Deck 6: Data-Driven Fraud Detection

Question 1

​What defines an extension of stratification?

A)Matosas matrix
B)A pivot table
C)Summarization
D)Soundex

Answer 1

C

Question 2

Which of the following proactive fraud detection methods use Benford's Law to detect fraud?

A)Vertical analysis
B)Digital analysis
C)Real-time analysis
D)Time trend analysis.

Answer 2

B

Question 3

One of the disadvantages of Benford's law in detecting fraud is:

A)potential suspects are more likely to know you are trying to detect fraud than if you use such detection techniques.
B)users must be thoroughly trained in its complexities to implement and use.
C)that those cases with the lowest probabilities do not match Benford's law and may need further investigation.
D)it only broadly identifies the possible existence of fraud; it fails to narrow possibilities to a manageable field of promising leads.

Answer 3

D

Question 4

Which of the following statements is NOT true?

A)In recent years there have been many cases of financial statement fraud.
B)Proactive fraud detection methods are in their infancy.
C)Accounting anomalies indicate fraud has or is occurring.
D)Fraud investigation involves determining who committed the fraud, the schemes used and how much money or assets were taken.

Question 5

What is the primary drawback of the data-driven approach?

A)More expensive and time intensive than the traditional approach.
B)The time necessary to verify the large number of indicators identified.
C)Cannot highlight frauds while they are still small.
D)The investigator loses control of the fraud investigation process.

Question 6

From the information given below,calculate the quick ratio. Particulars
Amount (in $)
Particulars
Amount (in $)
Cash
20,000
Accounts payable
11,000
Notes receivable
15,000
Wages payable
5,000
Stock
5,000
Retained earnings
20,000
Inventory
6,000
Notes Payable
8,000

A).83 times
B)1.25 times
C)1.63 times
D)1.08 times

Question 7

Which of the following is an analytical symptom of a kickback?

A)Decreasing purchases from other vendors
B)Charging normal price for goods supplied
C)Providing better quality goods
D)Smaller purchase quantities and more frequent orders

Question 8

An appropriate red flag search to detect kickbacks or other fraud being committed by vendors would include:

A)invoices without valid purchase order.
B)employee and vendor telephone numbers are the same.
C)purchase orders with zero dollar amounts by buyer.
D)price increases greater than 20% for several consecutive years.

Question 9

While using n-grams,a match percentage of ________ or ________ generally indicates very similar values.

A)10 percent, smaller
B)20 percent, greater
C)5 percent, smaller
D)40 percent, greater

Question 10

Which of the following is similar to ACL and its primary competitor?

A)Picalo
B)IDEA
C)Microsoft Office + ActiveData
D)Z-score

Question 11

The proactive method of fraud detection is a six-step process.Which of the following is the correct process sequence?

A)Identify possible frauds that could exist; catalog possible fraud symptoms; understand the business; use technology to gather data about symptoms; automotive detection procedures; analyze results; and investigate symptoms
B)Catalog possible fraud symptoms; understand the business; identify possible frauds that could exist; analyze results; use technology to gather data about symptoms; and investigate symptoms
C)Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; investigate symptoms; use technology to gather data about symptoms; and analyze results
D)Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; use technology to gather data about symptoms; analyze results; and investigate symptoms

Question 12

According to Benford's law,the first digit of random data sets will most often begin with which number?

A)7
B)1
C)3
D)4

Question 13

Which of the following is the most direct method of focusing on changes in the company's balance sheet and income statement?

A)Calculating key ratios and comparing them from period to period
B)Comparing account balances in the statements from one period to the next
C)Performing a vertical analysis
D)Performing a horizontal analysis

Question 14

Digital analysis is:

A)the art of analyzing the digits that make up numbers like invoice amounts, reported hours, and costs.
B)a technique which calculates the average probability for each grouping of data.
C)the searching for expected relationships between numbers.
D)the use of numeric values for decision making.

Question 15

Kickbacks from vendors to buyers might generate one of the following symptoms.

