Chapter 7

Question 1

1. Because they leave a solid audit trail, expense reimbursement schemes are generally easier to detect than other types of fraud schemes.
   a. True
   b. False

Answer 1

b. False

Question 2

2. Expense reimbursement schemes include which of the following?
   a. Multiple reimbursements
   b. Mischaracterized expenses
   c. Overstated expenses
   d. All of the above

Answer 2

d. All of the above

Question 3

3. Claiming personal travel as a business expense is an example of what type of expense reimbursement scheme?
   a. Multiple reimbursements
   b. Overstated expense reimbursements
   c. Mischaracterized expense reimbursements
   d. Altered expense reimbursements

Answer 3

c. Mischaracterized expense reimbursements

Question 4

4. Which of the following procedures can be used to prevent mischaracterized expense reimbursement schemes?
   a. A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed.
   b. Employees should be required to sign their expense reports before being reimbursed.
   c. The internal audit department should review all expense reports under a certain dollar amount.
   d. None of the above

Answer 4

a. A policy should be established and communicated to employees regarding what types of expenses will and will not be reimbursed.

Question 5

5. Which of the following procedures can be used to detect mischaracterized expense reimbursement schemes?
   a. Compare the dates of claimed reimbursable business expenses to the employees’ work schedules.
   b. Compare current expense reimbursement levels to amounts for prior years.
   c. Compare current expense reimbursement levels to budgeted amounts.
   d. All of the above

Answer 5

d. All of the above

Question 6

6. If an employee submits a photocopy of a receipt as support for a business expense, the expense should be independently verified before it is reimbursed.
   a. True
   b. False

Answer 6

a. True

Question 7

7. An altered or forged receipt can indicate what type of expense reimbursement scheme?
   a. Mischaracterized expense reimbursements
   b. Fictitious expense reimbursements
   c. Overstated expense reimbursements
   d. All of the above

Answer 7

d. All of the above

Question 8

8. Permitting employees to book their own travel using their own credit card is an effective internal control over expense reimbursement schemes.
   a. True
   b. False

Answer 8

b. False

Question 9

9. Which of the following methods can be used to perpetrate a fictitious expense reimbursement scheme?
   a. Creating counterfeit receipts
   b. Stealing blank receipts
   c. Submitting expenses that were paid by a third party
   d. All of the above

Answer 9

d. All of the above

Question 10

10. What type of expense reimbursement scheme occurs when an employee submits a receipt for an entertainment expense that a client paid for?
    a. Mischaracterized expense reimbursement
    b. Overstated expense reimbursement
    c. Fictitious expense reimbursement
    d. Duplicate reimbursement scheme

Answer 10

c. Fictitious expense reimbursement

Question 11

11. Which of the following is not considered a red flag of a fictitious expense reimbursement scheme?
    a. An employee repeatedly uses the company credit card for business travel expenses.
    b. An employee’s reimbursement requests are always for round-dollar amounts.
    c. An employee submits reimbursement requests that consistently fall just below the reimbursement limit.
    d. An employee frequently requests reimbursement for high-dollar items that he claims were paid for in cash.

Answer 11

a. An employee repeatedly uses the company credit card for business travel expenses.

Question 12

12. To safeguard against expense reimbursement schemes, organizations should require that employee expense reports be reviewed and approved by a supervisor outside the requestor’s department.
    a. True
    b. False

Answer 12

b. False

Question 13

13. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes are the least common type of fraudulent disbursement schemes.
    a. True
    b. False

Answer 13

b. False

Question 14

14. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, expense reimbursement schemes have a lower median loss than check tampering schemes.
    a. True
    b. False

Answer 14

a. True

Question 15

15. Donna Holbrook, an administrative assistant at Mason Enterprises, charged some office supplies to the company credit card. Several weeks later, she attached the store receipt from the purchase to an expense report and requested reimbursement from the company. This is an example of which type of expense reimbursement scheme?
    a. Overstated expense
    b. Multiple reimbursement
    c. Mischaracterized expense
    d. Over-purchased reimbursement

