Deck 5: Computer Fraud

Question 1

Most fraud perpetrators are insiders because

A) insiders are more dishonest than outsiders.
B) insiders know more about the system and its weaknesses than outsiders.
C) outsiders are more likely to get caught than insiders.
D) insiders have more need for money than outsiders.

Answer 1

B

Question 2

Which of the following is not a management characteristic that increases pressure to commit fraudulent financial reporting?

A) Close relationship with the current audit engagement partner and manager
B) Pay for performance incentives based on short-term performance measures
C) High management and employee turnover
D) Highly optimistic earnings projections

Answer 2

A

Question 3

Amy wants to open a floral shop in a downtown business district.She doesn't have funds enough to purchase inventory and pay six months rent up front.Amy approaches a good friend,Coleen,to discuss the possibility of Coleen investing funds and becoming a 25% partner in the business.After a lengthy discussion Coleen agrees to invest.Eight months later,Coleen and Amy have a falling out.In order for Coleen to sue Amy for fraud,all the following must be true except

A) Amy told Coleen she had worked at a floral shop for several years, when in fact she did not have any prior experience in floral retail.
B) Coleen's decision to invest was primarily based on Amy's assertion that she had prior floral retail experience.
C) Coleen's 25% share of the business is worth substantially less than her initial investment.
D) Before Coleen invested, Amy prepared a detailed business plan and sales forecasts, and provided Coleen with copies.

Answer 3

D

Question 4

In a ________ scheme,customer receipts are stolen and then subsequent payments by other customers are misapplied to cover the theft of the original receipts.

A) kiting
B) laundering
C) bogus expense
D) lapping

Question 5

Intentional or reckless conduct that results in materially misleading financial statements is called

A) financial fraud.
B) misstatement fraud.
C) fraudulent financial reporting.
D) audit failure fraud.

Question 6

Which of the following is not an example of the fraud triangle characteristic concerned with easing a fraudster's conscience?

A) Revenge against the company
B) Sense of entitlement as compensation for receiving a lower than average raise
C) Intent to repay "borrowed" funds in the future
D) Belief that the company won't suffer because an insurance company will reimburse losses

Question 7

Which of the following is an opportunity that could contribute to employee fraud?

A) an employee's spouse loses their job
B) an employee suddenly acquires lots of credit cards
C) an employee is upset that he was passed over for a promotion
D) close association with suppliers or customers

Question 8

Researchers have compared the psychological and demographic characteristics of white-collar criminals,violent criminals,and the general public.They found that

A) few differences exist between white-collar criminals and the general public.
B) white-collar criminals eventually become violent criminals.
C) most white-collar criminals invest their illegal income rather than spend it.
D) most white-collar criminals are older and not technologically proficient.

Question 9

In many cases of fraud,the ________ takes more time and effort than the ________.

A) concealment; theft
B) theft; concealment
C) conversion; theft
D) conversion; concealment

Question 10

Which of the following is a financial pressure that could cause an employee to commit fraud?

A) a feeling of not being appreciated
B) failing to receive a deserved promotion
C) believing that their pay is too low relative to others around them
D) having a spouse injured in a car accident and in the hospital for several weeks

Question 11

SAS No.99 requires that auditors

A) plan audits based on an analysis of fraud risk.
B) detect all material fraud.
C) alert the Securities and Exchange Commission of any fraud detected.
D) take all of the above actions.

Question 12

Which of the following is the best way to hide theft of assets?

A) Creating "cash" through the transfer of money between banks
B) Conversion of stolen assets into cash
C) Stealing cash from customer A and then using customer B's balance to pay customer A's accounts receivable
D) Charging the stolen asset to an expense account

Question 13

All of the following could lead to computer fraud except

A) allowing computer operators full access to the computer room.
B) releasing data to unauthorized users.
C) allowing computer users to test software upgrades.
D) storing backup tapes in a location where they can be quickly accessed.

Question 14

Perhaps the most striking fact about natural disasters in relation to AIS controls is that

A) many companies in one location can be seriously affected at one time by a disaster.
B) losses are absolutely unpreventable.
C) there are a large number of major disasters every year.
D) disaster planning has largely been ignored in the literature.

Question 15

"Cooking the books" is typically accomplished by all the following except

A) inflating accounts payable.
B) accelerating recognition of revenue.
C) delaying recording of expenses.
D) overstating inventory.

Question 16

Which of the following best describes lapping?

A) Applying cash receipts to a different customer's account in an attempt to conceal previous thefts of cash receipts.
B) Inflating bank balances by transferring money among different bank accounts.
C) Increasing expenses to conceal that an asset was stolen.
D) Stealing small amounts of cash, many times over a period of time.

Question 17

Which of the following is the greatest risk to information systems and causes the greatest dollar losses?

A) human errors and omissions
B) physical threats such as natural disasters
C) dishonest employees
D) fraud and embezzlement

Question 18

Opportunity to commit fraud is comprised of three stages.The stage that often takes most time and effort would include

A) stealing inventory from the warehouse.
B) selling stolen inventory to get cash.
C) lapping accounts receivable.
D) creating false journal entries to overstate revenue.

Question 19

Most frauds are detected by

A) external auditors.
B) internal auditors.
C) accident.
D) hotline tip.

Question 20

Perpetrators of theft of company assets typically exhibit all the following characteristics except that they

A) attempt to return or pay back stolen amounts soon after the initial theft, but find they are unable to make full restitution.
B) use trickery or lies to gain the confidence and trust of others at the organization they defraud.
C) become bolder and more greedy the longer the theft remains undetected.
D) begin to rely on stolen amounts as part of their income.