A)Buyer doesn't relate well to other buyers and vendors
B)Decreasing purchases from favored vendor
C)Increasing purchases from other vendors
D)Decreasing prices and increasing quality

Question 16

The red-flag that is generally identified when vendors with invoices for the same amount on the same day are found is:

A)dummy vendors.
B)employees purchasing goods for personal use.
C)billing more than once for the same purchase.
D)providing poor-quality goods.

Question 17

Which of the following is a commercial data-mining software?

A)ACL
B)QuickBooks
C)Peachtree
D)Excel

Question 18

A ______ is a financial statement that reflects account balances at a specific point in time like a snapshot.

A)periodic statement
B)position statement
C)change statement
D)static statement

Question 19

ACL stands for:

A)Account Coverage Level.
B)Audit Command Language.
C)Actuarial Confidence Level.
D)Auditors' Common Language.

Question 20

Which of the following is true for accounting anomalies?

A)They are primarily caused by lack of training.
B)They represent intentional sabotage of controls.
C)They are problems caused by failures in systems, procedures, and policies.
D)They represent fraud.

Question 21

Which of the following ratios can be used to assess a company's solvency?

A)Current Ratio
B)Return on assets
C)Times-interest-earned
D)Inventory turnover

Question 22

Identify the formula used to calculate z-score.

A)(Mean - Value)/Standard Deviation
B)(Mean - Value)/(Mean + Value)
C)(Value - Mean)/Standard Deviation
D)(Value - Mean)/Median

Question 23

Which approach converts financial statement numbers as percentage of total assets or total sales?

A)Horizontal Analysis
B)Vertical Analysis
C)Ratio Analysis
D)Variance Analysis

Question 24

____ is the splitting of complex data sets into case-specific tables.

A)Deviation
B)Stratification
C)Data mining
D)Soundex

Question 25

A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is:

A)inductive fraud detection.
B)deductive fraud detection.
C)Benford's law.
D)horizontal analysis.

Question 26

Identify the true statement about detecting fraud using financial statement reports.

A)Performing horizontal analysis requires converting the Income statement balances to percentages of gross sales.
B)Vertical analysis is the most direct method of focusing on changes from period to period.
C)Before performing any data-driven analysis that targets fraud and corruption in financial statements, the numbers in all three types of financial statements need to be converted to percentages.
D)Small frauds may not affect the summarized financial statements significantly to be detected.

Question 27

One way to view the results of multiple indicators is to use a chart called a ____________ .

A)Soundex algorithm
B)summarization chart
C)pareto chart
D)Matosas matrix

Question 28

According to Benford's law,5 will be the first digit of a random number set:

A)more often than 1.
B)less often than 4.
C)about the same as 6.
D)more often than 3.

Question 29

____ include statistical summaries of each column that include control totals,mean,maximum,minimum,standard deviation,number of zero values,number of empty records,etc

A)Captions
B)Histograms
C)Headings
D)Descriptives

Question 30

Which of the following statements is true about ODBC?

A)It allows use of the powerful SQL language for searching and filtering of the data.
B)It is generally slower and less robust than text files.
C)IT departments are very comfortable in giving out ODBC connections.
D)It is an application-level setting rather than a systemwide setting.

Question 31

Which of the following statements is true about the characteristics of real-time analysis?

A)With real-time analysis in place, there is no need for continual improvement and updating of indicators.
B)It is a distinct technique because it specifically analyzes each transaction for correctness rather than for fraud.
C)It does not allow real-time modification and deletion of less-effective indicators.
D)Indicators are hard-coded into the system.

Question 32

While methods like high-low slope,average slope,handshaking,and Box-Jenkins exist,one of the most popular techniques for summarizing the slope of a graph is _______ .

A)summarization
B)stratification
C)statistical regression.
D)arithmetic progression

Question 33

______ are a two dimensional view with cases in one dimension and the calculations in the other.

A)N-grams
B)Z-scores
C)Pivot Tables
D)Soundex algorithms

Question 34

What is the primary advantage of the data-driven approach?

A)The investigator makes hypotheses and tests to see if each one holds true.
B)It is less expensive and time intensive than the traditional approach.
C)The investigator takes charge of the fraud investigation process.
D)Data-driven fraud detection is proactive in nature.

