Deck 9: Fraud Examination Evidence I: Physical, Documentary, and Observational Evidence

Question 1

Which of the types of filings would most likely indicate a financial need that might motivate financial statement fraud?

A) Bankruptcy.
B) Luxury vehicle loan.
C) Statement of net loss.
D) Divorce.

Answer 1

A

Question 2

How many ways is documentary evidence collected?

A) 4
B) 3
C) 2
D) 1

Answer 2

A

Question 3

Where are most restricted databases maintained in each state?

A) At the public safety headquarters.
B) At the secretary of state's office.
C) At the state information management computer backup location.
D) Within the department of vital statistics office.

Answer 3

B

Question 4

How can UCC filings assist an investigator?

A) They can see what real estate a company purchased.
B) UCC filings will show when financial statements were submitted to the SEC.
C) UCC filings will only show international real estate transaction filings.
D) To determine whether mortgages on items other than real estate exist.

Question 5

If the fraud investigator is not an employee of the IRS, or a member of a federal agency that can obtain tax records via subpoena, how much he obtain the information?

A) Through a bench warrant.
B) Through discovery or voluntary consent of the tax payer.
C) Through a subpoena issued by a Grand Jury.
D) All of the above

Question 6

What is link analysis?

A) It is the analysis between modified documents and the individual who modified them.
B) It is a process that allows information in various databases and files to be evaluated and integrated in such a way that associations become apparent.
C) It is the process that allows private databases to be compared to public databases.
D) It is the linking of the money trail through large cash deposits.

Question 7

When did the Social Security Administration begin tracking the SSDI?

A) 1984
B) 1962
C) 1944
D) 1876

Question 8

Why must financial institutions file large currency transaction reports?

A) So bank auditors can ensure there is no fraud within the bank.
B) So that the IRS can ensure proper taxes are paid.
C) To help provide the link between the movement of money and people who supplied it.
D) To help fraud investigators perform their ratio analysis.

Question 9

Which of the following type of records can typically only be access by law enforcement?

A) Commercial Databases
B) Motor Vehicle Identification Number
C) Dealership vehicle records
D) UCC Filings

Question 10

When businesses or persons obtain mortgages for things other than real estate, these are called:

A) Leins
B) Chattel Mortgages
C) Collateral Loans
D) Uncollateralized Loans

Question 11

Alterations of documents might include:

A) Added signatures after the document was created.
B) Removal of letters or numbers on a document.
C) Symbols that have been added or removed.
D) All of the above.

Question 12

Once financial statement fraud is suspected, how should the fraud investigator proceed?

A) Call the district attorney to begin criminal proceedings.
B) Determine whether the financial statements agree with the general ledger balances.
C) Perform a Benford's Law test.
D) Interview the accounting department staff.

Question 13

If evidence is tangible, it is said to be _______ evidence.

A) Documented
B) Heresy
C) Physical
D) Forged

Question 14

Who is exempt from the Currency Transactions Report that banks must file?

A) Businesses incorporated in that state.
B) Non-profit organizations.
C) Individuals.
D) Businesses that routinely make such large cash deposits.

Question 15

Databases, court records and real estate records are all considered:

A) Sources of information for an investigation.
B) Worthless in an investigation.
C) Forensic data collections.
D) Areas of hiding for individuals who wish to commit fraud.

Question 16

Evidence includes:

A) Physical objects
B) Documents
C) Observations
D) All of the above

Question 17

The general principle of Benford's Law is that:

A) If fraud exists, the difference between horizontal analysis figures will be divisible by 9.
B) Ratios will be increased or decreased by one digit if fraud exists.
C) The likelihood that numbers 1, 2, 3, 4, 5, 6, 7, 8, and 9 will appear as the first digit in numbers occurring in a random data set conforms to a predictable pattern.
D) The likelihood that numbers 2, 4, 6, 8 and 10 will appear as the first digit in numbers occurring in a random data sets conforms to a predictable pattern.

Question 18

If documents are contested because one or more persons do not believe they are authentic, they are referred to as:

A) Forensic Evidence.
B) Questioned Documents.
C) Altered Documents.
D) Fraud trigger points.

Question 19

Two common approaches to using ratio analysis are:

A) Internal and external.
B) Horizontal and vertical.
C) Formal and informal.
D) Industry and general.

Question 20

Which of the following would be a violation of the chain of custody?

A) Locking documents in a safe that only the investigator has the combination to.
B) Mailing original documents to another party without proof of receipt.
C) Signing over original documents to legal counsel.
D) Documenting the placing of items in a case file for storage.

