17

What type of individual is most likely to commit occupational fraud?

A) Someone with a prior criminal conviction
B) A member of the management team
C) A vendor in competition with the firm
D) A customer who has had a bad experience

Question 18

Elana works in internal audit and take her job very seriously. So seriously that she rarely takes any time off and insists that she will complete any work when she returns and for no one else to touch her work. Which behavior red flag is being exhibited by Elana?

A) Financial difficulties
B) Unscrupulous attitude
C) Control issues
D) Family problems

Question 19

Casper brags and often shares negative comments about his coworkers to sway the management team into assigning him the projects that he prefers. What type of behavioral red flag does Casper exhibit?

A) Unscrupulous attitude
B) Control issues
C) Living beyond one's means
D) Close association with vendor

Question 20

Jannik visits with a good customer of the firm frequently at their place of business but never leaves the office to visit other customers. Is Jannik's behavior a red flag?

A) No, Jannik can be friendly with some customers and not others.
B) Yes, a close association with a customer could be a red flag.
C) No, a close association with a vendor is a red flag but not a customer.
D) Yes, Jannik's unscrupulous attitude toward the customer is a red flag.

Question 21

Hubert recently showed pictures of his luxury vacation to Denis. Denis who works in the same department as Hubert knows that he cannot afford this type of vacation on the salary that they both earn. What type of behavioral red flag has Denis identified?

A) Financial difficulties
B) Unscrupulous attitude
C) Control issues
D) Living beyond one's means

Question 22

Belinda misses work often for doctor's appointments for her son. The treatments for her son are very expensive and are only partially covered by health insurance. While empathic of Belinda's situation, Elina knows that this is a typical

A) financial difficulty red flag.
B) control issue red flag.
C) unscrupulous attitude red flag.
D) living beyond one's means red flag.

Question 23

Victoria, an accountant for the firm, and her husband are getting a divorce. How should the red flag presented by Victoria's divorce be treated by her supervisor?

A) Victoria should be fired as she will commit fraud.
B) All of Victoria's work should be audited to find the fraudulent activity.
C) Victoria's divorce is a behavioral red flag that indicates the possibility not evidence of fraud.
D) All of these answer choices are correct.

Question 24

Which of the following statements is TRUE?

A) Accounting professionals are the first line of defense when they use and comply with internal controls in their organization.
B) Compliance professionals are the first line of defense when they design and monitor internal controls in their organization.
C) Internal auditors are the first line of defense when they evaluate accounting systems for internal control deficiencies.
D) All of these answer choices are correct.

Question 25

Which of the following statements is incorrect?

A) Accounting professionals are the first line of defense when they use and comply with internal controls in their organizations.
B) Financial accounting professionals are the first line of defense when monitoring internal controls in their organization.
C) Internal auditors are the third line of defense when evaluating accounting systems for internal control deficiencies.
D) All of these answer choices are correct.

Question 26

Which of the following statements is TRUE?

A) External auditors, the third line of defense, evaluate systems for internal control deficiencies.
B) External auditors, the second line of defense, monitor internal controls.
C) External auditors provide additional assurance outside the three lines of defense.
D) All of these answer choices are correct.

Question 27

Which type of accounting professional provides the third line of defense by evaluating accounting systems for internal control deficiencies that provide an opportunity for fraud?

A) Compliance officers
B) Financial accountants
C) Internal auditors
D) External auditors

Question 28

Who is responsible for designing and monitoring internal controls as part of the second line of defense against fraud within an organization?

A) Compliance professionals
B) Internal auditors
C) External auditors
D) All of these answer choices are correct.

Question 29

Which of the following statements is incorrect?

A) To prevent and identify fraud, many companies set up an anonymous hotline for employees to report suspected fraud.
B) Anonymous hotlines for fraud reporting allow employees to report suspected fraud without fear of retaliation.
C) Companies allow anonymous tips of suspected fraud because employees do not have legal protection from retaliation.
D) All of these answer choices are correct.

Question 30

The fraud triangle includes three motivational elements

A) difficulty, opportunity, and rationalization.
B) rationalization, perceived pressure, and difficulty.
C) opportunity, difficulty, and perceived pressure.
D) perceived pressure, opportunity, and rationalization.

Question 31

Danielle, who was expecting a raise, purchased a new car with payments based on her anticipated new monthly salary. When the raise didn't occur, it rendered Danielle unable to make the car payment on her current budget. What element on the fraud triangle is most closely associated with Danielle's problem?

