ACCT 4120: Chapter 1 Flashcards
It is impossible to know what percentage of fraud _____ are caught.
perpetrators
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 _____.
jurisdictions
_____ often conduct studies about particular types of fraud within certain industries.
Researchers
_____ often provide fidelity bonding or other types of coverage against employee and other fraud.
Insurance companies
Sometimes we learn about fraud from those who have been _____.
victims
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.
ACFE
Association of Certified Fraud Examiners
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.
increased
For every $1 of fraud, the _____ of the firm is reduced by $1.
net income
Because fraud reduces _____, it takes significantly more _____ to recover the effect of the fraud.
net income
revenue
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.
profit margin
Fraud is deception that includes the following elements:
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
_____ 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.
Fraud
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!
financial statement
The ACFE includes three major categories of occupational fraud:
asset misappropriations
corruption
fraudulent financial statements
Involves the theft or misuse of an organization’s assets.
asset misappropriations
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.
corruption
Generally involve falsification of an organization’s financial statements.
fraudulent financial statements
List the perpetrator and victim for the fraud type.
Employee Embezzlement
Perpetrator
Employees of an organization
Victim
The employer
List the perpetrator and victim for the fraud type.
Vendor Fraud
Perpetrator
Vendors of an organization
Victim
The organization to which vendors sell goods or services
List the perpetrator and victim for the fraud type.
Customer Fraud
Perpetrator
Customers of an organization
Victim
The organization which sells to the customers
List the perpetrator and victim for the fraud type.
Management Fraud
(financial statement fraud)
Perpetrator
Management of a company
Victim
Shareholders and/or debtholders and regulators (taxing authorities, etc.)
List the perpetrator and victim for the fraud type.
Investment Scams and Other Consumer Frauds
Perpetrator
Fraud perpetrators (all kinds)
Victim
Unwary investors
List the perpetrator and victim for the fraud type.
Other
(miscellaneous types of fraud)
Perpetrators and victims
All kinds - depends on the situation
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 _____.
miscellaneous fraud
Fraud Classifications by Victim
Organizational Fraud
Management Fraud
Investment Scams
Miscellaneous Frauds
_____ is the most common type of occupational fraud. As stated previously, in this type of fraud, employees deceive their employers by taking company assets.
Employee embezzlement
_____, 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.
Vendor fraud
When _____ takes place, customers do not pay for goods purchased, they pay too little, or they get something for nothing.
customer fraud
_____, often called financial statement fraud, involves top management’s deceptive manipulation of financial statements.
Management fraud
In _____, fraudulent and usually worthless investments are sold to unsuspecting investors.
investment scams
The FBI has suggested that the most common consumer fraud schemes are:
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
_____ consists of the underlying data and all corroborating information available.
Evidential matter
_____ is that branch of law that deals with offenses of a public nature. It generally deals with offenses against society as a whole.
Criminal law
Every state and the federal government have _____ prohibiting a wide variety of fraudulent and corrupt practices.
statutes
True/False
Once predication is present, an investigation is usually undertaken to determine whether or not fraud is actually occurring.
True
True/False
In vendor fraud, customers don’t pay for goods purchased.
False
Customer fraud
Research shows that fraud occurs less frequently when employees feel:
ownership in the organization.
Which of the following is not a recognized method of eliminating fraud opportunities?
Engendering employee goodwill by having lax rules.
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.
True
True/False
Developing a positive work environment is of little importance when creating a culture of honesty.
False
Investment scams most often include:
Worthless investments or assets sold to unsuspecting investors.
To prevent fraud from recurring, most organizations and other fraud victims should:
Pursue either civil or criminal action, depending on the circumstances, or both.
True/False
Effective hiring policies that discriminate between marginal and highly ethical individuals contribute to an organization’s success in preventing fraud.
True
True/False
Fraud can be perpetrated to benefit oneself or to benefit one’s organization.
True
The most effective way to reduce losses from fraud is:
Preventing fraud from occurring.
Most frauds start small and:
If not detected, continue to get larger.
True/False
A proper system of authorization will help ensure good internal controls.
True
Which of the following is the least reliable resource for fraud statistics?
Fraud perpetrators
True/False
Effective fraud-fighters usually put most of their time and effort into minimizing the pressures for fraud perpetrators to commit fraud.
False
Which of the following personnel and operating policies contribute to high-fraud environments?
Management by crisis
Rigid rules
High employee lifestyle expectations
Poor promotion opportunities
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.
True
Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?
Pressure to comply
Which of the following is not one of the three elements of the fraud triangle?
Intelligence
True/False
Fraud is difficult to detect because some fraud symptoms often cannot be differentiated from non-fraud factors that appear to be symptoms.
True
