Chapter 17

Question 1

What is fraud?

Answer 1

an intentional act involving the use of deception to obtain an unjust or illegal adv - essentially ‘theft by deception’. Fraud can be punishable by fine or imprisonment

Question 2

What is error?

Answer 2

refers to unintentional mistakes

Question 3

Whta is irregularity?

Answer 3

something contrary to a particular rule or standard

Question 4

What is misstatement?

Answer 4

something stated wrongly. Misstatement can arise due to fraud, irregularity or error

Question 5

What are the prerequisites of fraud?

Answer 5

• dishonesty
• opportunity
• motivation

Question 6

What are some factors that indicate an increased risk or fraud and error?

Answer 6

• management domination by one person
• unnecessarily complex corporate structure
• poor staff morale
• personnel who do not take leave/holidays
• lavish lifestyle of employees
• lack of monitoring of control systems

Question 7

Give some examples of fraud by management?

Answer 7

• financial statement fraud
• false insurance claims
• misappropriation of assets
• using the company’s assets for personnel use

Question 8

Give some examples of fraud by employees?

Answer 8

• purchase ledger fraud
• sales ledger fraud
• payroll fraud
• fraud skimming schemes

Question 9

Give some examples of fraud by third parties?

Answer 9

• advance fee fraud
• false bulling fraud
• bank account fraud
• ponzi schemes

Question 10

What is fraudulent financial reporting?

Answer 10

involves intentional misstatements in financial statements in order to deceive financial statements

Question 11

What is money laundering?

Answer 11

the exchange of ‘dirty’ money and assets that have been criminally obtained for ‘clean’ money and assets that have no clear link to criminal activity

Question 12

What are the 3 distinct phases of money laundering?

Answer 12

• placement
• integration
• layering

Question 13

What is laundering?

Answer 13

May involve acquiring, suing or possessing criminal property, handling or being involved with criminal activity, investing the proceeds of criminal activity or transferring criminal property

Question 14

What is failure to report?

Answer 14

Failing to disclose proof or suspicion of money laundering can carry a max of 5 years in prison as well as fines

Question 15

What is tipping off?

Answer 15

disclosure of information which may prejudice a money laundering investigation carries a max of 5 years in prision

Question 16

What are the implications of fraud?

Answer 16

• Loss of shareholder confidence
• loss of assets
• financial difficulties
• collapse of the company
• fines by tax and other authorities

Question 17

What are some measures to prevent and detect fraud?

Answer 17

Established and effective internal control system

Ensure that each of the components of internal control are set up and working properly

Question 18

What are the 5 components of internal control?

Answer 18

Control environment
Risk assessment process
Information System
Control Activities
Monitoring of controls

Question 19

What are the duties of the board directors for preventing and detecting fraud?

Answer 19

maintain a sound system of internal control

Question 20

what are the duties of the audit committee in preventing and detecting fraud?

Answer 20

to monitor and review internal control and risk

Question 21

what are the duties of employees generally to prevent and detect fraud?

Answer 21

include fraud detection and preventions