Deck 2: Why People Commit Fraud

Question 1

An effective accounting system is designed to provide which of the following to help discover fraud?

A) An audit trail
B) Matching of expenses to revenues
C) Set of controls
D) Set of accounting procedures

Answer 1

A
B: Accounting systems do match expenses with revenues, but this does not help discover fraud.
C: Controls are used to prevent fraud, not to discover fraud.
D: Accounting procedures help set up the accounting system; not vice versa.

Question 2

Which of the following statements about accounting systems is incorrect?

A) An effective accounting system provides an audit trail that allows frauds to be discovered.
B) An effective accounting system makes concealment difficult.
C) An effective accounting system can almost always effectively prevent "kickbacks."
D) Without a good accounting system, it is often difficult to distinguish between actual fraud and unintentional error

Answer 2

C
A: True statement
B: True statement
D: A good accounting system ensures that recorded transactions are valid, properly authorized, complete, properly classified, reported in the proper period, properly valued, and summarized correctly.

Question 3

Financial statement fraud is typically committed by:

A) Employees with access to company assets
B) Top management
C) Customers
D) Vendors

Answer 3

B
A: Employees usually commit fraud against the organization, not for the organization.
B: Top management is usually responsible for fraud committed on behalf of the organization.
C: Customers usually commit fraud against the organization.
D: Vendors usually commit fraud against the organization.

Question 4

Which of the following is not one of the key elements common to all frauds?

A) Perceived pressure
B) Perceived inequality
C) Perceived opportunity
D) Rationalization

Question 5

Each of the following is an example of an inadequate control environment EXCEPT:

A) The HR department failed to check an applicant's background and hired someone who had committed fraud in the past.
B) A manager instructs employees not to share passwords, and then shares her passwords with others.
C) A company does not establish codes of conduct and does not have training meetings to teach employees to distinguish between acceptable and unacceptable behavior.
D) The employees know who has responsibility for each business activity.

Question 6

Greed, living beyond one's means and high bills all describe what type of fraud-related pressure?

A) Financial
B) Peer
C) Vice
D) Barometric
E) Work Related

Question 7

Which of the following is false?

A) 95% of all frauds involve financial or vice related pressures
B) When the IRS required social security numbers for dependents, the number of dependents went down
C) Over half of all people are honest at all times
D) Only about a third of all frauds are committed by employees with less than four years in a company

Question 8

When fraud occurs, the most common reaction to those affected by the fraud is:

A) Anger
B) Acceptance
C) Denial
D) Nervousness
E) All of the above

Question 9

Modeling and labeling are sub-components of which control structure component:

A) Control environment.
B) Accounting system.
C) Control procedures.

Question 10

The fraud triangle includes all of the following except for:

A) Validation
B) Perceived opportunity
C) Rationalization
D) Perceived pressure

Question 11

Which of the following is not a possible control activity:

A) Having separate authorization, bookkeeping, and custody functions.
B) Protecting access to important information with a password.
C) Requiring two individuals to work on the same task.
D) All are control activities.

Question 12

Poor credit could become a ________ that could lead to fraud.

A) Financial pressure
B) Perceived opportunity
C) Rationalization

Question 13

Most fraud perpetrators:

A) Have little education
B) Have a criminal record.
C) Are new to the company
D) None of the above

Question 14

Which of the following is not a common rationalization of fraud perpetrators?

A) The organization owes me
B) I'm only borrowing the money
C) No one will get hurt
D) All of the above are common rationalizations for fraud.

Question 15

Work-related pressures that people use to justify their actions include:

A) Dissatisfaction with their job
B) Believing that they are underpaid
C) Forced to work too many hours
D) All of the above

Question 16

Which of the following is not an element of a good control environment?

A) Trust
B) Modeling
C) Appropriate hiring
D) Management's communication

Question 17

A nurse was charged with embezzling money from patients' rooms at a hospital because of which noncontrol factor:

A) Lack of an audit trail
B) Ignorance, apathy, and incapacity
C) Failure to discipline fraud perpetrators
D) Inability to judge the quality of performance

Question 18

Which of the following is not a control activity?

A) Dual custody
B) Systems of authorization
C) Internal audit department
D) Documents and records

Question 19

What is the most important element in a control environment?

A) Management's communication
B) Management's role and example
C) The hiring process
D) The internal audit department

Question 20

In order to set a good "tone at the top," management must ______________proper behaviors.

A) Label
B) Expect
C) Model
D) All of the above

Question 21

Which of the following is an example of a non-control factor of fraud?

A) An employee inflates an expense report
B) An auto shop uses sub-standard parts and charges for premium transmission parts
C) Internal controls are overridden so a manager can steal cash
D) An investment opportunity is run by someone previously convicted of fraud

Question 22

Most fraud perpetrators have profiles that look like:

A) Those of other honest people
B) Those with criminal records
C) Those who are uneducated
D) Those who use alcohol and drugs

Question 23

Which of the following attributes is a fraud perpetrator most likely to possess?

A) Criminal Record
B) Less Educated
C) Alcohol Abuser
D) Religious

Question 24

Which of the following is a Non-control Factor?

A) Ability to judge the quality of performance
B) Ignorance, apathy, & Incapacity
C) Access to Information
D) None of the above

Question 25

Control Factors are -

A) An effective control environment
B) An ethical Accounting System
C) Internal control activities
D) Anything that prevents or detects fraud

Question 26

Which of the following is not a true statement?

A) Almost every fraud involves rationalization.
B) All frauds involve financial or vice-related pressures.
C) Perceived opportunity diminishes when fraud perpetrators are prosecuted.

