Deck 4: Internal Control Cash

Question 1

All of the following are examples of a weak control environment EXCEPT:

A)a domineering CEO.
B)a weak or conflicted Board of Directors.
C)lax ethical practices.
D)proper segregation of duties.

Answer 1

D

Question 2

Fraudulent financial reporting is the only type of fraud that involves making false or misleading entries in the books of the company.

Answer 2

False

Question 3

The type of fraud committed by employees of an entity,who steal money from the company and cover it up through erroneous entries in the books,is called:

A)misappropriation of assets.
B)fraudulent financial reporting.
C)phishing.
D)collusion.

Answer 3

A

Question 4

What is fraud?

A)Fraud is the intentional misrepresentation of facts made for the purpose of persuading another individual to act in a way that causes injury or damage to that individual.
B)Fraud is the misappropriation of assets.
C)Fraud is untruthful financial reporting.
D)all of the above

Question 5

Fraudulent financial reporting:

A)involves employee overstatement of expense reimbursement requests.
B)involves bribes and kickbacks.
C)involves stealing assets from the company.
D)deceives investors into investing.

Question 6

One of the most common types of fraud that impacts the financial statements is the misappropriation of assets.

Question 7

A weak control environment might allow top management to have the opportunity to commit fraud.

Question 8

The two most common types of fraud impacting the financial statements are:

A)fraudulent financial reporting and e-commerce fraud.
B)misappropriation of assets and embezzlement.
C)fraudulent financial reporting and misappropriation of assets.
D)cooking the books and fraudulent financial reporting.

Question 9

Opportunity in the fraud triangle arises from:

A)weak control environment.
B)improper segregation of duties.
C)improper access to assets.
D)all of the above.

Question 10

The three main components of the fraud triangle are:

A)rationalization,opportunity and greed.
B)opportunity,motive and lack of ethics.
C)motive,opportunity and rationalization.
D)none of the above.

Question 11

The longer a perpetrator has worked for an organization,the lower the fraud losses tend to be.

Question 12

________ is the most common fraud,but ________ is the most expensive fraud.

A)Fraudulent financial reporting;misappropriation of assets
B)Misappropriation of assets;fraudulent financial reporting
C)Misappropriation of assets;cooking the books
D)Cooking the books;misappropriation of assets

Question 13

Fraud is a major problem in many businesses throughout the world.

Question 14

In most reported fraud cases,fraudsters exhibit one or more behavioral red flags.Which of the following is NOT one of these behavioral red flags?

A)financial difficulties
B)unusually close associations with vendors
C)unusually close associations with customers
D)living within one's means

Question 15

Internal control is a plan of organization and a system of procedures designed to prevent fraud.

Question 16

________ is the element in the fraud triangle that results from weak internal controls.

A)Motive
B)Opportunity
C)Rationalization
D)Reasoning

Question 17

The type of fraud committed by company managers,who make false and misleading entries in the books in order to improve a company's financial statements,is called:

A)misappropriation of assets.
B)fraudulent financial reporting.
C)embezzlement.
D)collusion.

Question 18

One of the elements of the fraud triangle is opportunity.

Question 19

An employee claims that he overstated expense reimbursement requests to have extra money for his wife and children because "Everyone is doing it." This is an example of:

A)opportunity.
B)motive.
C)rationalization.
D)understanding.

Question 20

Perpetrators of fraud usually commit fraud for their own short-term economic gain.

Question 21

The primary way that fraud is prevented,detected,or corrected is through a proper system of:

A)ethical standards and a code of ethics.
B)policies developed by upper management.
C)internal control.
D)internal and external audits.

Question 22

Collusion is the method used to defeat an internal controls system.

Question 23

Enron Corporation committed fraudulent financial reporting by:

A)reporting expenses as plant assets.
B)overstating profits through bogus sales of nonexistent assets with inflated values.
C)bribing employees of the Securities and Exchange Commission.
D)all of the above

Question 24

Internal control is a plan of organization and system of procedures,implemented by company ________ and the ________,designed to accomplish five objectives.

A)internal auditors,employees
B)external auditors,management
C)management,board of directors
D)external auditors,board of directors

Question 25

Which is NOT an objective of an internal control system?

A)safeguarding of assets
B)compliance with company policies
C)compliance with legal requirements
D)risk assessment

Question 26

What is the purpose of fraudulent financial reporting?

A)Net income and total assets are understated so managers can receive their bonuses.
B)Net income and total assets are overstated so managers can receive their bonuses.
C)A company can borrow money that would not otherwise be available.
D)B and C

Question 27

Which of the following statements regarding fraud is INCORRECT?

