Deck 5: Recognizing the Symptoms of Fraud

Question 1

Inaccuracies in ledgers are what type of fraud symptom?

A) Internal control weaknesses
B) Analytical anomalies
C) Accounting anomalies
D) Unusual behavior

Answer 1

C
A: Inaccurate ledgers are associated with accounting anomalies
B: Inaccurate ledgers are associated with accounting anomalies
C: The best answer
D: Inaccurate ledgers are associated with accounting anomalies

Question 2

Which of the following entries may indicate fraud except:

A) Journal entries made near the end of an accounting period
B) Journal entries made without documentary support
C) Journal entries that do not balance
D) All of the above are frequently indicative of fraud

Answer 2

D
D: Correct. All of the above are red flags.

Question 3

One of the most effective ways to prevent fraud is to implement a system of independent checks. Which of the following is not a common independent check?

A) Employee Transfers
B) Audits
C) Mandatory vacations
D) Surveillance

Answer 3

D
A, B, and C are common independent checks.

Question 4

Which of the following is in the best position to detect fraud?

A) auditors
B) stock market annalists
C) management and employees
D) investors

Question 5

Of the elements of fraud, which is usually least likely to be detected by auditors?

A) Theft act
B) Concealment
C) Conversion
D) Personal pressures

Question 6

Which of the following is an accounting anomaly?

A) Missing documents
B) Excess purchases
C) Too many debit or credit memos
D) Cash Shortages

Question 7

It is discovered that a bank does not require two signatures on cashier's checks exceeding $500,000. This is an example of:

A) Analytical anomalies.
B) Accounting anomalies.
C) Faulty journal entries.
D) Internal control weaknesses.

Question 8

Which type of account would most likely be used to conceal fraud?

A) Common Stock
B) Revenues
C) Liabilities
D) Expenses

Question 9

Embezzlers who manipulate accounting records to conceal their fraud (or theft of assets) most often ______________.

A) "Balance" the accounting equation by reducing equity.
B) "Balance" the accounting equation by reducing revenues.
C) "Balance" the accounting equation by reducing liabilities.
D) "Balance" the accounting equation by increasing expenses.

Question 10

Smart embezzlers realize that when making false journal entries, reducing _____________ is not a good concealment method?

A) Time spent at work
B) Liabilities
C) Management interaction
D) Time spent making a journal entry

Question 11

What do fraud perpetrators rarely do with the money they stole?

A) Use the money to buy luxury items
B) Use the money to improve their lifestyle
C) Save the money in the bank
D) None of above

Question 12

Research in psychology indicates that when people commit a crime (especially for the first time), they are initially overwhelmed by ________ and __________?

A) Guilt and fear.
B) Stress and insomnia.
C) Confidence and rationalization.
D) Defensiveness and guilt.

Question 13

Which of the following is an analytical anomaly that could be related to fraud?

A) Journal entries that lack documentation
B) Late charges that are incurred on Accounts Payable
C) Increased scrap
D) The fraud perpetrator increases his smoking habit

Question 14

Auditors usually detect fraud in which element of the crime?

A) Theft act
B) Concealment
C) Conversion
D) Rationalization

Question 15

Increased scrap is an example of

A) An accounting anomaly
B) An internal control weakness
C) An analytical anomaly
D) None of the above

Question 16

A faulty journal entry is an example of which kind of fraud symptom?

A) Accounting anomalies
B) Internal control weaknesses
C) Unusual behaviors
D) Analytical anomalies

Question 17

Common accounting anomalies involve problems with

A) Faulty journal entries
B) Source documents
C) Both A & B
D) Neither A nor B

Question 18

Which one of the following fraud elements does not belong with the other three?

A) Theft
B) Rationalization
C) Conversion
D) Concealment

Question 19

Who is in the best position to detect employee fraud?

A) Auditors
B) Senior Management
C) Co-workers
D) All of the above

Question 20

Upon committing fraud, what do most people do with excess funds?

A) Put them in savings
B) Spend them on extravagant items
C) Donate them to charities
D) Slowly give them back to the company

Question 21

Which of the following is a problem related to the segregation of duties?

A) Julie both writes expense checks and takes customers' cash
B) Bob both orders office supplies and orders company checks
C) Steve both records receivables and can write off bad accounts
D) Rebecca both types memos and orders lunch

Question 22

Which of the following best characterizes someone committing fraud?

A) Lavish life style
B) Work-aholic
C) Stressed and irritable
D) All of the above

Question 23

Analytical anomalies include all of the following except which of the following?