Question 21

On Monday morning,Janet Pillsner,Chief Information Officer at International Securities Corporation (ISC),got some bad news.A tape used to store system data backups was lost while it was being transported to an offsite storage location.She called a meeting of her technical staff to discuss the implications of the loss.Which of the following is most likely to relieve her concerns over the potential cost of the loss?

A) The shipper has insurance that will reimburse ISC for the cost of the tape.
B) ISC has a copy of the tape onsite, so a new copy for storage offsite can easily be prepared.
C) The tape was encrypted and password protected.
D) ISC has a comprehensive disaster recovery plan.

Question 22

The most efficient way to conceal asset misappropriation is to

A) write-off a customer receivable as bad debt.
B) alter monthly bank statements before reconciliation.
C) alter monthly physical inventory counts to reconcile to perpetual inventory records.
D) record phony payments to vendors.

Question 23

Which characteristic of the fraud triangle often stems from a lack of internal controls within an organization?

A) pressure
B) opportunity
C) rationalization
D) concealment

Question 24

Why do many fraud cases go unreported and unprosecuted?

A) Major fraud is a public relations nightmare.
B) Fraud is difficult, costly, and time-consuming to investigate and prosecute.
C) Law enforcement and the courts are often so busy with violent crimes that little time is left for fraud cases.
D) all of the above

Question 25

The US Justice Department defines computer fraud as

A) any crime in which a computer is used.
B) an illegal act in which knowledge of computer technology is essential.
C) any act in which cash is stolen using a computer.
D) an illegal act in which a computer is an integral part of the crime.

Question 26

A simple method for catching or preventing many types of employee fraud is to

A) monitor all employee behavior using video cameras.
B) require all employees to take annual vacations.
C) explain to employees that fraud is illegal and that it will be severely punished.
D) monitor employee bank accounts and net worth.

Question 27

The simplest and most common way to commit a computer fraud is to

A) alter computer input.
B) alter computer output.
C) modify the processing.
D) corrupt the database.

Question 28

Downloading a master list of customers and selling it to a competitor is an example of

A) data fraud.
B) output theft.
C) download fraud.
D) fraudulent financial reporting.

Question 29

Computer fraud is often much more difficult to detect than other types of fraud because

A) perpetrators usually only steal very small amounts of money at a time, thus requiring a long period of time to have elapsed before they're discovered.
B) massive fraud can be committed in only seconds, leaving little or no evidence.
C) most perpetrators invest their illegal income rather than spend it, thus concealing key evidence.
D) most computer criminals are older and are considered to be more cunning when committing such a fraud.

Question 30

Describe two kinds of fraud.

Question 31

Which of the following will not reduce the likelihood of an occurrence of fraud?

A) encryption of data and programs
B) use of forensic accountants
C) adequate insurance coverage
D) required vacations and rotation of duties

Question 32

Explain the impact of SAS No.99 on auditors' responsibilities.

Question 33

Which of the following is not an example of one of the basic types of fraud?

A) While straightening the store at the end of the day, a shoe store employee finds and keeps an expensive pair of sunglasses left by a customer.
B) An executive devised and implemented a plan to accelerate revenue recognition on a long-term contract, which will allow the company to forestall filing for bankruptcy. The executive does not own any stock, stock options or grants, and will not receive a bonus or perk because of the overstated revenue.
C) A purchasing agent places a large order at higher-than-normal unit prices with a vendor that gave the agent tickets to several football games.
D) A salesperson approves a large sales discount on an order from a company owned partially by the salesperson's sister.

Question 34

What is the most prevalent opportunity within most companies to commit fraud?

A) lack of any internal controls
B) failure to enforce the internal controls
C) loopholes in the design of internal controls
D) management's failure to believe employees would commit fraud

Question 35

One fraudulent scheme covers up a theft by creating cash through the transfer of money between banks.This is known as

A) lapping.
B) misappropriation of assets.
C) kiting.
D) concealment.

Question 36

What are the actions recommended by the Treadway Commission to reduce the possibility of fraudulent financial reporting?

Question 37

Why is computer fraud often more difficult to detect than other types of fraud?

A) Rarely is cash stolen in computer fraud.
B) The fraud may leave little or no evidence it ever happened.
C) Computers provide more opportunities for fraud.
D) Computer fraud perpetrators are just more clever than other types of criminals.

Question 38

Which characteristic of the fraud triangle relates to excuses that perpetrators use to justify their illegal behavior?

A) pressure
B) opportunity
C) rationalization
D) concealment

Question 39

The fraud that requires the least computer knowledge or skill involves

A) altering or falsifying source data.
B) unauthorized use of computers.
C) tampering with or copying software.
D) forging documents like paychecks.

Question 40

Which situation below makes it easy for someone to commit a fraud?

A) placing excessive trust in key employees
B) inadequate staffing within the organization
C) unclear company policies
D) All of the above situations make it easy for someone to commit a fraud.

Question 41

Why is computer fraud on the rise?

Question 42

Describe four ways companies can reduce losses from fraud.

Question 43

What are some of the distinguishing characteristics of fraud perpetrators?

Question 44

Why do fraudulent acts often go unreported and are therefore not prosecuted?

Question 45

Describe at least four ways a company can make fraud less likely to occur.

Question 46

A teller at a savings and loan drive-through accepted a cash payment from customer #1 for an auto loan.The teller appeared to process the payment,but told the customer the printer was jammed and she can't print a receipt.The customer accepted the excuse and drove away.The teller pocketed the cash and wrote down customer #1's loan number and payment amount for future reconciling.A couple of days before customer #1's monthly statement was printed,the teller recorded a cash payment from customer #2 as if it were made by customer #1.The teller pocketed the difference between the two payments.The teller continued to steal and misapply customer payments for the next two years without detection.
Identify the type of fraud scheme described.Describe five controls you would implement to address the fraud risk,and label each control as preventive or detective.