Deck 4: Preventing Fraud

Question 1

Approximately, what percentage of frauds are committed by people acting alone?

A) 30%
B) 50%
C) 70%
D) 90%

Answer 1

C
C: Correct 71% of all frauds are committed by individuals acting alone. The remaining 29% involve collusion and are not only difficult to detect, they often involve the largest thefts.

Question 2

The following are (is a) good control(s) for preventing fraud

A) Physical control/proper authorization
B) Segregation of Duties
C) Independent checks
D) Documents and records
E) Both A and B

Answer 2

E
A: B is also correct
B: A is also correct

Question 3

In order to minimize fraud, a fraud-savvy organization should:

A) Not prosecute the fraud perpetrator to avoid publicity
B) Minimize the fraud's impact on the organization by not talking about the fraud in the organization
C) Trust its employees by reducing monitoring of employees in order to regain employee moral after fraud detection
D) Develop and promote a company code of conduct

Answer 3

D
A: This does not help to prevent future fraud because there is no expectation of punishment
B: The organization should educate and train employees to be aware of similar fraud.
C: Even if the organization trusts its employees, it should not let controls down.

Question 4

Having a manager watch over employee's shoulders is a good example of:

A) Discouraging collusion
B) Monitoring employees
C) Creating an expectation of punishment
D) None of the above

Question 5

The best way to limit opportunities for committing fraud in an organization is to:

A) Establish clear vendor policies
B) Create a tip hotline
C) Maintain good internal controls
D) Monitor employees

Question 6

The following elements are crucial in creating a culture of honesty except:

A) Hiring qualified individuals
B) Implementing employee assistance programs
C) Developing an organizational code of conduct
D) Promoting an open-door policy

Question 7

Which of the following is not a possible fraud prevention strategy/technique?

A) Including "right-to-audit" clauses on purchase invoices.
B) Instigate a zero tolerance policy with regards to fraud in the workplace.
C) Effectively screen potential employees.
D) All of the above are possible fraud prevention strategies/techniques.

Question 8

True or False. Internal controls are "fraud proof".

Question 9

Which is not an operating condition that can contribute to a higher risk of fraud?

A) Management by crisis
B) Low company loyalty
C) High Morale
D) Comparatively low compensation

Question 10

The majority of frauds are committed by:

A) Someone acting alone.
B) Two or more people acting together.
C) Teenagers with long hair.
D) Investment scams.

Question 11

The responsibility for preventing fraud is often seen as belonging to:

A) The internal auditors
B) Corporate security
C) The external auditors
D) Managers
E) Someone else

Question 12

Which of the following is not a good way to eliminate opportunities for fraud?

A) Install good internal controls
B) Discreetly and quietly terminate employees who have been caught
C) Discourage collusion
D) Monitor employees

Question 13

Which of the following is not a red flag that a person, with a salary of $50,000 per year is living above his or her lifestyle?

A) A person owns several expensive cars
B) A person closely monitoring their investments
C) A person who hosts extravagant parties in their $500,000 home
D) A person who owns a multimillion dollar art collection

Question 14

The default model that deals with fraud has which of the following stages

A) Fraud incident
B) Action
C) Resolution
D) All of the above

Question 15

What is the most likely way to deter fraud?

A) Interview every employee on a regular basis
B) Implement a good system of controls
C) Keep management involved in company procedures
D) Threaten employees that perpetrators will be fired

Question 16

Most frauds are committed by

A) Individuals
B) Groups

Question 17

Even with the best possible internal control system in place, its effectiveness still depends on what?

A) Creating an expectation of punishment.
B) Identifying the nature of the risks involved and the losses that could result from these risks.
C) The competency and dependability of the people enforcing it.
D) All of the above.

Question 18

Developing and promoting a company code of conduct is one aspect of which area of a fraud-savvy organization?

