ACCT 4120: Chapter 1

Question 1

It is impossible to know what percentage of fraud _____ are caught.

Answer 1

perpetrators

Question 2

Government agencies—Agencies such as the FBI, FDIC, IRS, and various other agencies publish fraud statistics from time to time, but these organizations only publish those statistics that are directly related to their _____.

Answer 2

jurisdictions

Question 3

_____ often conduct studies about particular types of fraud within certain industries.

Answer 3

Researchers

Question 4

_____ often provide fidelity bonding or other types of coverage against employee and other fraud.

Answer 4

Insurance companies

Question 5

Sometimes we learn about fraud from those who have been _____.

Answer 5

victims

Question 6

The _____ is the world’s largest anti-fraud organization with approximately 80,000 members. It regularly conducts one of the most comprehensive fraud studies in the United States.

Answer 6

ACFE

Association of Certified Fraud Examiners

Question 7

Because physical possession of stolen property is no longer required and because it is just as easy to program a computer to embezzle $1 million as it is $1,000, the size and number of frauds have _____ tremendously.

Answer 7

increased

Question 8

For every $1 of fraud, the _____ of the firm is reduced by $1.

Answer 8

net income

Question 9

Because fraud reduces _____, it takes significantly more _____ to recover the effect of the fraud.

Answer 9

net income

revenue

Question 10

If the automobile manufacturer’s _____ (net income as a percentage of revenues) at the time was 10 percent, the company would have to generate up to $4.36 billion in additional revenue (or 10 times the amount of the fraud) to restore net income to what it would have been without the fraud.

Answer 10

profit margin

Question 11

Fraud is deception that includes the following elements:

Answer 11

A representation

About a material point

Which is false

And intentionally or recklessly so

Which is believed

And acted upon by the victim

To the victim’s damage

Question 12

_____ is a generic term, and embraces all the multifarious means which human ingenuity can devise, which are resorted to by one individual, to get an advantage over another by false representations. No definite and invariable rule can be laid down as a general proposition in defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is cheated. The only boundaries defining it are those which limit human knavery.

Answer 12

Fraud

Question 13

Fraud is different from unintentional errors. If, for example, someone mistakenly enters incorrect numbers on a _____, is this fraud? No, it is not fraud because it was not done with intent or for the purpose of gaining advantage over another through false pretense. But, if in the same situation, someone purposely enters incorrect numbers on a _____ to trick investors, then it is fraud!

Answer 13

financial statement

Question 14

The ACFE includes three major categories of occupational fraud:

Answer 14

asset misappropriations

corruption

fraudulent financial statements

Question 15

Involves the theft or misuse of an organization’s assets.

Answer 15

asset misappropriations

Question 16

Fraudsters wrongfully use their influence in a business transaction in order to procure some benefit for themselves or another person, contrary to their duty to their employer or the rights of another.

Answer 16

corruption

Question 17

Generally involve falsification of an organization’s financial statements.

Answer 17

fraudulent financial statements

Question 18

List the perpetrator and victim for the fraud type.

Employee Embezzlement

Answer 18

Perpetrator
Employees of an organization

Victim
The employer

Question 19

List the perpetrator and victim for the fraud type.

Vendor Fraud

Answer 19

Perpetrator
Vendors of an organization

Victim
The organization to which vendors sell goods or services

Question 20

List the perpetrator and victim for the fraud type.

Customer Fraud

Answer 20

Perpetrator
Customers of an organization

Victim
The organization which sells to the customers

Question 21

List the perpetrator and victim for the fraud type.

Management Fraud
(financial statement fraud)

Answer 21

Perpetrator
Management of a company

Victim
Shareholders and/or debtholders and regulators (taxing authorities, etc.)

Question 22

List the perpetrator and victim for the fraud type.

Investment Scams and Other Consumer Frauds

Answer 22

Perpetrator
Fraud perpetrators (all kinds)

Victim
Unwary investors

Question 23

List the perpetrator and victim for the fraud type.

Other
(miscellaneous types of fraud)

Answer 23

Perpetrators and victims
All kinds - depends on the situation

Question 24

Fraud that doesn’t fall into one of the first three types of fraud and may have been committed for reasons other than financial gain is simply labeled _____.

