Question 1

Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?
A) System of authorizations
B) Segregation of duties
C) Independent checks
D) Physical safeguards

Accepted Answer

Independent checks are a type of detective control that involves the use of independent reviews, comparisons, or reconciliations to identify errors or irregularities that may have occurred in a system. The other choices are examples of preventive controls - system of authorizations is designed to prevent unauthorized access, segregation of duties is designed to prevent errors or fraud, and physical safeguards are designed to prevent theft or damage to physical assets.

Question 2

What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?
A) Fraud incident
B) Resolution
C) Investigation
D) Action

Accepted Answer

The current (default) model for dealing with fraud typically involves four stages: detection, investigation, action, and resolution. The last stage in this model is resolution, which involves addressing the consequences of the fraud, such as recovering stolen assets or improving control systems to prevent future fraud incidents.

Question 3

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

Accepted Answer

Creating a positive work environment that encourages transparency and openness can help prevent fraud and unethical behavior by making it easier for employees to speak up and report any concerns. This approach is more focused on prevention through positive reinforcement rather than solely relying on monitoring and control measures.

Question 4

A good fraud auditing involves four steps. Which of the following is the correct sequence?
A) Identifying fraud risk exposures; building audit programs to proactively look for symptoms and exposures; investigating fraud symptoms identified; and identifying the fraud symptoms of each exposure.
B) Identifying fraud risk exposures; identifying the fraud symptoms of each exposure; building audit programs to proactively look for symptoms and exposures; and investigating fraud symptoms identified.
C) Building audit programs that proactively check for symptoms and exposures; identifying fraud risk exposures; identifying the fraud symptoms of each exposure; and investigating fraud symptoms identified.
D) Identifying the fraud symptoms of each exposure; identifying fraud risk exposures; investigating fraud symptoms identified; and building audit programs to proactively look for symptoms and exposures.

Accepted Answer

The correct sequence for a good fraud auditing is first to identify fraud risk exposures, then identify the fraud symptoms of each exposure, build audit programs to proactively look for symptoms and exposures, and finally investigate fraud symptoms identified. Choice B follows this sequence correctly, while the other choices vary the order.

Question 5

One of the most important responsibilities of an employer is the hiring and retention of employees. Which of the following situations reflects the current market scenario?
A) High turnover, high loyalty
B) High turnover, low loyalty
C) Low turnover, high loyalty
D) Low turnover, low loyalty

Accepted Answer

In the current market scenario, many sectors experience high turnover due to various factors such as job dissatisfaction, better opportunities elsewhere, or a mismatch between job expectations and reality. This often correlates with low loyalty, as employees are more willing to leave for better prospects.

Question 6

An operating condition that can contribute to a higher risk of fraud is:
A) management by crisis.
B) high company loyalty.
C) flexible rules.
D) proper authorization.

Accepted Answer

Management by crisis can lead to a lack of oversight and control, creating opportunities for fraudulent activities to occur. High company loyalty and proper authorization are generally positive factors that can reduce the risk of fraud, while flexible rules may create opportunities for fraud but are not necessarily a guarantee.

Question 7

Which of the following would usually be an environment conducive to fraud?
A) Low turnover
B) Reactive rather than proactive management
C) Supportive rather than rivalrous relationships
D) Long-term business focus

Accepted Answer

Reactive management can create an environment where fraud can easily occur as there is a lack of forward-thinking and risk management.

Question 8

Approximately of all frauds are committed by an individual acting alone. The remaining involve collusion and often involve the thefts.
A) 63%, 37%, smallest
B) 71%, 29%, largest
C) 47%, 53%, smallest
D) 18%, 82%, largest

Accepted Answer

Frauds are more commonly committed by individuals acting alone, with 71% of frauds perpetrated by solo actors. The remaining 29% involve collusion, which typically involves larger thefts.

Question 9

Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?
A) Investigation and follow-up
B) Education and training
C) Tone at the top
D) Proactive fraud detection

Accepted Answer

Developing and promoting a corporate code of conduct is related to the "tone at the top" element of the fraud-fighting model. This refers to the leadership and ethical culture set by top management, which can influence employees to engage in or abstain from fraudulent behavior. A well-defined code of conduct that is regularly communicated and enforced can help establish this tone and encourage ethical behavior throughout the organization.

Question 10

Fraud is most commonly detected by:
A) monitoring employees.
B) auditors.
C) discouraging collusion.
D) tips and complaints.

Accepted Answer

Tips and complaints are the most common way fraud is detected, according to research by the Association of Certified Fraud Examiners. Monitoring employees and auditors are important tools for preventing and detecting fraud, but they are not the most common way it is detected. Discouraging collusion can also help prevent fraud, but it is not a detection method.

Question 11

In order to detect fraud at the earliest, a manager should pay attention to:
A) present lifestyle.
B) past conduct.
C) attitude toward work.
D) absenteeism.

Accepted Answer

The answer of In order to detect fraud at the...

Question 12

An employee recently bought three new cars and remodeled his/her home. These facts would be considered as a:
A) lifestyle symptom.
B) spending addiction symptom.
C) extravagant behavior symptom.
D) financial symptom.

