Finals Review

Question 1

4 elements to prove fraud

Answer 1

1. Material misstatement
2. Knowledge that the statement was false when spoken
3. Reliance on false statement by victim
4. Damages resulting from the victim’s reliance

Question 2

Define embezzlement

Answer 2

Take or convert to ones’ own use, another’s money or property of which the wrongdoer acquired possession lawfully, by reason of some office or employment or position of trust

Question 3

What is the difference between larceny and conversion?

Answer 3

Larceny is a crime/stealing you can go to jail for but conversion is a civil case/tort that you receive reimbursement of damages by legal means

Question 4

3 elements of the fraud triangle

Answer 4

Perceived pressure
Perceived opportunity
Rationalization

Question 5

3 stages of money laundering

Answer 5

Placement
Layering
Integration

Question 6

Under the bank secrecy act, financial institutions must report cash transactions in excess of ___________

Answer 6

$10,000

Question 7

Financial statement fraud is often attributed to pressures, such as all the the following except:

Answer 7

Investment losses

Question 8

In order to win an award for damages, the injured party under a negligence claim must generally prove

Answer 8

Liability and damages

Question 9

True/false: When an employee skims money off-book sales of merchandise, the theft can be detected by comparing the register tape to the cash drawer.

Answer 9

False

Question 10

True/false: lapping is the crediting of one account through the abstraction of money from another account

Answer 10

True

Question 11

True/false: most cash larceny occurs at the point of sale

Answer 11

True

Question 12

True/false: shell companies require collusion amongst employees in order to be successful

Answer 12

False

Question 13

True/false: obtaining blank checks is unnecessary if the fraudster can produce counterfeit checks

Answer 13

True

Question 14

True/false: in order for a ghost employee scheme to work, the paycheck for the ghost must go to the person involved in the scheme

Answer 14

False

Question 15

True/false: falsifying time and attendance data are central to a ghost employee scheme

Answer 15

True

Question 16

True/false: fictitious revenue schemes are frequently designed around commission plans

Answer 16

True

Question 17

An employee who would probably not be involved in skimming would be:

Answer 17

The president of the company

Question 18

Which internal control procedure is most effective in preventing skimming?

Answer 18

Segregation of duties

Question 19

Which of the following is not typical receivables skimming scheme?

Answer 19

Cashier theft

Question 20

If a fraudster has a hand in both ends of the receipting process, he or she can falsify records to conceal the theft of receivables payments. This technique is called:

Answer 20

Force balancing

Question 21

What is the best proactive computer test to detect skimming where an employee with low sales may be a suspect?

Answer 21

Summarize net sales by employee, and list the lowest ten employees

Question 22

A final concealment strategy with stolen deposits is to carry the missing money as

Answer 22

Deposits in transit

Question 23

A retail store has a number of inventory adjustments at the end the last ten accounting periods. What computer audit step should be taken to detect any fraud?

Answer 23

Compare adjustment to inventory to the void/refund transactions summarized by employee

Question 24

Which of the following renders the separation of duties control useless?

Answer 24

Rubber stamping

Question 25

Which of the following is a fictitious payee?

Answer 25

A and B: an employee intercepts a legitimate check made payable to a vendor and changes the payee name to his name An employee writes a check payable to cash and endorses it for his personal use

Question 26

Forged endorsement of checks requires

Answer 26

Access to the check prior to delivery

Question 27

A commission scheme can be detected by

Answer 27

Examining sales return patterns

Question 28

Alteration of expenses includes

Answer 28

Altering the amount of an expense item

Question 29

________ are similar to bribery schemes, except that something of value is given to an employee to reward a decision rather than influence it.

Answer 29

Illegal gratuities

Question 30

In order to obtain the funds to make bribery payments, employees usually divert company money into _________, a non-company account from which bribes can be made.

Answer 30

Slush fund

Question 31

An employee knows his of her employer is seeking to purchase a certain asset and takes advantage of the situation by purchasing the asset himself or herself

Answer 31

Turnaround sale

Question 32

List the two major corruption schemes

Answer 32

Bribery Conflict of interest Illegal gratuity Kickback schemes

Question 33

True/False: a major difference between auditors and fraud examiners is that most auditors match documents to numbers to see whether support exists and is adequate, whereas fraud examiners determine whether the documents are real or fraudulent.

Answer 33

True

Question 34

The _______ amendment prohibits unreasonable searches ad seizures

Answer 34

Fourth

Question 35

The ________ amendment provides that a person cannot be compelled to provide incriminating information against himself or herself in a criminal case

Answer 35

Fifth

Question 36

The _____ amendment provides that a individual has the right to an attorney to defend himself and the right to confront witnesses against him.

Answer 36

Sixth

Question 37

The ______ amendment entitles a person to due process of law and equal protections under the law

Answer 37

Fourteenth

Question 38

The statement of Auditing standards (SAS) no. 1 states

Answer 38

Management is responsible for adopting sound accounting policies and for establishing be maintaining internal control consistent with management's assertions embodied in the financial statements.

Question 39

List two common law protections individuals have during interviews

Answer 39

1. Minimization of invasion of the employee's privacy 2. Limitation on interview content to employee job duties and responsibilities 3. Limitations on public disclosure of the employee's private facts 4. Limitation on intentional infliction of emotional distress on the employee 5. Limitation on defamation - unfounded facts and accusations made by the interviewer 6. A duty to deal fairly and in good faith 7. No false imprisonment

Question 40

List two ways the Sarbanes-Oxley Act addressed corporate governance and public accounting responsibilities

Answer 40

1. Establishing higher standards for corporate governance and accountability 2. Creating an independent regulatory framework for the accounting profession 3. Enhancing the quality and transparency of financial reports 4. Establishing new protection for corporate whistleblowers

Question 41

Define the terms fraud prevention, fraud deterrence, and fraud detection

Answer 41

Prevention: removal of the root causes of fraudulent behavior Deterrence: discouraging fraudulent activities through the threat of negative sanctions Detection: Detection: discovering an on-going fraud

Question 42

Five examples of typical internal control weaknesses

Answer 42

``` Lack of separation of duties Lack of physical security over assets Management override of internal controls Lack of authorization structure Lack of independent checks Lack of proper documentation and records Inadequate employee education Reactive fraud detection approach ```