Final Exam Flashcards
1
Q
Occupational Fraud
A
The use of ones occupation for personal enrichment through deliberate misuse or misappropriation of the employing organization’s resources or assets.
2
Q
4 Types of Corruption
A
Conflicts of Interest
Bribery
Illegal Gratuities
Economic Extortion
3
Q
2 Types of Asset Misappropriation
A
Cash
Inventory & Non Cash
4
Q
2 Types of Fraudulent Statement
A
Financial
Non financial
5
Q
What is a conflict of interest?
A
situation where an employee, manager, or executive has an undisclosed economic or personal interest in a transaction that adversely affects the company as a result
6
Q
In differentiating between auditing and fraud examination, auditing has the following characteristics except: Recurring Professional Skepticism Adversarial All of the Above
A
Adversarial
7
Q
What is a bid-rigging scheme?
A
Process where an employee assists a vendor to fraudulently win a contract through the competitive bidding process
8
Q
How are bid-rigging schemes categorized?
A
Categorized based on the stage of bidding at which the fraudster exerts his influence. Typically occurring in the presolicitation phase, solicitation phase, or the submission phase
9
Q
The fraud triangle consists of the following except: Perceived non-sharable need Perceived opportunity Situational environment All of the Above
A
All of the above
10
Q
In order to start up a shell company, the fraudster will most likely need all of the following except:
Bank account
Mailing address
Company logo
Certificate of incorporation or assumed name certificate
A
Company Logo
11
Q
Able Stone, a customer of ABC Electronics, stole a box of computer games while sales assoc. waited on another customer. Which of the following can Able be charged with: Larceny Embezzlement Fraud All of the Above
A
Larceny
12
Q
3 primary reasons people commit financial statement fraud?
A
- Pressure to show earnings
- Meet performance goals
- Look prosperous to investors
13
Q
During an interview, when the respondent uses certain phrases such as, "honestly", "frankly", or "to tell the truth", this is known as: Character testimony Oaths Illustrators Manipulators
A
Oaths
14
Q
Cash larceny differs from skimming in which one of the following ways: Cash larceny is an on-book scheme Cash larceny is an off-book scheme Cash larceny is a disbursement scheme Cash larceny only involves cash
A
Cash larceny is an on book scheme
15
Q
3 methods of engaging in timing differences
A
- Matching Revenue with expenses
- Premature revenue recognition
- Record expenses in the wrong period
16
Q
3 common methods for concealing liabilities and expenses
A
- omit liab/exp
- capitalize exp
- failing to disclose warranty costs and liab.
17
Q
3 primary reasons people commit financial statement fraud?
A
- Pressure to show earnings
- Meet performance goals
- Look prosperous to investors
18
Q
What is fraud triangle
A
pressure
perceived opportunity
rationalization
19
Q
What is the fraud diamond
A
pressure
perceived opportunity
rationalization
capability
20
Q
During an interview, when the respondent uses certain phrases such as, "honestly", "frankly", or "to tell the truth", this is known as: Character testimony Oaths Illustrators Manipulators
A
Oaths
21
Q
Nine motivators of fraud
A
Living beyond means Overwhelming desire for personal gain High personal debt Close association with customers Pay not commensurate with job Wheeler-dealer Strong challenge to beat system Excessive gambling Family or peer pressure
22
Q
4 types of evidence
A
- Testimony of witnesses
- Records and documents
- Facts and data
- Tangible objects
23
Q
How do books stay in balance in a sales skimming scheme
A
The is no recorded transaction
24
Q
Format of an investigation report
A
author/date summary introduction/purpose body results followup/recommendations
25
```
Cash larceny differs from skimming in which one of the following ways:
Cash larceny is an on-book scheme
Cash larceny is an off-book scheme
Cash larceny is a disbursement scheme
Cash larceny only involves cash
```
Cash larceny is an on book scheme
26
forged maker scheme
perp forges name of authorized signer
27
Perception of detection
Employees who perceive they will be caught engaging in occupational fraud and abuse are less likely to commit fraud
28
What are 4 factors that influence the level of fraud risk faced by an organization
1. nature of business
2. operating environment
3. effectiveness of internal controls
4. ethics & values of the company and the people within it
29
concealed check schemes
employee prepares a fraudulent check and submits it along with legitimate checks. Check is payable to the employee accomplice a fictitious person or fictitious business
30
authorized maker schemes
employee with signature authority writes a fraudulent check
31
What are two main categories of register disbursement schemes
false refunds
| false voids
32
What are the three categories of payroll schemes?
1. Ghost employee scheme
2. Falsified hours and salary scheme
3. Commission scheme
33
What are some nonverbal cues to deception?
* Change in speech pattern
* oaths
* answering with a question
* selective memory
34
Who is most likely to add a ghost employee
individuals that have authority to add new employees to the system. Such as someone in HR or has managerial responsibilities.
