Deck 5: Recognizing the Symptoms of Fraud

Question 1

An auditor noticed that Company B had an exorbitant increase in sales and drastic decreases in its inventory and accounts receivables. This statement symbolizes which fraud symptom?

A) Accounting anomaly
B) Internal control weakness
C) Analytical anomaly
D) Unusual behavior

Answer 1

C

Question 2

In most organizations, coworkers and others have knowledge or suspicions that fraud is occurring but do not come forward with their information. There are several major reasons for this hesitancy. Which of the following is NOT one among them?

A) It is usually impossible to know for sure that a fraud is taking place.
B) The suspicious action is not affecting their work.
C) They fear reprisal for being a whistle-blower.
D) They often think that squealing on someone is wrong.

Answer 2

B

Question 3

Which of the following is an analytical fraud symptom?

A) Increase in past due accounts receivable
B) Significant increase or decrease in account balances
C) Lack of independent checks
D) Excessive voids or credits

Answer 3

B

Question 4

Fraud examiners must be able to recognize signals that a journal entry may have been manufactured to conceal a fraud. Which of the following is a common journal entry fraud symptom?

A) Journal entries with documentary support
B) Journal entries that balance
C) Adjustments to receivables or payables that are made monthly
D) Journal entries made near the end of an accounting period

Question 5

Which of the following is NOT an analytical fraud symptom?

A) Consistent cash shortages
B) Overriding of existing controls
C) Excess purchases
D) Unreasonably high expenses

Question 6

Document symptoms to some extent can signal that embezzlement is taking place. Which among the following usually does NOT point to some problem with the source documents?

A) Photocopied documents
B) Different names or addresses of payees or customers
C) Excessive voids or credits
D) Increased past-due accounts

Question 7

How does a smart embezzler manipulate accounting records to conceal fraud?

A) By increasing assets
B) By manipulating stock accounts
C) By manipulating dividends
D) By increasing expenses

Question 8

Transactions happening at odd times or places; being performed by people who would not normally participate; or including odd procedures are typically associated with which type of fraud symptom?

A) Accounting anomaly
B) Internal control weakness
C) Analytical anomaly
D) Unusual behavior

Question 9

Implementing a system of independent checks is one of the most effective ways to deter fraud. Which one of the following is NOT a way of providing independent checks on employees?

A) Employee transfers
B) Audits
C) Mandatory vacations
D) Authorization required for purchases of over $2,000 or more

Question 10

Which of the following is an example of accounting anomaly fraud symptom?

A) Missing documents
B) Excess purchases
C) Too many debit or credit memos
D) Inadequate accounting system

Question 11

Who in an organization is NOT in a good position to recognize fraud during the theft act?

A) Other employees
B) Managers
C) Auditors
D) Coworkers

Question 12

Increased scrap, excessive purchases, and physical abnormalities are examples of:

A) accounting anomalies.
B) external control weaknesses.
C) analytical anomalies.
D) unusual behavior.

Question 13

Research in psychology indicates that when people commit a crime (especially for the first time), they are initially overwhelmed by and .

A) guilt, fear
B) anxiety, insomnia
C) confidence, rationalization
D) defensiveness, anger

Question 14

There are three simple procedures that small business owners should do on a timely basis to prevent fraud when they can't afford sufficient employees to guarantee effective segregation of duties. Which of the following is NOT one among them?

A) Pay everything by check so that there is a record.
B) Always open the bank statement and reconcile it themselves.
C) Allow one key employee to operate the bank account personally.
D) Sign every check themselves and not delegate the signing to anyone else.

Question 15

fraud symptoms are procedures or relationships that are unusual or that do not make sense.

A) Analytical
B) Accounting
C) Internal control
D) Environmental

Question 16

Which of the following is NOT a common accounting anomaly fraud symptom?

A) Faulty journal entries
B) Inaccuracies in source documents
C) Rounding adjustments
D) Inaccuracies in ledgers

Question 17

Inaccuracies in ledgers represent which type of fraud symptom?

A) Internal control weaknesses
B) Analytical anomalies
C) Accounting anomalies
D) Financial statement weaknesses

Question 18

Recording an expense to conceal fraud involves making a fictitious journal entry. A faulty journal entry is an example of which fraud symptom?

A) Accounting anomaly
B) Internal control weakness
C) Unusual behavior
D) Analytical anomaly

Question 19

In which stage do auditors have a good chance of detecting fraud, if the audit samples include altered documents and miscounts?

A) Theft act
B) Concealment
C) Conversion
D) Layering

Question 20

Which of the following is a control problem related to segregation of duties?

A) Julie writes expense checks and Mark collects cash from customers.
B) Bob order office supplies and deposits the company's checks.
C) Steve records receivables and writes off bad debts.
D) Rebecca records journal entries and orders lunch.

Question 21

All transactions related to specific accounts, such as cash or inventory, are summarized in the:

A) journal.
B) ledger.
C) trial balance.
D) balance sheet.

Question 22

Which of the following is a highly suspicious financial statement relationship?

A) Increased revenues with increased cash flows
B) Increased volume with decreased cost per unit
C) Increased inventory with decreased payables
D) Increased inventory with increased warehousing costs

Question 23

Which of the following usually motivates embezzlers to indulge in a fraudulent activity?

A) Pursuit of immediate gratification
B) Safeguard their future
C) Cover expenses required to live
D) Protection against uncertainties

Question 24

Which of the following is NOT a fraud symptom related to internal control weaknesses?

