Deck 5: Check Tampering

Question 1

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

A) Extract checks that are out of sequence
B) Extract manual checks and summarize by vendor and issuer
C) Extract all checks payable to "cash" and summarize by issuer for reasonableness
D) All of the above

Answer 1

D

Question 2

Which of the following choices is not a category of check tampering?

A) Forged maker schemes
B) Altered payee schemes
C) Unauthorized endorsement schemes
D) Concealed check schemes

Answer 2

C

Question 3

The person who prepares and signs the check is known as the ______________ of the check.

A) Author
B) Endorser
C) Payer
D) Maker

Answer 3

D

Question 4

Methods used to conceal check tampering schemes include all of the following except:

A) Falsifying the disbursements journal
B) Forced reconciliation
C) Check kiting
D) Re-altering the canceled checks

Question 5

Which of the following is not a type of altered payee scheme?

A) "Tacking" on
B) Forged maker
C) Using erasable ink
D) Leaving the payee designation blank

Question 6

Check tampering includes both fraudulently preparing a company check for one's own benefit and intercepting a company check that is intended for a third party and converting it for one's own benefit.

Question 7

To prevent altered payee schemes, the person who prepares the check should also review the check after it has been signed.

Question 8

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, check tampering is the most common fraudulent disbursement fraud.

Question 9

Producing a counterfeit check using the company's logo and bank account number is one type of concealed check scheme.

Question 10

In a forged maker scheme, the perpetrator fraudulently affixes the signature of an authorized maker to a check.

Question 11

Which type of check tampering scheme is usually the most difficult to defend against?

A) Authorized maker
B) Forged endorsement
C) Concealed check
D) Altered payee

Question 12

Check tampering schemes involving checks made payable to "cash" are extremely difficult to resolve, as there is no way to tell who converted the check.

Question 13

Concealing a check tampering scheme generally means hiding both the identity of the perpetrator and the fact that the fraud ever occurred.

Question 14

Which of the following is not an effective control mechanism to safeguard an organization's check stock?

A) Boxes of blank checks should be sealed with security tape.
B) Organizations should use check stock that is high-quality and distinctly marked.
C) The employee in charge of the check preparation function should periodically verify the security of unused checks.
D) Voided checks should be promptly destroyed.

Question 15

To successfully carry out and conceal a check tampering scheme, the fraudster must have:

A) Access to the check stock
B) Access to the bank statements
C) The ability to forge signatures or alter other information on the check
D) All of the above

Question 16

Check tampering is unique from other fraudulent disbursement schemes because in a check tampering scheme:

A) The perpetrator physically prepares the fraudulent check.
B) The perpetrator must have access to a signature stamp in order to conceal the crime.
C) The perpetrator submits a phony document in order to generate the fraudulent payment.
D) The perpetrator must endorse the check in order to cash or deposit it.

Question 17

Methods used to manipulate electronic payments include which of the following?

A) Abusing legitimate access to the employer's payment system
B) Gaining access to the employer's payment system through social engineering
C) Exploiting weaknesses in the employer's internal control over its electronic payment system
D) All of the above

Question 18

To prevent and detect forged maker schemes, an organization should:

A) Separate the duties of check preparation and check signing.
B) Rotate authorized check signers.
C) Maintain a usage log for the signature stamp.
D) All of the above

Question 19

In which of the following schemes does the fraudster intercept and convert a company check made payable to a third party?

A) Forged maker scheme
B) Authorized maker scheme
C) Altered payee scheme
D) Concealed check scheme

Question 20

Which of the following procedures can help prevent and detect the theft and conversion of outgoing company checks?

A) Train employees to look for dual endorsements on canceled checks.
B) Chart the date of mailing for every outgoing check.
C) Track changes made to vendor records.
D) All of the above

Question 21

In one of the case studies in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time Phillips began writing checks to himself that had nothing to do with payroll. Control weaknesses that facilitated the commission of this fraud include which of the following?

A) The bank statements were sent directly to Phillips.
B) Phillips had check signing authority.
C) There was no separation of duties between accounts payable and the treasury department.
D) All of the above

Question 22

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children's school, was also a thief. As one of two people allowed to sign checks on the organization's bank accounts, she learned early on that she could forge the second person's signature without anyone becoming suspicious. How was she finally caught?

A) A co-worker contacted the organization's executive director when she found that a company check had been written to the children's school for Robinson's personal items.
B) New officers were elected, and they took the accounting books from her.
C) The auditors discovered her fraud during an annual audit of the books.
D) Robinson's husband tipped off the audit committee after he became suspicious of some of Robinson's purchases.