Question 27

Which of the following is not a common financial pressure associated with fraud?

A) Living beyond one's mean's
B) High bills or personal debt
C) Personal financial losses
D) All of the above are common financial pressures associated with fraud

Question 28

Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?

A) Perceived opportunity
B) Perceived pressure
C) Rationalization
D) None of the above

Question 29

What is the strongest factor in deterring future fraud activity?

A) Legal prosecution.
B) Sanctions.
C) Termination.
D) Counseling.

Question 30

Which of the following factors creates an opportunity for fraud?

A) Greed
B) Living beyond one's means
C) Lack of an audit trail
D) The organization owes it to me

Question 31

People who commit fraud are most similar to which of the following groups?

A) Burglars
B) College students
C) Convicted murderers
D) Police officers

Question 32

Which of the following is not considered a control environment issue?

A) Management philosophy and operating style
B) Effective hiring procedures
C) Clear organizational structure
D) High debt to equity ratio

Question 33

Which of the following people is most likely to have opportunities to commit fraud?

A) Rob is a convicted bank robber who has been out of jail for 7 years
B) Jane is a recent high school graduate who loves going shopping.
C) Steve was just hired by his company but he is always acting suspicious
D) 62 year old Dave has loyally worked up his company's corporate ladder for the past 24 years

Question 34

Which of the following is true about fraud perpetrators compared to property offenders:

A) Fraud perpetrators are more likely to be caught
B) Fraud perpetrators are more educated
C) Fraud perpetrators are more likely to be convicted
D) Fraud perpetrators are much younger

Question 35

Which racial group is most likely to commit fraud?

A) Caucasian
B) African American
C) Asian
D) Hispanic
E) People of every race commit fraud

Question 36

An employee who has the responsibilities of both writing checks and making bank deposits would have _______.

A) Financial pressure
B) Perceived opportunity
C) Rationalization

Question 37

Which of the following is not one of the components of a company's control structure?

A) The control environment
B) Control procedures or activities
C) Management being in charge of control procedures
D) The accounting system

Question 38

A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?

A) Income statement.
B) Balance sheet.
C) Statement of cash flows.
D) Both B and C are correct.

Question 39

What is the most important element of the control environment?

A) Management's communication
B) Management's role and example
C) The hiring process
D) The internal audit department

Question 40

Which of the following creates opportunities for fraud?

A) An audit trail
B) Inability to judge quality of performance
C) Controls that prevent or detect fraud
D) Disciplining fraud perpetrators

Question 41

Studies show that in advanced countries, levels of honesty are:

A) Generally stable
B) Increasing
C) Decreasing

Question 42

The following are all types of power except:

A) Persuasive power
B) Referent power
C) Legitimate power
D) Coercive power

Question 43

Failure to discipline a fraud perpetrator generally leads to all of the following except:

A) Helping the perpetrator build a solid resume
B) An increase of "perceived opportunity" within an organization
C) Frauds of greater magnitude by the same perpetrator
D) All of the above

Question 44

Every fraud is comprised of all the following elements except:

A) The theft act
B) Concealment
C) Conversion
D) All of the above are elements of fraud.

Question 45

Fraud perpetrators are closer to which of the following groups?

A) College students
B) Property offenders
C) Politicians
D) Accountants

Question 46

What are some of the vices closely related to financial pressures?

A) Gambling
B) Drugs & alcohol
C) Expensive extramarital relationships
D) All of the above

Question 47

Teaching and Training are examples of

A) Modeling
B) Labeling
C) Physical Safeguards
D) Independent Checks

Question 48

All of the following functions should be set up as segregated duties except:

A) Writing checks
B) Making bank deposits
C) Reconciling bank statements
D) All of the above should be set up as segregated duties

Question 49

The ACFE estimates that employee fraud costs small companies an average of:

A) $60,000 per incident
B) $120,000 per incident
C) $240,000 per incident
D) $480,000 per incident

Question 50

All of the following are primary control activities (procedures) except:

A) Physical safeguards
B) System of authorizations
C) Audit Trail
D) Documents and records
E) All of the above are primary control activities

Question 51

Which of the following elements does not make up the fraud triangle?

A) Perceived Pressure
B) Greed
C) Perceived Opportunity
D) Rationalization

Question 52

Which of the following is not a component of control activities?

A) Segregation of Duties
B) Adequate Documents and Records
C) Effective Hiring Procedures
D) Independent Checks on Performance

Question 53

According to COSO, the following are all elements of an organization's internal control framework except:

A) =The control Environment
B) Management integrity
C) Risk assessment
D) Control activities

Question 54

Which of the following most correctly represents how the fraud triangle elements are interrelated?

A) The greater the pressure, the more opportunity and the less rationalization is needed for fraud to occur
B) The greater the pressure, the less opportunity and the less rationalization is needed for fraud to occur
C) The greater the opportunity, the more rationalization is needed for fraud to occur
D) The greater the rationalization, the more pressure is needed for fraud to occur.

Question 55

Who do criminologists compare fraudsters to in relation to repeat offenses and why?

A) Rapist. They repeat their crimes because they are not severely punished.
B) Shoplifters. They steal goods frequently and in small quantities until they are confronted.
C) Bank Robbers. They steal a lot of money from wealthy sources.
D) Bank Tellers. They have access to a large amount of resources and they are perceived to be trustworthy people.

Question 56

Which of the following is not a component of the internal control structure?

A) Control Environment
B) Accounting System
C) Management Operations
D) Control Activities