A) Lack of segregation of duties
B) Lack of physical safeguards
C) Lack of proper authorization
D) Excessive turnover of executives

Question 25

A major difference between financial statement auditors and fraud examiners is that most financial statement auditors:

A) match documents to verify whether support exists for recorded information.
B) determine whether the documents are originals.
C) determine whether the expenditures make sense.
D) check whether all aspects of the documentation are in order.

Question 26

Lifestyle changes of fraud perpetrators are related to which of the following fraud elements?

A) Theft act
B) Concealment
C) Conversion
D) Confession

Question 27

Which of the following appears to be common to most embezzlers who are caught?

A) Long-term focus
B) Investments made in low-risk instruments
C) Saving what they steal
D) Spending on lifestyle improvements

Question 28

Which category of individuals is the least likely to detect fraud at the conversion stage?

A) Co-workers
B) Friends
C) Auditors
D) Managers

Question 29

are relationships in financial or nonfinancial data that do not make sense, such as an unreasonable change in a volume, mix, or price.

A) Analytical anomalies
B) Accounting anomalies
C) Auditing anomalies
D) Control weaknesses

Question 30

After committing fraud, an individual often exhibits unusual and recognizable behavior patterns to cope with the stress. Perpetrators experience these behavioral signals in which sequence?

A) Guilt - Stress - Fear - Behavior changes
B) Fear - Guilt - Stress - Behavior changes
C) Fear - Guilt - Behavior changes - Stress
D) Guilt - Fear - Stress - Behavior changes

Question 31

An employee decides to steal cash from his/her employer. What would be the best way to conceal such a fraud?

A) Recording the stolen cash as an expense.
B) Writing down accounts payable for a supplier.
C) Increasing accounts receivable from a customer.
D) Writing down as dividend paid to shareholders.

Question 32

Which term refers to people who commit a fraud or other crime and do not feel guilt or stress?

A) Altruists
B) Utilitarians
C) Psychopaths
D) Agnostics

Question 33

What does the following journal entry indicate? Legal Expense. 2,900 Cash. 2,900

A) $2,900 cash is due to an attorney.
B) A sum of $2,900 was received from an attorney in advance.
C) $2,900 cash is due from an attorney.
D) An attorney was paid $2,900 in cash.

Question 34

Which of the following scenarios is least conducive to fraud?

A) Outstanding bills at home
B) Mandatory vacation time
C) Economic downturns
D) Moral decay in upper management

Question 35

involves the actual taking of cash, inventory, information, or other assets, whereas involves selling stolen assets or transferring them into cash and then spending the cash.

A) Conversion, coercion
B) Theft, conversion
C) Coercion, theft
D) Theft, coercion

Question 36

Which of the following fraud symptoms is often the easiest to detect?

A) Analytical anomalies
B) Internal control weaknesses
C) Accounting anomalies
D) Lifestyle changes

Question 37

Which of the following is NOT a "strange" financial statement relationship?

A) Increased revenues with decreased cash flows
B) Increased revenues with decreased receivables
C) Decreased inventory with decreased payables
D) Decreased volume with decreased cost per unit

Question 38

Which of the following is a highly suspicious financial statement relationship?

A) Increased revenues with decreased receivables
B) Decreased production with decreased scrap
C) Increased volume with increased scrap
D) Decreased cost per unit with increased level of output

Question 39

Which of the following actions would most likely create an opportunity for fraud?

A) Requiring all documents over seven years old be shredded
B) Requiring that the department manager authorize purchase orders only for purchase amounts for more than $100
C) Requiring one password code for each entire department to enter the storeroom
D) Using a manual accounting system

Question 40

Allowing the clerk who checked out customer A to handle a return by that same individual without presenting the receipt would NOT be an example of which of the following weaknesses in internal controls?

A) Lack of segregation of duties
B) Lack of requiring proper documents and records
C) Lack of independent checks
D) Lack of an adequate accounting system

Question 41

Which of the following statements regarding fraud symptoms is NOT accurate?

A) With fraud, it is not usually obvious that a crime has been committed.
B) To detect fraud, red flags must be investigated.
C) Fraud symptoms provide conclusive proof of fraud.
D) Many fraud symptoms go unnoticed.

Question 42

Which of the following is a true statement?

A) A fraud perpetrator who normally smokes often quits after committing a fraud.
B) A fraud perpetrator may start entertaining coworkers more often and more lavishly.
C) A fraud perpetrator may start looking coworkers directly in the eye when talking to them.
D) A fraud perpetrator who committed the fraud act to pay off gambling debts may suddenly stop gambling.

Question 43

Which of the following possible actions may discourage an employee from reporting suspected fraudulent activities?

A) Management promises no prosecution of the individual if guilty.
B) Corporate security's number is provided.
C) The number of the internal auditor is provided.
D) Corporate management stresses that any information provided will be kept confidential.

Question 44

Which of the following acts by management could discourage someone from reporting an observed act of fraud?

A) Providing clear instructions of who to contact
B) Providing assurance of anonymity
C) Providing clear instructions on how to convey the information
D) Providing a clear list of possible consequences

Question 45

Which of the following is a true statement?

A) Lifestyle changes are often the easiest fraud symptoms to detect.
B) Lifestyle changes are helpful in detecting fraud on behalf of a corporation.
C) Fraud is indicated when an employee buys a large number of stock shares.
D) Evidence of an employee paying off large debt can be verified, but it is costly to do so.