Chapter 3: Fighting Fraud: An Overview Flashcards
Once fraud has been committed, there are no winners.
True
Fraud prevention involves two fundamental activities: (1) a hotline for tips and (2) assessing the risk of fraud and developing concrete responses to mitigate the risks and eliminate opportunities for fraud.
False
Developing a positive work environment is of little importance when creating a culture of honesty.
False
No matter how well an organization has developed a culture of honesty and high ethics, most organizations will still have some fraud.
True
Research has shown that it is employees and managers, not auditors, who detect most frauds.
True
If a perpetrator is not caught, his confidence in the scheme will decrease, and he will become less and less greedy.
False
Once predication is present, an investigation is usually undertaken to determine whether or not fraud is actually occurring.
True
Most investigators rely heavily on interviews to obtain the truth.
True
Physical evidence includes evidence gathered from paper, computers, and other written documents.
False
Legal action taken by an organization can affect the probability of whether fraud will reoccur.
True
Investigating fraud is the most cost-effective way to reduce losses from fraud.
False
Fraud prevention includes taking steps to create and maintain a culture of honesty and high ethics.
True
Effective hiring policies that discriminate between marginal and highly ethical individuals contribute to an organization’s success in preventing fraud.
True
Expectations about punishment must be communicated randomly among work groups if fraud is to be prevented.
False
Frauds typically start large and get smaller as the perpetrator tries to conceal his dishonest acts.
False
Fraud is difficult to detect because some fraud symptoms often cannot be differentiated from non-fraud factors that appear to be symptoms.
True
The three elements of the fraud triangle by which the investigative techniques are often classified are (1) the theft act, (2) concealment efforts, and (3) conversion methods.
True
Organizations often want to avoid embarrassment and expense, so they terminate fraudulent employees without having the prosecuted further.
True
Criminal conviction is much more difficult to achieve than a civil judgement because there must be proof “beyond reasonable doubt” that the perpetrator intentionally stole assets.
True
In order to create a culture of honesty and confidentiality, persons aware of fraudulent activity should be encouraged to tell only the CEO.
False
Since complete fraud prevention is impossible because it requires changing actual human behavior, successful companies should forgo fraud prevention and instead focus on strong fraud detection programs.
False
Since fraud prevention programs are so costly, despite being ethically superior, they almost always rest in higher costs and thus lower net income than using only a strong system of fraud detection.
False
Most fraud perpetrators have a long history of dishonesty and deceit.
False
The most effective way to reduce losses from fraud is:
a. Detecting fraud early.
b. Implementing proactive fraud detection programs.
c. Preventing fraud from occurring.
d. Severely punishing fraud perpetrators.
c. Preventing fraud from occurring.
To successfully prevent fraud, and organization must:
a. Identify and remedy internal control weaknesses.
b. Explicitly consider fraud risks.
c. Take proactive steps to create the right kind of environment.
d. All of the above
d. All of the above
The best way for management to model appropriate behavior is to:
a. Enforce a strict code of ethics.
b. Set an example of appropriate behavior.
c. Train employees about appropriate behavior.
d. Make employees read and sign a code of conduct.
b. Set an example of appropriate behavior.
Which of the following is NOT a proactive way for a company to eliminate fraud opportunities?
a. Severely punishing fraud perpetrators.
b. Assessing risks.
c. Implementing appropriate preventive and detective controls.
d. Creating widespread monitoring of employees.
a. Severely punishing fraud perpetrators.
Most frauds start small and:
a. If not detected, continue to get larger.
b. Usually decrease in amount.
c. Remain steady and consistent.
d. None of the above
a. If not detected, continue to get larger.
Because of the ability to override internal controls, it is usually most difficult to prevent which type of fraud?
a. Investment scams
b. Fraud committed by a company president.
c. Employee fraud.
d. Customer fraud.
b. Fraud committed by a company president.
