Deck 6: Fraud Detection

Question 1

Where are fraud discovery personnel assigned within an organization?

A) Within the customer service department.
B) Within the Human Resources department.
C) As their own department, operating independently.
D) Within any department that typically has the highest risk for fraud

Answer 1

D

Question 2

Pressure/incentive typically relates to:

A) Situations in which an employee has an unmet substantial financial need.
B) Opportunity, as without opportunity fraud can become possible.
C) The employee fabricating an internal moral excuse for the fraud.
D) Mafia or blackmail situations.

Answer 2

A

Question 3

Accidental discovery of fraud is typically found:

A) While business owners are attempting to figure out why they don't have enough cash.
B) During a financial statement audit.
C) During the sale of a business.
D) By other employees through rumors.

Answer 3

A

Question 4

If an investigator cannot contact the tipster for more information, then this information was gathered:

A) With Confidentially and Anonymity not requested.
B) Confidentially.
C) Publicly.
D) Anonymously

Question 5

The fraud detection process involves:

A) Determining the level of crime involved as criminal or civil.
B) Identifying indicators of fraud that suggest a need for further investigation.
C) Identifying the GAAP that have been violated.
D) Assessing a loss value to the fraud.

Question 6

In order for a hotline to be sufficient, it should be combined with:

A) An ethics code.
B) Proper monitoring.
C) The right tone from the top of the company.
D) All of the above.

Question 7

Rationalization/attitude typically relates to:

A) situations in which an employee has an unmet substantial financial need.
B) Opportunity, as without opportunity fraud can become possible.
C) The employee fabricating an internal moral excuse for the fraud.
D) Mafia or blackmail situations

Question 8

Why are tip hotlines or other tip reporting mechanisms important to formally have in place in a business?

A) Nearly 50% of all fraud detection occurs through tip hotlines.
B) Forensic accounting methods lack the ability to detect most fraud.
C) Civil court rules of evidence do not allow charges to be brought against someone unless it is reported first.
D) .Over 75% of all fraud detection occurs through tip hotlines.

Question 9

How does Internal Auditing help an organization?

A) It reduced the cost of external auditors having to spend as many billable hours during the audit because the internal auditor does most of the work.
B) It helps and organization by providing more credibility to the pubic so they will gain additional investors.
C) It brings the organization into compliance with several Federal and State mandated programs.
D) It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Question 10

Within the U.S. Federal Government, how do Inspector General's operate?

A) They investigate possible fraud, independently of internal auditors.
B) They investigate possible fraud in conjunction with internal auditors.
C) They investigate only fraudulent situations that involve sexual harassment claims.
D) Inspector Generals have no authority or jurisdiction to investigate fraud.

Question 11

Which of the following is NOT a way that fraud is usually detected?

A) Tips and hotlines.
B) Admission by the guilty party.
C) Financial Statement Audits.
D) By accident.

Question 12

SAS 99 charges the auditor with the responsibility:

A) For implementing internal controls after their audit.
B) To asses and document managements overly strict internal controls.
C) To assess and document managements overriding of internal controls.
D) .Both A and B

Question 13

Fraud detection, as compared to prevention:

A) Is considered a second line of defense.
B) Is considered equally important
C) Is totally unrelated.
D) Is considered the first line of defense.

Question 14

Which of the following is NOT part of the fraud triangle?

A) pressure/incentive.
B) opportunity.
C) financial distress.
D) rationalization/attitude.

Question 15

Fraud is typically limited to:

A) Employees.
B) Employees, Vendors, Customers and the public.
C) Employees and owners.
D) .Vendors, Customers and public.

Question 16

A tip hotline should include:

A) The Securities and Exchange Commission's toll free number.
B) A hotline disclosure policy to protect the tipster as well as the accused.
C) Caller ID so the receiving agency can call the tipster back.
D) A minimum of three language options.

Question 17

Which of the following is NOT a step for financial statement auditing concerning fraud?

A) Gather information relevant to risks of misstatements in the financial reports.
B) Compare the financial statements to the owners personal assets.
C) Analyze and assess risks of misstatement in light of the entity's programs and controls.
D) Apply the information gathered to the structure and application of the audit.

Question 18

Which of the following is NOT a key element to internal auditing?

A) Independence.
B) Predictability.
C) Objectives.
D) Systematic.

