Deck 2: Careers in Fraud Examination and Financial Forensics

Question 1

Due to a greater degree of oversight and audits, frauds in not-for-profit organizations generally do not last as long as those in the private sector and usually result in less lost values.

Answer 1

False

Question 2

The board of directors, as an important internal component of corporate governance, receives its authority from the appointing president/CEO.

Answer 2

False

Question 3

As a result of events such as the passing of the Sarbanes-Oxley Act of 2002 SOX Act and the Emergency Economic Stabilization Act of 2008 EESA professionals practicing in the traditional areas of tax, audit, management, information systems, government, not-for-profit, external independent, and internal audit are expected to have a greater understanding of fraud and financial forensics.

Answer 3

True

Question 4

The Forensic and Valuation Services FVS Center is part of the American Institute of Certified Public Accountants.

Question 5

Laws such as the RICO Act racketeering influence and corrupt organizations, money laundering, false claims, bankruptcy fraud, tax evasion, conspiracy, and obstruction of justice require that "reasonable believe" is established prior to intrusive searches in order to comply with the regulatory rules of evidence.

Question 6

ISACA has become a pace-setting global organization for information governance, control, security, and information systems IS professionals.

Question 7

The Institute for Fraud Prevention IFP fulfills the first of its two missions with member organizations supported research by selecting projects and providing funding, guidance, and data that will help us better understand fraud with a long-term goal of reducing its incidence and effects.

Question 8

The Certified Information Security Manager CISM is unique in the information security credential marketplace because it is designed specifically and exclusively for individuals who have experience managing an information security program.

Question 9

The Sarbanes-Oxley Act of 2002 SOX Act and the Emergency Economic Stabilization Act of 2008 EESA both are focused on external controls and auditing practices.

Question 10

According to Mr. Sam E. Antar former Crazy Eddie CFO and a convicted felon, too many audit committee members have no formal educational background in accounting and auditing, and no specialized training in fraud detection.

Question 11

Risk assessment is a critical aspect of good corporate governance and the same concept is applicable in an information technology environment.

Question 12

Corporate accounting is primarily responsible for the quality, integrity, and reliability of the financial reporting process, as well as the fair presentation of financial statements in conformity with generally accepted accounting principles GAAP.

Question 13

Much of the recent legislative and regulatory changes within the U.S. such as the Sarbanes-Oxley Act and related SEC rulings are in an effort to hold various corporate governance participants to greater levels of accountability and to create an environment where the risk of fraud is mitigated, at least to levels below the materiality threshold.

Question 14

An operating style that shows excessive risk-taking to strengthen the balance sheet, for example, is generally a red flag for fraud.

Question 15

The board of directors' primary responsibility is one of gatekeeper, an ultimate internal control mechanism to protect the interests of shareholders, creditors, and other stakeholders. Therefore, one goal is to minimize the ability of management to expropriate shareholder value through financial statement and other forms of fraud and financial malfeasance.

Question 16

The Society of Financial Examiners is a professional society for examiners of insurance companies, banks, savings and loans, and credit unions primarily based in the European Economic Community.

Question 17

Regulatory agencies such the Financial Accounting Standards Board would not employ professionals with specialized knowledge, skills, training, education, and experience in fraud examination and financial forensics.

Question 18

Regulatory reforms in the United States are aimed primarily at improving the financial reporting of companies traded on the capital markets while maintaining their global competitiveness.

Question 19

The Institute of Internal Auditors' Financial Forensics Institute FFI was established in partnership with some of the nation's top authorities in forensic accounting, law, economics, valuation theory, expert witnessing, and support fundamentals to offer practitioners comprehensive training in all facets of forensic financial consulting.

Question 20

The Department of Justice defines cybercrime as any violation of civil law that involves knowledge of computer technology for its perpetration, investigation, or prosecution.

Question 21

Internal Revenue Service IRS agents are involved in all of the taxation actions listed except:

A) excise tax.
B) sales tax.
C) personal income tax.
D) corporate income tax.

Question 22

The need for competent staffing in fraud and financial forensics is expected to outpace supply:

A) at the Securities and Exchange Commission.
B) at the Public Company Accounting Oversight Board.
C) in private industry.
D) At all of the above.

Question 23

Forensic accountants working for a law firm would most likely investigate all of the following except:

A) uncover instances of companies cooking the books to falsely inflate company profits.
B) minimize losses.
C) divert large amounts of money to company managers.
D) tortuous interference.

