Deck 4: Preventing Fraud

Question 1

Fraud is most commonly detected by:

A)monitoring employees.
B)auditors.
C)discouraging collusion.
D)tips and complaints.

Answer 1

D

Question 2

One of the most important responsibilities of an employer is the hiring and retention of employees.Which situation below 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

Answer 2

B

Question 3

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

Answer 3

C

Question 4

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

Question 5

A good internal control system includes:

A)hostile work environments.
B)rigid rules.
C)segregation of duties.
D)following strict hiring procedures.

Question 6

Preventive controls that provide early fraud detection opportunity include:

A)independent checks.
B)segregation of duties.
C)documents and records.
D)lack of proper authorization

Question 7

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 lifestyle?

A)A person owns several expensive cars.
B)A person closely monitors his/her investments.
C)A person who hosts extravagant parties in their $500,000 home.
D)A person who owns a multimillion dollar art collection.

Question 8

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.

Question 9

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.

Question 10

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

A)Rigid rules followed by the organization
B)Managers who don't care about or pay attention to honesty
C)Autocratic or dictatorial management
D)Having positive personnel and operating procedures

Question 11

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

A)lifestyle symptom.
B)accounting anomaly.
C)unusual behavior.
D)analytical symptom.

Question 12

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

A)Investigation & follow-up
B)Education & training
C)Tone at the top
D)Proactive fraud detection

Question 13

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

A)63%,37%,smallest
B)71%,29%,biggest
C)47%,53%,smallest
D)18%,82%,biggest

Question 14

____ 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

Question 15

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

Question 16

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

Question 17

What is the most widely recognized way to deter fraud?

A)Interview every employee on a regular basis.
B)Implement a good system of controls.
C)Keep management involved in company procedures.
D)Threaten employees that on being caught,he/she will be fired.

Question 18

The last step of the fraud fighting model is follow-up.What is the likely outcome when a company allow perpetrators to go unprosecuted?

A)The company will avoid bad publicity.
B)The perpetrator and others in the company will commit fraud again in the future.
C)The perpetrator will be saved from pain and embarrassment and having learned his or her lesson will not commit fraud again.
D)Management will send a signal that fraud will not be tolerated.

Question 19

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

Question 20

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

A)having conflicting personnel and operating policies.
B)creating an expectation of punishment.
C)following a reactive management style.
D)to have a clearly defined code of conduct in place.

Question 21

Which of the following allows managers and others to become aware of employees' pressures,problems,and rationalizations thus enabling them to take fraud prevention steps?

A)Office grapevine
B)Open door policies
C)Code of ethics
D)Pygmalion effect

Question 22

Which of these help employees deal with substance abuse (alcohol and drugs),gambling,money management,and health,family,and personal problems?

A)Employee Assistance Programs
B)Equal Employment Opportunity Programs
C)Employees Anonymous Programs
D)Whistle-Blowing Programs

Question 23

Identify a situation that could usually lead to a conflict of interest.

A)A manager has to choose between two of his best employees for the post of assistant manager.
B)A sales supervisor has to allocate targets to her team members,based on revenue generation probability per region.
C)A market analyst is asked to create a comparative growth forecast for four firms in an industry.
D)A purchase manager in a company runs an operation that produces the raw materials required by the company.

Question 24

When only a very small amount of money has been embezzled:

A)taking no action is the best course of action.
B)the perpetrator should be punished by publishing the details of the fraud in the local newspapers.
C)the perpetrator should be prosecuted.
D)the company should transfer the perpetrator to a position with more supervision.

Question 25

Which of the following is the foundation for all other components of internal control,providing discipline and structure?

A)Open door policy
B)Control environment
C)Whistle-blowing system
D)Surveillance

Question 26

Which of the following should be emphasized in an employee-reporting program?

A)II and III.
B)I,II,III,and IV.
C)I,II,and IV.
D)II and IV.

Question 27

Which of the following observations is true?

A)The effectiveness of an ideal control system should be independent of the people enforcing it.
B)No internal control structure can ever be completely effective,regardless of the care followed in its design and implementation.
C)A control system by itself can provide absolute assurance that all fraud will be prevented.
D)The type of control activities include reactive controls and proactive controls.

Question 28

Which of the following should employers always obtain from the applicant to obtain information from references?

A)A verbal authorization
B)A hold harmless agreement
C)A privacy statement
D)A no-objection certificate

Question 29

Who has the primary responsibility for establishing and maintaining good internal controls?

A)Primary responsibility for controls belongs to internal auditors.They are the ones who create the controls and investigate potential violations of the controls.
B)Primary responsibility rests with management.Management both conveys acceptable culture and has the final say in how fraud cases are treated.
C)Primary responsibility lies with employees.They are the ones most likely to witness violations and are responsible to watch for those violations.
D)Primary responsibility is not attributable to one person or group of people within an organization.Each member of an organization must consider himself or herself personally responsible for the organization's control environment.

