Deck 10: Corruption

Question 1

Matching the vendor master file to the employee master file is a proactive computer audit test that can be used to detect which type of fraud scheme(s)?

A) Bribery
B) Shell company
C) Both bribery and shell company
D) None of the above

Answer 1

C

Question 2

The primary approach for preventing conflicts of interest schemes is to develop and implement which of the following?

A) A voucher system
B) A company ethics policy
C) A document retention program
D) An anonymous reporting mechanism to receive tips and complaints

Answer 2

B

Question 3

___________________ is the offering, giving, receiving, or soliciting of something of value as a reward for a favorable decision.

A) Business diversion
B) Economic extortion
C) Illegal gratuity
D) Commercial bribery

Answer 3

C

Question 4

Which of the following is a type of kickback scheme?

A) Improper disclosure
B) Overbilling
C) Turnaround sale
D) Extortion

Question 5

If a government employee agrees to award a contract to a vendor in exchange for a promise of future employment, this is considered to be an illegal gratuity.

Question 6

If an employee approves payment on an invoice that originates from a real company in which he or she has a hidden economic interest, this is considered to be a conflict of interest scheme.

Question 7

Extracting round-dollar payments and summarizing them by vendor can help detect both corruption and billing schemes.

Question 8

The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal is known as:

A) Official bribery
B) Commercial bribery
C) Conflict of interest
D) Illegal gratuity

Question 9

Which of the following would likely not be a potential target for accepting bribes in a big-rigging scheme?

A) A product assurance representative
B) An accounts payable clerk
C) A contracting official
D) The engineer in charge of the project's technical specifications

Question 10

The key component to most kickback schemes is:

A) Forged endorsements
B) Counterfeit invoices
C) Price inflation
D) Stealing customer statements

Question 11

To facilitate a bribery scheme, a fraudster might divert company funds to a non-company account from which the illegal payments can be made. This account is called a:

A) Slush fund
B) Petty cash fund
C) Bid pool
D) None of the above

Question 12

Which of the following is not a type of corruption scheme?

A) Bribery
B) Conflict of interest
C) Illegal gratuities
D) Concealed payments

Question 13

To safeguard against kickback schemes, which of the following procedures should an organization implement?

A) Have an employee in the purchasing department review the organization's payment patterns on a quarterly basis.
B) Establish a written policy specifying that employees cannot accept more than $500 annually in gifts from customers or suppliers.
C) Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction.
D) All of the above

Question 14

To deter kickback schemes, an organization should implement which of following procedures?

A) Separate the purchasing, authorization, and cash disbursements functions.
B) Track purchase levels by vendor.
C) Compare the prices paid for goods and services to market rates.
D) All of the above

Question 15

The typical bid-rigging scheme committed during the need recognition phase of the contract negotiation process involves defining a "need" that can be met only by a certain supplier or contractor.

Question 16

Which of the following schemes can be detected by identifying vendor addresses that are not designated as a business address?

A) Shell company schemes
B) Kickback schemes
C) Conflicts of interest
D) All of the above

Question 17

Which of the following is a red flag indicating that an employee may be receiving kickbacks?

A) The purchase of inferior-quality inventory or merchandise
B) An unusually high volume of purchases from a particular vendor
C) The payment of purchase amounts that are frequently above market rates
D) All of the above

Question 18

Which of the following is a red flag that might indicate that a bid-rigging scheme is occurring?

A) The contract price is unusually low.
B) A high bid is followed by amendments that reduce the payments to the contractor.
C) The losing bidders become sub-contractors on the project.
D) Many more bidders responded to the request for proposals than expected.

Question 19

Identifying trends in over-purchased and/or obsolete inventory over several periods is a proactive computer audit test that can be used to detect which of the following schemes?

A) False purchases
B) Corruption
C) Overstated expenses
D) None of the above

Question 20

A corruption scheme in which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, is known as:

A) Bid pooling
B) Bid rigging
C) Bid division
D) Bid diversion

Question 21

In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. Why didn't the company pursue legal action against King?

A) The company didn't want the publicity so they quietly let her resign.
B) The vice president of loss prevention recommended against criminal action because of King's age and her husband's ill health.
C) There was not enough evidence to pursue a conviction.
D) Spicewood Travel agreed to reimburse the company for overcharges if they wouldn't pursue criminal action against King.

Question 22

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, bribery schemes occurred more often than other types of corruption schemes.

Question 23

Donna Boyd is an internal auditor for GDP, Inc., an electronics manufacturer. While conducting a routine review of the company's inventory costing, she discovers that the cost of one of the parts they use in manufacturing DVD players has been steadily increasing over the last six months and is now much higher than the general market price. Additionally, she notices that the company has been heavily favoring one specific supplier for that part. Based on these circumstances, what type of fraud scheme may be occurring at GDP?

