Topic 10 Fraud against Organisations

Question 1

What are the three major classes of asset misappropriation?
a. Stealing receipts, purchasing fraud, and disbursement fraud.
b. Stealing receipts, stealing money as it comes into a company, and purchasing fraud.
c. Stealing receipts, disbursement fraud, and stealing assets on hand.
d. Stealing receipts, stealing inventory, and stealing information.

Answer 1

c)

Question 1

Most frauds against organizations are perpetrated by:
a. Employees.
b. Owners.
c. Vendors.
d. A collusion of two of the above.

Answer 1

a)

Question 2

Out of all the types of frauds discussed in this chapter, which type is perpetrated least often?
a. Skimming schemes.
b. Larceny.
c. Check schemes.
d. Payroll.

Answer 2

b)

Question 3

Which of the following is not one of the most common billing schemes?
a. Setting up dummy companies to submit invoices to the victim organization.
b. Changing the quantity or price on an invoice to favor a customer.
c. Altering or double-paying non accomplice vendor’s statements.
d. Making personal purchases with company funds.

Answer 3

b)

Question 4

The most affected party in a workers’ compensation fraud case is which of the following?
a. Employer.
b. Employer’s insurance carrier.
c. Other employees.
d. Government.

Answer 4

b)

Question 5

Which of the following is a major difference between larceny and skimming?
a. Larceny is committed before the cash is entered into the accounting system, while skimming is committed after the cash is entered into the system.
b. Larceny is committed after the cash is entered into the accounting system, while skimming is committed before the cash is entered into the system.
c. Larceny involves fraudulent disbursements of cash, while skimming involves fraudulent receipts of cash.
d. Larceny involves fraudulent receipts of cash, while skimming involves fraudulent disbursements of cash.

Answer 5

b)

Question 6

Which of the following types of disbursement fraud occurs least frequently?
a. Expense tampering.
b. Payroll schemes.
c. Register disbursement schemes.
d. Billing schemes.

Answer 6

c)

Question 7

Which of the following results in the highest loss per case?
a. Expense tampering.
b. Payroll schemes.
c. Register disbursement schemes.
d. Billing schemes.

Answer 7

d)

Question 8

Which of the following is not considered a misappropriation of assets?
a. Payroll disbursement schemes.
b. Kickbacks.
c. Expense schemes.
d. Skimming.

Answer 8

b)

Question 9

Which of the following is not true of billing schemes?
a. The perpetrator takes physical possession of his or her employer’s cash.
b. The perpetrator often sets up a “dummy” company.
c. It is one of the most commonly committed disbursement schemes.
d. It usually involves dealing with the victim organization’s purchasing department.

Answer 9

b)

Question 10

Which of the following is not one of the ACFE’s types of fraudulent disbursement?
a. Check-tampering schemes.
b. Skimming disbursement schemes.
c. Expense schemes.
d. Register disbursement schemes.

Answer 10

b)

Question 11

“Putting someone on the payroll who does not actually work for the victim company” is an example of a(n):
a. Expense scheme.
b. Payroll scheme.
c. Register disbursement scheme.
d. Commission scheme.

Answer 11

b)

Question 12

One key element of skimming is that cash is taken:
a. Directly from the cash register.
b. When no one is watching.
c. By someone who does not ordinarily have cash-handling responsibilities.
d. Prior to its entry into an accounting system.

Answer 12

d)

Question 13

Which of the following is more likely to help detect occupational frauds?
a. An internal audit
b. An external audit
c. A tip
d. Internal controls

Answer 13

c)

Question 14

Why is larceny is easier to detect than skimming?
a. Larceny involves stealing cash after it has already been recorded in the company’s accounting system.
b. Larceny involves fraudulent disbursements of cash, while skimming involves fraudulent receipts of cash.
c. Larceny involves stealing cash as it is paid by a customer.
d. Larcenies can take place in any circumstance in which an employee has access to cash

Answer 14

a)

Question 15

The 2010 ACFE Report to the Nation on Occupational Fraud & Abuse covers three types of fraud against organizations. Which of the following is one of them?
a. Corruption
b. Bid-rigging
c. Check tampering
d. Lapping

Answer 15

a)

Question 16

A conflict of interest occurs when:
a. an employer knows of an employee’s interest in a business deal or negotiation.
b. an employee has an economic or personal interest in a transaction that adversely affects the company.
c. employees offer, give, receive or solicit anything of value in order to influence an official act.
d. employees demand payments from vendors for deciding in the vendors’ favor

Answer 16

b)

Question 17

Asset misappropriation is defined as:
a. a scheme that involves offering, giving, receiving, or soliciting anything of value to influence an official act.
b. demanding payment from a vendor in order to make or influence a decision in a vendor’s favor.
c. deceiving individuals in putting their money into a fake investment.
d. a scheme that involves an employee prepares a fraudulent check for his or her own benefit.