Which of the following refers to the circumstances, taken as a whole, that would lead to a reasonable prudent professional to believe fraud has occurred, is occurring, or will occur?
a. Evidential circumstance.
b. Investigation
c. Invigilation.
d. Predication
d. Predication
A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is refereed to as the:
a. investigative square of evidence
b. Investigation square
c. Evidence square
d. Fraud triangle plus
c. Evidence square
Usually, for everyone involved (especially victims) the investigation of fraud is very:
a. Pleasant and relaxing
b. Educational
c. Exciting
d. Traumatic and difficult
d. Traumatic and difficult
To prevent fraud from reoccurring, most organizations and other fraud victims should:
a. Take no legal action
b. Pursue only civil remedies
c. Pursue only criminal remedies
d. Pursue either civil or criminal action, depending on the circumstances, or both.
d. Pursue either civil or criminal action, depending on the circumstances, or both.
All of the following are ways to create a culture of honesty and high ethics except:
a. Creating a positive work environment
b. Hiring the right kind of employees
c. Having top management model appropriate behavior
d. Eliminating opportunities for fraud
d. Eliminating opportunities for fraud
The tone at the top when related to fraud usually refers to management’s attitude about:
a. How management labels appropriate behavior
b. Management’s attitude about fraud prosecution
c. Management’s attitude about employee absenteeism
d. How management models appropriate behavior
d. How management models appropriate behavior
Research shows that fraud occurs less frequently when employees feel:
a. Abused by management
b. Threatened
c. Challenged with unreasonable performance goals
d. Ownership in the organization
d. Ownership in the organization
Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is:
a. Teaching employees to monitor and report fraud
b. Terminating and punishing employees who commit fraud
c. Failing to terminate or punish employees who commit fraud
d. Identifying indicators of fraud or red flags
a. Teaching employees to monitor and report fraud
Drawbacks to establishing a hotline for employees to report fraud include all of the following except:
a. The expense of having a hotline
b. Many incidents reported are hoaxes motivated by grudges and other non-fraud reasons
c. Some symptoms reported are caused by non-fraud factors
d. This method for finding fraud is outdated
d. This method for finding fraud is outdated
“Predication of fraud” is defined as:
a. Reasonable belief that fraud has occurred or is occurring
b. Irrefutable evidence that fraud has been committed
c. Motivation for committing fraud
d. Punishment of fraud perpetrators
a. Reasonable belief that fraud has occurred or is occurring
Which of the four types of evidence includes interrogation and honesty testing?
a. Testimonial
b. Documentary
c. Physical
d. Personal observation
a. Testimonial
The three elements present in most cases of fraud are:
a. Theft act, rationalization, and opportunity
b. Pressure, opportunity, and conversion
c. Theft act, concealment, and conversion
d. Theft act, pressure, and opportunity
c. Theft act, concealment, and conversion
Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be:
a. Unproductive
b. Embarrassing
c. Expensive
d. All of the above
d. All of the above
The best argument for taking legal action against fraud perpetrators is;
a. Huge cash settlements from prosecuting fraud are an excellent source of revenue
b. Legal action usually results in positive publicity for the company
c. Prosecution of perpetrators is a way to keep lawyers busy
d. Prosecution of perpetrators discourages future occurrences of fraud.
d. Prosecution of perpetrators discourages future occurrences of fraud.
Factors that are usually associated with high levels of employee fraud include all of the following except:
a. Negative feedback and lack of recognition of job performance
b. Perceived inequalities in an organization
c. Long and difficult hours shared equally by everyone in the organization
d. High turnover and absenteeism
c. Long and difficult hours shared equally by everyone in the organization
Which of the following is true regarding the Sarbanes-Oxley Act of 2002?
a. Companies with revenues exceeding $10 million must have a whistle-blower system in place
b. Public companies must have a whistle-blower system in place
c. Public companies with revenues exceeding $10 million must have a whistle-blower system in place
d. All companies must have a whistle-blower system in place
b. Public companies must have a whistle-blower system in place
