Deck 3: Fighting Fraud: an Overview

Question 1

A person may have very strong ethics in the way he or she treats family and friends, but not understand how failure to submit tax withholdings to the government affects peoples' lives or constitutes unethical or fraudulent behavior. This is an ethical issue encountered in which level of the ethical maturity model?

A) Personal ethical understanding
B) Ethical courage
C) Ethical leadership
D) Application of ethics to business situations

Answer 1

D

Question 2

Which of the following is NOT one of the ways in which a fraud investigation must be conducted?

A) Investigators should be experienced and objective professionals.
B) Investigators should closely guard all hypotheses regarding guilt or innocence of individuals being investigated.
C) Investigators should keep all managers apprised of investigation activities.
D) Investigators must be sure to follow appropriate investigative techniques.

Answer 2

C

Question 3

Civil suits are usually quite rare in cases of employee fraud because:

A) there is usually not enough evidence to prosecute.
B) employee fraud is a victimless crime.
C) it is difficult for a jury to unanimously decide on a conviction.
D) perpetrators have usually spent the money.

Answer 3

D

Question 4

Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions. Which of the following represents the foundation of ethics according to this model?

A) Personal ethical understanding
B) Ethical courage
C) Ethical leadership
D) Application of ethics to business situations

Question 5

When perceived pressures and/or opportunities are low, a person needs more to commit fraud.

A) support from people at workplace
B) rationalization
C) courage
D) motivation

Question 6

Which of the following is a component of the evidence square?

A) Rationalization
B) Perceived pressure
C) Personal observation
D) Perceived opportunity

Question 7

Which of the following is NOT a part of the evidence square?

A) Management evidence
B) Documentary evidence
C) Testimonial evidence
D) Physical evidence

Question 8

Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee's computer to use as evidence in the case. Under which category of evidence would an email message fall?

A) Testimonial evidence
B) Documentary evidence
C) Physical evidence
D) Personal observation

Question 9

Communicating expectations about honesty and integrity throughout a company includes all of the following elements EXCEPT:

A) identifying appropriate values and ethics.
B) fraud awareness training.
C) consistent punishment for violators.
D) insisting that top management model appropriate behavior.

Question 10

Which of the following key activities related to fraud is the most important and cost-effective way to reduce losses from fraud?

A) Follow-up legal action
B) Early fraud detection
C) Fraud investigation
D) Fraud prevention

Question 11

Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud investigation?

A) Testimonial
B) Forensic
C) Documentary
D) Observational

Question 12

Organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:

A) help in training employees about appropriate behavior.
B) often prompt smaller frauds.
C) pay big dividends.
D) aid in punishing fraud perpetrators.

Question 13

Which of the following is NOT a method that an organization can adopt to proactively eliminate fraud opportunities?

A) Accurately identify sources and measure risks.
B) Implement appropriate preventative and detective controls.
C) Create widespread monitoring by employees.
D) Eliminate protections for whistle-blowers.

Question 14

In an organization, individuals who suspect fraud usually don't come forward because they:

A) feel that the perpetrator will get caught anyway.
B) do not want to accuse someone.
C) fear being branded as a whistle-blower.
D) will lose the friendship of the perpetrator.

Question 15

Which of the following is one of the three basic elements of the fraud motivation triangle?

A) Concealment
B) Theft act
C) Opportunity
D) Conversion

Question 16

All of the following factors can be associated with high levels of fraud and detract from a positive work environment EXCEPT:

A) top management that does not pay attention to behavior of employees.
B) lack of recognition of job performance.
C) unrealistically low pay.
D) low turnover.

Question 17

Research has shown that detect most frauds.

A) auditors
B) customers
C) vendors
D) employees

Question 18

Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical decisions, and there are four levels in it. Which of the following is NOT one of them?

A) Personal ethical understanding
B) Memorization of the corporate code of ethics
C) Ethical courage
D) Ethical leadership

Question 19

Studies show that legal action against fraudsters is typically taken:

A) less than 25 percent of the time.
B) less than 50 percent of the time.
C) more than 75 percent of the time.
D) at least 50 percent of the time.

