Deck 5: Recognizing the Symptoms of Fraud

Question 1

An auditor noticed that company B had an exorbitant increase in sales and drastic decreases in its inventory and accounts receivables.The above statement symbolizes which fraud symptom?

A)Accounting anomaly
B)Internal control weakness
C)Analytical anomaly
D)Unusual behavior

Answer 1

C

Question 2

Fraud examiners must be able to recognize signals that a journal entry may have been manufactured to conceal a fraud.Which of the following is a common journal entry fraud symptom?

A)Journal entries with documentary support.
B)Journal entries that balance.
C)Adjustments to receivables or payables that are made monthly.
D)Journal entries made near the end of an accounting period

Answer 2

D

Question 3

Which of the following is a control problem related to segregation of duties?

A)Julie writes expense checks and Mark collects cash from customers.
B)Bob order office supplies and deposits the company's checks.
C)Steve records receivables and writes off bad debts.
D)Rebecca records journal entries and orders lunch.

Answer 3

C

Question 4

Transactions happening at odd times or places;being performed by people who would not normally participate;or including odd procedures are typically associated with which type of fraud symptom?

A)Accounting anomaly
B)Internal control weakness
C)Analytical anomaly
D)Unusual behavior

Question 5

Research in psychology indicates that when people commit a crime (especially for the first time),they are initially overwhelmed by ____ and ____.

A)guilt, fear
B)anxiety, insomnia
C)confidence, rationalization
D)defensiveness, anger

Question 6

In which stage do auditors have a good chance of detecting fraud,if the audit samples include altered documents and miscounts?

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

Question 7

Which of the following is an analytical fraud symptom?

A)Increase in past due accounts receivable
B)Significant increase or decrease in account balances
C)Lack of independent checks
D)Excessive voids or credits

Question 8

______ fraud symptoms are procedures or relationships that are unusual or that do not make sense.

A)Analytical
B)Accounting
C)Internal control
D)Environmental

Question 9

Implementing a system of independent checks is one of the most effective ways to deter fraud.Which one of the following is NOT a way of providing independent checks on employees?

A)Employee transfers
B)Audits
C)Mandatory vacations
D)Authorization required for purchases of over $2,000 or more

Question 10

Which of the following is an example of accounting anomaly fraud symptom?

A)Missing documents
B)Excess purchases
C)Too many debit or credit memos
D)Inadequate accounting system

Question 11

Recording an expense to conceal fraud involves making a fictitious journal entry.A faulty journal entry is an example of which fraud symptom?

A)Accounting anomaly
B)Internal control weakness
C)Unusual behavior
D)Analytical anomaly

Question 12

In most organizations,coworkers and others have knowledge or suspicions that fraud is occurring but do not come forward with their information.There are several major reasons for this hesitancy.Which of the following is NOT one among them?

A)It is usually impossible to know for sure that a fraud is taking place.
B)The suspicious action is not affecting their work.
C)They fear reprisal for being a whistle-blower.
D)They often think that squealing on someone is wrong.

Question 13

Increased scrap,excessive purchases,physical abnormalities,etc.are all examples of:

A)accounting anomalies.
B)external control weaknesses.
C)analytical anomalies.
D)unusual behavior.

Question 14

How does a smart embezzler manipulate accounting records to conceal fraud?

A)By increasing assets.
B)By manipulating stock accounts.
C)By manipulating dividends.
D)By increasing expenses.

Question 15

Common accounting anomaly fraud symptoms involve problems with various data and books of accounts.Which of the following is NOT one among them?

A)Faulty journal entries
B)Inaccuracies in source documents
C)Rounding adjustments
D)Inaccuracies in ledgers

Question 16

Document symptoms to some extent can signal out that embezzlement is taking place.Which among the following usually does NOT point to some problem with the source documents?

A)Photocopied documents
B)Different names or addresses of payees or customers
C)Excessive voids or credits
D)Increased past-due accounts

Question 17

There are three simple procedures that small business owners should do on a timely basis to prevent fraud when they can't afford sufficient employees to guarantee effective segregation of duties..Which of the following is NOT one among them?

A)Pay everything by check so that there is a record.
B)Always open the bank statement and reconcile it themselves.
C)Allow one key employee to operate the bank account personally.
D)Sign every check themselves and not delegate the signing to anyone else.

Question 18

Which of the following is NOT an analytical fraud symptom?

A)Consistent cash shortages
B)Overriding of existing controls
C)Excess purchases
D)Unreasonably high expenses

Question 19

Who in an organization is NOT in a good position to recognize fraud during the theft act?

A)Other employees
B)Managers
C)Auditors
D)Coworkers

Question 20

Inaccuracies in ledgers represent which type of fraud symptom?

A)Internal control weaknesses
B)Analytical anomalies
C)Accounting anomalies
D)Financial statement weaknesses

Question 21

Which of the following is NOT a fraud symptom related to internal control weaknesses?

A)Lack of segregation of duties
B)Lack of physical safeguards
C)Inadequate accounting system
D)Lack of proper authorization
E)Excessive turnover of executives

Question 22

Which category of individuals are least likely to detect fraud at the conversion stage?

A)co-workers
B)friends
C)auditors
D)managers

Question 23

Which of the following is a highly suspicious financial statement relationship?