A) Integrity and risk controls
B) Education and training
C) Tone at the top
D) Conducting Proactive auditing

Question 19

The key factors of a good internal control system includes

A) Accounting system including information that is valid, complete, and timely
B) Physical control of assets
C) Segregation of duties
D) All of the above

Question 20

Collusion involves which of the following?

A) Employees working with other employees in the company
B) Employees working with others outside the company, such as vendors
C) All of the above
D) None of the above

Question 21

Fraud is most commonly detected by:

A) Monitoring employees
B) Investigating identified symptoms
C) Discouraging collusion
D) Tips and complaints

Question 22

The last step in the "fraud savvy" model for dealing with fraud includes follow-up. What is a likely outcome when a company allows perpetrators to go un-prosecuted?

A) The company will avoid bad publicity
B) The perpetrator and others in the company will commit fraud again in the future
C) The perpetrator will be saved from pain and embarrassment and having learned his or her lesson will not commit fraud again
D) Management will send a signal that fraud will not be tolerated

Question 23

What two business trends are likely to increase collusion fraud?

A) Emphasis on quarterly earnings targets from analysts
B) Elimination of middle management
C) Closer relationships between buyers and suppliers
D) Increasingly complex nature of business

Question 24

Eliminating opportunities for fraud includes all of the following except:

A) Installing good internal controls
B) Monitoring employees
C) Alerting vendors and contractors to company policies
D) Hiring honest people

Question 25

_________ focuses more on creating a culture of openness than eliminating opportunities.

A) Proactive auditing
B) Installing good internal controls
C) Monitoring employees
D) Creating a positive work environment

Question 26

Which of the following is a sign of a positive work environment?

A) Yearly turnover of hourly employees exceeds 25%
B) Company returns that consistently beat the industry average
C) Departments cut work parties to keep within their budget
D) Employees work long hours because they care about the company

Question 27

Unfortunately, the responsibility for preventing fraud is often seen in many organizations as belonging to:

A) The internal auditors
B) Corporate security
C) The external auditors
D) Managers
E) Someone else

Question 28

Which business trend(s) increase the likelihood of fraud:
I- Increasing complexity of business
II- Fewer paper trails & more Oral agreements

A) I only
B) II only
C) I & II
D) Neither I or II

Question 29

Approximately _____ of all frauds are committed by individuals acting alone. The remaining _____ involve collusion and often involve the _____ thefts.

A) 70%, 30%, smallest
B) 70%, 30%, largest
C) 30%, 70%, smallest
D) 30%, 70%, largest

Question 30

Each of the following personnel policies, operating conditions, and procedures appear to contribute to a high fraud environment EXCEPT:

A) Perceived inequalities in the organization and inadequate pay.
B) Inadequate expense accounts and unreasonable budget expectations
C) Proactive management
D) Managers with impulsive, insensitive, dominant, or emotional personalities
E) High employee turnover.

Question 31

Which of the following is NOT one of the four steps involved in good proactive fraud auditing?

A) Identifying risk exposures
B) Conducting substantive test of account balances
C) Building audit programs that proactively check for symptoms and exposures
D) Investigating identified symptoms.

Question 32

An employee has five new cars and a gold watch. These facts would be considered:

A) Lifestyle symptoms
B) Accounting anomalies
C) Tips and complaints
D) Analytical symptoms

Question 33

True or false: The majority of frauds committed against companies involve collusion.

Question 34

Which of the following is not a way to eliminate the opportunity to commit fraud?

A) Establish a code of ethics
B) Monitor employees
C) Create an expectation of punishment
D) Discourage collusion

Question 35

What is the last step in the "Dealing with Fraud" Model

A) Detection
B) Resolution
C) Investigation
D) Action

Question 36

To discourage collusion, companies should:

A) Send letters to vendors and contractors
B) Require mandatory job transfers
C) Regularly review employees who are responsible for large contracts or accounts
D) All of the above

Question 37

The following must be done before a proactive program that looks for fraud symptoms is built:

A) Investigate fraud symptoms.
B) Identify risk exposures.
C) Identify fraud symptoms.
D) Two of the above.
E) None of the above.

