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AFM340 Fraud Detection and Prevention > Topic 1 The Nature and extent of Fraud > Flashcards

Topic 1 The Nature and extent of Fraud Flashcards

1
Q

All frauds that are detected by organizations are made public.
T or F

A

F

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2
Q

Perpetrators use trickery, confidence, and deception to commit fraud.
T or F

A

T

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3
Q

One of the most common responses to fraud is disbelief by those around the fraud.
T or F

A

T

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4
Q

Manufacturing companies with a profit margin of 10 percent must usually generate about 10 times as much revenue as the dollar amount of the fraud in order to restore net income to its pre-fraud level.
T or F

A

T

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5
Q

Fraud involves using physical force to take something from someone.
T or F

A

F

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6
Q

Identity theft is an example of employee embezzlement.
T or F

A

F

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7
Q

When perpetrators are criminally convicted of fraud, they often serve jail sentences and/or pay fines.
T or F

A

T

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8
Q

Management fraud is deception perpetrated by an organization’s top management.
T or F

A

T

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9
Q

A Ponzi scheme is considered to be a type of investment scam.
T or F

A

T

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10
Q

Most people agree that fraud-related careers will be in demand in the future.
T or F

A

T

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11
Q

In civil cases, fraud experts are rarely used as expert witnesses.
T or F

A

F

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12
Q

Many companies try to hide their losses from fraud rather than make them public.
T of F

A

T

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13
Q

The only group/business that must report employee embezzlement is the federal government.
T or F

A

F

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14
Q

Advances in technology have had no effect either on the size or frequency of fraud or on the detection or investigation of fraud.
T or F

A

F

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15
Q

Fraud losses generally reduce a firm’s income on a dollar-for-dollar basis.
T or F

A

F

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16
Q

Fraud losses generally reduce a firm’s income on a dollar-for-dollar basis.
T or F

A

F

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17
Q

The single most critical element for a fraud to be successful is opportunity.
T or F

A

F

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18
Q

Fraud perpetrators are often those who are least suspected and most trusted.
T or F

A

T

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19
Q

Unintentional errors in financial statements are a form of fraud.
T or F

A

F

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20
Q

Occupational fraud is fraud committed on behalf of an organization.
T or F

A

F

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21
Q

Companies that commit financial statement fraud are often experiencing net losses or have profits that are significantly lower than expectations.
T or F

A

T

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22
Q

Indirect fraud occurs when a company’s assets go directly into the perpetrator’s pockets without the involvement of third parties.
T or F

A

F

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23
Q

In vendor fraud, customers don’t pay for goods purchased.
T or F

A

F

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24
Q

A negative outcome in a civil lawsuit usually results in jail time for the perpetrator.
T or F

A

F

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25
Q

When fraud is committed, criminal prosecution usually proceeds before civil litigation.
T or F

A

T

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26
Q

A fraud may be perpetrated through an unintentional mistake.
T or F

A

F

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27
Q

It is most often people who are not trusted who commit fraud.
T or F

A

F

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28
Q

Management fraud is when managers intentionally deceive their employees about the potential of raises, vacations, and other perks.
T or F

A

F

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29
Q

Despite intense measures meant to impede it, fraud appears to be one of the fastest growing crimes in the United States.
T or F

A

T

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30
Q

The ACFE is a non-profit organization dedicated to the prevention and dedication of fraud throughout the world.
T or F

A

T

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31
Q

There is no difference between a Certified Fraud Examiner (CFE) and a Certified Public Accountant (CPA).
T or F

A

F

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32
Q
  1. Why does fraud seem to be increasing at such an alarming rate?

a. Computers, the Internet, and technology make fraud easier to commit.
b. Most frauds today are detected, whereas in the past many were not.
c. A new law requires that fraud be reported within 24 hours.
d. People understand the consequences of fraud to organizations.

A

a)

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33
Q
  1. Which of the following is not an important element of fraud?
    a. Confidence.
    b. Deception.
    c. Trickery.
    d. Intelligence.
A

d)

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34
Q
  1. Fraud is considered to be:

a. A serious problem that continues to grow.
b. A problem that affects very few individuals.
c. A mild problem that most businesses need not worry about.
d. A problem under control.