Answer 24

miscellaneous fraud

Question 25

Fraud Classifications by Victim

Answer 25

Organizational Fraud Management Fraud Investment Scams Miscellaneous Frauds

Question 26

_____ is the most common type of occupational fraud. As stated previously, in this type of fraud, employees deceive their employers by taking company assets.

Answer 26

Employee embezzlement

Question 27

_____, which is extremely common in the United States, comes in two common forms: (1) fraud perpetrated by vendors acting alone and (2) fraud perpetrated through collusion between buyers and vendors.

Answer 27

Vendor fraud

Question 28

When _____ takes place, customers do not pay for goods purchased, they pay too little, or they get something for nothing.

Answer 28

customer fraud

Question 29

_____, often called financial statement fraud, involves top management’s deceptive manipulation of financial statements.

Answer 29

Management fraud

Question 30

In _____, fraudulent and usually worthless investments are sold to unsuspecting investors.

Answer 30

investment scams

Question 31

The FBI has suggested that the most common consumer fraud schemes are:

Answer 31

Ponzi schemes Pyramid schemes Telemarketing fraud Nigerian letter or money scams Identity theft Advance fee scams Redemption/Strawman/Bond fraud Letter of credit fraud Internet fraud

Question 32

_____ consists of the underlying data and all corroborating information available.

Answer 32

Evidential matter

Question 33

_____ is that branch of law that deals with offenses of a public nature. It generally deals with offenses against society as a whole.

Answer 33

Criminal law

Question 34

Every state and the federal government have _____ prohibiting a wide variety of fraudulent and corrupt practices.

Answer 34

statutes

Question 35

True/False Once predication is present, an investigation is usually undertaken to determine whether or not fraud is actually occurring.

Answer 35

True

Question 36

True/False In vendor fraud, customers don't pay for goods purchased.

Answer 36

False Customer fraud

Question 37

Research shows that fraud occurs less frequently when employees feel:

Answer 37

ownership in the organization.

Question 38

Which of the following is not a recognized method of eliminating fraud opportunities?

Answer 38

Engendering employee goodwill by having lax rules.

Question 39

True/False Even a good system of internal controls will often not be completely effective because of fallibilities of the people applying and enforcing the controls.

Answer 39

True

Question 40

True/False Developing a positive work environment is of little importance when creating a culture of honesty.

Answer 40

False

Question 41

Investment scams most often include:

Answer 41

Worthless investments or assets sold to unsuspecting investors.

Question 42

To prevent fraud from recurring, most organizations and other fraud victims should:

Answer 42

Pursue either civil or criminal action, depending on the circumstances, or both.

Question 43

True/False Effective hiring policies that discriminate between marginal and highly ethical individuals contribute to an organization's success in preventing fraud.

Answer 43

True

Question 44

True/False Fraud can be perpetrated to benefit oneself or to benefit one's organization.

Answer 44

True

Question 45

The most effective way to reduce losses from fraud is:

Answer 45

Preventing fraud from occurring.

Question 46

Most frauds start small and:

Answer 46

If not detected, continue to get larger.

Question 47

True/False A proper system of authorization will help ensure good internal controls.

Answer 47

True

Question 48

Which of the following is the least reliable resource for fraud statistics?

Answer 48

Fraud perpetrators

Question 49

True/False Effective fraud-fighters usually put most of their time and effort into minimizing the pressures for fraud perpetrators to commit fraud.

Answer 49

False

Question 50

Which of the following personnel and operating policies contribute to high-fraud environments?

Answer 50

Management by crisis Rigid rules High employee lifestyle expectations Poor promotion opportunities

Question 51

True/False Criminal conviction is much more difficult to achieve than a civil judgment because there must be proof "beyond a reasonable doubt" that the perpetrator intentionally stole assets.

Answer 51

True

Question 52

Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?

Answer 52

Pressure to comply

Question 53

Which of the following is not one of the three elements of the fraud triangle?

Answer 53

Intelligence

Question 54

True/False Fraud is difficult to detect because some fraud symptoms often cannot be differentiated from non-fraud factors that appear to be symptoms.

Answer 54

True