Deck 2: Why People Commit Fraud

Question 1

Each of the following is an example of an inadequate control environment EXCEPT:

A)The HR department failed to check an applicant's background and hired someone who had committed fraud in the past.
B)A manager instructs employees not to share passwords,and then shares her passwords with others.
C)A company does not establish codes of conduct and does not have training meetings to teach employees to distinguish between acceptable and unacceptable behavior.
D)The employees know who has responsibility for each business activity.

Answer 1

D

Question 2

___________ requires every public company to have a code of ethics to help deter wrongdoing.

A)The Glass Steagall legislation
B)The Sarbanes-Oxley legislation
C)The Securities Act
D)Generally Accepted Auditing Standards

Answer 2

B

Question 3

An employee who has the responsibilities of both writing checks and making bank deposits would have ____.

A)Financial pressure
B)Perceived opportunity
C)Rationalization

Answer 3

B

Question 4

Which of the following statements about accounting systems is incorrect?

A)An effective accounting system provides an audit trail that allows frauds to be discovered.
B)An effective accounting system makes concealment difficult.
C)An effective accounting system can almost always effectively prevent "kickbacks."
D)Without a good accounting system,it is often difficult to distinguish between actual fraud and unintentional error

Question 5

The fraud triangle includes all of the following EXCEPT:

A)Validation
B)Perceived opportunity
C)Rationalization
D)Perceived pressure

Question 6

When management fraud occurs,companies usually:

A)overstate assets and net income.
B)understate assets and net income.
C)overstate assets and understate net income.
D)understate assets and overstate net income.

Question 7

Which of the following is NOT a possible control activity?

A)Having separate authorization,bookkeeping,and custody functions.
B)Protecting access to important information with a password.
C)Requiring two individuals to work on the same task.
D)Supervisory review of each minute task completed by employees.

Question 8

Greed,living beyond one's means and high bills all describe what type of fraud-related pressure?

A)Financial
B)Peer
C)Vice
D)Barometric
E)Work Related

Question 9

An effective accounting system is designed to provide which of the following to help discover fraud?

A)An audit trail
B)Matching of expenses to revenues
C)Set of controls
D)Set of accounting procedures

Question 10

Which of the following is NOT an element of a good control environment?

A)Trust
B)Modeling
C)Appropriate hiring
D)Management's communication

Question 11

Which is following observations is TRUE?

A)Research shows that only people with a criminal mind set can commit fraud.
B)Fraud perpetrators usually can be distinguished from others on the basis of demographic characteristics.
C)Most fraud perpetrators have profiles that look like those of other honest people.
D)When fraud does occur,the most common reaction by those around the fraud is confession.

Question 12

Which of the following is NOT one of the key elements common to all frauds?

A)Perceived pressure
B)Perceived inequality
C)Perceived opportunity
D)Rationalization

Question 13

A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts.Which crime is he committing?

A)Floating
B)Strip
C)Spinning
D)Kiting

Question 14

What is the most important element in a control environment?

A)Management's communication
B)Management's role and example
C)The hiring process
D)The internal audit department

Question 15

Which of the following is NOT a common rationalization of fraud perpetrators?

A)The organization owes me
B)I'm only borrowing the money
C)No one will get hurt
D)I don't deserve more.

Question 16

Modeling and labeling are sub-components of which control structure component?

A)Control environment
B)Accounting system
C)Control procedure
D)Review

Question 17

Poor credit could become a ____ that could lead to fraud.

A)Financial pressure
B)Perceived opportunity
C)Rationalization

Question 18

Financial statement fraud is typically committed by:

A)Employees with access to company assets
B)Top management
C)Customers
D)Vendors

Question 19

Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?

A)Dual custody
B)Systems of authorization
C)Internal audit department
D)Documents and records

Question 20

When fraud occurs,the most common reaction to those affected by the fraud is:

A)Anger
B)Acceptance
C)Denial
D)Retribution

Question 21

Which of the following people is most likely to have opportunities to commit fraud?

A)Rob is a convicted bank robber who has been out of jail for 7 years and is working for a small firm whose manager knows about Rob's criminal background.
B)Jane is a recent high school graduate who loves shopping.She is on the look out for a job.
C)Steve was just hired by his company but he is always acting suspicious
D)62 year old Dave has loyally worked up his company's corporate ladder for the past 24 years

Question 22

Which of the following is NOT a true statement?

A)Almost every fraud involves rationalization.
B)All frauds involve financial or vice-related pressures.
C)Perceived opportunity diminishes when fraud perpetrators are prosecuted.

Question 23

Which of the following is an example of an authorization control procedure?

A)Password protection
B)Periodic job rotation
C)Cash counts
D)Supervisor review

Question 24

Documents and records are an important control activity.Which of the following statements concerning this activity is true?

