Fraud Risks & Controls Flashcards
One factor that distinguishes fraud from other employee crimes is that fraud involves
Intentional deception.
Personal gain for the perpetrator.
Collusion with a party outside the organization.
Malicious motives.
Intentional deception.
In the course of their work, internal auditors must be alert for fraud and other forms of white-collar crime. The important characteristic that distinguishes fraud from other varieties of white-collar crime is that
Fraud is characterized by deceit, concealment, or violation of trust.
Unlike other white-collar crimes, fraud is always perpetrated against an outside party.
White-collar crime is usually perpetrated for the benefit of an organization, but fraud benefits an individual.
White-collar crime is usually perpetrated by outsiders to the detriment of an organization, but fraud is perpetrated by insiders to benefit the organization.
Fraud is characterized by deceit, concealment, or violation of trust.
Which of the following wrongful acts committed by an employee constitutes fraud?
Libel.
Embezzlement.
Assault.
Harassment.
Embezzlement.
A key feature that distinguishes fraud from other types of crime or impropriety is that fraud always involves the
Violent or forceful taking of property.
Deceitful wrongdoing of management-level personnel.
Unlawful conversion of property that is lawfully in the custody of the perpetrator.
False representation or concealment of a material fact.
False representation or concealment of a material fact.
In an organization with a separate division that is primarily responsible for the prevention of fraud, the internal audit activity is responsible for
Examining and evaluating the adequacy and effectiveness of that division’s actions taken to prevent fraud.
Establishing and maintaining that division’s system of internal control.
Planning that division’s fraud prevention activities.
Controlling that division’s fraud prevention activities.
Examining and evaluating the adequacy and effectiveness of that division’s actions taken to prevent fraud.
A significant employee fraud took place shortly after an internal auditing engagement. The internal auditor may not have properly fulfilled the responsibility for the prevention of fraud by failing to not and report that
Policies, practices, and procedures to monitor activities and safeguard assets were less extensive in low-risk areas than in high-risk areas.
A system of control that depended upon separation of duties could be circumvented by collusion among three employees.
There were no written policies describing prohibited activities and the action required whenever violations are discovered.
Divisional employees had not been properly trained to distinguish between bona fide signatures and cleverly forged ones on authorization forms.
There were no written policies describing prohibited activities and the action required whenever violations are discovered.
Internal auditors have a responsibility for helping to deter fraud. Which of the following best describes how this responsibility is usually met?
By coordinating with security personnel and law enforcement agencies in the investigation of possible fraud.
By testing for fraud in every engagement and following up as appropriate.
By assisting in the design of control systems to prevent fraud.
By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk.
By evaluating the adequacy and effectiveness of controls in light of the potential exposure or risk.
The internal audit activity’s responsibility for preventing fraud is to
Establish internal control.
Maintain internal control.
Evaluate the system of internal control.
Exercise operating authority over fraud prevention activities.
Evaluate the system of internal control.
Which of the following gives the internal auditor the authority to investigate fraud?
The Standards.
Common law.
Management.
The IIA’s Code of Ethics.
Management.
When conducting fraud investigation auditors should
Clearly indicate the extent of the internal auditors’ knowledge of the fraud when questioning suspects.
Assign personnel to the investigation in accordance with the engagement schedule established at the beginning of the fiscal year.
Perform its investigation independently of lawyers, security personnel, and specialists from outside the organization who are involved in the investigation.
Assess the probable level of, and the extent of complicity in, the fraud within the organization.
Assess the probable level of, and the extent of complicity in, the fraud within the organization.
Questions used to interrogate individuals suspected of fraud should
Adhere to a predetermined order.
Cover more that one subject or topic.
Move from the general to the specific.
Direct the individual to a desired answer.
Move from the general to the specific.
A purchasing agent received expensive gifts from a vendor in return for directing a significant amount of business to that vendor. Which of the following organization policies most effectively prevents such an occurrence?
All purchases exceeding specified monetary amounts should be approved by an official who determines compliance with budgetary requirements.
Important high-volume materials should regularly be purchased from at least two different sources in order to afford supply protection.
The purchasing function should be decentralized so each department manager or supervisor does his or her own purchasing.
Competitive bids should be solicited on purchase to the maximum extent that is practicable.
Competitive bids should be solicited on purchase to the maximum extent that is practicable.
Which of the following controls is the least effective in preventing a fraud conducted by sending purchase orders to bogus vendors?
Require that all purchases be made from an authorized vendor list maintained independently of the individual placing the purchase order.
Require that only approved vendors be paid for purchases, based on actual production.
Require contracts with all major vendors from whom production components are purchased.
Require that total purchases for a month not exceed the total budgeted purchases for that month.
Require that total purchases for a month not exceed the total budgeted purchases for that month.
A potential problem for a manufacturer is that purchasing agents may take kickbacks or receive gifts from vendors in exchange for favorable contracts. Which of the following is the least effective in preventing this problem?
A specific organizational policy prohibiting the acceptance of anything of value from a vendor.
An organizational code of ethics that prohibits such activity.
A requirement for the purchasing agent to develop a profile of all vendors before the vendors are added to the authorized vendor list.
The establishment of long-term contracts with major vendors, with the contract terms approved by senior management.
A requirement for the purchasing agent to develop a profile of all vendors before the vendors are added to the authorized vendor list.
A programmer’s accumulation of roundoff errors into one account, which is later accessed by the programmer, is a type of computer fraud The best way to prevent this type of fraud is to
Build in judgment with reasonableness tests.
Independently test programs during development and limit access to the programs.
Segregate duties of systems development and programming.
Use control totals and check the results of the computer.
Independently test programs during development and limit access to the programs.
