Deck 4: Complex Frauds and Financial Crimes

Question 1

"Predator" fraudsters usually go from town to town, without settling down
or establishing roots.

Answer 1

False

Question 2

Collusion requires more than one person to override the system of internal
controls.

Answer 2

True

Question 3

"Following the money" is easier than "tracing the money".

Answer 3

False

Question 4

Financial statement fraud frequently involves manipulating multiple accounts.

Question 5

Tax avoidance involves hiding receipts from the IRS.

Question 6

RICO was enacted to prosecute organizations suspected of sponsoring fraudulent acts.

Question 7

Collusion is almost impossible to detect because the persons charged with
providing internal control are part of the fraud.

Question 8

"Organizations" refers to unions, the mafia, as well as corporations.

Question 9

Investment banks provide most of the banking services to high net worth
individuals in the US.

Question 10

High net worth individuals are likely to use private banks.

Question 11

Bank secrecy laws make it difficult to "follow the money".

Question 12

"Parking" involves hiding ownership interest so as to avoid reporting requirements.

Question 13

Organized crime rarely sponsors terrorist activities within the US.

Question 14

"Churning" involves the sale and purchase of securities for the sole purpose
of earning a commission.

Question 15

Complex fraud rarely involves collusion.

Question 16

Tax evasion involves careful study of the tax law so as to minimize payment of taxes legally.

Question 17

Organized crime activities differ from terrorist activities in that terrorists exist to bring direct harm to the US.

Question 18

Financial statement fraud is complex because it often involves collusion.

Question 19

"Accidental" fraudsters are usually poor members of minority groups.

Question 20

Complex fraud often mixes legitimate business transactions with illegal transactions.

Question 21

The difference between a predator fraudster and an accidental one is: a. The accidental fraudster does not seek opportunity, the predator does
B) The predator fraudster is a repeat offender; the accidental fraudster is not
C) The accidental fraudster is in need of funds; the predator fraudster is not
D) Both "a" and "b"

Question 22

Under RICO, which of the following is an illegal activity: a. Purchasing a bank to deposit gambling receipts generated from illegal betting parlors
B) Investing in a bank that provides services to foreign nationals
C) Purchasing a bank formerly used to reinitiate money into the financial system from a bankruptcy trustee
D) All of the above

Question 23

Money laundering is: a. The disguising of assets derived from criminal activities
B) The process of making money obtained from criminal activities appear clean
C) Only involves cash
D) Both "a" and "b"

Question 24

Collusion can occur: a. Only at high levels in the organization
B) At low levels in the organization if a high level employee is involved
C) At all levels of the organization
D) Only at middle levels of the organization

Question 25

"Following the money": a. Requires knowledge of every place the money has been
B) Is often difficult to do given the use of foreign banks for layering
C) Often requires access to foreign bank accounts
D) All of the above

Question 26

The transfer of funds obtained illegally from a US bank to another US bank is an example of: a. Reiniating
B) Layering
C) Placement
D) None of the above

Question 27

Preventing collusion is: a. Sometimes possible, although very difficult
B) Impossible
C) Only possible with effective internal controls
D) Both "a" and "c"

Question 28

The conversion of illegal funds to assets is which step in the money laundering process: a. Layering
B) Placement
C) Reinitiation
D) None of the above

Question 29

Which of the following is an example of collusion: a. A supervisor puts his meal expense on a subordinate's expense account so the supervisor can approve it
B) A manager approves a price override after pleas from the salesperson
C) A vice-president overrides a subordinate's denial of expense reimbursement
D) All of the above

Question 30

Signs than an individual is a predator fraudster include: a. Repeat offenses
B) Takes advantage of sudden opportunity
C) Frequent job turnover caused by boredom
D) All of the above

Question 31

The characteristics of a predator fraudster are: a. Poorly educated
B) Divorced
C) Member of a minority group
D) None of the above

Question 32

RICO: a. Specifically targets money laundering
B) Targets organizations that reinitiate illicit funds into the financial system
C) Targets organizations that focus on the placement of illicit funds in the money laundering process
D) All of the above

Question 33

Collusion involves: a. Two or more individuals working together to override internal control
B) Negating the effect of separation of duties
C) At least one high level employee
D) Both "a" and "b"

Question 34

Which of the following is an example of money laundering: a. Purchasing gold from gambling winnings in Las Vegas
B) Depositing cash receipts from the sale of drugs in a cash safe deposit box
C) Depositing cash receipts from prostitution activities in a Swiss bank account
D) All of the above

Question 35

The primary reason predator fraudsters continue to commit fraud is: a. They are never caught
B) They resign before being caught
C) They are not prosecuted to avoid unfavorable publicity for their employer
D) All of the above

Question 36

"Pyramiding" involves the frequent sale and purchase of securities for the sole purpose of generating a commission.

Question 37

RICO: a. Addresses the illegal activities in organizations that mix both legitimate and illegal activities
B) Addresses only organizations formed to sponsor terror groups
C) Addresses civil as well as criminal issues
D) All of the above

Question 38

Which of the following would be in violation of RICO: a. Investing in a bank with ties to foreign nationals
B) Investing in a dry cleaning business used to place funds derived from prostitution
C) Investing in a bank that caters to cash-only businesses
D) All of the above

Question 39

The biggest advantage investigators have when tracing the flow of illegal funds is: a. Most illegal funds consist of electronic transfers, making detection easier
B) Most illegal funds at some time flow through a bank in the US making detection easier
C) Most illegal funds return to the persons performing the laundering making detection easier
D) Most illegal funds are converted to hard assets making detection easier

Question 40

Transferring funds obtained illegally from a safe deposit box in the US to a safe deposit box in Canada is an example of: a. Reiniating
B) Layering
C) Placement
D) None of the above reason: Placement must introduce funds to the financial system; placing funds in a safe deposit box does not do this.