A

a)

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35
Q
  1. People who commit fraud are usually:

a. New employees.
b. Not well groomed and have long hair and tattoos.
c. People with strong personalities.
d. Trusted individuals.

A

d)

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36
Q

“The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets” is the definition of which of the following types of fraud?

a. Employee embezzlement or occupational fraud.
b. Investment scams.
c. Management fraud.
d. Vendor fraud.

A

a)

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37
Q

Corporate employee fraud-fighters:
a. Work as postal inspectors and law enforcement officials.
b. Prevent, detect, and investigate fraud within a company.
c. Are lawyers who defend and/or prosecute fraud cases.
d. None of the above.

A

b)

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38
Q

Investment scams most often include:
a. An action by top management against employees.
b. Worthless investments or assets sold to unsuspecting investors.
c. An overcharge for purchased goods.
d. Non-payment of invoices for goods purchased by customers.

A

b)

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39
Q

Which of the following is not true of civil litigation?

a. It usually begins when one party files a complaint.
b. The purpose is to compensate for harm done to another.
c. It must be heard by 12 jurors. d. Only “the preponderance of the evidence” is needed for the plaintiff to be successful.

A

c)

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40
Q

Future careers in fraud will most likely be:

a. In low demand.
b. In moderate demand.
c. Low paying.
d. In high demand and financially rewarding.

A

d)

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41
Q

Studying fraud will help you:

a. Learn evidence-gathering skills.
b. Avoid high-risk and fraudulent activities.
c. Learn valuable interviewing skills.
d. All of the above.

A

d)

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42
Q

Which of the following is the least reliable resource for fraud statistics?

a. FBI agencies.
b. Health agencies.
c. Insurance organizations.
d. Fraud perpetrators.

A

d)

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43
Q

Which of the following statements is true?
a. On a per-incident basis, bank robberies are more costly than frauds.
b. Fraud is often labeled the fastest-growing type of crime.
c. FBI agencies usually investigate frauds that occur within organizations.
d. None of the above statements is true.

A

b)

44
Q

Which of the following is not an element of fraud?
a. False representation.
b. Accidental behavior.
c. Damage to a victim.
d. Intentional or reckless behavior.

A

b)

45
Q

What is the best way to minimize fraud expense within an organization?

a. Effective early detection of fraud.
b. Effective investigation of fraudulent behavior.
c. Effective prevention of fraud.
d. Effective research of fraud.

A

c)

46
Q

What is the most important element in successful fraud schemes?

a. Promised benefits.
b. Confidence in the perpetrator.
c. Profitable activities.
d. Complexity.

A

b)

47
Q

Which of the following characters is least likely to be involved in a fraud?
a. A middle-aged person with a middle management position.
b. A long-haired teenager wearing leather pants.
c. A recent college graduate.
d. A senior executive who has significant stock options.

A

b)

48
Q

Which of the following is not a common type of fraud?

a. Direct employee embezzlement.
b. Employee bribes.
c. Executives embezzling from petty cash.
d. Investment scams

A

c)

49
Q

Which of the following is not a form of vendor fraud?

a. Overcharging for purchased goods.
b. Shipment of inferior goods.
c. Non shipment of goods even though payment has been made. d. Not paying for goods purchased.

A

d)

50
Q

Civil law performs which of the following functions?

a. Remedy for violation of private rights.
b. Remedy for violations against society as a whole.
c. Punishment for guilt “beyond reasonable doubt.”
d. Monetary fines for federal damages.

A

a)

51
Q

Fraud fighting can include which of the following type(s) of careers?

a. Professors.
b. Lawyers.
c. CPA firms.
d. All of the above.

A

d)

52
Q

Which of the following is not an example of employee embezzlement?

a. Land conservation employees stealing equipment.
b. Cashiers stealing money from the cash register.
c. Angry employees vandalizing the building with spray paint.
d. Salespeople overcharging for products and pocketing the excess cash.

A

c)

53
Q

Which of the following is not an example of vendor fraud?
a. A vendor overcharges a contracting job that it completed on time.
b. A vendor bills for services not performed.
c. A vendor bills for goods not provided.
d. A vendor has much higher prices than its competitors.