Question 30

The correct order of the six elements of the fraud fighting model is:

A)Tone at the Top;Education and Training;Proactive Detection;Integrity Risk and Controls;Reporting and Monitoring;Investigation and Follow-up.
B)Tone at the Top;Education and Training;Integrity Risk and Controls;Reporting and Monitoring;Proactive Detection;Investigation and Follow-up.
C)Education and Training;Integrity Risk and Controls;Reporting and Monitoring;Proactive Detection;Investigation and Follow-up;Tone at the Top.
D)Education and Training;Tone at the Top;Integrity Risk and Controls;Reporting and Monitoring;Proactive Detection;Investigation and Follow-up.

Question 31

What does the acronym "EAP" stand for?

A)Entrepreneurial Assistance Program
B)Employee Assistance Program
C)Ethical Awareness Program
D)Employee Anti-fraud Program

Question 32

Jim was a crook.He embezzled $450,000 from his employer.When his employer found out about his misdeeds,before even conducting a thorough investigation,he went and gave all the details to a local newspaper agency.The next day Jim read his own story,with his own name,in the newspaper.Which of the following is correct?

A)The company did the right thing by publishing Jim's identity in the newspaper because it punished him for stealing as well as served a warning to his neighbors who might also be at the risk of being defrauded.
B)The company should not have put Jim's name and story in the paper because when other employees will come to know about it,they might leave the organization.
C)Jim may have been misrepresented in the story by the newspaper agency and the company might face legal consequences.
D)Publishing the story in the newspaper was a wrong thing to do because only employees were supposed to know about the fraud.

Question 33

Recruitment interview questions that deal with an applicant's race,sex,age,religion,color,national origin,or disability:

A)are allowed in most circumstances.
B)are allowed as long as the interviewee is not offended.
C)are prohibited unless the criterion is pre-approved by the company management.
D)are usually prohibited unless the criterion is a bona fide occupational qualification.

Question 34

A "right-to-audit" clause:

A)provide rights to the vendor to audit the company's books at any time.
B)gives an external auditor the right to audit the company's books.
C)should not be used because it isn't an effective tool in fraud investigation.
D)alerts vendors that the company reserves the right to audit the vendor's books at any time.

Question 35

What are the key attributes for a low-fraud environment?

A)Rules,consequences,and fear.
B)Recognition,remorse,and restitution.
C)Honesty,openness,and assistance.
D)Opportunity,incentive,and rationalization.

Question 36

Which method will result in biggest savings?

A)Fraud prevention--including EAP plans.
B)Fraud detection--including audit proactively,monitoring.
C)Investigation--including criminal prosecution.
D)Promotion--including raising rank or position.

Question 37

Which of the following questions should be avoided during a job interview?

A)How old are you?
B)If the opportunities in your previous assignment were good,why did you leave it?
C)Assume that a colleague is not cooperating with you.What steps will you take to correct it?
D)What motivates you at work?

Question 38

Which of the following explains the Pygmalion effect?

A)99% of frauds in organizations are committed by 1% of their employees.
B)The probability of fraud detection increases with the number of people involved.
C)People generally perform according to a leader's expectations.
D)Absence of controls leads to increased incidents of dishonesty.

Question 39

The _____ is the overall tone of the organization that management establishes through its modeling and labeling,organization,communication,and other activities.

A)detection framework
B)risk mitigation channel
C)support network
D)control environment

Question 40

Which of the following is a step that organizations should undertake while recruiting employees?

A)Conduct a covert investigation on the background of each candidate.
B)Consider the candidate's word as truth to ensure a culture of trust and honesty.
C)Require candidates to certify that all information on their résumé is accurate.
D)Verify the candidate's race,age,and religion during the interview.

Question 41

An organization has a policy requiring the dual counting of all incoming cash receipts.Which control activity is being used here?

A)Segregation of duties
B)Proper authorizations
C)Physical safeguards
D)Documents and records

Question 42

Company X has a clearly communicated code of ethics and a whistle-blowing program.Sara used the whistle-blowing system to alert the management about a fraud being committed by a senior employee in the human resource department.The company investigated the allegation and punished the fraudster.However,Sara was shocked to find later that everyone in her team knew that she was the one who blew the whistle.What could be a major issue with the program at the company?

A)Unclear policies
B)Lack of awareness about the program
C)Management inaction
D)Lack of anonymity

Question 43

Which of the following observations concerning collusive frauds is true?

A)They are usually slower to develop than frauds committed by one individual.
B)Research indicates that majority of the frauds involve collusion.
C)Frauds involving collusion are usually the easiest to detect because of the involvement of multiple players.
D)Recent trends in business have dramatically decreased the number of collusive frauds.

Question 44

An organization requires that employees in its accounting department take mandatory two-week long continuous vacations once a year.It allows no exceptions to this rule.Which control activity is the company using?

A)Segregation of duties
B)Proper authorizations
C)Physical safeguards
D)Independent checks

Question 45

Identify a recent business trend that could be contributing to the increased number of collusive frauds.

A)Reduced cost savings and product quality from using same suppliers.
B)Advances in technology that simplifies the process of conducting business.
C)Increasing frequency of supplier alliances,and closer relationships between buyers and suppliers.
D)Increased competition amongst suppliers that substantially erodes profit margins.