A)Increased revenues with decreased inventory.
B)Decreased production with decreased scrap.
C)Increased revenues with increased receivables
D)Decreased cost per unit with increased level of output

Question 24

What does the following journal entry indicate? Legal Expense..................2,900
Cash...............................2,900
​

A)$2,900 cash is due to an attorney.
B)A sum of $2,900 was received from attorney in advance.
C)$2,900 cash is due from an attorney.
D)An attorney was paid $2,900 in cash.

Question 25

Which of the following appears to be common to most embezzlers who are caught?

A)Long-term focus
B)Investments made in low-risk instruments
C)Saving what they steal
D)Spending on lifestyle improvements

Question 26

Which of the following scenarios is least conducive to fraud?

A)Outstanding bills at home
B)Mandatory vacation time
C)Economic downturns
D)Moral decay in upper management

Question 27

Lifestyle changes of fraud perpetrators are related to which of the following fraud elements?

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

Question 28

Which of the following fraud symptoms is often the easiest to detect?

A)Analytical anomalies
B)Internal control weaknesses
C)Accounting anomalies
D)Lifestyle changes

Question 29

Which of the following actions would most likely create an opportunity for fraud?​

A)​requiring all documents over seven years old be shredded
B)​requiring that the department manager authorize purchase orders only for purchase amounts for more than $100
C)​requiring one password code for each entire department to enter the storeroom
D)​using a manual accounting system

Question 30

_____ are relationships in financial or nonfinancial data that do not make sense,such as an unreasonable change in a volume,mix,or price.

A)Analytical anomalies
B)Accounting anomalies
C)Auditing anomalies
D)Control weaknesses

Question 31

All transactions related to specific accounts,such as cash or inventory,are listed and totaled in a:

A)Journal
B)Ledger
C)Trial balance
D)Balance sheet

Question 32

Which of the following is a highly suspicious financial statement relationship?

A)Increased revenues with increased cash flows
B)Increased volume with decreased cost per unit
C)Increased inventory with decreased payables
D)Increased inventory with increased warehousing costs

Question 33

Which term refers to people who commit a fraud or other crime and do not feel guilt or stress?

A)Altruists
B)Utilitarians
C)Psychopaths
D)Agnostics

Question 34

Which of the following usually motivates embezzlers to indulge in a fraudulent activity?

A)Pursuit of immediate gratification.
B)Safeguard their future.
C)Cover expenses required to live.
D)Protection against uncertainties.

Question 35

Allowing the clerk who checked out customer A handle a return by that same individual ​without presenting the receipt would NOT be an example of which of the following internal controls?

A)​lack of segregation of duties
B)​lack of requiring proper documents and records
C)​lack of independent checks
D)​lack of an adequate accounting system

Question 36

_______ involves the actual taking of cash,inventory,information,or other assets whereas _______ involves selling stolen assets or transferring them into cash and then spending the cash.

A)Conversion, coercion
B)Theft, conversion
C)Coercion, theft
D)Theft, coercion

Question 37

A major difference between financial statement auditors and fraud examiners is that most financial statement auditors:

A)match documents to verify whether support exists for recorded information.
B)determine whether the documents are originals.
C)determine whether the expenditures make sense.
D)check whether all aspects of the documentation are in order.

Question 38

Which of the following is NOT a "strange" financial statement relationship?

A)Increased revenues with decreased inventory
B)Increased revenues with decreased receivables
C)Decreased inventory with decreased payables
D)Decreased volume with decreased cost per unit

Question 39

After committing fraud,an individual often exhibits unusual and recognizable behavior patterns to cope with the stress.Perpetrators experience these behavioral signals in a particular sequence.Identify it.

A)Guilt - Stress - Fear - Behavior changes
B)Fear - Guilt - Stress - Behavior changes
C)Fear - Guilt - Behavior changes - Stress
D)Guilt - Fear - Stress - Behavior changes

Question 40

An employee decides to steal cash from his/her employer.What would be the best way to conceal such a fraud?

A)Record the stolen cash as an expense.
B)Writing down accounts payable for a supplier.
C)Increasing accounts receivable from a customer.
D)Writing down as dividend paid to shareholders.

Question 41

​Which of the following possible actions may discourage an employee to report suspected fraudulent activities?

A)​Management promises no prosecution of the individual if guilty.
B)​Corporate security's number is provided.
C)​The number of the internal auditor is provided.
D)​Corporate management stresses that any information provided will be kept confidential.

Question 42

​Which of the following acts by management could discourage someone from reporting an observed act of fraud?

A)​providing clear instructions of who to contact
B)​providing assurance of anonymity
C)​providing clear instructions on how to convey the information
D)​providing a clear list of possible consequences

Question 43

​Which of the following is a true statement?

A)​A fraud perpetrator who normally smokes often quits after committing a fraud.
B)​The perpetrator may start entertaining coworkers more often and more lavishly.
C)​The perpetrator may start looking coworkers directly in the eye when talking to them.
D)​The perpetrator who committed the fraud act to pay off gambling debts may suddenly stop gambling.

Question 44

​Which of the following is usually NOT a reason people hesitate to anonymously report their suspicions about an act of fraud?

A)​The perpetrator has bullied them in the past.
B)​The perpetrator is a friend who has helped them in the past.
C)​The perpetrator is a relative.
D)​The perpetrator is a neighbor.

Question 45

​Which of the following is a true statement?

A)​Lifestyle changes are often the easiest fraud symptoms to detect.
B)​Lifestyle changes are helpful in detecting fraud on behalf of a corporation.
C)​Fraud is indicated when an employee sells a large number of shares of stock he/she owns.
D)​Evidence of an employee paying off large debt can be verified, but it is costly to do so.