A) Kickbacks
B) Conflict of interest
C) Shell company
D) Any of the above

Question 24

John Clark works as a land buyer for a city government. After negotiating the purchase of a parcel of land to be used for a new library, he asked the seller out for a coffee date, and she accepted. This situation is an example of an illegal gratuity.

Question 25

In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. How did the investigation get started?

A) A whistleblower called the GSA's hotline to report that inspectors in New Jersey were receiving bribes for certifying the furniture.
B) A series of articles in a Washington, D.C., newspaper led to a congressional investigation.
C) An audit conducted by the GSA found a high rate of return of modular furniture during a six-month period.
D) A senator had his desk collapse when he threw his sub-committee's budget on his desk after a hearing.

Question 26

In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. The investigators eventually focused on one particular regional inspector because:

A) He vacationed in Europe with the vendor and charged the trip back to the government as a business related trip.
B) He paid cash for a new home on the Jersey shore.
C) He purchased eleven race horses.
D) He had credit card charges of more than twice his annual salary during a six-month period.

Question 27

In one of the case studies in the textbook, the General Services Administration (GSA), the federal government's bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. What happened to the furniture manufacturing company?

A) It was charged with making false certifications and fined $2 million.
B) It lost its contract with the GSA and went bankrupt.
C) It was bought by another company.
D) All of the above

Question 28

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, the median loss due to corruption schemes was the highest of the three types of occupational fraud schemes.

Question 29

Stanley Block works in the IT department at Towery, Inc. After finding out that the company is planning to purchase four more computers for the accounting department, Stanley bought four computers from a friend for $1,200. Then, using his brother's name and address as vendor information, he resold the computers to Towery for $2,300. This type of scheme is known as a(n):

A) Over-purchase sale
B) Resource diversion sale
C) Double-sided sale
D) Turnaround sale

Question 30

In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. What triggered the investigation of Rita Mae King's activities?

A) Her supervisor found an invoice for a trip that she booked showing she received an employee discount from Spicewood Travel.
B) An employee from Spicewood Travel called King's office and left an urgent message for King to call them concerning a travel problem with a group she booked to the Cayman Islands.
C) Another employee of her company found a business card that she had left in a fishbowl for a drawing showing that she was an employee of Spicewood Travel.
D) Her former boyfriend called the loss prevention department's hotline and informed them that she was receiving kickbacks from Spicewood Travel.

Question 31

Fred Weaver is the contracts manager for a city government. In order for anyone to do business with the municipality, he or she must pay Fred 10 percent of the total amount of the contract. This type of corruption is known as:

A) Bribery
B) Economic extortion
C) A conflict of interest
D) Bid-rigging

Question 32

Abe Wilson works as a city councilman in large city on the east coast. As part of his duties, he negotiated the purchase of some land in order to build a new water treatment plant for the city. The land was sold to the city by Jake Bryan for terms that were favorable to the city. After the sale was finalized, Bryan treated Abe and his wife to an all-expenses-paid Alaskan cruise. This type of fraud is known as:

A) A conflict of interest
B) Bribery
C) An illegal gratuity
D) Economic extortion

Question 33

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, schemes involving corruption were the least common of the three types of occupational fraud schemes.

Question 34

Johanna Pye is a hair stylist at Mamon Salon. The salon's policy states that stylists receive 40 percent of the revenue they generate as their compensation. Johanna grew tired of sharing her income with the salon and decided she wanted to make more money. She continued seeing her existing clients at the salon, but when new clients called for an appointment, Johanna lied and told them the salon was completely booked for the next few months. She then offered to come to their homes and cut their hair for 10 percent less than what the clients would be charged at the salon. She did not report the house call appointments to the salon, and was therefore able to keep all the income she generated from these side clients. This is an example of what type of scheme?

A) Shell company
B) Resource diversion
C) Business diversion
D) Double dealing

Question 35

Julius Smith is a purchasing agent for a Louisiana state agency. He has a project budgeted for $24,000 that he would like to hire RGS Consultants to handle. Unfortunately for Julius and RGS Consultants, the state has a requirement that all projects over $10,000 must be sent out for competitive bids. In order to avoid the bidding process, Julius breaks the project into three component projects worth $8,000 each. RGS Consultants is subsequently awarded the contracts for all three projects. What type of bid-rigging scheme is this?

A) Bid pooling
B) Underbidding
C) Bid splitting
D) Bid diversion