Question 38

Even with internal control procedures in place, many companies routinely experience fraud for all of the following reasons except:

A) Management overrides controls.
B) Control procedures are not followed.
C) Control procedures are not effective fraud-prevention tools
D) Lack of rewards for complying with control procedures.

Question 39

Fraud is prevented and reduced by:

A) Creating a culture of honesty, openness, and assistance
B) Terminating employees without prosecution
C) Eliminating opportunities to commit fraud
D) Both A and C

Question 40

Which factors are crucial in creating a culture of honesty, openness, and assistance?

A) Hiring honest people and training them in fraud awareness
B) Creating a positive work environment
C) Disseminating a well understood and respected code of conduct or ethics
D) All of the above

Question 41

Fraud prevention saves the most money because __________.

A) No fraud means no investigation cost
B) No fraud means no detection cost
C) No fraud means no litigation cost
D) All of the above

Question 42

Which is not a good measure of fraud detection?

A) Analyzing employee spending habits
B) Having a 1-800 for anonymous tips
C) Including a "right-to-audit" clause on the back of all purchase invoices
D) All of the above are good detection measures

Question 43

The single most effective tool in preventing and detecting fraud is

A) Proactive fraud auditing
B) Tip hotlines
C) Creating an expectation of punishment
D) Good internal controls

Question 44

When only a very small amount of money has been embezzled,

A) Taking no action is the best course of action
B) The perpetrators should be punished by publishing the details of the fraud in the local newspapers
C) The perpetrators should be prosecuted
D) The company should either fire the perpetrator or transfer the perpetrator to a position with more supervision.

Question 45

The correct order of the six elements of Fraud-Savvy Organizations is:

A) Tone at the Top, Education and Training, Proactive Detection, Integrity Risk and Controls, Reporting and Monitoring, Investigation and Follow-up
B) Tone at the Top, Education and Training, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up
C) Education and Training, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up, Tone at the Top
D) Education and Training, Tone at the Top, Integrity Risk and Controls, Reporting and Monitoring, Proactive Detection, Investigation and Follow-up

Question 46

What method results in the biggest savings?

A) Prevention-including EAP plans
B) Detection-including audit proactively, monitoring
C) Investigation-including criminal prosecution
D) All are equally effective in saving money

Question 47

A company's code of ethics should __________.

A) Clarify expectations
B) Reinforce employee understanding of appropriate behavior
C) Underscore the importance of ethics to the company
D) All of the above

Question 48

Which is not a good internal control?

A) Mandatory vacations for all bank employees
B) Having only one manager with access petty cash
C) Keeping pre-authorized General Ledger tickets on hand
D) B and C

Question 49

Which of the following is not a factor of fraud prevention?

A) Hiring honest people and training them in fraud awareness.
B) Creating a positive work environment.
C) Disseminating a well-understood and respected code of conduct or ethics.
D) Providing employees with salaries above the industry norms.

Question 50

Which of the following should be emphasized in an employee-reporting program?
I) Fraud, waste, and abuse occur in very few companies.
II) The company actively encourages employees with information to come forward.
III) The employee's name must be disclosed.
IV) The report need not be made to one's immediate supervisor.

A) II and III.
B) I, II, III, and IV.
C) I, II, and IV.
D) II and IV.

Question 51

Random auditing for fraud

A) Creates an awareness of monitoring among employees
B) Can be less-cost effective
C) Is required by Sarbanes-Oxley
D) All of the above

Question 52

Which elements of the fraud triangle need to come together before fraud is likely to occur?

A) Perceived pressure and perceived opportunity
B) Perceived opportunity and rationalization
C) Perceived pressure and rationalization
D) All elements must be present

Question 53

A "right-to-audit" clause

A) Alerts the company that a vendor reserves the right to audit the company's books at any time
B) Gives an external auditor the right to audit the company
C) Should not be used because it isn't an effective tool in fraud investigations
D) Alerts vendors that the company reserves the right to audit the vendor's books at any time.