A)They serve as excellent preventive controls.
B)Adequate accountability can exist even in their absence.
C)The entire accounting system serves as a documentary control.
D)They are poor detective controls.

Question 25

According to the study mentioned in the text,which of the following is true about fraud perpetrators compared to property offenders?

A)Fraud perpetrators are more likely to be caught than property offenders
B)Fraud perpetrators are more educated than property offenders
C)Fraud perpetrators are more likely to be men than property offenders
D)Fraud perpetrators are much younger than property offenders

Question 26

Studies show that in advanced countries,levels of honesty are:

A)Generally stable
B)Increasing
C)Decreasing

Question 27

Generally,internal controls are implemented in a corporation to help prevent which element of the fraud triangle?

A)Perceived opportunity
B)Perceived pressure
C)Rationalization
D)Authorization

Question 28

Who do criminologists compare fraudsters to in relation to repeat offenses and why?

A)Rapists.They repeat their crimes because they are not severely punished.
B)Shoplifters.They steal goods frequently and in small quantities until they are confronted.
C)Bank Robbers.They steal a lot of money from wealthy sources.
D)Bank Tellers.They have access to a large amount of resources and they are perceived to be trustworthy people.

Question 29

The theory behind _____ is that if people know their work or activities will be monitored by others,the opportunity to commit and conceal a fraud will be reduced.

A)documentation
B)segregation of duties
C)system of authorizations
D)independent checks

Question 30

Which of the following creates opportunities for fraud?

A)An audit trail
B)Inability to judge quality of performance
C)Controls that prevent or detect fraud
D)Disciplining fraud perpetrators

Question 31

A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?

A)Income statement.
B)Balance sheet.
C)Statement of cash flows.
D)Statement of retained earnings.

Question 32

Which racial group is most likely to commit fraud?

A)Caucasian
B)African American
C)Asian
D)Hispanic
E)People of every race commit fraud

Question 33

Which of the following is usually the most expensive of all control procedures?

A)Documents and records
B)Segregation of duties
C)System of authorizations
D)Independent checks

Question 34

According to the study mentioned in the text,people who commit fraud are most similar to which of the following groups?

A)Property offenders
B)College students
C)Convicted murderers
D)Police officers

Question 35

What is the strongest factor in deterring future fraud activity?

A)Legal prosecution.
B)Sanctions.
C)Termination.
D)Counseling.

Question 36

According to the Sarbanes-Oxley legislation,current changes to,or waivers of codes of ethics should be disclosed in:

A)Form 10-K.
B)internal bulletin boards.
C)Form 8-K.
D)Form 10-Q.

Question 37

Segregation of duties,as a control procedure,is most often used

A)when the task involved is quite simple.
B)when it is impossible for one person to complete a task.
C)when appraisals are conducted.
D)when cash is involved.

Question 38

Which of the following is NOT a common financial pressure associated with fraud?

A)Living beyond one's means
B)High bills or personal debt
C)Personal financial losses
D)Getting even with the employer

Question 39

Most fraud perpetrators have profiles that look like:

A)Those of other honest people
B)Those with criminal records
C)Those who are uneducated
D)Those who use alcohol and drugs

Question 40

Which of the following factors creates an opportunity for fraud?

A)Greed
B)Living beyond one's means
C)Lack of an audit trail
D)The organization owes it to me

Question 41

_____ is the ability of the perpetrator to relate to the potential co-conspirator.

A)Expert power
B)Legitimate power
C)Referent power
D)Reward power

Question 42

Wilma participates in a fraud scheme by executing some derivative trades because she believed that a senior analyst knew more about complex derivative transactions than she did.These transactions were fraudulent in nature.Which type of power was employed to deceive Wilma?

A)Expert power
B)Referent power
C)Coercive power
D)Reward power

Question 43

Every fraud is comprised of all the following elements EXCEPT:

A)The theft act
B)Concealment
C)Conversion
D)Assault

Question 44

According to Max Weber,______ is the probability that a person can carry out his or her own will despite resistance.

A)power
B)persuasion
C)prejudice
D)potency

Question 45

A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a fraud scheme.Which type of power is the fraud perpetrator using?

A)Expert power
B)Coercive power
C)Legitimate power
D)Reward power

Question 46

____________ is the ability of the fraud perpetrator to make an individual perceive punishment if he or she does not participate in the fraud.

A)Expert power
B)Coercive power
C)Legitimate power
D)Reward power

Question 47

Many individuals,when persuaded by a trusted friend to participate in fraud,will rationalize the actions as being justifiable.Which type of power is being employed in such situations?

A)Referent power
B)Legitimate power
C)Coercive power
D)Reward power

Question 48

Individuals often participate in fraud because they believe that by not participating in the fraud scheme,they may lose their job.Which type of power is at play here?

A)Expert power
B)Legitimate power
C)Coercive power
D)Reward power