A) Perceived pressure
B) Opportunity
C) Rationalization
D) All of these answer choices are correct.

Question 32

Danielle purchased a new car with higher payments expecting a raise from her employer. When the raise didn't occur, Danielle started pocketing a bit of cash from the drawer each week to make up for the higher car payment since her employer didn't give her the raise that she deserved. What element of the fraud triangle is most closely related to Danielle's issue?

A) Perceived pressure
B) Opportunity
C) Rationalization
D) All of these answer choices are correct.

Question 33

Diego and Gael approve each other's reimbursement requests. Their collusion on fictitious receipts allows their fraud to go undetected for some time. Which element of the fraud triangle is most closely associated with the collusion of Diego and Gael?

A) Perceived pressure
B) Opportunity
C) Rationalization
D) All of these answer choices are correct.

Question 34

Psychopaths only need to complete two elements of the fraud triangle to commit fraud. Which element is NOT necessary for psychopaths to commit fraud?

A) Perceived pressure
B) Opportunity
C) Rationalization
D) All of these answer choices are correct.

Question 35

Grigor knows from his work on internal controls that the computer system that flags potentially fraudulent transactions can be manipulated to not check all transactions. Grigor's knowledge is an example of which element of the fraud triangle?

A) Perceived pressure
B) Opportunity
C) Rationalization
D) All of these answer choices are correct.

Question 36

Fabio and Frances work in cybersecurity and challenge each other to find holes in the internal control framework of the company as part of their job to test controls. When they discover that there is a monitoring program that can be manipulated, Fabio and Frances decide that the company will not notice a few hundred dollars per week in reimbursements when the normal budget for reimbursements is over $5,000 per week. Which of the following statements about Fabio and Frances's situation is TRUE?

A) The perceived pressure element of the fraud triangle is met with the challenge to find holes.
B) The opportunity element of the fraud triangle is met with the discovery of the ability to manipulate the monitoring program.
C) Fabio and Frances rationalize that the company will not notice to meet the third element of the fraud triangle.
D) All of these answer choices are correct.

Question 37

Jalena is investigating a tip from the employee hotline that Camila may be misappropriating assets. Jalena learned from her investigation that Camila frequently uses her company computer to check her online gambling accounts during her breaks. Knowing that pressure alone does not mean Camila is committing fraud, how should Jalena proceed?

A) Jalena should look for areas of opportunity for Camila to commit fraud.
B) Jalena should look for psychopathic tendencies exhibited by Camila.
C) Jalena should consider whether the element of rationalization is present.
D) All of these answer choices are correct.

Question 38

Which of the following statements is TRUE?

A) Fraud investigations are less expensive than fraud prevention.
B) Preventing fraud is the most cost-effective approach to fighting fraud.
C) To mitigate the risk that fraud will occur, an organization implements internal controls.
D) All of these answer choices are correct.

Question 39

Which of the following statements is TRUE?

A) According to ACFE, over half of frauds in 2020 involved collusion.
B) Collusion allows internal controls to be circumnavigated.
C) A larger number of colluders translates to more difficult detection and larger losses.
D) All of these answer choices are correct.

Question 40

Which of the following is a primary risk factor in financial statement fraud?

A) Internal controls
B) Perceived pressure
C) Tone at the top
D) All of these answer choices are correct.

Question 41

Which elements of culture help prevent fraud?

A) Zero tolerance for fraud
B) Expectation of integrity
C) Codes of conduct
D) All of these answer choices are correct.

Question 42

External auditors for the firm alert management that the corporate culture could use some improvement with regards to fraud prevention. Which of the following could positively influence the company culture?

A) Corporate leadership should communicate in writing their expectation of honesty and integrity among all corporate employees, including management.
B) Corporate leadership must model behavior consistent with policies and make sure that employees are aware of the policies.
C) Corporate leadership should create codes of conduct for leadership, employees, and those that work with the company.
D) All of these answer choices are correct.

Question 43

Ajla suggested to her company that they should consider financial statement analysis to identify potential fraud by comparing changes in items between different financial periods. What kind of analysis is Ajla suggesting?

A) Non-behavioral
B) Behavioral
C) Horizontal
D) Vertical

Question 44

Filip, a new accountant for the internal audit team at Wofford, relayed that his previous employer used percentages of line items in financial statement analysis as one method to review for potential fraud. What kind of analysis is Filip suggesting?