A)Fraud violates the rights of many for the temporary betterment of a few and for the ultimate betterment of no one.
B)Motive,opportunity,and rationalization are elements that make up virtually every fraud.
C)The perpetrators of fraud usually do so for their own short-term economic gain.
D)Misappropriation of assets is a type of fraud that is committed by company managers who make false and misleading entries in the books in order to improve a company's financial results.

Question 28

Background checks should be conducted only for employees who will handle cash.

Question 29

Small companies cannot have internal controls since they do not have enough employees to segregate duties.

Question 30

Access to sensitive data files in a business should be protected by using either passwords or data encryption.

Question 31

Smart hiring practices and separation of duties are part of the control environment.

Question 32

In order to maximize profits,a proper system of internal controls provides clear policies that result in fair treatment that applies to customers only.

Question 33

Which of the following are examples of the misappropriation of assets?

A)An employee overstates an expense reimbursement request after a company trip.
B)an employee theft of inventory
C)a kickback scheme in the purchasing function
D)all of the above

Question 34

The objectives of internal control do NOT include:

A)compliance with standards of social responsibility.
B)safeguarding assets.
C)promoting operational efficiency.
D)compliance with legal requirements.

Question 35

The Sarbanes-Oxley Act of 2002:

A)requires public companies to issue in writing that financial reports are accurate and that internal controls are adequate.
B)has stiff penalties and prison time for violators of financial statement fraud.
C)allows public companies to avoid a review of internal controls.
D)A and B

Question 36

The Sarbanes-Oxley Act created the American Institute of Certified Public Accountants to oversee the audits of public companies.

Question 37

The primary way that fraud and unintentional errors in financial statements are prevented is by external auditors.

Question 38

A company can limit employees' access to assets by:

A)keeping the supply of unused checks under lock and key.
B)processing the company's cash payments through one employee who handles the bookkeeping and the check preparation.
C)allowing persons who have record-keeping responsibilities be part of the mailroom function.
D)all of the above.

Question 39

Fraudulent financial reporting is also called:

A)the fraud triangle.
B)a misappropriation of assets.
C)cooking the books.
D)investigative reporting.

Question 40

Outside auditors are responsible for establishing and maintaining adequate internal controls for each company they audit.

Question 41

The "tone at the top" refers to:

A)a component of the control environment.
B)a concept that applies only to large corporations.
C)owners and top managers behaving honorably to set a good example for employees.
D)A and C.

Question 42

The objectives of internal control do NOT include:

A)safeguard assets.
B)encourage employees to follow company policy.
C)ensure accurate,reliable accounting records.
D)strong control environment.

Question 43

A company has a policy that all checks over $5,000 need to have the signature of the owner in addition to the signature of the bookkeeper.This is an example of:

A)limited access.
B)proper approvals.
C)adequate records.
D)encryption.

Question 44

A fidelity bond is a(n):

A)employment contract for a specified period of time.
B)insurance policy that reimburses a company for any losses due to employee theft.
C)contract prohibiting former employees from working for a competitor.
D)promise by a company to safeguard customers' personal information.

Question 45

E-commerce pitfalls include all of the following EXCEPT:

A)stolen credit card numbers.
B)phishing expedition.
C)encryption.
D)malware.

Question 46

The components of internal control do NOT include:

A)control environment.
B)risk assessment.
C)control procedures.
D)safeguard assets.

Question 47

The general rule that all major groups of transactions should be supported by either hard copy documents or electronic records is part of the control procedure of:

A)limited access.
B)segregation of duties.
C)adequate records.
D)proper approvals.

Question 48

Internal controls are designed to accomplish five objectives that include compliance with legal requirements,promote operational efficiency,safeguard assets,encourage employees to follow company policy and:

A)prevent misappropriation of assets.
B)prevent collusion.
C)prevent fraud.
D)ensure accurate,reliable accounting records.

Question 49

Internal controls to safeguard assets means the company must safeguard assets against all EXCEPT:

A)waste.
B)inefficiency.
C)audits.
D)fraud.

Question 50

Malware is short for:

A)malicious device.
B)phishing expedition.
C)malicious software.
D)phishing software.

Question 51

Which law or regulation requires that public companies must maintain strong internal control systems?

A)Dodd-Frank Act
B)Securities and Exchange Act of 1933
C)Internal Control Act
D)Sarbanes-Oxley Act

Question 52

Internal control procedures do NOT include:

A)smart hiring practices.
B)adequate records.
C)limited access.
D)control environment.

Question 53

________ rearranges messages by a mathematical formula making the message impossible to read by someone who does not know the code.