Answer 15

b. Multiple reimbursement

Question 16

16. Daniel Isley works as an internal auditor for Atlantic Insurance Co. While reviewing the company’s travel and entertainment expenses, Isley noticed that one employee had submitted several receipts from Chase’s Restaurant for round-dollar amounts just under the company’s reimbursement limit. Further, the receipts were consecutively numbered, but were submitted over a six-month period. What type of scheme did Isley most likely uncover?
    a. Fictitious expense reimbursement
    b. Multiple reimbursement
    c. Mischaracterized reimbursement
    d. None of the above

Answer 16

a. Fictitious expense reimbursement

Question 17

17. Charlene DiAngelo is a sales manager for Northwest Paper & Plastics. On April 11, she took some clients out for a business lunch to discuss a potential contract. When she returned to the office, she made a photocopy of her restaurant receipt. Using correction fluid, she changed the date on the photocopy to read June 11. She submitted the original restaurant receipt with a reimbursement request on April 11 and held on to the photocopy for 2 months. On June 12, she submitted the altered photocopy along with a second reimbursement request. What type of fraud scheme did DiAngelo commit?
    a. Altered receipt
    b. Fictitious expense reimbursement
    c. Billing
    d. Multiple reimbursement

Answer 17

d. Multiple reimbursement

Question 18

18. Kevin Chitry, a sales executive for CIT Manufacturing, frequently took clients out for dinner and shows when they came to town to tour the plant. He usually paid for these expenses himself and submitted the receipts to his supervisor for approval and reimbursement. Occasionally, however, he also took his family out to restaurants and rock concerts and included these expenses in his reimbursement requests by indicating that he was entertaining a client. This type of fraud is known as a(n):
    a. Overstated expense reimbursement
    b. Mischaracterized expense reimbursement
    c. Fictitious expense reimbursement
    d. Altered receipt reimbursement

Answer 18

b. Mischaracterized expense reimbursement

Question 19

19. Linda Dudley, an employee of Bingham Company, was sent to an out-of-state conference to learn about the latest innovations in computer security. While she was at the seminar, her meals were picked up by a vendor hoping to get business from Bingham. Dudley also turned in receipts and requested reimbursement from her company for the same meals that the vendor paid for. What type of expense reimbursement fraud is this?
    a. Mischaracterized expense
    b. Overstated expense
    c. Fictitious expense
    d. None of the above

Answer 19

c. Fictitious expense

Question 20

20. Daisy McMillan works as the office manager for Timball and Lewis, a medium-sized law firm. One afternoon, she went to the hardware store to purchase a few maintenance items for the office. While there, she also bought her husband a hammer as a birthday present. At the register, the items, including the hammer, totaled $63. She paid for all the items together and received both a carbon copy receipt and a separate credit card receipt. Back at the office, she carefully scratched additional numbers on to the carbon copy receipt to increase the total price to $168 and turned in the altered receipt for reimbursement. Several weeks later, she turned in the credit card receipt along with another reimbursement request for the $63. What type of expense reimbursement fraud did she commit?
    a. Overstated expense reimbursement
    b. Multiple reimbursements
    c. Mischaracterized expense reimbursement
    d. All of the above

Answer 20

a. Overstated expense reimbursement
b. Multiple reimbursements
c. Mischaracterized expense reimbursement
d. All of the above
Correct answer: D

Question 21

21. As the manager of a local auto-parts store, Manny Ortega was responsible for reimbursing employees when they purchased supplies for the store with their own money. When employees brought Ortega their receipts for reimbursement, he would often alter the receipts to show a larger amount. Then he would ring a “no sale” on the cash register, remove the full amount per the altered receipt, and pocket the excess. Because the employee received the expected amount and the register totals remained in balance, Ortega was able to continue this scheme for nearly 2 years before being caught. What type of fraud did Ortega commit?
    a. Overstated expense reimbursement scheme
    b. Mischaracterized expense reimbursement scheme
    c. Register disbursement scheme
    d. None of the above

Answer 21

a. Overstated expense reimbursement scheme

Question 22

22. Phil O’Hara is an internal auditor for the Shield Corporation. Recently he ran a report that listed payments to employees for business expenses that occurred while the employee was on vacation. What type of fraud scheme is Phil most likely to find?
    a. Cash larceny
    b. Forged expenses
    c. Overstated expense reimbursement
    d. Mischaracterized expense reimbursement