Answer 17

d)

Question 18

Which fraud is committed by an employee who doesn’t record customer sales and pockets the payment?
a. Larceny
b. Disbursement
c. Skimming
d. Illegal gratuities

Answer 18

c)

Question 19

An ice cream store cashier sells two-scoop ice cream cones to customers and enters the sales as single-scoop sales,
while keeping the difference for himself. Which fraud is being committed here?
a. Larceny
b. Disbursement
c. Skimming
d. Illegal gratuities

Answer 19

c)

Question 20

Which of the following statements regarding larceny is NOT true?
a. Larceny is easier to detect than skimming and is less common.
b. Larceny occurs when employees steal cash before the amounts have been recorded in the accounting system.
c. Smaller occurrences of larceny are often written off as “shorts” or “miscounts.”
d. Perpetrators of larcenies must have direct access to inventory or other assets

Answer 20

b)

Question 21

Bid-rigging is a type of which of the following?
a. Skimming
b. Bribery
c. Extortion
d. Illegal gratuity

Answer 21

b)

Question 22

Check tampering is a type of:
a. larceny.
b. skimming.
c. fraudulent disbursement scheme.
d. fraudulent statement scheme

Answer 22

c)

Question 23

Which of the following occurs when an employee demands a payment from a vendor in order to make a decision in
that vendor’s favor?
a. Bribery
b. Larceny
c. Economic extortion
d. Illegal gratuity

Answer 23

c)

Question 24

Which of the following defines lapping?
a. Embezzling one customer’s payment and then crediting that customer’s account when a subsequent customer
pays
b. Stealing cash from an organization before it is recorded on the organization’s books and records
c. Helping a vendor illegally obtain a contract that should have involved competitive bidding
d. Demanding a payment from a vendor in order to make a decision in that vendor’s favor

Answer 24

a)

Question 25

According to the ACFE study, which of the following is the most common form of occupational fraud?
a. Bid-rigging
b. Fraudulent statements
c. Corruption
d. Asset misappropriation

Answer 25

d)

Question 26

Which of the following groups listed is most likely to perpetrate frauds against the organization?
a. Customers
b. Vendors
c. Competitors
d. Employees

Answer 26

d)

Question 27

Which of the following is NOT a form of corruption?
a. Extortion
b. Conflict of interest
c. Lapping
d. Bribery

Answer 27

c)

Question 28

Which of the following is the most common target regarding asset misappropriation?
a. Inventory
b. Cash
c. Equipment
d. Valuable information

Answer 28

b)

Question 29

Which is the least common expense disbursement scheme?
a. Mischaracterizing expenses
b. Submitting the same expenses multiple times
c. Submitting fictitious expenses
d. Overstating expenses

Answer 29

b)

Question 30

According to the ACFE study, which of the following comprises the highest percentage of asset misappropriation?
a. Larceny
b. Skimming
c. Delayed payment recognition
d. Fraudulent disbursement

Answer 30

d)

Question 31

Which of the following is NOT a possible way to commit fraud by using a payroll scheme?
a. Overstating expenses
b. Falsifying hours worked
c. Creating ghost employees
d. Producing false workers’ compensation claims

Answer 31

a)

Question 32

Which of the following is the least costly disbursement scheme?
a. Check tampering
b. Billing scheme
c. Register disbursement scheme
d. Expense scheme

Answer 32

c)

Question 33

Identify the two basic bribery schemes.
a. Larceny and skimming
b. Kickbacks and bid-rigging
c. Economic extortion and illegal gratuity
d. Lapping and extortion

Answer 33

b)

Question 34

Claiming personal travel as a business expense, claiming a personal lunch as a business lunch, altering a receipt to
reflect a higher amount than was actually paid, or submitting fictitious receipts is an example of which of the
following?
a. A billing scheme
b. A payroll disbursement scheme
c. A register disbursement scheme
d. An expense reimbursement scheme

Answer 34

d)

Question 35

Thefts of inventory are divided into two groups. Identify them.
a. Corruption and bribery
b. Expense scheme and skimming
c. Economic extortion and illegal gratuities
d. Larceny and misuse

Answer 35

d)

Question 36

Which of the following is the best example of theft of cash through skimming?
a. Preparing fraudulent checks
b. Understating sales by recording larger-than-reality sales discounts
c. Setting up dummy companies
d. Stealing cash after it has already been recorded

Answer 36

b)

Question 37

Which of the following statements with reference to extortion is true?
a. It is a crime even if the extortion message is only sent but not received.
b. The words “pay up or else” are insufficient to constitute extortion.
c. It is a crime even if the extortion message is sent either unwillingly or without the knowledge of the sender.
d. An extortionate threat made to another in jest is not extortion

Answer 37

a)

Question 38

Identify the action that does NOT represent one of the four types of corruption.
a. Offering, giving, receiving, or soliciting anything of value in order to influence an official act
b. Overbilling the company for travel and other related business expenses, such as business lunches, hotel bills,
and air travel
c. An employee’s demands for payment from a vendor in order to make a decision in that vendor’s favor
d. The exertion of an employee’s influence to the detriment of his or her company

Answer 38

b)

Question 39

Which of the following examples is NOT a billing scheme?
a. Mary purchases a new laptop for her brother-in-law with company’s funds.
b. Mark submits a receipt of his cab fare for reimbursement, which includes an extra $10.
c. Joven double pays a vendor for the purchase of inventory and then pockets the second payment when it is
returned.
d. Harry submits invoices in the name of the dummy company and collects the amount

Answer 39

b)

Question 40

Two basic fraudulent register disbursement schemes are:
a. purchase schemes and sales schemes.
b. bid-rigging schemes and kickbacks.
c. ghost employees and commission schemes.
d. false refunds and false voids.