Question 54

Frauds are most often committed by __________.

A) One person acting alone
B) Collusion among co-workers
C) Repeat offenders
D) None of the above

Question 55

Which of the following is usually the most effective tool in preventing and detecting fraud?

A) Discouraging collusion
B) Investigation of fraud symptoms
C) Internal controls
D) Strict policies of investigations and punishment

Question 56

Proactive fraud auditing involves identifying ___________ exposures and identifying the fraud ___________ for each exposure.

A) Risk, symptoms
B) Audit, losses
C) Financial, consequences
D) Theft, acts

Question 57

What's the best method to reduce collusion?

A) Mandatory vacations
B) Monitoring employee interaction
C) Job transfers
D) A & C

Question 58

Fraud is most commonly detected through __________.

A) Tips
B) Advances in technology
C) Confessions
D) Internal audits

Question 59

The principle mechanism for deterring fraud is internal controls. The primary responsibility for establishing and maintaining these controls rests with

A) The internal auditors
B) Management
C) Corporate security
D) Independent auditors

Question 60

Given all of the following fraud prevention methods within organizations, which of the following is probably the most effective?

A) Having an open-door policy
B) Screening employees
C) Increasing the perception of detection
D) Reducing rationalization

Question 61

What is the single greatest factor in deterring dishonest acts?

A) Fear of punishment
B) Fear of job loss
C) Employee education and training
D) Knowing that the company has whistle-blowing programs in place

Question 62

What does the acronym "EAP" stand for?

A) Entrepreneurial Assistance Program
B) Employee Assistance Program
C) Ethical Assistance Program
D) Employee Anti-fraud Program

Question 63

Which is the following is not one of the four factors in fraud prevention that are crucial in crating a culture of honesty, openness, and assistance:

A) Hiring honest people and training them in fraud awareness
B) Providing employee assistance programs (EAPs)
C) Creating a positive work environment
D) Paying the employees higher wages
E) All of the above are factors in fraud prevention

Question 64

Deciding to not prosecute a fraud perpetrator should be a possibility when:

A) The perpetrator sincerely apologizes and pays back management the entire amount that he or she fraudulently took.
B) The company the perpetrator stole from is so small that it would not be cost-effective to hire a lawyer.
C) Top management has taken care of the issue privately, and the perpetrator has been fired.
D) Deciding not to prosecute should never be a possibility.

Question 65

Who has the primary responsibility for establishing and maintaining controls?

A) Primary responsibility for controls belongs to internal auditors. They are the ones who create the controls and investigate potential violations of the controls.
B) Primary responsibility rests with management. Management both conveys acceptable culture and has the final say in how fraud cases are treated.
C) Primary responsibility lies with employees. They are the ones most likely to witness violations and are responsible to watch for those violations.
D) Primary responsibility is not attributable to one person or group of people within an organization. Each member of an organization must consider himself or herself personally responsible for the organizations control environment.

Question 66

What are key attributes for a low-fraud environment?

A) Rules, consequences, and fear
B) Recognition, remorse, and restitution
C) Honesty, openness, =and assistance
D) Opportunity, incentive, and rationalization

Question 67

Jim is a crook. He embezzled $450,000 from his employer. The day Jim's employer found out about his misdeeds but before it conducted a thorough investigation it went to the newspaper and told the publisher all about it. The next day Jim read his own story, with his own name, in the newspaper. Which of the following is correct?

A) The company did the right thing publishing Jim's identity in the newspaper because it both punished him for steeling and served as a warning to his neighbors who might also be at risk of being defrauded.
B) The company should not have put Jim's name and story in the paper because if other employees know there is fraud in the company they will likely quit and go to work for someone else.
C) Jim may have been misrepresented by the story in the newspaper and the company may be liable for slander.
D) Publishing the story in the newspaper was the wrong thing to do because only employees should know about the fraud and, more especially, who their co-worker fraudster is.