Answer 22

d. Mischaracterized expense reimbursement

Question 23

23. Remy Lewis has just started working as a marketing research analyst for Commercial Casting Company in New York City. He is relocating his family to New York from North Carolina, but they haven’t moved yet. Twice a month, the company pays for Lewis to travel to North Carolina to visit his family and help with the move. During the month of September, Lewis only visited his family once; however, he submitted expense reports for mileage for two separate trips to North Carolina and back. What type of scheme is this?
    a. Mischaracterized expense reimbursement
    b. Billing
    c. Fictitious expense reimbursement
    d. None of the above

Answer 23

c. Fictitious expense reimbursement

Question 24

24. In one of the case studies in the textbook, Marcus Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. How was his scheme detected?
    a. The internal auditor discovered it during a routine audit of expense reimbursements.
    b. The department’s administrative assistant took a message from the travel agency about a trip that she knew Lane didn’t take.
    c. Lane’s manager received an anonymous tip.
    d. The external auditors discovered it while sampling expenses during their annual audit.

Answer 24

a. The internal auditor discovered it during a routine audit of expense reimbursements.

Question 25

25. In one of the case studies in the textbook, Marcus Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. What changes to internal controls were made as a result of Lane’s fraud?
    a. Enforcement of a new policy that business expenditures other than travel be charged to personal credit cards only
    b. Clarification and better enforcement of the policy that all travel be booked through the company travel agent using a designated company credit card
    c. Enforcement of a new policy that employees submit their travel expense reports for reimbursement within five days of returning from a trip
    d. All of the above

Answer 25

b. Clarification and better enforcement of the policy that all travel be booked through the company travel agent using a designated company credit card

Question 26

26. In one of the case studies in the textbook, Marcus 26. Lane, a geologist for an environmental management and engineering services firm, traveled all over North and South America as part of his job, resulting in numerous expense reimbursements. Unfortunately, Lane went too far and began to double book his air travel using his personal credit card. He booked two separate flights to the same location, but with a huge cost difference. He used the cheaper ticket for the actual flight and returned the more expensive ticket for credit. And, of course, he submitted the more expensive ticket for reimbursement. How was he punished?
    a. He was convicted of grand theft and received probation.
    b. He resigned from the company and a civil suit was filed against him.
    c. He was terminated and agreed to pay the money back.
    d. He was allowed to resign and the company agreed not to seek a refund if it was kept quiet.

Answer 26

c. He was terminated and agreed to pay the money back.

Question 27

27. In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. How was he caught?
    a. He purchased one too many high-ticket items for his son and this was brought to the attention of the CEO.
    b. A new president was hired and he found Chesterly out while reviewing the accounting records.
    c. Chesterly became ill and the receipts for personal items were found while he was out sick.
    d. The internal auditors found Chesterly out during an audit of his cost center’s expenses.

Answer 27

b. A new president was hired and he found Chesterly out while reviewing the accounting records.

Question 28

28. In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. What other frauds turned up in the investigation?
    a. Chesterly put his girlfriend on the payroll as a ghost employee.
    b. Chesterly skimmed some of the cash sales.
    c. Chesterly falsified sales figures to collect unearned bonuses.
    d. Chesterly cut special deals to his customers and received kickbacks in return.

Answer 28

d. Chesterly cut special deals to his customers and received kickbacks in return.

Question 29

29. In one of the case studies in the textbook, Cy Chesterly was the vice president in charge of sales for one of the largest machine parts manufacturers in the Midwest. He was an excellent salesman and helped build the company into one of the most successful in the industry. While Chesterly was known to go overboard on the entertainment expenses, he really went wild when it came to buying personal items—vacations, furniture, and jewelry to name a few. He was caught, however, and his lifestyle came to a halt. What was the most likely reason that the company didn’t have Chesterly prosecuted?
    a. Chesterly was well liked by everyone and, with new management coming in, the company thought that prosecuting him would have a negative impact on morale.
    b. Chesterly’s wife became seriously ill and the company felt that it would have been too much of a blow to her recovery if he were in prison.
    c. Some of the company’s customers were believed to have been involved in Chesterly’s schemes.
    d. He agreed to mortgage his home to repay the money.

Answer 29

c. Some of the company’s customers were believed to have been involved in Chesterly’s schemes.