Question 41

Financial statement fraudsters often: a. Start as accidental fraudsters and progress to predator fraudsters
B) Rely on collusion to mask the fraud
C) Frequently go from company to company committing the same type of fraud
D) All of the above

Question 42

Which of the following is an example of churning: a. An investor who frequently trades for his account
B) An advisor who reinvests dividend and interest payments regularly for a client
C) An advisor who executes frequent trades to take advantage of market movements
D) An advisor who executes frequent trades to generate income for himself

Question 43

Financial statement fraud consists of: a. Recognizing revenues not yet earned
B) Inappropriate entries to reserve accounts
C) Capitalizing expenses when inappropriate
D) All of the above

Question 44

Which of the following is NOT an example of financial statement fraud: a. The sales manager records as a sale a large shipment of finished goods on January 1, 20X1, the day after year-end in order to earn a large bonus
B) The financial controller increases monies in the reserve account in order to meet analysts' expectations regarding earnings
C) The CEO insists that the payment for current year accrued bonuses be deferred to the next fiscal year
D) The treasurer transfer money from one bank account to another in order to mask a shortage

Question 45

If you wanted to issue new stock, which type of bank would you use: a. Private
B) Commercial
C) Savings
D) none of the above

Question 46

Financial statement fraud often involves: a. A high level financial executive
B) Large dollar amounts
C) The collusion of two or more employees
D) All of the above

Question 47

The difference between tax avoidance and tax evasion is that: a. Avoidance is illegal; evasion is not
B) Avoidance is intentional; evasion is accidental
C) Avoidance is legal; evasion is not
D) None of the above

Question 48

Which of the following methods is used to make detection of persons responsible for money laundering more difficult: a. The use of electronic bank transfers
B) The use of cashier's checks
C) The use of commercial checks
D) All of the above

Question 49

Which of the following is an example of "badges of fraud": a. A taxpayer ignores the advice of her tax preparer and tales a deduction from income because she believes she understands the tax code better than her advisor
B) A taxpayer routinely omits cash receipts collected on Sunday from his tax return
C) A taxpayer provides false statements to his tax preparer
D) All of the above

Question 50

What is the difference between mail and wire fraud: a. Mail fraud consists of written material;, wire fraud is electronic and written
B) Mail fraud consists of using the US Postal system; wire fraud consists of the use of non US Postal system services
C) Mail fraud applies whenever the US Postal system is involved ,including intrastate mail service; wire fraud consists of transmissions to foreign or interstate locales
D) All of the above

Question 51

If a taxpayer suddenly stops filing his income tax returns, this is evidence of: a. Fraud
B) An affirmative indicator
C) Predication of fraud
D) None of the above

Question 52

Which of the following is an example of financial statement fraud: a. The sales manager records as a sale shipments of goods on January 1, 20X1, the day after year-end
B) The financial controller capitalizes a large amount of expenses that should have been included on the income statement
C) The CEO insists that current year bonuses be deferred to the next fiscal year for payment
D) Both "a" and "b"

Question 53

The Patriot Act: a. Amends the money laundering statutes
B) Adds cybercrime activities to the list of activities covered under money laundering
C) Prohibits individuals from bringing more than $10,000 into the US
D) Both "a" and "b"

Question 54

Which of the following is NOT an example of financial statement fraud: a. Managing the reserves in order to "smooth" earnings
B) Accruing an expense in the current period when it should be recognized in the following period
C) Filling an order, billing the customer for the order, and then shipping it to a company owned warehouse
D) Both "a" and "b"

Question 55

Financial statement fraud is complex because: a. More than one account is usually affected
B) More than one person is usually involved
C) Most people do not have access to the source documents and therefore cannot detect the fraud
D) All of the above

Question 56

Similarities between organized crime and terrorist organizations are: a. Both use coercion as their main tool
B) Both use violence
C) Both seek ways to hide their illegal activities
D) All of the above

Question 57

Which is an example of a "front runner": a. A bucket shop
B) A clerk who overhears good news about a company and trades on the information
C) A clerk who becomes aware of a large pending trade and trades on the information
D) All of the above

Question 58

Terrorist organizations differ from organized crime groups in that: a. Terrorists seek anonyminity; organized crime seeks publicity
B) Terrorists seek to corrupt public officials; organized crime seeks to bypass public officials
C) Terrorists seek publicity; organized crime seeks anonyminity
D) Terrorists seek to coerce and influence officials; organized crime seeks to gain elected office

Question 59

Off shore banks: a. Are illegal to do business with if you are a US citizen
B) Are used by US high net worth individuals for favorable tax treatment
C) Often are subsidiaries of US banks
D) All of the above

Question 60

The main avenues for terrorist financing are: a. Electorate sponsorship and legal activities
B) Illegal activities and bank ownership
C) State sponsorship and illegal activities
D) Legal activities and bank ownership

Question 61

Explain the difference between mail and wire fraud. Which do you think might be easier to detect? Why?

Question 62

Describe the stages of money laundering and for each stage, provide an example.

Question 63

Explain how the Patriot Act enhances RICO.