A) Consistent cash shortages
B) Bottlenecks in inventory
C) Excess purchases
D) Unreasonably high expenses

Question 24

Auditors are better positioned than anyone to detect which element of fraud:

A) Theft
B) Conversion
C) Concealment
D) None of the above

Question 25

Which of the following is an analytical anomaly?

A) Increases in past due Accounts Receivable
B) Significant increases or decreases in account balances
C) Alterations on documents
D) Excessive voids or credits

Question 26

Which of the following is not one of the six symptoms of fraud?

A) Accounting anomalies
B) Internal control weaknesses
C) Extravagant lifestyles
D) Unusual behavior
E) None of the above

Question 27

In relation to fraud, mandating employee vacations of one week or longer annually is effective because:

A) Employees who work too hard usually burn out and fraud is committed when people are tired and not thinking clearly
B) If people don't take vacations they will feel underappreciated and think the company "owes them"
C) When fraudulent employees take a leave, their work usually must be performed by others and the fraud is more easily detected
D) None of the above

Question 28

Which of the following are typical behaviors of first-time fraud perpetrators?

A) Constantly nervous
B) Easily irritated
C) Is boisterous
D) All of the above

Question 29

Who of the following would be most likely to provide a tip regarding the conversion of a fraud:

A) Company accountants.
B) Auditors.
C) Friends.

Question 30

Which of the following is an example of an analytical anomaly?

A) Excessive late charges
B) Unexplained inventory shortages
C) Too many debit memos
D) All of the above

Question 31

Steps taken by the perpetrator to hide the fraud are called:

A) theft act
B) concealment efforts
C) conversion efforts
D) invigilation

Question 32

A "smart" embezzler will most likely use the following account(s) to commit fraud:

A) Accounts Payable
B) Sales
C) Paid-in Capital
D) All of the above

Question 33

Common examples of analytical anomalies include all of the following except:

A) Irregularities in source documents
B) Unexplained inventory shortages or adjustments
C) Excess purchases
D) Excessive late charges

Question 34

Duplicate payments, and excessive voids are red flags to watch in __________.

A) Ledger problems
B) Source documents
C) Faulty journals
D) All of the above

Question 35

Accounting anomalies include all of the following except

A) Irregularities in source documents
B) Lack of segregation of duties
C) Inaccuracies in ledgers
D) Faulty journal entries

Question 36

Which of the following is not a coping symptom associated with stress caused by fear and guilt?

A) Sweating
B) Unusual belligerence in stating opinions
C) Inability to look people in the eye
D) All of the above could be coping symptoms

Question 37

An auditor noticed that Company B had an increase in sales and a large decrease in inventory and A/R balances. This may be which type of a fraud symptom?

A) Accounting anomaly
B) Internal control weakness
C) Analytical anomaly
D) Unusual behavior

Question 38

An insurance company received claim forms from 22 phony doctors. The forms all originated from two addresses: a post office box and a business located in a nearby city and owned by the manager's husband. The manager used a limousine to pick up fellow employees from an expensive restaurant. What fraud symptoms are mentioned in this scenario?

A) Accounting anomalies
B) Extravagant lifestyles
C) Internal control weaknesses
D) Both a and b
E) All of the above

Question 39

Because of the nature of fraud, auditors are often in the worse position to detect it. However, auditors are frequently key in detecting fraud in which one of the following elements of fraud?

A) Theft
B) Concealment
C) Conversion
D) Collusion

Question 40

Internal control weaknesses that make fraud easier to commit include:

A) Lack of independent checks
B) Overriding of existing controls
C) Lack of segregation of duties
D) All of the above

Question 41

Which of the following entries are not common symptoms of fraud?

A) Journal entries made near the end of an accounting period
B) Journal entries without documentary support
C) Journal entries that do not balance
D) All of the above are common symptoms of fraud.

Question 42

While reviewing the company's financial records at year-end John notices two interesting facts, 1) the trial balance does not balance, 2) more entries were made in the first half of the year than the last. Which are large red flags of fraud?

A) 1
B) 2
C) 1 and 2
D) Neither

Question 43

A fraud examiner can be sure that fraud has occurred when:

A) All of the fraud symptoms are present
B) An anonymous caller states that he or she has seen a fraud take place
C) A poorly-paid employee shows up in an expensive car and fancy clothes
D) Two of the above
E) None of the above

Question 44

Which of the following is not an advantage to increasing expenses to conceal a fraud:

A) By increasing expenses, the accounting equation often remains in balance.
B) Expenses are closed or brought to zero balances at year-end, thus obscuring the audit trail.
C) Recording such an expense involves a fictitious journal entry that generally doesn't have much documentary support to it.
D) Increasing expenses is much easier than decreasing liabilities or revenues, both of which would quickly draw attention from vendors or management.