Question 20

Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?

A) Hiring the right kind of employees
B) Security cameras
C) Peer evaluations
D) Ergonomics

Question 21

Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation, and honesty tests?

A) Documentary evidence
B) Testimonial evidence
C) Physical evidence
D) Personal observation

Question 22

Although there are multiple approaches to fraud investigation, most investigators tend to rely heavily on:

A) invigilation.
B) surveillance.
C) interviews.
D) confrontation.

Question 23

What is the overall term for the investigative technique that includes gathering evidence through data mining, audits, computer searches, net worth calculations, and financial statement analysis?

A) Documentary evidence
B) Testimonial evidence
C) Physical evidence
D) Personal observation

Question 24

Research on honesty shows that individuals fall into three groups: (1) those who will almost always be honest,
(2) those who are situationally honest, and
(3) those who will always be dishonest. Which of these groups is (are) the biggest?

A) Group 1 (50%)
B) Group 2 (40%)
C) Group 3 (45%)
D) Groups 1 and 3 (35% each)

Question 25

Investigative techniques under which approach include invigilation, surveillance, and covert operations?

A) Documentary evidence
B) Testimonial evidence
C) Physical evidence
D) Personal observation

Question 26

The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.

A) Documentary evidence
B) Testimonial evidence
C) Physical evidence
D) Personal observation

Question 27

Which level in the ethical maturity model can be summarized as a "willingness to pay the price for ethics"?

A) Ethical positioning
B) Ethical courage
C) Personal ethical understanding
D) Application of ethics to business situations

Question 28

All of the following are part of the fraud element triangle EXCEPT:

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

Question 29

Which area of investigative method involves searching for ways in which perpetrators have spent or used their stolen assets?

A) Theft act
B) Concealment
C) Conversion
D) Collusion

Question 30

Which of the following is a prerequisite for a fraud investigation?

A) Predication
B) A specific allegation of fraud against another party
C) Consistent bottom-line improvement
D) Rationalization

Question 31

Which of the following statements is accurate?

A) External auditors are usually specifically trained to detect fraud.
B) Audits of books and records rarely discover frauds.
C) Less than 5 percent of all frauds are detected by auditors.
D) The presence of auditors provides a major deterrent effect.

Question 32

Investigative methods utilized to catch a fraud perpetrator while he/she is actually receiving a kickback fall under which of the following categories?

A) Theft act investigative methods
B) Concealment investigative methods
C) Conversion investigative methods
D) Collusion investigative methods

Question 33

Which of the following is the largest employee group in most organizations?

A) Employees who display ethical leadership
B) Group of employees who will always be honest
C) Group of employees who will be dishonest anytime it benefits them
D) Swing group of employees who could be honest or dishonest

Question 34

In recent years, organizations have implemented a number of initiatives to more proactively detect fraud. The first and most common proactive fraud detection approach has been to:

A) install reporting hotlines.
B) conduct undercover operations.
C) install surveillance cameras.
D) collect physical evidence.

Question 35

In the past, most frauds were detected:

A) by surveillance and undercover operations.
B) by accident.
C) by providing ways for people to report suspicions of fraud.
D) by examining transaction records and documents to determine if there were anomalies that could represent fraud.

Question 36

Which legislation makes it compulsory for every public company to have a code of conduct to convey expectations about what is and is not appropriate for its directors and officers?

A) Sherman Act
B) Glass-Steagall Act
C) Sarbanes-Oxley Act
D) Gramm-Leach-Bliley Act

Question 37

In the ethical maturity model, instilling in others a desire to develop ethical awareness and courage is referred to as:

A) personal codes of ethics.
B) ethical motivation.
C) ethical leadership.
D) the application of ethics to business situations.

Question 38

Which of the following is true of the "swing group" of employees in organizations?

A) Individuals in this group have situational ethics.
B) Individuals in this group are dishonest most of the time.
C) Individuals in this group do not know how to translate their ethical values to the business world.
D) Individuals in this group lack ethical courage.

