Fraud Prevention and Deterrence Flashcards
In response to a risk identified during a fraud risk assessment, management decides to purchase a bond to help protect the company against the associated risk of loss. This response is known as: A. Transferring the risk B. Avoiding the risk C. Mitigating he risk D. Assuming the risk
A. Transferring the risk, When responding to the organization’s residual fraud risks, management may transfer some or all of the risk by purchasing fidelity insurance or a bond. The cost to the organization is the premium paid for the insurance or bond. The covered risk of loss is then transferred to the insurance company.
When gathering information as part of a fraud risk assessment, surveys and anonymous feedback mechanisms both provide an effective way to conduct candid one-on-one conversations with employees. True or False
False, These do not enable one on one conversations
Which of the following customer due diligence (CDD) procedures would be MOST APPROPRIATE for an organization to perform if it determines that a potential customer has little opportunity to commit fraud and therefore presents a minimal risk of engaging in illegal activity? A. Contacting the customer's bank B. Verifying the customer's identity C. Analyzing the customer's net worth D. Identifying the customer
D. Identifying the customer
According to the ACFE’s 2020 Report to the Nations, what is the primary reason why organizations decline to prosecute white-collar crime cases?
They believe internal discipline is sufficient
An entity’s corporate governance structure specifies the distribution of rights and responsibilities among the different participants in the organization and lays down the rules and procedures for organizational decision-making. True or False
True,
The majority of people who commit occupational fraud are repeat offenders with prior criminal records. True or False
False, The ACFE’s research indicates that the vast majority of occupational fraudsters have no prior history of criminal fraud convictions. Only 4% of the perpetrators in the 2020 Report to the Nations study had previously been convicted of a fraud-related offense, which is consistent with the findings in every study dating back to 1996.
Which of the following is NOT one of the components of the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Enterprise Risk Management—Integrating with Strategy and Performance? A. Governance and culture B. Risk tolerance C. Performance D. Review and revision
B. Risk tolerance
The five components of the enterprise risk management (ERM) framework are:
• Governance and culture
• Strategy and objective-setting
• Performance
• Review and revision
• Information, communication, and reporting
A behaviorist view of the workplace advocates the use of incentive programs and task-related bonuses as a way to deter employees from ethical and legal violations. True or False
True,
The board of directors holds the primary responsibility for designing, implementing, monitoring, and improving the fraud risk management program. True or False
False, The board of directors is responsible for developing and supporting the organization’s underlying fraud risk management strategy. However, senior management has the primary responsibility for designing, implementing, monitoring, and improving the fraud risk management program.
Under the ACFE Code of Professional Ethics, fraud examiners are strictly prohibited from accepting assignments to uncover fraud in a company in which they have a major interest. True or False
False, since the goal of the fraud examiner is to gather facts regarding a potential fraud, not to express an opinion. The fraud examiner should, however, make appropriate disclosures regarding their ownership.
An entity’s corporate culture is most effectively assessed using a checklist of initiatives to make sure all the elements of a strong tone at the top are in place. True or False
False, A strong corporate culture can most often be observed by its outcome, rather than by any individual component.a culture of corruption can exist even in companies with seemingly sound policies in place.
The Fraud Triangle hypothesis can be used to explain every instance of fraudulent conduct. True or False
False, Common sense dictates that no one model—not even Cressey’s—fits every situation.
A person’s social status plays no role in their ability to commit white-collar crime. True or False
False, Status plays a role, Individuals of higher status may influence decision making
Risk management involves weighing an organization’s strategic, operational, reporting, and compliance objectives against how much risk management is willing to accept. True or False
True, More specifically, risk management balances risk appetite—how much risk management is willing to accept—with the ability to meet the organization’s strategic, operational, reporting, and compliance objectives.
In a public company, the chief executive officer (CEO) should be charged with having primary responsibility for the oversight of the company’s compliance program. True or False
False, Its the BoD
Which of the following should be covered in employee anti-fraud training?