Question 35

Horizontal analysis is performed when:

A)total assets are set at 100% and all other balances are a percentage of total assets.
B)the percentage change in the balance sheet and income statement numbers is computed for one period to the next.
C)there is a need to calculate and compare key ratios from period to period.
D)income statement amounts are shown as a percentage of total sales.

Question 36

Benford's law can help detect fraud by:

A)establishing weaknesses in the accounting control system.
B)identifying accounting anomalies.
C)focusing on unexplained changes.
D)identifying possible attempts by fraudsters to make stolen amounts look random.

Question 37

While using financial statement analysis,which ratio will be most useful in assessing the company's operational efficiency?

A)Current Ratio
B)Quick ratio
C)Cost of goods sold percentage
D)Inventory turnover

Question 38

Which statistical approach is one of the most powerful and yet simple methods for identifying outliers?

A)N-grams
B)Z-score
C)Time-trend analysis
D)Soundex algorithm

Question 39

Which of the following is least effective while searching for anomalies?

A)Comparing account balances in the statements from one period to the next.
B)Calculating key ratios and comparing them from one period to the next.
C)Performing horizontal analysis.
D)Performing vertical analysis.

Question 40

Benford's law:

A)applies to numbers that have built-in limits.
B)is most effectively used with assigned numbers.
C)applies best to numbers that occur naturally.
D)uses ratios to detect fraud.

Question 41

Which of the following is a true statement regarding the United States Social Security Administration (U.S.SSA)?

A)​The U.S.SSA publishes a monthly list of newly issued Social Security numbers.
B)​The U.S.SSA publishes a monthly list of Social Security numbers that are no longer in use.
C)​The U.S.SSA database of valid numbers can be accessed by interested parties.
D)​The U.S.SSA database can be used to create mailing lists.

Question 42

​Which of the following records data for each case in a graph and analyzes the slope?

A)​summarization analysis
B)​time-trend analysis
C)​fuzzy-matching method
D)​cross tables method

Question 43

​What is a unique feature of Picalo,the data analysis toolkit that differentiates it from other packages?

A)​Picalo includes sampling techniques.
B)​The primary focus of Picalo is auditing.
C)​The Picalo program mames automation of procedures possible.
D)​The Picalo program is free.

Question 44

Which of the following is true?​

A)​Stratification is the splitting of data into case-specific tables.
B)​Stratification is an extension of summarization.
C)​Summarization provides detail for each grouping into tables.
D)​Stratification is utilized to create a z-score across data sets.

Question 45

​Which of the following is the most important step in data analysis?

A)​gathering the right data in the right format in the right time period
B)​understanding the available data
C)​learning the basics of table structure and field types
D)​learning the basics of key relationships and query syntax

Question 46

Which of the following in the most complete definition of a Matosas Matrix?​

A)​The Matosas Matrix is a table of data useful during audits.
B)​The Matosas Matrix is a compromise between prior and real-time data.
C)​The Matosas Matrix is a high-level chart that lists a specific group of items (i.e., contracts) with their demographics over a specific period of time..
D)​The Matosas Matrix is a high-level chart listing possible fraud indicators related to a group of items (i.e., contracts) for a specific period of time.

Question 47

One of the most common errors investigators make when analyzing time trends is:

A)incorrect data preparation.
B)focusing only on one variable, time (the x-axis if graphed).
C)not monitoring the time taken.
D)not standardizing for time.

Question 48

​Which of the following may result from a careful review of a Matosas Matrix?

A)​This action identifies indicators that have been circumvented.
B)​This action identifies indicator information that has been incorrectly input.
C)​This helps investigators improve the set of indicators utilized.
D)​This helps investigators identify fraud perpetrators.

Question 49

Specific implementations of delimited text are called TSV.What does TSV stands for?

A)toxicity screening value
B)time segmented volume
C)tab separated values
D)tactical secure voice

Question 50

​What are detectlets?

A)​Detectlets are small program plug-ins that discover specific indicators.
B)​Detectlets are infrequent accounting anomalies discovered during an audit.
C)​Detectlets are fraud indicators highlighted by the data process program during an audit.
D)​Detectlets are items discovered by the program that indicate the percentage possibility that fraud is present.