OJBJECTIVES 1-6

Question 1

is the careful and responsible oversight and use of the assets entrusted to management. This requires that management maintain systems which allow it to demonstrate that it has appropriately used these funds and assets.

Answer 1

STEWARDSHIP

Question 2

a process, affected by an entity’s board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations reliability of financial reporting compliance with applicable laws and regulations.

Answer 2

INTERNAL CONTROL

Question 3

is a set of documented guidelines for moral and ethical behavior within the organization.

Answer 3

CODE OF ETHICS

Question 4

can be defined as the theft, concealment, and conversion to personal gain of another’s money, physical assets, or information.

Answer 4

FRAUD

Question 4

Involves theft of any item of value. It is sometimes referred to as a defalcation, or internal theft, and the most common examples are theft of cash or inventory.

Answer 4

MISAPPROPRIATION OF ASSETS

Question 5

Involves the falsification of accounting reports. This is often referred to as earnings management, or fraudulent financial reporting.

Answer 5

MISSTATEMENT OF FINANCIAL RECORDS

Question 6

In order for a fraud to be perpetrated, three conditions must exist.

Answer 6

FRAUD TRIANGLE

Question 7

To commit the fraud. Some kind of _________or pressure typically leads fraudsters to their deceptive acts.

Answer 7

INCENTIVE

Question 8

Circumstances may provide access to the assets or records that are the objects of fraudulent activity. Only those persons having access can pull off the fraud.

Answer 8

OPPORTUNITY

Question 9

Fraudsters typically justify their actions because of their lack of moral character. They may intend to repay or make up for their dishonest actions in the future

Answer 9

Rationalization (attitude)

Question 10

Misstating financial statements

Answer 10

MANAGEMENT FRAUD

Question 11

Inflating hours worked on time card

Answer 11

EMPLOYEE FRAUD

Question 12

Returning stolen merchandise for cash

Answer 12

CUSTOMER FRAUD

Question 13

Requesting duplicate payment for one invoice

Answer 13

VENDOR FRAUD

Question 14

conducted by one or more top-level managers within the company, is usually in the form of fraudulent financial reporting. Oftentimes, the chief executive officer (CEO) or chief financial officer (CFO) conducts fraud by misstating the financial statements through elaborate schemes or complex transactions.

Answer 14

MANAGEMENT FRAUD

Question 15

Involves top management’s circumvention of the systems or internal controls that are in place—known as

Answer 15

MANAGEMENT OVERRIDE

Question 16

is conducted by nonmanagement employees. This usually means that an employee steals cash or assets for personal gain.

Answer 16

EMPLOYEE FRAUD

Question 17

Inventory can be stolen or misdirected. This could be merchandise, raw materials, supplies, or finished goods inventory.

Answer 17

INVENTORY THEFT

Question 18

This occurs when an employee steals cash from the company. An example would be the theft of checks collected from customers.

Answer 18

CASH RECEIPTS THEFT

Question 19

Here, the employee may submit a false invoice, create a fictitious vendor, or collect kickbacks from a vendor.

Answer 19

ACCOUNTS PAYABLE FRAUD

Question 20

is a cash payment that the vendor gives the employee in exchange for the sale; it is like a business bribe.

Answer 20

KICKBACK

Question 21

This occurs when an employee submits a false or inflated time card.

Answer 21

PAYROLL FRAUD

Question 22

This occurs when an employee submits false travel or entertainment expenses, or charges an expense ledger account to cover the theft of cash.

Answer 22

Expense account fraud.

Question 23

Cash receipts theft is the most common type of employee fraud. It is often pulled off through a technique known as

Answer 23

SKIMMING

Question 24

Fraudsters also steal the company’s cash after it has been recorded in the accounting records. This practice is known as

Answer 24

LARCENCY

Question 25

Occurs when two or more people work together to commit a fraud.

Answer 25

COLLUSION

Question 26

occurs when a customer improperly obtains cash or property from a company, or avoids a liability through deception.

Answer 26

CUSTOMER FRAUD

Question 27

involve the customer’s use of stolen or fraudulent credit cards and checks.

Answer 27

CREDIT CARD FRAUD and CHECK FRAUD

Question 28

occurs when a customer tries to return stolen goods to collect a cash refund

Answer 28

REFUND FRAUD

Question 29

occurs when vendors obtain payments to which they are not entitled.

Answer 29

vendor fraud

Question 30

involve the examination of vendor records in support of amounts charged to the company.

Answer 30

vendor audit