Question 24

M/C Most data extraction and analysis tools can:

A) retrieve, sort, and filter data.
B) extract, and analyze data from accounting databases.
C) identify gaps, duplicates, missing information, and statistical anomalies.
D) All of the above are correct answers.

Question 25

All of the following are elements of the Information Systems Audit and Control Association ISACA definition of IT governance as a set of principles to assist enterprise leaders in their responsibilities except:

A) the organization's information technology needs are aligned with the business's goals and deliver value.
B) the organization's performance is measured,
C) the organization's resources are properly allocated.
D) the organization's risks are unmitigated.

Question 26

White-collar criminals are losing their fear of the Federal Bureau of Investigation FBI primarily because:

A) the agency's job has shifted its entire terrorism issues.
B) the agency has lost much of its brain trust to the private sector.
C) the economic woes of the country have nothing to do with white-collar crime.
D) All of the above are correct responses.

Question 27

Select five actions most likely to be associated with forensic psychology.
1) The legal issue of competency and whether a defendant was sane at the time the crime occurred.
2) The profiling of offenders.
3) Unlawful discrimination.
4) When treating mentally ill offenders.
5) Spousal abuse.
6) Consulting with attorneys when picking a jury.
7) Emphasizes the relationship between the standards of validity and reliability and the rules of evidence.
8) Pornography.
9) Analyzing a criminal's mind and intent.
10) How to improve interrogation methods.
11) Toxic torts.
12) How to evaluate eyewitness testimony.
13) Help design effective correctional facilities.
14) Can help us to understand who commits fraud and why.

A) 1, 2, 4, 9, and 11.
B) 2, 3, 6, 7, and 9.
C) 1, 6, 10, 12, and 14.
D) 3, 6, 9,12, and 13.

Question 28

As part of legal and regulatory oversight to prevent misconduct, including fraud, professionals are checking for compliance and doing risk analysis for:

A) the Sarbanes-Oxley Act of 2002 SOX Act.
B) environmental.
C) health and safety OSHA issues.
D) All of the above are correct.

Question 29

One of the most important contributions of criminology to the study of fraud is:

A) the M.I.C.E. concept.
B) the fraud triangle.
C) the relationship of punishment to remediation.
D) Another choice is the most important contribution of criminology.

Question 30

According to Mr. Sam E. Antar former Crazy Eddie CFO and a convicted felon,

A) CPAs must maintain their current level of stress in continuing professional education on white-collar crime.
B) he feared the FBI and SEC but has lost that fear over time.
C) oversight by the board of directors on the corporation would be increased if board members served longer terms.
D) the president of the corporation should be empowered to select and appoint appropriately trained and educated board members.

Question 31

In crime scene investigation, the investigator has three primary goals. Each of the follow is one of those primary goals except:

A) preservation of evidence.
B) validation of evidence.
C) collection of evidence.
D) protection of evidence.

Question 32

Corporate governance means:

A) the integrity and quality of the corporation's trading value on the market.
B) the way a corporation is governed through proper accountability for managerial and financial performance.
C) the reliability, vigilance, and objectivity of the corporate.
D) All of the above are correct answers.

Question 33

The perpetrators of white-collar crime today:

A) are aware that the FBI thoroughly investigate and document any possible cases due to the attention created by cases such as Enron and WorldCom.
B) are aware that the FBI is understaffed and inadequately trained for fraud investigations.
C) have a great fear of the FBI for its reputation and tenacity in completion of investigations.
D) are fearful of the Securities and Exchange Commission due to its increased power in the prosecution of white-collar crime since passage of the Sarbanes-Oxley Act in 2002.

Question 34

Select the incorrect sentence continuation. Professionals with financial forensic and fraud examination skills may also work at federal government agencies such as the Government Accountability Office GAO. This work:

A) may also be very political.
B) can have a significant impact on the public good.
C) will not work with the creation of budgets.
D) is subject to bureaucratic obstruction.

Question 35

Continued professional development will be required:

A) only by entry-level personnel concerning task-specific and organization-specific issues.
B) by entry-level and experienced staff concerning task-specific and organization-specific issues.
C) by experienced staff only concerning task-specific and organization-specific issues.
D) by entry-level and experienced staff concerning only task-specific issues.

Question 36

Cyberforensics would generally not involve:

A) capture and preservation.
B) Identification and extraction.
C) operating system identification.
D) documentation and case preparation related to digital data.