Question 39

Which is the highest level in the ethical maturity model?

A) Ethical leadership
B) Ethical courage
C) Personal ethical understanding
D) Application of ethics to business situations

Question 40

Which of the following is an example of a whistle-blowing system?

A) Bulletin board service
B) Supervisor intervention
C) Removing middle management layer
D) Fraud reporting hotline

Question 41

Research in moral development strongly suggests that honesty can be BEST reinforced when:

A) expectations of honesty are implied.
B) fraud perpetrators are given a second chance.
C) appreciation is exhibited for honesty.
D) a proper example is set by management.

Question 42

According to the text, which of the following is a consideration that influences the risk of fraud when identifying a company's fraud risks?

A) Current employee demographics
B) Top management personal characteristics
C) Industry characteristics
D) Customer demographics

Question 43

refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe a fraud has occurred, is occurring, or will incur.

A) Audit process
B) Surveillance
C) Predication
D) Investigation

Question 44

Which of the following questions should be answered when considering fraud risk and fraud prevention?

A) Which types of fraud are the easiest and least costly to prevent?
B) Which employees are in the best position to commit fraud?
C) Which symptoms of a fraud act are most likely to be spotted?
D) What are all of the types of possible fraud that can be committed?

Question 45

Which of the following is NOT a proactive hiring procedure?

A) Conducting background investigations on prospective employees
B) Instilling in employees a desire to develop ethical awareness and courage to do the right thing
C) Thoroughly checking references provided
D) Learning how to interpret responses to inquiries of references about job candidates

Question 46

Which of the following is a possible indication that fraud may be present?

A) An employee's spouse is diagnosed with Alzheimer's disease.
B) An employee's lifestyle changes suddenly.
C) An employee's spouse has a serious vehicle accident.
D) An employee reports that another employee is a gambling addict.

Question 47

Which of the following is FALSE concerning legal actions by organizations regarding fraud?

A) Legal action is expensive.
B) Legal action is time consuming.
C) Legal action is sometimes embarrassing.
D) Legal action stops future frauds.

Question 48

Which of the following statements is NOT true?

A) It is much more difficult to get a criminal conviction than it is to get a judgment in a civil case.
B) A preponderance of the evidence (more than 50 percent) is necessary to win a civil case.
C) Criminal convictions are only successful if there is overwhelming, undeniable proof that the perpetrator "intentionally" stole money or other assets.
D) Civil actions are quite rare in cases of employee fraud because perpetrators have usually spent the money they stole.

Question 49

Which of the following is NOT a primary way fraud can be detected early?

A) By accident
B) Finding anomalies in the financial records
C) Someone reports suspicious activity
D) Watching those employees whose honesty test results were suspicious

Question 50

Which of the following is true about legal action taken by organizations that are the victims of fraud?

A) Legal action is taken in fewer than half of frauds committed.
B) Legal criminal action is brought by the victim organization.
C) Civil action is a good way to get restitution.
D) Civil action sends a message to others not to commit fraud.

Question 51

Which of the following is a result of the presence of fraud prevention controls within an organization?

A) Employees are less likely to commit fraud.
B) The organization's insurance company will reduce its bond rate based on the controls in place.
C) The auditors will be less thorough during audits.
D) Employees feel more trusted.

Question 52

The most effective way to involve employees in the monitoring process is to provide a protocol for which of the following?

A) Communication
B) Office etiquette
C) Administrative action
D) Management oversight

Question 53

Which of the following was NOT discussed as a way to create a culture of honesty and integrity?

A) Offer rewards for honest behavior
B) Communicate expectations throughout the organization
C) Hire the right kinds of employees
D) Create a positive work environment

Question 54

Which of the following is true of why fraud should be detected early?

A) Most frauds start small and get larger over time.
B) Determining motive is a strong tool to prevent similar frauds in the future.
C) When top management is the perpetrator, preventions can be implemented once the fraud has been discovered.
D) Fraud is often obvious and more easily detected when first committed.