A

d)

54
Q

“Intentional manipulation of financial statements” describes which kind of fraud?

a. Management fraud.
b. Criminal fraud.
c. Stock market fraud.
d. Bookkeeping fraud.

A

a)

55
Q

Which of the following is required to become a CFE?

a. An individual must commit to abide by a strict code of professional conduct and ethics. b. Be an associate member in good standing of the ACFE. c. Be of high moral character.
d. All of the above are required to become a CFE.

A

d)

56
Q

One way that criminal law differs from civil law is that it:
a. provides remedies for violations of private rights.
b. must yield a unanimous verdict.
c. can have a jury of fewer than 12 persons.
d. allows for various claims in one action.

A

b)

57
Q

Which of the following is NOT an element of a Ponzi scheme?
a. Gaining other’s confidence.
b. Promising abnormally high returns.
c. Collected money is invested.
d. Investment principle is partially used to make payments to previous investors.

A

c)

58
Q

The following are all elements of Title 26, U.S. Code Section 7201 EXCEPT:
a. not reporting bribe income may be grounds for being charged with tax evasion.
b. filing income tax that excludes income from fraud may be considered an improper tax filing.
c. bribes paid may be deducted as business expenses.
d. failure to report income from fraud may be grounds for being charged with tax evasion.

A

c)

59
Q

Which one of the following is NOT a characteristic of a criminal proceeding?
a. Deals with offenses against society.
b. Consequences include restitution and damage payments.
c. Jury of 12 individuals.
d. Only one claim may be heard at a time.

A

b)

60
Q

Management fraud is often referred to as:
a. stockholder fraud.
b. financial statement fraud.
c. employee fraud.
d. investment fraud.

A

b)

61
Q

What is required to prove fraud, as opposed to negligence?
a. Gross error
b. Intent
c. Preponderance of the evidence
d. Confession from the perpetrator

A

b)

62
Q

Which of the following is the most common type of occupational fraud?
a. Management fraud
b. Mail fraud
c. Investment fraud
d. Employee embezzlement

A

d)

63
Q

Which of the following is NOT a characteristic of management fraud?
a. Top management deception
b. Manipulation of financial statements
c. Kickbacks or bribes
d. Pressure to earn year-end bonuses

A

c)

64
Q

Customer fraud includes all of the following EXCEPT:
a. getting something for nothing.
b. not paying for goods purchased.
c. receiving improper payments through collusion between buyers and vendors.
d. deceiving the organization into giving the customer something that it should not.

A

c)

65
Q

Which of the following is a common example of vendor fraud?
a. Fraud perpetrated through collusion between buyers and vendors.
b. Fraud perpetrated by upper management.
c. The perpetrator physically removes the inventory from the business premises.
d. A fraud perpetrated through financial statement manipulation.

A

a)

66
Q

Government agencies such as the FBI, FDIC, IRS, or various health agencies publish fraud statistics from time to
time. Which of the following observations concerning such statistics is true?
a. Generally, their statistics are complete.
b. Such information is rarely used.
c. They provide only those statistics related to their jurisdiction.
d. They usually provide a total picture in the areas for which they have responsibility.

A

c)

67
Q

Which legal code makes the bribing of public officials illegal?
a. Title 18, U.S. Code Section 201
b. Title 41, U.S. Code Section 51 to 58
c. Title 18, U.S. Code Section 1341
d. Title 18, U.S. Code Section 1344

A

a)

68
Q
  1. Fraud has a direct dollar-for-dollar impact on a company’s:
    a. revenues.
    b. net income.
    c. profit margin.
    d. stock price.
A

b)

69
Q

Which of the following is NOT a primary reason for increased size and number of frauds?
a. The advent of computers
b. Complex accounting systems
c. Increased centralization of businesses
d. The Internet

A

c)

70
Q

Which of the following statements regarding civil law is correct?
a. When fraud is committed, criminal prosecution usually proceeds before civil prosecution.
b. Civil law is the body of law that provides remedies for crimes against society.
c. Civil cases must be heard by 12 jurors.
d. In a civil case, the verdict of the jury must be unanimous.

A

a)

71
Q

The elements of fraud include all of the following EXCEPT:
a. a material point is misrepresented.
b. the misrepresentation is intentional.
c. the misrepresentation is known to the victim.
d. the victim must sustain damages.