A. Company’s ant fraud controls
B. Examples of past transgression and how they were handled
C. Procedures that management uses to detect fraud
D. All the above
B. Examples of past transgression and how they were handled, case studies
According to the authors of Crimes of the Middle Classes, advertising influences economic crimes by promising that no one has to settle for second best. True or False
True
Of the following parties, who is responsible for developing a strategy to assess and manage fraud risks that aligns with the organization’s risk appetite and strategic plans? A. The shareholders B. Internal audit department C. The legal department D. The board of directors
D. The board of directors
During an audit of a public-sector organization’s financial statements, a government auditor uncovers evidence of a potential fraud. The auditor’s requirements for reporting these findings are substantially the same as those for external auditors in the private sector. True or False
False,
public-sector audits can involve additional requirements for communications about fraud-related matters. For example, public-sector auditors may be required or may decide to communicate matters with other parties, such as the legislature, in addition to those charged with governance.
Which of the following is NOT one of the principles involved in the risk assessment process, as laid out by the Committee of Sponsoring Organizations of the Treadway Commission (COSO)?
A. Assessing changes that could significantly impact the internal control system
B. Considering the potential for Fraud
C. Conducting ongoing monitoring of the risk management strategy
D. Setting clear organizational objectives
C. Conducting ongoing monitoring of the risk management strategy
International Standard on Auditing (ISA) 240 requires auditors to discuss how management could perpetrate and conceal fraudulent financial reporting. True or False
True.
There are specific anti-retaliation laws in every country that protect whistleblowers against adverse action for reporting misconduct in the workplace. True or False
False, Some jurisdictions do not have formal legal protection for whistleblowers
According to the 2020 report to the nations, which of the the three major categories of occupational fraud is the most common A. Corruption B. Identity theft C. Financial statement Fraud D. Asset misappropriation
D. Asset misappropriation
Under the ACFE code of professional ethics, fraud examiners are prohibited from expressing opinions on technical matters. True or False
False
According to the IIA international standards for professional internal auditing, due professional care implies infallibility. True or False
False. Infallibility refers to an inability to be wrong.
Manager should be instructed to observe employees lifestyles for warning signs of fraud and employees should know that supervisors are watching for unexplained or suspicious anomalies of this nature. True or False
True
To show appreciation or an employee’s hard work, a manager exempts the individual from several undesirable administrative tasks. this is an example of positive reinforcement. True or False
False.
Which of the following is not one of the core principals of sound corporate governance? A. Fairness B. Independence C. Transparency D. Responsibility
B. Independence
Which of the following is true according to the differential reinforcement theory
A. Behavior is weakened by positive stumuli
B. Behavior is reinforced when rewards are gained
C. Behavior is weakened when punishment is avoided
D. Behavior is weakened by negative stimuli
B. Behavior is reinforced when rewards are gained
International standard on auditing(ISA) 240 delineates two types of frauds that are relevant for audit purposes, those that involve intentional fraudulent financial reporting and those that involve misappropriation of company assets. True or False
True
A fraud risk assessment should be formally incorporated into the annual audit planning. True or False
True
Communication regarding an organization’s anti fraud policy should be presented in a positive non accusatory manner. True or False
True
According to the rational choice theory, which of the following can deter fraud
A. Decreasing personal risk to the perpetrator
B. Exerting external pressure and influence
C. Increasing the potential for financial gain
D. Reducing opportunities for criminal activity
D. Reducing opportunities for criminal activity
The two primary strategies to control corporate criminal behavior are A. Deterrence and Enforcement B. Enforcement and Compliance C. Compliance and Deterrence D. None of the above
C. Compliance and Deterrence
The term occupational crime covers which of the following types of white collar offenses A. Crimes by individuals B. Crimes by officials C. Crime by professionals D. All the above
D. All the above
Which of the following is one of the interrelated components of a company's internal control system as laid out by the committee of sponsoring organizations of Treadway commission (COSO) A. Risk Assessment B. Independent oversight C. Assurance Function D. Ethical culture
A. Risk Assessment
According to Diane Vaughan, encouraging employees loyalty through social interactions, such as company parties and social functions can contribute to the organization being more inherently inclined to commit crime. True or False
True
Which if the following behavioral responses involves withdrawing a positive stimulus or applying a negative stimulus in response to undesired behavior A. Positive Reinforcement B. Punishment C. Negative Reinforcement D. None of the above
B. Punishment
Research show that a criminal’s social status or class is the determinant aspect of white collar crime. True or False
False
Under The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, an organization’s internal audit function is required to hold primary responsibility for all internal fraud investigations. True or False
False, The role that internal audit plays in fraud investigations varies by organization.