Question 45

Which of the following is the most suspicious financial statement relationship?

A) Increased revenue with decreased inventory.
B) Decreased production with decreased scrap.
C) Increased receivables and increased revenue.
D) None of the above. All are unsuspicious financial statement relationships.

Question 46

Which of the following is not a symptom of fraud?

A) Extravagant lifestyles
B) Accounting anomalies
C) Employees taking extra vacation time
D) All of above are symptoms of fraud

Question 47

The major difference between auditors and examiners who detect fraud and those who don't is that most auditors merely:

A) Match documents to see whether support exists and is adequate
B) Find out whether the expenditures make sense
C) Determine whether all aspects of the documentation are in order
D) Check to see if documents are real or fraudulent

Question 48

All but which of the following is an internal control weakness?

A) Lack of segregation of duties
B) Lack of physical safeguards
C) Lack of proper authorization
D) A and C
E) All of the above

Question 49

Overall, embezzlers are motivated by which of the following

A) Immediate gratification and appearance of being successful
B) Financial support for expenses more than 2 years in the future (i.e. child's education)
C) Cover expenses required to live
D) Save for the future retirement

Question 50

Which of the following is not an analytical fraud symptom?

A) Increases in past due Accounts Receivable
B) Significant increases or decreases in account balances
C) Alterations on documents
D) Excessive voids or credits

Question 51

People who can delay gratification rarely embezzle.

Question 52

Which of the following is NOT true regarding the fraud symptom of unusual behavior?

A) No particular behavior necessarily signals fraud
B) Fear and guilt causes stress, which then brings about unusual behaviors
C) Psychopaths and sociopaths can and do pass polygraph tests with ease
D) Changes in behavior are weak signals of fraud

Question 53

Which of the following fraud symptoms is usually the easiest to detect?

A) Accounting anomalies
B) Internal control weaknesses
C) Lifestyle changes
D) Analytical anomalies

Question 54

An employee decides to steal cash from his/her employer. What is the most common way this employee would conceal any amount taken?

A) Record the exiting cash as legal expense
B) Writing down accounts payable for a supplier
C) Increasing accounts receivable for a customer
D) Writing down retained earnings

Question 55

Which of the following is NOT a reason why most employees and others don't come forward with their suspicions or knowledge of fraud?

A) Knowing for certain that fraud is taking place is common, but many employees don't believe it's their responsibility to come forward
B) Heard the horror stories about what often happens to whistle-blowers
C) Organizations don't make it easy
D) People have been conditioned to believe that whistle-blowing is not acceptable

Question 56

Which scenario is the least conducive to fraud?

A) Outstanding bills at home
B) Mandatory vacation time
C) Economic downturns
D) Moral decay in upper management

Question 57

In investigating fraud auditors should NOT

A) Collect documents supporting journal entries without questioning content
B) Understand business processes of the companies
C) Allow management to select samples of documents to analyze
D) Check all accounting entries made at year-end

Question 58

The auditors' main goal of matching documents is to:

A) Determine whether support exists and is adequate
B) Determine whether the documents are real or fraudulent
C) Determine whether the expenditures make sense
D) Determine whether all aspects of the documentation are in order

Question 59

Strange financial statement relationships that are examples of analytical anomalies include all of the following except:

A) Increased revenues with decreased inventory.
B) Increased revenues with increased cash flows.
C) Increased revenues with decreased receivables.
D) Increased inventory with decreased payables.

Question 60

Which of the following is NOT a "strange" financial statement relationship?

A) Increased revenues with decreased inventory
B) Increased revenues with decreased receivables
C) Decreased inventory with decreased payables
D) Decreased volume with decreased cost per unit

Question 61

___________ are often in the worst position to detect fraud.

A) Auditors
B) Co-workers
C) Managers
D) Company accountants
E) Friends

Question 62

Choose the answer that is NOT a common example of an analytical anomaly.

A) Increased volume with increased cost per unit
B) Increased revenues with increased inventory
C) Increased revenues with decreased receivables
D) Increased inventory with decreased payables

Question 63

Which of the following statements is FALSE?

A) A study showed that only 25% of embezzlers who were caught claimed to have used the money to save for retirement.
B) People who can delay gratification rarely embezzle from their employers.
C) Although evidence of lifestyle changes alone is not complete proof of embezzlement, this type of evidence is easy to corroborate.
D) Once fraud perpetrators meet their current financial needs, they often embezzle more in order to support a more expensive lifestyle.