Question 1

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

Accepted Answer

Having a clearly defined code of conduct in place sets out the expectations of acceptable behavior in the organization. This helps in communicating these expectations to employees, as well as ensuring consistency in enforcing them. Separate policies may lead to confusion and inconsistencies, while relying on punishment alone can create a culture of fear rather than accountability. Following a reactive management style may also be ineffective in preventing inappropriate behavior.

Question 2

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?

Accepted Answer

Monitoring investments is a good financial habit and does not necessarily indicate living above one's means. However, owning multiple expensive cars, hosting extravagant parties, and owning a valuable art collection can be indicators of a lifestyle beyond one's means.

Question 3

What is the last stage in the current (default)model that most organizations typically use for dealing with fraud?

Accepted Answer

The current (default) model typically consists of four stages: detection, investigation, action, and resolution. The last stage is resolution, which involves resolving the fraud issue and implementing changes to prevent future incidents.

Question 4

A good internal control system includes:

Accepted Answer

Segregation of duties involves dividing responsibilities among different employees to prevent any single individual from having complete control over a transaction or process. This is a key component of a good internal control system as it helps to prevent fraud or errors. Open work environments and strict hiring procedures may also contribute to a good system, but they are not as central as segregation of duties. Rigid rules may actually hinder an effective system as they can discourage employees from taking initiative and adapting to new situations.

Question 5

____ focuses more on creating a culture of openness than eliminating opportunities.

Accepted Answer

Creating a positive work environment focuses on promoting transparency, communication, and collaboration among employees, encouraging them to share their ideas and concerns openly without fear of reprisal. This approach can help a company identify and address potential risks and issues early on, leading to a stronger and more resilient organization in the long run. In contrast, proactive auditing, installing good internal controls, and monitoring employees all tend to emphasize compliance and risk reduction, and may create an atmosphere of mistrust or suspicion that can stifle creativity and innovation.

Question 6

Which of the following is an operating condition that can contribute to a higher risk of fraud is?

Accepted Answer

Management by crisis refers to a state where a company is struggling with a major problem or issue. In such a situation, management may not have the time or resources to focus on implementing proper controls or monitoring activities, which can contribute to a higher risk of fraud. High company loyalty, flexible rules, and proper authorization are not necessarily conditions that contribute to fraud risk.

Question 7

One of the most important responsibilities of an employer is the hiring and retention of employees.Which situation below reflects the current market scenario?

Accepted Answer

In a current competitive market scenario, high turnover and low loyalty are common due to numerous job opportunities and employees frequently changing jobs for better prospects.

Question 8

Which of the following would usually be an environment conducive to fraud?

Accepted Answer

Reactive management is usually not as effective in preventing fraud as proactive management, as it involves addressing issues after they have already occurred rather than identifying and preventing them before they happen. This environment can create opportunities for fraudsters to take advantage of lax controls and supervision. Low turnover, supportive relationships, and long-term business focus are not necessarily indicators of a fraud-conducive environment.

Question 9

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

Accepted Answer

Developing and promoting a well-defined corporate code of conduct is related to the "Tone at the top" element of the fraud-fighting model. This element focuses on the ethical culture and values espoused by senior management and the board of directors, which can influence the behavior and actions of employees throughout the organization. A clear code of conduct can set expectations for appropriate behavior, encourage ethical decision-making, and provide a basis for disciplinary actions when violations occur.

Question 10

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

Accepted Answer

71% of all frauds are committed by individuals acting alone, while 29% involve collusion, which often results in the largest thefts.

Question 11

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

Accepted Answer

These facts indicate a lifestyle symptom, as they reflect changes or patterns in the employee's lifestyle that could suggest financial discrepancies or other issues when not aligned with known income sources.

Question 12

Which of the following environments will be LEAST conducive to fraud?

Accepted Answer

Proactive management is focused on preventing fraud from happening in the first place. It involves setting up systems that make it more difficult for fraud to occur, providing adequate training to employees, and ensuring that everyone understands the importance of ethics and integrity in the workplace. This makes it the least conducive environment for fraud. On the other hand, perceived inequalities in the organization and inadequate pay (A) and unreasonable budget expectations (B) create a sense of pressure among employees, which can lead to fraud. Similarly, high employee turnover (D) can make it difficult to maintain a strong ethical culture, which can increase the likelihood of fraud occurring.

Question 13

In order to detect fraud at the earliest,a manager should pay attention to:

Accepted Answer

The answer of In order to detect fraud at the...

Question 14

Control activities can be grouped as preventive controls and detective controls.Which of the following is a detective control?

Accepted Answer

Independent checks are a form of detective control, as they are designed to detect errors or irregularities that may have occurred within the system. The other options listed are preventative controls: System of authorizations is designed to prevent unauthorized transactions or actions from taking place; Segregation of duties is designed to prevent opportunities for fraud, errors or irregularities; Physical safeguards are designed to prevent unauthorized access or theft of assets.

Question 15

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

Accepted Answer

The answer of Which of the following is a sign...

Question 16

What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?

Accepted Answer

By allowing the perpetrator to go unprosecuted, they may feel emboldened to commit another fraud in the future. This could lead to even more severe consequences for the company down the line. Additionally, the company may still face bad publicity and reputational damage even if they avoid immediate negative consequences. It is important for management to send a clear message that fraud will not be tolerated by prosecuting or reporting perpetrators to the appropriate authorities.

Question 17

A good fraud auditing involves four steps.Which of the following is the correct sequence?

Accepted Answer

The correct sequence for a good fraud auditing involves first identifying fraud risk exposures, then identifying the fraud symptoms associated with each exposure, building audit programs to proactively look for these symptoms and exposures, and finally investigating any fraud symptoms that are identified. Option B correctly follows this sequence.

Question 18

Preventive controls that provide early fraud detection opportunity include:

Accepted Answer

Segregation of duties is a preventive control that helps in early fraud detection by ensuring that no single individual has control over all aspects of a financial transaction, thereby reducing the risk of errors or fraud going undetected.

Question 19

Fraud is most commonly detected by:

Accepted Answer

Tips and complaints are the most common way fraud is detected, accounting for over 40% of cases. Monitoring employees and auditors can detect fraud as well, but they are not as effective as tips from insiders or concerned citizens. Discouraging collusion is a preventative measure rather than a means of detecting fraud.

Question 20

What is the most widely recognized way to deter fraud?

Accepted Answer

Implementing a good system of controls is the most widely recognized and effective way to deter fraud. This includes having policies and procedures in place to prevent fraudulent activity, monitoring and reviewing financial transactions regularly, and implementing segregation of duties to prevent any one person from having too much control over financial operations. While the other choices (encouraging employees to report suspicious activity, keeping management involved, and punishing employees found committing fraud) are also important, they are not as effective on their own as implementing strong controls.

Quiz 4: Preventing Fraud