A

c)

72
Q

The burden of proof in a criminal case:
a. is beyond a reasonable doubt.
b. is determined by the majority of the jury members.
c. is the preponderance of evidence.
d. lies with the defendant.

A

a)

73
Q

Which of the following statements about criminal and civil cases is correct?
a. The purpose of a criminal case is “to right a wrong,” the purpose of civil case is to obtain a remedy.
b. A jury must have 12 people in civil cases, but in criminal cases may consist of fewer than 12 persons.
c. Both criminal cases and civil cases require a fraud perpetrator to make payments for damages.
d. Only one claim may be tried at a time in civil cases, but in criminal cases, various claims may be joined in one
action.

A

a)

74
Q

How is the confidence element established in a Ponzi scheme?
a. By investing in prime bonds.
b. By issuing notarized certificates.
c. By paying returns to investors initially.
d. By returning money to all investors.

A

c)

75
Q

The most common fraud committed on behalf of an organization is:
a. vendor fraud.
b. employee embezzlement.
c. fraudulent financial reporting.
d. customer fraud.

A

c)

76
Q

A company is a victim of a $414 million fraud. At that time its profit margin is 10%. How much additional revenue
should the company generate in order to recover the effect on net income?
a. $41.4 million
b. $414 million
c. $4.14 billion
d. $41.4 billion

A

c)

77
Q

The victim is a company or organization in all of the following EXCEPT:
a. vendor fraud.
b. investment scams.
c. employee embezzlement.
d. customer fraud.

A

b)

78
Q

The Anti-Kickback Act of 1986 intends to prevent:
a. bribery, by punishing perpetrators with up to 15 years in prison.
b. any scheme by a contractor to gain the business of a global entity.
c. the giving or receiving of anything of value by a subcontractor to a prime contractor in U.S. government
contracts.
d. the custom of lobbyists to give gifts to influence laws regarding business transactions.

A

c)

79
Q

Which of the following entails an insider who has material inside information purchasing or selling the company’s
securities through insider deals directly or through an exchange?
a. Bank fraud
b. Ponzi schemes
c. Management (financial statement) frauds
d. Securities fraud

A

d)

80
Q

Who are the primary victims of financial statement fraud?
a. Middle management
b. Organizations that buy goods or services
c. Analysts
d. Stockholders

A

d)

81
Q

Generally, applicants for CFE certification should have a minimum of a bachelor’s degree or equivalent from an
institution of higher learning. Alternatively, if applicants do not have a bachelor’s degree, they may substitute ______
months of fraud-related professional experience for each year of academic study.
a. 24
b. 18
c. 12
d. 9

A

a)

82
Q

The ACFE does NOT include which of the following major categories of occupational fraud?
a. Asset misappropriations
b. Corruption
c. Fraudulent statements
d. Pension fraud

A

d)

83
Q

What is the most cost-effective way to minimize the cost of fraud?
a. Prevention
b. Detection
c. Investigation
d. Prosecution

A

a)

84
Q

Fraud in companies such as WorldCom, Enron, Waste Management, Sunbeam, Rite-Aid, Phar-Mor, and Parmalat are
examples of:
a. customer fraud.
b. investment scams.
c. vendor fraud.
d. management fraud.

A

d)

85
Q

Which of the following statements is true?
a. Fraud usually results from unintentional errors.
b. Fraud is more violent and traumatic than robbery.
c. Fraud always involves deception, confidence, and trickery.
d. Losses from fraud are less than losses from robbery.

A

c)

86
Q

To be successful, plaintiffs in civil cases must prove their case by which of the following?
a. By the preponderance of the evidence
b. Beyond a reasonable doubt
c. To a degree of reasonable mitigation
d. To the standard of prima facie

A

a)

87
Q

Which of the following is NOT an example of a fraud-fighting career?
a. Working for the criminal investigation division of the IRS
b. Serving as an expert witness
c. Maintaining the security of public records
d. Defending an organization being sued in a civil case

A

c)

88
Q

Which of the following observations concerning occupational fraud is NOT true?
a. It is clandestine.
b. It is committed for the purpose of direct or indirect financial benefit to the employee.
c. It usually involves two or more employees.
d. It costs the employing organization assets, revenues, or reserves.