Question 19

The objectives of fraud detection include:

A) Detect fraud.
B) Prevent fraud.
C) Comply with SOX.
D) .Both A and
B)

Question 20

In many cases fraud indicators lead to:

A) The need for additional auditors to be present for the audit.
B) Criminal or civil actions against the CEO or CFO of the Corporation.
C) The discovery of errors or unusual events that can reasonably be explained upon further examination.
D) .The discovery of loop holed in the IRS Tax Code that are left up to interpretation.

Question 21

A false negative is:

A) When a detective control signals a possible fraud that upon investigation turns up a reasonable explanation.
B) When a detective control fails to signal possible fraud when one exists.
C) When a preventative control signals a possible fraud that upon investigation turns up a reasonable explanation..
D) When a preventative control fails to signal possible fraud when one exists..

Question 22

Tip and fraud hotlines only help catch fraud.

Question 23

Content and text analyses involve using algorithms to automatically analyze and interpret the content of documents and conversations but always require human intervention to interpret the analysis.

Question 24

Fraud discovery departments are typically assigned to the HR Director.
FALSE

Question 25

Within the organization, the internal auditor has the responsibility of actively monitoring compliance with policies and behavior relating to internal control.
TRUE

Question 26

As a general rule, preventative and detective controls cost more than corrective controls.

Question 27

Which of the following is a step in building a fraud detection system?

A) Scoring and Assessment.
B) Risk avoidance and deniability.
C) Computer science development.
D) Analysis of industry financial statements.

Question 28

Corrective controls are merely special types of controls that come into play once a loss is known to exist.

Question 29

Fraud detection is considered a secondary layer to prevention.

Question 30

The fraud triangle will often times involve blackmail for adultery.

Question 31

Pattern data analysis is also known as:

A) 3^rd party verification.
B) Data mining.
C) Data milling.
D) Forensic Data Analysis.

Question 32

Which of the following is a preventative control?

A) Taking periodic inventory.
B) Leaving recently arrived inventory in a customer area prior to accepting it.
C) Periodically checking customer balances versus account write-offs.
D) Keeping inventory in a locked room that only a shift leader has the keys for.

Question 33

Many government agencies also have an inspector general, whose job includes investigating possible frauds.

Question 34

When implementing preventative or detective controls:

A) 75% of the money should be invested in detective controls.
B) Half of all control funds should be spent on preventative controls.
C) The costs associated with them should be weighed against the benefits.
D) For every preventative or detective control, one corrective control should be implemented.

Question 35

Under Benford's Law:

A) All numbers should occur as each other.
B) 1 should appear more than 2 and 3 should appear more than 4.
C) 9 should appear more than 8 and 7 should appear more than 6..
D) Vendor total amounts of sales by invoice should contain the same frequency of numbers as Customer totals.

Question 36

ERM stands for:

A) Electronic Risk Measurements.
B) Environmentally Resilient Management
C) Enabled Rick Management.
D) Enterprise Risk Management.

Question 37

Total Fraud Costs (TFC) =

A) Personnel Costs + Auditing Costs + Potential Losses .
B) Prevention Costs + Detection Costs + Correction Costs + Losses.
C) Auditing Costs - Losses.
D) Prosecution Costs + Detection Costs + Correction Costs.

Question 38

The three risk management controls are:

A) Preventative, deterrence and collateral.
B) Preventative, detective and collateral.
C) .Proforma, detective and corrective. D .Preventative, detective and corrective.

Question 39

Despite the use of SAS 99, not all fraud is detected.

Question 40

Which of the following is not a source of data for data-driven fraud detection?

A) Internal Control data.
B) Security Breach data.
C) United States Census data.
D) Pattern data.

Question 41

Why would a company choose to employ a software package such as "FraudPoint" or Actimize Employee Fraud Solution?

Question 42

Describe the different ways in which fraud is detected.

Question 43

Describe the three step process under SAS 99, Consideration of Fraud in a Financial Statement Audit.

Question 44

Describe the fraud detection process.

Question 45

What are some additional elements that should be added to an organization if a Fraud Detection Hotline is going to be established?

Question 46

Describe an optimal fraud detection system.

Question 47

Describe a data-driven fraud detection model.

Question 48

Explain Benford's Analysis and how you might use it to detect fraud.

Question 49

Explain how fraud detection relates to enterprise risk management.

Question 50

Explain how a detection of fraud may not necessarily mean that fraud exists.