A) Non-behavioral
B) Behavioral
C) Horizontal
D) Vertical

Question 45

Which of the following is the top method of detecting fraud?

A) Internal audit
B) External audit
C) Tips
D) Surveillance

Question 46

Which of the following is an example of a method to detect fraud within an organization?

A) Company implements a whistleblower hotline.
B) Company uses data analytics to monitor processes.
C) Company ensures that documentation creates an audit trail.
D) All of these answer choices are correct.

Question 47

Which of the following terms refers to the theft of business owned cash, inventory, information, or intellectual property?

A) Skimming
B) Occupational fraud
C) Corruption
D) Asset misappropriation

Question 48

Though the least costly, this type of fraud is focused on by external auditors and is covered on the CPA exam?

A) Corruption
B) Asset misappropriation
C) Financial statement fraud
D) All of these answer choices are correct.

Question 49

Which of the following statements is TRUE?

A) Asset misappropriation schemes are the most common and most costly fraud schemes.
B) The CPA exam focuses on asset misappropriation as it is the costliest fraud scheme by case.
C) Asset misappropriation schemes occur more frequently, but each individual case is less costly than financial statement fraud.
D) Asset misappropriation schemes are less damaging to companies as they do not affect the financial statements.

Question 50

Select the statement that is TRUE.

A) Skimming is the theft of assets before being recorded, and larceny is theft of assets after they are recorded in the books.
B) Larceny is the theft of assets before being recorded, and skimming is theft of assets after they are recorded in the books.
C) Skimming can only occur with cash as other forms of payment are easily tracked.
D) Larceny can only occur with physical assets other than cash and may or may not be concealed.

Question 51

Which of the following terms is most closely associated with an employee stealing cash before the cash is recorded in the accounting records?

A) Fraud
B) Corruption
C) Skimming
D) Larceny

Question 52

Which of the following fraud situations would controls such as daily bank deposits or credit card only transactions help mitigate?

A) Fraud
B) Corruption
C) Larceny
D) Skimming

Question 53

Which of the following controls could mitigate cash skimming efforts in a restaurant?

A) Requiring receipts to be submitted
B) Requiring manager approval for cash and check disbursement
C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers
D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Question 54

Which of the following controls could mitigate accounts receivable skimming efforts?

A) Requiring receipts to be submitted
B) Requiring manager approval for cash and check disbursements
C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers
D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Question 55

Which of the following controls could help mitigate billing schemes?

A) Requiring receipts to be submitted
B) Requiring manager approval for cash and check disbursements
C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers
D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Question 56

Which of the following controls could help mitigate expense reimbursement fraud?

A) Requiring receipts to be submitted for all expenses.
B) Requiring manager approval for cash and check disbursements
C) Implementing segregation of duties so that employees receiving payments do not also send invoices to customers
D) Implementing segregation of duties so that employees executing sales do not also perform inventory counts and write-offs

Question 57

Which of the following terms is defined as the theft of company assets after the company has recorded the assets in its books?

A) Fraud
B) Corruption
C) Skimming
D) Larceny

Question 58

Which category of fraud is associated with an employee submitting a receipt twice for reimbursement that was paid for using the company credit card?

A) Billing scheme
B) Cash skimming
C) Accounts receivable skimming
D) Double dipping

Question 59

Which category of fraud is associated with an employee selling the employer's customer list to a competitor?

A) Corruption
B) Skimming
C) Larceny
D) Bribery

Question 60

Which category of fraud is associated when an employee submits an overpayment on a bill owed by the firm and then intercepts and cashes the overpayment reimbursement check from the vendor?

A) Illegal gratuities
B) Pay and return scheme
C) Economic extortion
D) Expense reimbursement scheme

Question 61

Which category of fraud is associated with an employee submitting meal and transportation receipts on an expense report outside of assigned travel dates on a company trip?

A) Illegal gratuities
B) Pay and return scheme
C) Economic extortion
D) Expense reimbursement scheme

Question 62

Karolina works for Tour Sales and travels frequently in her own vehicle as part of her job. Anastasia, an accountant at Tour Sales, noticed that Karolina's mileage reimbursement checks seem to be larger than those issued to other employees and cannot determine a reason. What sort of control might Anastasia recommend to help mitigate any risk of Karolina or other employees overstating mileage for reimbursement?

A) GPS Tracking
B) Using map mileage rather than submitted mileage
C) Requiring employees to drive company vehicles
D) All of the above are correct.