35
4 types of evidence
1. Testimony of witnesses
2. Records and documents
3. Facts and data
4. Tangible objects
36
3 characteristics/objectives of a good investigation report
1. conveys evidence
2. adds credibility
3. accomplishes objectives of the case
37
5 categories of misappropriation of tangible non-cash assets
1. Unconcealed Larceny
2. Requisitions and Transfers
3. False shipments
4. Purchase and Receiving
5. Misuse
38
What is the fraud scale
situational pressures
perceived opportunities
personal integrity
39
Nine motivators of fraud
```
Living beyond means
Overwhelming desire for personal gain
High personal debt
Close association with customers
Pay not commensurate with job
Wheeler-dealer
Strong challenge to beat system
Excessive gambling
Family or peer pressure
```
40
Inductive Method of Fraud
broad in scope and often relies on general observations or relationships
41
Deductive Method of Fraud
helps determine what kinds of frauds can occur in a particular situation and then uses technology or other methods to determine if fraud exists
42
Benford's Law
Noted the frequency of the first digits in any table of unmanipulated data followed a predictable pattern
43
Perception of detection
Employees who perceive they will be caught engaging in occupational fraud and abuse are less likely to commit fraud
44
What are 4 factors that influence the level of fraud risk faced by an organization
1. nature of business
2. operating environment
3. effectiveness of internal controls
4. ethics & values of the company and the people within it
45
define skimming
| Is it on or off book
Theft of cash from a victim entity prior to its entry in an accounting system
off book
46
How do books stay in balance in a sales skimming scheme
The is no recorded transaction
47
Lapping
method of concealing the theft of cash designated for A/R by crediting one account while abstracting money from a different account. Continuously repeated to avoid detection.
48
Cash Larceny
Theft of an organization's cash after it has been recorded in the accounting system.
49
Deposit Lapping
Method of concealing deposit theft that occurs when an employee steals part or all of the deposit from one day and then replaces it with receipts from subsequent days .
50
What are six methods used to conceal receivables skimming
```
lapping
force balancing
stolen statements
fraudulent write-offs or discounts
debiting the wrong account
destroying or altering records of the transaction
```
51
Force Balancing and how does it conceal cash larceny
making unsupported entries in the books to produce a fictitious balance between receipts and ledgers
52
What are the 5 check tampering schemes
```
forged maker schemes
forged endorsement schemes
altered payee schemes
concealed check schemes
authorized maker schemes
```
53
forged maker scheme
perp forges name of authorized signer
54
forged endorsement scheme
employee intercepts a company check intended for a third party. Perp signs the third party's name on the endorsement line of the check
55
altered payee schemes
employee intercepts a company check intended for a third party. Payee designation is altered so the check can be converted
56
concealed check schemes
employee prepares a fraudulent check and submits it along with legitimate checks. Check is payable to the employee accomplice a fictitious person or fictitious business
57
authorized maker schemes
employee with signature authority writes a fraudulent check
58
What are the three categories of payroll schemes?
1. Ghost employee scheme
2. Falsified hours and salary scheme
3. Commission scheme
59
Ghost Employee
someone on the payroll who does not actually work for the victim company
60
Who is most likely to add a ghost employee
individuals that have authority to add new employees to the system. Such as someone in HR or has managerial responsibilities.
61
What constitutes expense reimbursement fraud?
* Mischaracterized Expenses
* Overstated Expenses
* Fictitious Expenses
* Multiple Reimbursements
62
Multiple Reimbursement Schemes
A single expense item is submitted several times to receive multiple reimbursements
63
5 categories of misappropriation of tangible non-cash assets
1. Larceny
2. Requisitions and Transfers
3. False shipments
4. Purchase and Receiving
5. Misuse
64
Billing Schemes
the perpetrator uses false documentation to cause a payment to be issued for a fraudulent purpose
65
3 types of billing schemes
Shell company schemes
Non accomplice vendor schemes
Personal purchases schemes
66
Shrinkage
unaccounted for reduction in a company's inventory that results from theft.
67
4 methods to conceal inventory shrinkage
1. Altered inventory records
2. Fictitious Sales and A/R
3. Write-off Inventory and other Assets
4. Physical Padding
68
Fictitious expense reimbursement schemes
Scheme in which an employee seeks reimbursement for wholly nonexistent items or expenses
69
False Refund Scheme
fraudulent refund is processed at the cash register to account for stolen cash
70
Fictitious Refund Scheme
employee processes a fake refund transaction as if a customer were actually returning merchandise and pockets the cash instead
71
Overstated Refund Scheme
employee overstates the amount of a legitimate customer refund then gives the customer the actual amount of the refund and steals the excess
72
False Void Scheme
scheme in which employee accounts for stolen cash by voiding a previously recorded sale
73
Perpetual Inventory
method of accounting for inventory in the records by continually updating the amount of inventory on hand as purchases and sales occur
74
Forced reconciliation
concealing by altering journal entries/ intentionally miscomputing totals
75
Horizontal Analysis
technique for analyzing the percentage change in individual financial statement items from one year to the next
76
Vertical Analysis
expression of the relationship or percentage of component part items to a specific base item
77
Duty of Reasonable Care
Expectation that a corporate officer, director, or high-level employee as well as other people in a fiduciary relationship, will conduct business affairs prudently with the skill and attention normally exercised by people in similar positions