A)Encryption
B)Firewall
C)Security wall
D)Access device

Question 54

Which is NOT a component of comparisons and compliance monitoring?

A)control environment
B)budgets
C)audits
D)all of the above

Question 55

Smart hiring practices include:

A)background checks.
B)clear job descriptions.
C)proper training and supervision.
D)all of the above.

Question 56

An internal control system can be circumvented by:

A)collusion,encryption and management override.
B)collusion,management override and segregation of duties.
C)collusion,management override and human limitations.
D)nothing,if it is a good internal control system.

Question 57

The control environment does NOT include:

A)a corporation's code of ethics.
B)prohibition of bribes and kickbacks.
C)risk assessment.
D)prohibition of transactions that involve a conflict of interest.

Question 58

Creating bogus websites for the purpose of stealing unauthorized data is a(n):

A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.

Question 59

Three key duties that must always be separated under a good system of internal controls are:

A)asset handling,record keeping and transaction approval.
B)asset handling,hiring and safeguarding of assets.
C)asset handling,recordkeeping and safeguarding of assets.
D)record keeping,transaction analysis and transaction approval.

Question 60

For companies that are too small to hire enough employees to properly separate duties,the key to good internal control is getting the owner to perform which of the following duties:

A)approving all small transactions.
B)reconciling the monthly bank account or making bank deposits.
C)reconciling the monthly bank account and making bank deposits.
D)The owner should not perform any of the above duties.

Question 61

The company should split duties of purchasing goods,receiving goods,preparing payment,and approving payment.

Question 62

The sum of the cash in the petty cash fund and the total of the paid vouchers should equal the opening balance in the petty cash account at all times.

Question 63

The treasurer is solely responsible for the petty cash fund.

Question 64

For each of the following situations,indicate which internal control procedure Johnson Company has violated:
1.Since they are costly,background checks are not done for the employees.
2.Purchases of items on credit do not need the approval of the purchasing department.
3.All hard copies of documents are shredded after one month and electronic records are deleted after two months.
4.The company does not prepare operating or cash budgets.
5.The accountant receives the checks from customers in payment of amounts due and records the cash receipts.
6.There are no locks in the area where inventory is stored.
7.The hiring,firing and pay adjustments are made by the foremen in the manufacturing area.

Question 65

The duties of purchasing goods and receiving the goods should be given to the same employee.

Question 66

When a company receives customers' checks by mail:

A)the mailroom sends all customer checks to the treasurer,who has the cashier deposit the checks in the bank.
B)the treasurer prepares the journal entries.
C)the mailroom employee prepares the journal entries.
D)the treasury department cashier prepares the journal entries.

Question 67

Which statement is FALSE?

A)Sales to customers should be approved by a separate credit department.
B)Purchases on credit should be approved by a separate purchasing department.
C)Transactions with a large dollar amount should be approved by the Board of Directors or top management.
D)The firing of employees should be handled by the department where the employee works.

Question 68

Which of the following is NOT a way to safeguard controls?

A)purchasing a fidelity bond
B)rotating employees into different job position
C)mandatory vacations
D)keeping accurate financial records

Question 69

Examples of internal control procedures do NOT include:

A)proper segregation of duties.
B)adequate records.
C)proper approvals.
D)risk assessment.

Question 70

List and briefly discuss the five objectives of internal control.

Question 71

Debit cards cannot be used to make purchases of relatively small amounts because of the high risk of fraud.

Question 72

When a company receives customers' checks by mail:

A)all incoming mail containing checks from customers should be opened by the mailroom.
B)the mailroom sends all customer checks to the accounting department.
C)the remittance advices go to the treasurer for deposit.
D)the bank deposit is prepared by the mailroom.

Question 73

List the five internal control procedures.

Question 74

To further prevent the theft of cash,many companies accept electronic funds transfers from their
customers.

Question 75

A receiving report informs a vendor of the amount of goods received by the purchaser.

Question 76

Which statement is FALSE?

A)The bookkeeper should not handle incoming checks from customers.
B)Cashiers should not have access to the accounting records.
C)The treasurer's department should be in charge of cash handling as well as signing and approving checks.
D)The accounting department should be in charge of record keeping and depositing customers' checks.

Question 77

The treasurer conducts the final step for the receipt of cash by mail.This step includes comparing bank deposit amounts from the treasurer and the debit to Cash.

Question 78

Internal controls for cash receipts over the counter and for cash receipts by mail are identical.

Question 79

Payments by check or EFT represent an important internal control.

Question 80

Managers can use records produced by point-of-sale terminals to check inventory levels.