Question 63

Which category of fraud is associated with an employee overstating mileage for reimbursement?

A) Fraudulent disbursements
B) Payroll schemes
C) Economic extortion
D) Cash skimming

Question 64

Which category of fraud is mitigated by having employees' clock in and out for shifts rather than submit a time sheet?

A) Billing schemes
B) Pay and return schemes
C) Payroll schemes
D) Expense reimbursement schemes

Question 65

Which category of fraud may be detected by using data analytics to look for anomalies in the vendor list and among vendor transactions?

A) Billing schemes
B) Pay and return schemes
C) Payroll schemes
D) Expense reimbursement schemes

Question 66

Which category of fraud may be detected by audit teams performing independent inventory counts?

A) Billing schemes
B) Pay and return schemes
C) Corruption
D) Skimming

Question 67

Which category of fraud may be detected in a grocery store by reconciling cash drawers between cashier shifts?

A) Billing schemes
B) Pay and return schemes
C) Skimming
D) Larceny

Question 68

Which category of fraud may be detected by using data analytics to summarize inventory write-offs by employee?

A) Cash skimming
B) Accounts receivable skimming
C) Larceny
D) All of these answer choices are correct.

Question 69

If fraudulent financial statements were to be submitted to the SEC, who at the submitting organization would be held responsible?

A) Chief Accounting Officer and Chief Financial Officer
B) Chief Executive Officer and Chief Financial Officer
C) Chief Executive Officer and Chief Accounting Officer
D) Only the Chief Executive Officer

Question 70

Which of the following are victims of financial statement fraud?

A) Investors
B) Employees
C) Customers
D) All of these answer choices are correct.

Question 71

What type of fraud involves materially misrepresenting the financial results and position of a company in the financial statements?

A) Asset misappropriation
B) Fraudulent disbursement
C) Financial statement fraud
D) Occupational fraud

Question 72

Which of the following is the best definition of materiality?

A) Materiality means that the misrepresentation is large enough that users who rely on the information to make decisions may suffer financial damage.
B) Materiality means that the misrepresentation is shared in such a way as to purposely dissuade potential investors from investing in the company.
C) Materiality means that the financial statements are not misstated by enough to make a difference to those using the statements for decision making.
D) Materiality means that any misrepresentations in the financial statements are negligible in amount and should not be considered wrong by malicious intent.

Question 73

According to the ACFE's 2020 report, which type of fraud is the least common yet most costly of frauds?

A) Corruption
B) Asset misappropriation
C) Financial statement fraud
D) All of these answer choices are correct.

Question 74

Which of the following is an example of a scheme to overstate financial performance?

A) Sham sales
B) Unauthorized shipments
C) Channel stuffing
D) All of these answer choices are correct.

Question 75

Which of the following would be considered a fraud scheme to understate financial performance?

A) Unauthorized shipments
B) Channel stuffing
C) Misclassification of revenue
D) Expense cutoff

Question 76

Which of the following reasons would management use to justify overstating performance in the financial statements?

A) To decrease taxes owed
B) To defer earnings to subsequent periods if current goals have been met
C) To reduce investors' current expectations to create a perception of growth in the future
D) To meet benchmarks for performance-based compensation

Question 77

What type of fraud would result from a company recording revenue earned on January 2nd in the previous fiscal year after the books are closed?

A) Skimming
B) Corruption
C) Asset misappropriation
D) Financial statement fraud

Question 78

Daria is asked to arrange to have a container load of inventory shipped to a newly rented off-site warehouse. Daria prepares and ships the inventory as told and then notices an invoice to a new customer that Daria doesn't recognize for the same amount of inventory that she just arranged shipping to the company-owned warehouse. Daria suspects that fraud might be occurring with this situation. Daria chooses to call the whistleblower hotline and lets them know about the

A) unauthorized shipments.
B) sham sales.
C) channel stuffing.
D) All of these answer choices are correct.

Question 79

Andrey is worried that he will not meet sales goals for the month, so he creates invoices to customers for several thousand dollars in sales and ships the goods to a storage unit to make sure that they are not found on site during the end-of-month inventory count. What type of fraud scheme is Andrey committing?

A) Sham sales
B) Unauthorized shipments
C) Channel stuffing
D) Sales cutoff

Question 80

Implementing preventive and detective controls to identify fake customer names similar to legitimate customer names could help mitigate what type of financial statement fraud?

A) Unauthorized shipments
B) Channel stuffing
C) Sham sales
D) Sales cutoff