Question 23

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children's school, was also a thief. As one of two people allowed to sign checks on the organization's bank accounts, she learned early on that she could forge the second person's signature without anyone becoming suspicious. What red flags were present that indicated that something wasn't appropriate?

A) Robinson would not take vacation leave.
B) There were a lot of missing files that the auditors couldn't locate during their annual audit.
C) Robinson would not release any financial information when requested and gave excuses for why it wasn't available.
D) All of the above

Question 24

Mary Duncan is an internal auditor for the Western Realty Group. Recently, she ran a program that extracted checks that were out of the normal sequence. She found that four or five checks were written every month that fit this category. Based on the information given, which of the following schemes is likely occurring?

A) Multiple reimbursement scheme
B) Shell company scheme
C) Personal purchases scheme
D) Forged maker scheme

Question 25

Billy Hodges was in charge of preparing checks for the Lightner Company. He entered the payment information into the accounting system, and the completed checks were sent back to him to review. He then forwarded the checks to his supervisor for signing. In each batch of legitimate checks, Hodges would insert checks made payable to himself. When his supervisor was busy, he would take the stack of checks to him and ask him to sign them immediately in order to meet their cycle time deadline. The supervisor would inattentively sign the checks, and then Hodges would extract the checks he made payable to himself. This is an example of what type of check tampering scheme?

A) Concealed check scheme
B) Forged endorsement scheme
C) Forged maker scheme
D) Altered payee scheme

Question 26

According to the 2010 Report to the Nations on Occupational Fraud and Abuse, check tampering has the lowest median loss of all fraudulent disbursement frauds.

Question 27

In one of the case studies in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time Phillips began writing checks to himself that had nothing to do with payroll. What happened to Phillips?

A) He quit his job and moved to another state.
B) He pleaded guilty to fraud and grand theft and spent 24 months in prison.
C) He paid the money back by mortgaging his home.
D) He was charged criminally, and while out on bail, he fled with his family.

Question 28

Mavis Bosman works as an accounts receivable clerk at Brooks Publishing. She steals an incoming check from a customer and cashes it at a grocery store by forging the endorsement on the back of the check. This is an example of a check tampering scheme.

Question 29

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children's school, was also a thief. As one of two people allowed to sign checks on the organization's bank accounts, she learned early on that she could forge the second person's signature without anyone becoming suspicious. How was Robinson punished?

A) She was allowed to resign and agreed to pay the money back.
B) She resigned, and a civil suit was filed to recover the loss.
C) She was found guilty and ordered to make restitution to the organization and its insurance company.
D) Charges were dismissed with prejudice when the evidence was thrown out on a technicality.

Question 30

In one of the case studies in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time Phillips began writing checks to himself that had nothing to do with payroll. How was the fraud discovered?

A) The president received a bank statement containing canceled checks that had been written to Phillips.
B) The receiver received a call from the bank asking him to verify a check.
C) A vendor received a check in error and reported it to the operations manager.
D) The operations manager found a check made payable to Phillips while searching Phillips' desk for some accounting records.

Question 31

Melanie Diggers is an internal auditor for Atlantic Equipment Rental and Sales. While performing a routine review of one of the company's bank accounts, she noticed an unusual "adjusting entry" to the account on the general ledger. She also found that several checks that had cleared the bank in the last few months were absent from the stack of canceled checks. She requested copies of these checks from the bank and discovered that they were all made payable to the company's controller who has check signing authority on the account. The controller is also responsible for performing the bank reconciliation and recording month-end journal entries. Which of the following schemes do these signs most likely indicate?

A) Concealed check scheme
B) False voids scheme
C) Authorized maker scheme
D) Forged maker scheme

Question 32

Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these checks and carefully changed them to appear payable to K. Diamond. She then endorsed the checks with her own name and deposited them into her personal bank account. What type of scheme did Kristen commit?

A) Concealed check
B) Payables skimming
C) "Tacking on"
D) Forged endorsement

Question 33

Vicky Rogers works in the accounts payable department at HDU, Inc. When checks are returned to the company for incorrect vendor addresses, she is supposed to research them, correct them, and then forward them to the proper address. Instead, Rogers decided to convert some of the returned checks for her own use. Based on the information provided, what type of check tampering scheme is this likely to be?

A) Forged maker
B) Authorized maker
B) Forged endorsement
C) Concealed check