Deck 2: Who Commits Fraud and Why

Question 1

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

Answer 1

A

Question 2

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 task completed by employees.

Answer 2

D

Question 3

require(s) 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 3

B

Question 4

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

A) Form 10-K.
B) Form 1120.
C) Form 8-K.
D) Form 10-Q.

Question 5

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

A) anger.
B) acceptance.
C) denial.
D) retribution.

Question 6

Modeling and labeling are subcomponents of which fraud-related element of an organization?

A) Control environment
B) Accounting system
C) Audit procedures
D) Review procedures

Question 7

Poor credit could become a that could lead to fraud.

A) financial pressure
B) social pressure
C) family pressure
D) financial threat

Question 8

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 9

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

A) Dual custody
B) System of authorizations
C) Internal audit department
D) Documents and records

Question 10

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 11

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

A) Financial
B) Peer
C) Environmental
D) Work-related

Question 12

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 13

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

A) financial pressure
B) a perceived opportunity
C) the rationalization
D) validation

Question 14

A fraud perpetrator used 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 15

What is the strongest factor in deterring future fraud activity?

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

Question 16

Which of the following is NOT an example of a control weakness or violation?

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 her immediate assistant.
C) A company has established codes of conduct and conducts training meetings to teach employees to distinguish between acceptable and unacceptable behavior. Attendance is voluntary.
D) The employees know who has responsibility for each business activity. Procedures to follow are in place.

Question 17

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 18

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 19

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) No one will care.

Question 20

Which of the following observations is true?

A) Research shows that only people with a criminal mindset commit fraud.
B) Fraud perpetrators usually can be distinguished from others based on psychological characteristics.
C) Most fraud perpetrators have profiles that are similar to those of other people.
D) When fraud does occur, the most common initial reaction by those involved in the fraud is confession.

Question 21

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) Desire to hurt employer financially

Question 22

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 felons
D) Animal lovers

Question 23

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 24

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 25

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 26

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 27

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 28

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

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

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

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

A) generally stable.
B) increasing slightly and erratically.
C) increasing at a steady rate.
D) decreasing.

Question 31

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 lookout for a job.
C) Steve was just hired by his company, but he is always acting suspicious.
D) Sixty-two-year-old Dave has loyally worked up his company's corporate ladder for the past 24 years.

Question 32

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 33

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 34

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 35

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

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

Question 36

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.
D) All of these statements are true.

Question 37

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 38

Which of the following creates opportunities for fraud?

A) Requirement to change passwords on a regular basis
B) Inability to judge quality of performance
C) Controls that prevent or detect fraud
D) Segregation of duties

Question 39

Every fraud is comprised of all the following elements EXCEPT:

A) the theft act.
B) concealment.
C) conversion.
D) assault.

Question 40

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 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

Which of the following is a true statement regarding the fraud scale depicted in the text?

A) The greater the perceived opportunity to commit fraud, the less rationalization it takes to commit fraud.
B) The more dishonest a person is, the higher the need to rationalize the fraud act.
C) When the financial pressure increases, even low perceived opportunity is sufficient to commit fraud.
D) As the "need" to gamble increases, rationalization to commit fraud becomes easier.

Question 43

Which of the following is NOT a perceived pressure that can lead to employee fraud?

A) Experiencing high medical bills because of illness in the family
B) Frustration with work
C) Anticipated actual financial reports that are below published expectations
D) A challenge to beat the system

Question 44

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 45

Which of the following is NOT a work-related pressure?

A) Fear of losing one's job
B) Wanting to appear successful
C) Getting overlooked for a promotion
D) Insufficient/little recognition for work performance

Question 46

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 47

Which of the following is true regarding the fraud triangle?

A) The three elements of the fraud triangle are interactive.
B) Rationalization for the fraud act is thought of after the fraud has been committed.
C) The perceived ability to conceal the fraud act concerns the rationalization side of the fraud triangle.
D) Work-related pressure to commit fraud is the strongest of the pressure triangle element.

Question 48

Which of the following about rationalization is NOT true?

A) Rationalization is a form of self-justification.
B) Rationalization is a way to lie to one's self.
C) People who rationalize feel they are basically honest people.
D) Rationalizing is unnecessary when there are multiple opportunities present to commit fraud.

Question 49

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

Question 50

Which of the following is an example of a vice pressure?

A) An expensive extramarital relationship
B) An extravagant lifestyle
C) Needing to appear successful
D) Being offered a bribe

Question 51

Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?

A) Propensity toward illegal acts
B) Lack of self-respect
C) Greed
D) Capability

Question 52

Studies of honesty levels in advanced countries have led to which of the following expectations regarding fraud?

A) Rationalizations will become more sophisticated.
B) Pressures to commit fraud will increase.
C) Less perceived opportunity will have to be present for fraud to occur.
D) Honesty tests in the workplace will increase.