Question 37

The USA PATRIOT Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct TerrorismAct is focused on:

A) blue-collar crime, money laundering, and terrorist financing.
B) white-collar crime, money laundering, and aggressive terrorist acts.
C) white-collar crime, money laundering, and terrorist financing.
D) white-collar crime, identity theft, and terrorist financing.

Question 38

According to Mr. Sam E. Antar former Crazy Eddie CFO and a convicted felon,

A) internal audit committees are adequately independent but need better training.
B) a board of directors has an appropriate level of education and curiosity but needs better training for their posting.
C) external auditors have adequate training but need continued professional education for their task.
D) while legal and acceptable, stock compensation and stock ownership by board members may be inappropriate to the board's tasks and responsibilities.

Question 39

Digital evidence would not include:

A) voicemails.
B) bank statements.
C) DVDs.
D) XM/Sirius radio players.

Question 40

Select five actions most likely to be associated with forensic sociology.
1) The legal issue of competency and whether a defendant was sane at the time the crime occurred.
2) The profiling of offenders.
3) Unlawful discrimination.
4) When treating mentally ill offenders.
5) Spousal abuse.
6) Consulting with attorneys when picking a jury.
7) Emphasizes the relationship between the standards of validity and reliability and the rules of evidence.
8) Pornography.
9) Analyzing a criminal's mind and intent.
10) How to improve interrogation methods.
11) Toxic torts.
12) How to evaluate eyewitness testimony.
13) Help design effective correctional facilities.
14) Can help us to understand who commits fraud and why.

A) 2, 5, 7, 8, and 11.
B) 2, 3, 6, 10, and 9.
C) 1, 4, 6, 9, and 10.
D) 3, 5, 7, 8, and 12.

Question 41

The audit committee is:

A) independent of the board of directors.
B) is a subcommittee of the board of directors.
C) is responsible for reviewing the effectiveness of internal controls.
D) Both B and C are correct answers.

Question 42

In February 2005, the American Institute of Certified Public Accountants AICPA issued a report titled "Management Override of Internal Controls: The Achilles' Heel of Fraud Prevention." It notes that management may override internal controls and engage in financial statement fraud by all of the following except:

A) channel stuffing.
B) recording fictitious business transactions and events or altering the timing of recognition of legitimate transactions.
C) recording and reversing biased reserves through unjustifiable estimates and judgments.
D) changing the records and terms of significant or unusual transactions.

Question 43

To be proactive, the audit committee should ensure that:
1) Audit committee members have knowledge, education, awareness, and sophistication concerning the various fraudulent management override and collusive schemes that may be perpetrated by management.
2) Only the external audit group needs have knowledge, education, awareness, and sophistication concerning the various fraudulent management override and collusive schemes that may be perpetrated by management.
3) The audit committee has reviewed the comprehensive fraud risk assessment provided by management and also considers how collusive fraud and management override schemes are mitigated and detected.
4) The audit committee periodically participates in continuing education programs that can prepare its members to appraise management's fraud risk assessment.
5) The audit committee identifies who has the specific responsibility for the collusive and management override fraud risk assessment process: its members, the internal audit group, or the independent audit group?
6) The audit committee is interacting with personnel beyond executive management and asking the tough questions of knowledgeable employees, financial managers, internal auditors, and external auditors.
7) The audit committee has a protocol for acting on proven unethical and potentially fraudulent conduct.
Select the answer which is most correct.

A) 1, 2, 3, and 5.
B) 1, 3, 4, and 6.
C) 3, 4, 6, and 7.
D) 4, 5, 6, and 7.

Question 44

Pick the incorrect continuation: To effectively discharge its financial reporting responsibility, management should:

A) ensure that published financial statements are not misleading and are free of material errors, irregularities, and fraud.
B) assess and manage the risk of fraud associated with the identified circumstances, conditions, and factors.
C) identify and assess the circumstances, conditions, and factors that can lead to fraud.
D) design and implement an adequate and effective internal control process for prevention and detection of fraud.

Question 45

This accreditation has been approved by the U.S. Department of Defense DoD for information management.

A) Information Systems Audit and Control Association ISACA
B) Certified Information Security Manager CISM.
C) Certified Information Systems Analyst CISA
D) Each of the above is accredited by the U.S. Department of Defense.

Question 46

One of the primary roles of the board of directors in corporate America is to create a system of checks and balances in an organization through its authority to hire and monitor management and evaluate their plans and decisions and the outcomes of their actions. The audit committee is one of their tools. Discuss three issues the audit committee oversees and explain them.