Question 21

__________ are used when third parties (persons other than the client) have knowledge of some aspect of a financial or non-financial matter and can be asked to provide this information.

A)Confirmations
B) Engagement Letters
C) Subpoenas
D) Grand Juries

Question 22

Through Net Worth Analysis, you are attempting to determine:

A) Total earnings for a period of years.
B)The change in net worth for the year.
C) The amount of debt financing.
D) None of the above

Question 23

The basis for net worth calculations is:

A) Net Worth= Gross Pay - Tax Liabilities
B) Current Debt - Cash on hand
C) Assets= Liabilities - Owner's Equity
D) Assets = Liabilities + Owner's Equity

Question 24

The pre-announcement of a forensic accountants investigation might do what in a business?

A) Make a guilty party confess.
B) Stop the fraud once and for all.
C) Force the guilty parties to stop their fraud, which will subsequently show up on the financial statements.
D) All of the above.

Question 25

Vehicle, license and boat registrations are all examples of public databases.

Question 26

If skimming has been in practice for years in a business, why might it be hard to detect using horizontal analysis?

A) Comparing a year in which receipts have been skimmed to other years in which. receipts have been skimmed will usually not reveal differences.
B) Horizontal analysis is typically performed in industries that have high skimming rates.
C) Gross margins for the industry typically won't reveal any fraud when evaluated via Horizontal analysis.
D) Skimming typically is revealed on the income statement and horizontal analysis is only done on balance sheet accounts.

Question 27

Social networking sites such as Facebook® and MySpace® can be a source of evidence.

Question 28

Financial statement fraud is always discovered through missing documents.

Question 29

Tracing and vouching are opposite investigation techniques.

Question 30

Confirmation is the receipt of evidence from third-parties of information that is (or should be) in the financial statements.

Question 31

Questioned documents are documents that are contested because their authorship or authenticity (or both) is not established.

Question 32

Investigation methods used to detect financial statement fraud are similar to those used to audit financial statements.

Question 33

Which of the following will NOT explain a change in net worth?

A)Inflation
B) Income
C) Liabilities
D) Inheritances

Question 34

It is impossible to determine which printer printed a document.

Question 35

When can a search warrant be executed?
A) Between 6

A)m. and 10 p.m.
B) Anytime.
C) Only when the occupants are not home.
D) Only when the suspect is present.

Question 36

A process that allows information in various databases and files to be evaluated and integrated in such a way that associations become apparent is called a(n):

A) Boon-lean search
B) Query
C) Link Analysis
D) Financial Records Search Warrant

Question 37

Chemical analysis is performed by means of infrared, fluorescence, and spectro-chromatography to establish the difference between inks appearing on the same paper in handwriting analysis.

Question 38

Only a forensic accountant can present a search warrant for financial records to a suspect.

Question 39

What is a search warrant?

A) A tool used to allow a forensic accountant to talk to a suspect.
B) Part of the industry analysis that allows a forensic accountant to obtain financial statement from other businesses in the same industry to make comparative analysis.
C) It is similar to a arrest warrant, only more vague because the suspect is not specifically named.
D) A written order that allows a specified place to be searched and specified items to be seized.

Question 40

Besides a judge, what other person may issue a search warrant in certain jurisdictions?

A) District Attorney
B) Elected Sheriff
C) Magistrate
D) Grand Jury Foreman/woman

Question 41

Once fraud within the financial statements is suspected, what are the next steps that the audit team would take? Provide examples.

Question 42

List at least four document indicators for fraud.

Question 43

For paper or any perishable documents, the forensic accountant should follow what basic rules?

Question 44

What are the five common types of analytical procedures?

Question 45

How does a Benford analysis work?

Question 46

Explain some considerations for choosing the appropriate evidence-gathering technique.
To choose the appropriate technique, the forensic accountant should consider the following factors: the type of fraud believed to have been perpetrated; whether the fraud is ongoing; the extent of the fraud; the extent to which the investigation can be kept secret; the condition of the financial records, other source documents, and physical evidence; the sophistication of the suspect and whether collusion exists; the cost of applying a given method; the psychological and organizational impact of applying the given method; and the objectives of the investigation.

Question 47

Describe horizontal and vertical analysis?

Question 48

Contrast auditing approaches for cases of financial statement fraud versus other types of fraud.

Question 49

Provide at least three examples of both private and public databases.

Question 50

List the four ways documentary evidence is obtained.