Chapter 5 - Recogizing the Symptoms of Fraud

Question 1

symptoms of fraud

Answer 1

1. accounting
2. internal control weakness
3. analytical anomaly
4. extravagant lifestyle
5. unusual behavior
6. tips and complaints (whistleblower)

Question 2

Explain Accounting Anomalies

Answer 2

Result from unusual
processes or procedures in the accounting system

e.g. Elgin Aircraft where the 22 phony doctors all had checks sent to 2 common addresses

Question 3

Why are fraud examiners more likely to detect accounting anomalies than financial statement auditors?

Answer 3

• the perpetrator completely
• auditors were concerned with invoices matching with payments only
• forensic auditors take it one step further to see if the payments make sense in different ways

Question 4

Explain Internal Control Weakness

Answer 4

e. g. Elgin story, allowing worker to forfeit vacation for 10 years
- must have a system of internal checks and balances like employee transfers, audits and mandatory vacation

Question 5

When a fraud examiner discovers an internal control weakness, what should be done?

Answer 5

they should test that weakness to see if it was exploited

Question 6

explain Analytical Anomalies

Answer 6

relationships in financial or non-financial data that does not make sense

e.g. $12 million paid to only 22 doctors over 4 years–an amount exceeding pay to all other doctors combined

Question 7

what is the difference between an accounting anomaly and analytical anomaly?

Answer 7

Analytical anomalies involve unusual relationships in data,

and accounting anomalies involve unusual processes or procedures in the accounting system

Question 8

examples of lifestyle symptoms

Answer 8

• extravagant spending

- living beyond means

Question 9

living beyond your means and taking expensive vacations would be considered ______ symptoms

Answer 9

lifestyle

Question 10

examples of behavioral symptoms

Answer 10

• dr jeckyl and mr hyde behavior

- mood swings

Question 11

results from unusual accounting processes are called

Answer 11

accounting anomalies

Question 12

lacking a system of checks and balances is considered_________

Answer 12

internal control weakness

Question 13

relationships in data that do not make sense are called

Answer 13

analytical anomalies

Question 14

common accounting anomaly fraud symptoms are

Answer 14

• irregularities in source documents (e.g. appear altered, are missing, photocopied)
• faulty journal entries
• irreconcilable ledgers
• duplicate payments
• 2 signatures on check
• excessive voids or credits

Question 15

irregular source documents, faulty journal entries and irreconcilable ledgers are examples of

Answer 15

accounting anomalies

Question 16

How are journal entries used to conceal fraud?

Answer 16

fraudsters use income statement accounts such as revenues and expenses because they are closed out at the end of the month

Question 17

journal entry fraud symptoms

Answer 17

• journal entries without support
• unexplained adjustments
• entries made by unusual people
• entries made near the end of an accounting period

Question 18

3 steps to a fraud act

Answer 18

1. the theft act
2. the concealment
3. the conversion