A person’s social status plays no role in their ability to commit white-collar crime. True or False
False, People can use their status to influence decision making.
Which of the following is NOT an effective response for addressing the risk of material misstatement due to fraud during a financial statement audit?
A. Assigning specialists to assist regarding a particularly technical issue
B. Implementing auditing procedures on an unannounced basis
C. Using differing sampling methods when collecting data for audit testing
D. Engaging in consistent auditing procedures each year
D. Engaging in consistent auditing procedures each year
The evaluation and communication of internal control deficiencies in a timely manner to those parties responsible for taking corrective action is a principle related to which component of the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Internal Control—Integrated Framework (the Framework)? A. Risk Assessment B. Monitoring C. Information and Communication D. Control Activities
B. Monitoring
According to the Committee of Sponsoring Organizations of the Treadway Commission (COSO), \_\_\_\_\_\_\_\_\_ is the culture, capabilities, and practices, integrated with strategy-setting and its performance, that organizations rely on to manage risk in creating, preserving, and realizing value. A. Fraud Prevention B. Corporate Governance C. Enterprise Risk Management D. Internal Control
C. Enterprise Risk Management
For analytical review procedures performed during a financial statement audit to be most effective in uncovering fraud, the scheme must materially impact the financial statements. True of False
True, Some internal fraud is discovered as a result of analytical review procedures performed during a financial statement audit. To uncover fraud using such techniques, however, the scheme must materially impact the financial statements.
Systems based on the compliance theory of crime control attempt to achieve conformity to the law without having to detect, process, or penalize violators. True or False
True, Enforcement strategies include two main theories: compliance and deterrence. Compliance is designed to achieve conformity to the law without having to detect, process, or penalize violators. Compliance systems provide economic incentives for voluntary compliance to the laws and use administrative efforts to control violations before they occur. In contrast, deterrence is designed to detect law violations, determine who is responsible, and penalize offenders to deter future violations. Deterrence systems try to control the immediate behavior of individuals, not the long-term behaviors targeted by compliance systems.
To reduce the probability of fraud in financial reports, the National Commission on Fraudulent Financial Reporting (the Treadway Commission) provided recommendations about which of the following parties involved in corporate governance? A. Shareholders B. The Compensation committee C. Management D. The Audit committee
D. The Audit committee
Detective anti-fraud controls include all of the following EXCEPT: A. Physical Inspection B. Hotline C. Hiring Policies D. Proactive Data Analysis
C. Hiring Policies , this is a preventive control
Which of the following is NOT one of the eight principles for risk management provided by international organization for standardization (ISO) 31000:2018
A. The risk management program takes human and culture factors into consideration
B. The risk management program is based on effective leadership and commitment
C. The risk management program is dynamic and response to change
D. The risk management program is customized and proportionate to the organization’s operations and objectives
B. The risk management program is based on effective leadership and commitment
Sound corporate governance practices ensure that all stakeholders are treated equitably and are given just and appropriate consideration. True or False
True
In the area of criminological theory,............is the theory that tries to prevent crime by using the threat of criminal sanctions. A. Punishment B. Deterrence C. Adherence D. None of the above
A. Punishment
According to B.F Skinner, which of the following is the most effective way to modify a person's behavior A. Punishment B. Positive reinforcement C. Ignoring it D. None of the above
B. Positive reinforcement
In the context of a fraud examination, the preservation of integrity requires that the fraud examiner avoid all differences of opinion regarding all material matters with the other parties to the engagement. True or False
False, Fraud examiners can have honest differences of opinion
Which of the following parties is ultimately responsible for the prevention and detection of fraud within an organization? A. Management B. Board of Directors C. External Auditors D. Internal Auditors
A. Management
In general, the lowest level of reference for making moral decisions is: A. Philosophical Principles B. Individual Standards C. The Law D. None of the above
C. The Law, it is the lowest level of reference for moral decisions