Accepted Answer

These facts indicate a lifestyle symptom, as they reflect changes or patterns in the employee's lifestyle that could suggest financial discrepancies or other issues when not aligned with known income sources.

Question 13

Preventive controls include:
A) independent checks.
B) segregation of duties.
C) documents and records.
D) financial statement reviews.

Accepted Answer

Segregation of duties is a preventive control designed to prevent errors and fraud by ensuring that no single individual has control over all aspects of a financial transaction.

Question 14

A good internal control system includes:
A) open work environments.
B) rigid rules.
C) segregation of duties.
D) following strict hiring procedures.

Accepted Answer

Segregation of duties is an essential component of a good internal control system as it ensures that no single employee has control over an entire process or transaction. This helps prevent fraud, errors, and abuse of resources. While open work environments and following strict hiring procedures may contribute to a positive work environment, they are not direct components of internal control. Rigid rules can be helpful, but they should be balanced with flexibility to allow for necessary adjustments in processes and transactions.

Question 15

Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her means?
A) A person owns several expensive cars.
B) A person closely monitors his/her investments.
C) A person hosts extravagant parties in his or her home.
D) A person owns a valuable art collection.

Accepted Answer

Monitoring investments closely is a responsible financial behavior and does not necessarily indicate living above one's means. The other options (A, C, and D) involve owning items or engaging in activities that are typically associated with a higher cost of living and may suggest living above one's means.

Question 16

Which of the following is a sign of a positive work environment?
A) Rigid rules followed by the organization
B) Managers who care about the employee work ethic
C) Careful hiring policies
D) Having positive personnel and operating procedures

Accepted Answer

A positive work environment is characterized by positive personnel and operating procedures, which promote employee satisfaction and productivity.

Question 17

Which of the following environments will be LEAST conducive to fraud?
A) Perceived inequalities in the organization and inadequate pay
B) Unreasonable budget expectations
C) Proactive management
D) High employee turnover

Accepted Answer

Proactive management is the least conducive to fraud as it involves regular monitoring and risk assessment, which can prevent fraudulent activities. In contrast, perceived inequalities and inadequate pay may lead employees to justify committing fraud, unreasonable budget expectations may encourage employees to manipulate financial records to meet targets, and high employee turnover can make it easier for fraud to go undetected.

Question 18

What is the most widely recognized way to deter fraud?
A) Encourage employees to report suspicious activity.
B) Implement a good system of controls.
C) Keep management involved in company procedures.
D) Quickly punish employees found committing fraud.

Accepted Answer

Implementing a good system of controls is the most effective way to deter fraud. This involves having policies, procedures, and guidelines in place to prevent and detect fraudulent activity. It includes internal controls such as segregating duties, having multiple levels of approval, monitoring financial transactions, conducting audits, and performing background checks on employees. Encouraging employees to report suspicious activity and keeping management involved in company procedures are important parts of a good system of controls, but they are not as effective on their own. Quick punishment of employees found committing fraud is important, but it is a reactive measure rather than a proactive one.

Question 19

What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?
A) The company will avoid bad publicity.
B) The perpetrator may commit another fraud in the future.
C) The perpetrator will be saved from pain and embarrassment.
D) Management will send a signal that fraud will not be tolerated.

Accepted Answer

Allowing a perpetrator to go unprosecuted does not hold them accountable for their actions and does not provide a deterrent for future fraudulent behavior. Therefore, there is a risk that the perpetrator may commit another fraud in the future. While demoting the perpetrator may send a signal that fraud will not be tolerated, it may not deter others from committing fraud if they believe they can get away with it. Additionally, avoiding bad publicity and saving the perpetrator from embarrassment are not appropriate reasons to refrain from prosecuting someone who has committed fraud.

Question 20

One way to create and communicate clear expectations about what is and is not acceptable in an organization is:
A) having separate, nonintegrated personnel and operating policies.
B) creating an expectation of punishment.
C) following a reactive management style.
D) having a clearly defined code of conduct in place.

Accepted Answer

Having a clearly defined code of conduct in place outlines the organization's expectations and standards for behavior, making it easier for employees to understand what is and is not acceptable. It provides guidance for managers to enforce rules consistently and fairly, and sets a standard for evaluating employee performance. A code of conduct can also communicate the organization's values and mission, which can inspire employees to act in accordance with those principles.

Quiz 4: Preventing Fraud

Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?

What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?

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

A good fraud auditing involves four steps. Which of the following is the correct sequence?

One of the most important responsibilities of an employer is the hiring and retention of employees. Which of the following situations reflects the current market scenario?

An operating condition that can contribute to a higher risk of fraud is:

Which of the following would usually be an environment conducive to fraud?

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

Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?

Fraud is most commonly detected by:

In order to detect fraud at the earliest, a manager should pay attention to:

An employee recently bought three new cars and remodeled his/her home. These facts would be considered as a:

Preventive controls include:

A good internal control system includes:

Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her means?

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

Which of the following environments will be LEAST conducive to fraud?

What is the most widely recognized way to deter fraud?

What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?

One way to create and communicate clear expectations about what is and is not acceptable in an organization is: