Question 1

SIMULATION ___________ allows the fraud examiner to inspect key attributes on a smaller portion (or sample) of those documents.

Accepted Answer

The answer of SIMULATION ___________ allows the fraud examiner to...

Question 2

The principle behind full disclosure is:

Accepted Answer

Full disclosure requires that any material deviation from GAAP (Generally Accepted Accounting Principles) must be explained to the reader of the financial information in order to provide transparency and ensure that the information is not misleading. Choosing B or C is incorrect as SAS (Statement on Auditing Standards) is not a commonly used accounting principle, and the deviation should be explained to the reader, not the writer. Choosing D is also incorrect as full disclosure is an important concept in accounting and financial reporting.

Question 3

Organizations that had external audits actually had higher median losses and longer lasting fraud schemes than those organizations that were not audited.

Accepted Answer

This statement is supported by a report from the Association of Certified Fraud Examiners. The report found that organizations with external audits had a median loss of $250,000, compared to $164,000 for those without audits, and fraud schemes lasted an average of 18 months for audited organizations compared to 14 months for those without audits.

Question 4

Which sale occurs when the accomplice of the employee-fraudster "buys" merchandise, but the employee does not ring up the sale, and the accomplice takes the merchandise without making any payment?

Accepted Answer

This is commonly known as a "fake sale" or a "paper sale" in which the accomplice pretends to make a purchase but no actual transaction or payment occurs.

Question 5

According to Hollinger and Clark for Policy development, management must pay attention to:

Accepted Answer

Management must have a clear understanding of theft behavior in order to develop effective policies, and it is also important to enforce sanctions to deter future theft incidents. Therefore, both options (A and B) are necessary for effective policy development.

Question 6

Forced reconciliation of the account says:

Accepted Answer

Forced reconciliation of the account involves changing the perpetual inventory record to match the physical inventory count. The purpose of this is to conceal any shrinkage, or loss of inventory, that may have occurred. Therefore, option C best describes this tactic. Options A and B describe altering the inventory or shrinkage records, respectively, but do not involve forced reconciliation of the account. Option D addresses write-offs, which are a separate concept from forced reconciliation.

Question 7

Inventory shrinkage is the unaccounted-for reduction in the company's inventory that does not results from theft.

Accepted Answer

Inventory shrinkage refers to the loss of inventory that can result from various factors, including theft, damage, or administrative errors.

Question 8

The forms that allow noncash assets to be moved from one location in a company to another can be used to facilitate the misappropriation of those assets are called:

Accepted Answer

Asset requisition forms can be used to move noncash assets from one location to another, and if not properly monitored and approved, can facilitate the misappropriation of those assets. Inventory usages and fake sales may also be methods used to misappropriate assets, but these do not involve the use of forms.

Question 9

Which counts sometimes can give rise to inventory theft detection?

Accepted Answer

Physical inventory counts involve manually counting the actual inventory on hand, which can reveal discrepancies between recorded and actual inventory levels, potentially indicating theft.

Question 10

Larceny is the scheme in which an employee simply takes inventory from the company premises without attempting to conceal it in the books and records.

Accepted Answer

This statement accurately defines larceny as an employee taking inventory without attempting to conceal it in the books and records.

Question 11

__________ inventory and other assets is relatively common way for fraudsters to remove assets from the books before or after they are stolen.

Accepted Answer

The answer of __________ inventory and other assets is relatively...

Question 12

False billing scheme states that:

Accepted Answer

False billing scheme involves employees causing their company to purchase merchandise that the company does not need, resulting in the company paying for goods or services that are fraudulent or unnecessary.

Question 13

A variation between the physical inventory and the perpetual inventory totals is called:

Accepted Answer

The difference between the physical inventory (counting the actual items on hand) and the perpetual inventory (keeping track of inventory in real-time through software) is called shrinkage. Shrinkage can occur due to theft, damage, miscounts, or other factors that lead to a loss of inventory. Options A, B, and D are not accurate terms for this situation.

Question 14

Statistical sampling enables the examiner to predict the occurrence rate for the population and therefore determine with some accuracy the error rate, or the potential for fraud.

Accepted Answer

Statistical sampling is a tool used by examiners to estimate error and fraud rates within a population with a certain level of confidence. By selecting a representative sample and analyzing the data, the examiner can make predictions about the occurrence rate of errors or fraud within the population.

Question 15

SIMULATION ______________ is required not only for theft, but for procedures to detect errors, avoid waste and insure a proper amount of inventory is maintained.

Accepted Answer

The answer of SIMULATION ______________ is required not only for...

Question 16

A running count that records how much inventory should be on hand is referred to:

Accepted Answer

Perpetual inventory refers to a continuous tracking of inventory levels, which helps in maintaining a record of the quantity of items available in stock at all times. It enables businesses to better manage their inventory levels and avoid shortages or overstocks. The other options are not relevant or accurate descriptions of a running count of inventory.

Question 17

A journal in which all sales made on credit or cash are listed is:

Accepted Answer

The Accounts Receivable Journal is used to keep track of all sales made on credit. It lists sales in chronological order, along with the name of the customer, the amount of the sale, and the date of the sale. This journal is used to keep track of the amount owed by customers and is essential for managing accounts receivable.

Question 18

If the assets are intentionally purchased by the company but simply misappropriated by the fraudster, this is referring to as:

Accepted Answer

Inventory larceny scheme involves the theft of physical assets that have been legitimately acquired by the company but are then stolen by an employee or fraudster.

Question 19

A __________ is a day-by-day, or chronological, record of transactions

Accepted Answer

A journal is a day-by-day, or chronological, record of transactions. It is used to record all of the company's financial transactions in order of occurrence. The journal serves as a record of initial entry, which means that all transactions are first recorded in the journal before they are posted to the company's ledger. Choice A (Asset) is not a day-by-day record of transactions; it refers to an economic resource owned or controlled by a company. Choice C (Checkbook) is a record of bank transactions, not a record of all financial transactions. Choice D (Ledger) is not a day-by-day record of transactions; it is a summary of all transactions within a specified period, organized by account.

Question 20

____________ corrupt employees can cause inventory to be fraudulently delivered to themselves or accomplices.

Accepted Answer

False packing slips can be used by corrupt employees to divert inventory to themselves or accomplices without detection. False shipping slips and false credit slips may also be used for fraudulent activities, but they are not directly related to inventory delivery. Fraudulent inventory slips are not a commonly used term in inventory management.

Exam 1: Certified Fraud Examiner