A

c)

89
Q

Which of the following is NOT one of the major types of fraud classification schemes?
a. Employee embezzlement
b. Government fraud
c. Investment scams
d. Customer fraud

A

b)

90
Q

Which of the following frauds is usually the most expensive?
a. Vendor fraud
b. Customer fraud
c. Occupational fraud
d. Management (financial statement) fraud

A

d)

91
Q

Civil claims begin when one party files a complaint against another, usually for the purpose of:
a. having a penalty imposed.
b. sending the perpetrator to prison.
c. proving the perpetrator guilty.
d. being awarded financial restitution.

A

d)

92
Q

Employee embezzlement can be direct or indirect. Indirect fraud occurs when:
a. an employee uses company assets to run his/her private business.
b. employees establish dummy companies and have their employers pay for goods that are not actually delivered.
c. an employee receives a kickback from a vendor.
d. an employee steals company cash, inventory, tools, or other assets.

A

c)

93
Q

Telemarketing fraud usually falls into this category.
a. Investment scams
b. Management fraud
c. Vendor fraud
d. Embezzlement

A

a)

94
Q

The word “con,” which means to deceive, comes from the word:
a. Contract.
b. Conserve.
c. Confuse.
d. Confidence.

A

d)

95
Q

In fraud prosecution cases, ______ matter consists of the underlying data and all corroborating information available.
a. evidential
b. remedial
c. supplemental
d. elementary

A

a)

96
Q

The study conducted by the Association of Certified Fraud Examiners in 2016 estimated that organizations lose
_____ percent of their annual revenues to fraud.
a. 8
b. 5
c. 23
d. 17

A

b)

97
Q

A company was the victim of several frauds that totaled approximately $10 million in one year. With a profit margin of
10 percent, and assuming that the company’s product sold for $1,000 per unit, how many additional units must the
company sell to compensate for the fraud losses?
a. 1 million
b. 100 million
c. 100,000
d. 10,000

A

c)

98
Q

Given below are the profit margins and fraud-related losses of four economies. Which economy will have to generate
the maximum dollar amount of additional revenues to recover the loss to aggregate income? Economy A: 10%, $225
million Economy B: 10%, $150 million Economy C: 5%, $100 million Economy D: 2%, $50 million
a. Economy A
b. Economy D
c. Economy C
d. Economy B

A

b)

99
Q

The GDP in the economy of Ponziland was $5 billion in the year prior to the frauds (Year 1). The economy was
growing at 4 percent. Frauds during the year reduce aggregate income by $200 million. During the year, the economy
has:
a. shrunk by 1 percent.
b. grown by only 1 percent.
c. remained flat.
d. grown by 4 percent

A

c)

100
Q

What is the single most critical element for a fraud to be successful?
a. Criminal intent
b. Confidence
c. Greed
d. Compulsion

A

b)

101
Q

Fraud statistics come from all of the following sources EXCEPT:
a. government agencies.
b. insurance companies.
c. victims.
d. fraud perpetrators.

A

d)

102
Q

Which of the following skills would be LEAST beneficial in a career as a fraud-fighting professional?
a. Analytical skills
b. Mechanical skills
c. Communication skills
d. Technological skills

A

b)

103
Q

Which of the following would NOT be acceptable as fraud-related experience to satisfy the education requirements to
apply for CFE certification?
a. Auditor (internal or external)
b. Investigator for a law enforcement agency or in the private sector
c. Experience in the Human Resources department of an organization
d. Paralegal for a prosecuting attorney

A

c)

104
Q

Which of the following statements regarding fraud on behalf of an organization is true?
a. Middle management is usually the perpetrator.
b. This type of fraud benefits top executives as it generally increases stock price.
c. This type of fraud includes deflating expenses in order to save on corporate income taxes.
d. Financial statement fraud is common among publicly traded companies that are experiencing windfall profits.

A

b)

105
Q

Which individual listed is most likely to commit financial statement fraud in order to benefit an organization?
a. An executive
b. An internal auditor
c. A floor manager (line supervisor)
d. The company treasurer

A

a)

AFM340 Fraud Detection and Prevention (13 decks)

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