Question 1

Which of the following computer audit tests can be used to detect billing schemes?

Accepted Answer

A) Extracting manual checks and summarizing by vendor and issuer can detect if unauthorized checks were issued to bogus vendors and if the amount paid to the vendor was more than the amount due.
B) Extracting a sample of vendor open invoices for confirmation with the vendor can detect if fictitious invoices were created or if the amount on the invoice was inflated.
C) Extracting delivery addresses that do not correspond to company locations can detect if goods were shipped to an employee's or accomplice's house instead of the company's address. 
Therefore, all of these tests can be used to detect billing schemes.

Question 2

____________________ are schemes in which the employee intentionally mishandles payments that are owed to legitimate vendors.

Accepted Answer

Pay-and-return schemes involve an employee intentionally mishandling payments that are owed to legitimate vendors, often by submitting inflated or false invoices and then redirecting the excess funds to a bank account controlled by the employee.

Question 3

When a billing scheme is occurring, the company's expenses appear lower than they should, causing the financial statements to show falsely inflated profits.

Accepted Answer

In a billing scheme, a company's expenses would actually appear higher than they should because fraudulent bills lead to payments for goods or services not actually received, thus reducing the profits shown on financial statements.

Question 4

Which of the following actions is least likely to help prevent and detect schemes involving fraudulent invoices from non-accomplice vendors?

Accepted Answer

Matching all bank statement items to canceled checks is more related to reconciling bank statements and ensuring that payments have been processed correctly, rather than directly preventing or detecting fraudulent invoices from vendors. The other options directly address controls that can prevent or detect fraud involving vendor invoices.

Question 5

In a shell company scheme, which of the following methods might a fraudster use to get a phony invoice approved for payment?

Accepted Answer

All of the listed methods can be used by a fraudster to get a phony invoice approved for payment in a shell company scheme. Collusion involves working with an accomplice to approve the invoice, a "rubber stamp" supervisor blindly approves invoices without verifying their legitimacy, and falsification of purchase orders and receiving reports involves creating fake documentation to support the phony invoice.

Question 6

Producing an invoice that looks professional is the most difficult part of a shell company scheme.

Accepted Answer

Creating a convincing and professional-looking invoice is crucial for a shell company scheme to appear legitimate and avoid suspicion from authorities. This can be a challenging task for fraudsters, as they need to ensure that the invoice contains accurate information and looks like a genuine document.

Question 7

In the Fraud Tree, all of the following are categories of fraudulent disbursements except:

Accepted Answer

Cash larceny is not a category of fraudulent disbursements as it involves stealing cash after it has been collected, rather than diverting it through fraudulent disbursements. The categories of fraudulent disbursements are payroll schemes, check tampering, and billing schemes.

Question 8

A pass-through scheme is usually undertaken by someone who works in which department?

Accepted Answer

A pass-through scheme involves a purchasing department employee colluding with a vendor to create fake invoices. The invoices are then processed and paid by the company, but the vendor gives a portion of the payment back to the purchasing employee. Therefore, the scheme is usually undertaken by someone who works in the purchasing department.

Question 9

Categories of billing schemes include which of the following?

Accepted Answer

The answer of Categories of billing schemes include which of...

Question 10

Fictitious entities created for the sole purpose of committing fraud are called:

Accepted Answer

Shell companies are entities that are created for the purpose of hiding ownership and facilitating financial transactions, including fraudulent activities. They do not have any significant assets or operations and are often used as a front for illegal activities such as tax evasion, money laundering, and fraudulent schemes. Ghost companies and "rubber stamp" companies are similar to shell companies but do not necessarily involve fraudulent activities. Non-accomplice vendors are not fictitious entities and do not relate to this concept.

Question 11

Invoices that are submitted by shell companies can be for fictitious goods or services or for items that were actually sold to the victim company.

Accepted Answer

Shell companies are often used in fraudulent schemes to submit invoices for goods or services that were never actually provided to the victim company, or for inflated prices for items that were actually sold. These invoices can be difficult to detect and can result in significant losses for the victim company.

Question 12

In a ______________ scheme, the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose.

Accepted Answer

This is a classic definition of a billing scheme, where the perpetrator causes a payment to be issued based on false documentation, such as fake invoices or bills. A purchasing scheme involves the perpetrator using their position in the company to make unauthorized purchases, while skimming and larceny involve stealing cash or assets directly.

Question 13

Purchasing personal items using an organization's money is what type of scheme?

Accepted Answer

Purchasing personal items using an organization's money is a type of billing scheme, where an employee submits false invoices or expense reports to divert funds for personal use.

Question 14

Which of the following controls can be used to prevent or detect personal purchases on company credit cards?

Accepted Answer

The answer of Which of the following controls can be...

Question 15

Warning signs of a shell company scheme include which of the following?

Accepted Answer

All of the options listed are warning signs of a shell company scheme. Invoices lacking details of the items purchased can be a sign of fraud, as the lack of information on what was purchased can make it difficult to determine if the expense was legitimate. A vendor that is not listed in the phone book can indicate that the vendor does not actually exist or is not a legitimate business. An unexpected and significant increase in "consulting expenses" can be a red flag for a shell company scheme, as these expenses are often used to justify payments to a fraudulent vendor.

Question 16

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, billing schemes were the second most costly type of fraudulent disbursements schemes.

Accepted Answer

The 2010 Report to the Nations on Occupational Fraud and Abuse found that billing schemes were indeed the second most costly type of fraudulent disbursements schemes.

Question 17

Most shell company schemes involve the purchase of goods rather than services.

Accepted Answer

Shell company schemes often involve the invoicing for non-existent services rather than goods, as it is easier to falsify services than physical goods which require delivery and can be more easily verified.

Question 18

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, the most common fraudulent disbursement schemes were:

Accepted Answer

Billing schemes were identified as the most common type of fraudulent disbursement scheme in the 2010 Report to the Nations on Occupational Fraud and Abuse. This type of scheme involves the submission of invoices for fictitious goods or services, inflated invoices, or invoices for personal purchases as if they were legitimate business expenses.

Question 19

In order to start up a shell company, the fraudster will most likely need which of the following?

Accepted Answer

In order to start up a shell company, the fraudster will need a certificate of incorporation to legally establish the company. They will also need a mailing address to receive correspondence and create the appearance of a legitimate business. Additionally, they will need a bank account to receive and transfer funds, which is a crucial aspect of shell company operations. Therefore, all of the above options are necessary for starting up a shell company.

Question 20

Sally Fuller is a buyer for GWA publishing company. Her job is to purchase supplies and services for the printing of technical manuals. Her brother sets up a printing company, and Sally hires him to print most of these manuals for GWA. However, rather than actually printing the manuals, her brother hires another printer to do the work, then sells the printed manuals to GWA at a 50 percent markup. As a result, his prices are much higher than the other printers who serve GWA. This type of scheme is most likely a:

Accepted Answer

This is a classic example of a pass-through scheme, where the brother's printing company is only acting as a middleman and not actually doing any printing work themselves. They are marking up the price of the printing service provided by another printer and selling it to GWA at a higher price. This results in higher costs for GWA and profits for Sally's brother.

Quiz 4: Billing Schemes