Question 47

The board of directors' primary responsibility is:

A) financial reporting to meet SEC requirements.
B) internal control to protect the interests of shareholders, creditors, and other stakeholders.
C) to minimize the ability of management to expropriate shareholder value through financial statement and other forms of fraud and financial malfeasance.
D) All of the above are correct answers.

Question 48

Auditors in identifying and assessing the risks of material financial statement fraud should do all but which of the following?

A) Make inquiries of the board of directors, senior executives, legal counsel, and others charged with government governance within the client organization to gather sufficient information about the risk of the fraud.
B) Communicate with legal counsel about the allegations of fraud and how they are addressed.
C) Consider all evidence gathered through analytical procedures that is considered unusual, unexpected, or even suspiciously normal based on the financial condition and results of the business.
D) Consider evidence gathered only through the audit of internal control of financial reporting that may suggest the existence of one or more fraud risk factors, and that adequate and effective internal controls did not address and account for the detected risk.

Question 49

The separation of ownership and control in corporations requires the board of directors to do all of the following except:

A) allocate rewards in ways that encourage shareholder value creation.
B) assess managerial performance.
C) divest themselves of corporate stock and future ownership rights.
D) review and approve important management decisions.

Question 50

There has been a great deal of concern about the issue of corporate governance and accountability of publicly traded companies because of:

A) internal audit failures such as those associated with Enron, Crazy Eddie, and WorldCom.
B) board of director involvement in the external audit process.
C) financial statement fraud.
D) None of the above are correct answers.

Question 51

What are the major differences between internal auditors and external auditors. What strengths and weaknesses require both to exist?

Question 52

The audit committee oversees the adequacy and effectiveness of the company's internal control structure to ensure all of the following except:

A) the efficiency and effectiveness of operations.
B) the timeliness of financial reporting. C the reliability of financial reporting.
D) compliance with applicable laws and regulations.

Question 53

Which society was established in 1973 to establish a strict code of professional standards for members engaged in the examination of financial institutions?

A) National Association of Certified Valuation Analysts
B) Association of Certified Fraud Examiners,
C) Financial Forensics Institute
D) Society of Financial Examiners

Question 54

The long-term success of any professional endeavor is derived from several sources. In proper order they are:

A) Education, practice, and research.
B) Identify the problem, research, education, and practice.
C) Education, practice, and research.
D) Research, practice, and education.

Question 55

There are many accreditations mentioned in the chapter. Why are such accreditations considered important?

Question 56

The Certified Information Systems Analyst CISA designation is:

A) considered to have a growing demand for those possessing IS audit, control, and security skills.
B) considered to be a diminishing opportunity due to the increased role of external and internal auditors as mandated by the Sarbanes-Oxley Act SOX Act.
C) primarily an academic accreditation designed to establish educational institutions curriculum building blocks.
D) None of the above are correct answers.

Question 57

While there have been numerous failures to detect fraud, abuse, violations of ethics, the perpetrators of the scheme at Crazy Eddie's have been some of the most forth coming individuals about how it was done and how it was covered up. What techniques or processes would you be looking for and how would you counter them in an audit of a firm like Crazy Eddie's after reading the articles?

Question 58

Which individual or group of individuals has a primary role in corporate America of creating a system of checks and balances in an organization through its authority to hire and monitor management and evaluate their plans and decisions and the outcomes of their actions?

A) The board of directors.
B) The president/chief executive officer.
C) The personnel department.
D) The shareholders through the annual shareholders meeting and voting their shares.

Question 59

The statement is frequently made that the financial statements are "not misleading and are free of material errors, irregularities, and fraud." What does this statement mean?

Question 60

The Certified Internal Auditor CIA designation is:

A) recognized primarily in the United States.
B) the only globally accepted certification for internal auditors.
C) recognized primarily within the European Economic Community.
D) recognized primarily within Great Britain and Ireland.

Question 61

What is the role of research in the fraud examination and financial forensics professions?

Question 62

Why are manhole covers round?

Question 63

Which professional organizations support fraud examination and financial forensics professionals? What certifications do they offer?

Question 64

According to this chapter, what employment trends are expected for professionals in the fields of fraud examination and financial forensics? Why?

Question 65

What employment opportunities currently exist for fraud examiners and financial forensics specialists?

Question 66

Other than accounting, which disciplines do fraud examination and financial forensics encompass?

Question 67

What international opportunities exist in fraud examination and financial forensics?

Question 68

What role do fraud examination and financial forensic skills have in the corporate governance area?