Answer 40

d)

Question 41

The two main categories of conflict of interest schemes are:
a. purchase schemes and sales schemes.
b. bid-rigging schemes and kickbacks.
c. ghost employees and commission schemes.
d. false refunds and false voids

Answer 41

a)

Question 42

Which of the following is an example of a register-disbursement scheme?
a. A perpetrator processes transactions as if a customer were returning merchandise, even though there is no
actual return
b. A perpetrator uses the expense register to falsely record expenses that are then paid out by the A/P
department
c. A perpetrator physically prepares a check from the check register, claiming it is a legitimate expense when it is
not
d. A perpetrator slowly takes money from the register drawer after making regular sales, showing that a discount
was given to a customer on the receipt

Answer 42

a)

Question 43

The most common occupational frauds in small businesses involve employees doing all of the following EXCEPT:
a. skimming revenues.
b. fraudulently writing company checks.
c. processing fraudulent invoices.
d. altering financial statements.

Answer 43

d)

Question 44

Which function of the victim company is usually involved in kickback schemes?
a. Sales
b. Accounting
c. Human resources
d. Purchasing

Answer 44

d)

Question 45

Employees, vendors, and customers of organizations have three opportunities to steal assets. Which of the following is
NOT one among them?
a. Steal receipts of cash and other assets as they are coming into an organization
b. Steal cash, inventory, and other assets that are on hand
c. Commit disbursement fraud by having the organization pay for something it shouldn’t pay for or pay too much
for something it purchases
d. Paying off public officials or company insiders for preferential treatment

Answer 45

d)

Question 46

Which of the payroll fraud schemes listed below tends to generate the largest losses?
a. Commission
b. Falsified hours and salary
c. Ghost employee
d. False worker compensation

Answer 46

c)

Question 47

What is known as the net asset value (NAV)?
a. The closing price of the securities that comprise a particular fund’s portfolio plus the value of any uninvested
cash that the fund manager maintains for the fund
b. A concept used in finance and economics, defined as a rational and unbiased estimate of the potential market price of a good, service, or asset
c. The value of an entity’s assets less the value of its current liabilities at the end of the trading day
d. The difference between the replacement cost of a fixed asset and its book value appearing on the balance sheet

Answer 47

a)

Question 48

For ghost-employee fraud schemes to work, four things must happen. Which of the following is NOT one among
them?
a. The ghost must be added to the payroll.
b. Timekeeping and wage rate information must be collected.
c. A paycheck must be issued to the ghost.
d. A member of human resources must be involved in the fraud

Answer 48

d)

Question 49

Check tampering is unique among the disbursement frauds because:
a. the fraud perpetrator processes the transaction as if a customer were returning merchandise, even though there
is no actual return.
b. it is the one group of schemes in which the perpetrator physically prepares the fraudulent check.
c. it is the one group of schemes in which the culprit generates a payment to himself or herself by submitting
some false document to the victim company, such as an invoice or a timecard.
d. the perpetrator does not have to undergo the risk of taking company cash or merchandise.

Answer 49

b)

Question 50

Which of the following is NOT one of the most common types of billing schemes?
a. Setting up dummy companies (shell companies) to submit invoices to the victim organization
b. Altering or double-paying a non-accomplice vendor’s statements
c. Overbilling the company for travel and other related business expenses, such as business lunches, hotel bills,
and air travel
d. Making personal purchases with company funds

Answer 50

c)

Question 51

Identify the unlawful trading schemes engaged in through mutual funds.
a. Leveraging and layering
b. Commission fraud and speculative trading
c. Market timing and late trading
d. Circular trading and NAV manipulation

Answer 51

c) These manipulative practices were possible because of the way in which mutual funds are valued.

Question 52

Which of the following is NOT an example of a commission-based payroll fraud?
a. Creating fictitious sales
b. Manipulating the number of hours worked and the rate of pay
c. Falsifying the value of sales made by altering prices listed on sales documents
d. Overstating sales by claiming sales made by another employee or in another period

Answer 52

b)

Question 53

Commercial bribery is similar to the traditional definition of bribery except that in commercial bribery:
a. Something of value is offered to influence a business decision
b. Payment is received by an employee with the employer’s consent
c. The employee extorts money from a potential purchaser or supplier
d. Something of value is offered to influence an official act of government

Answer 53

a)

Question 54

The primary victim of a workers’ compensation fraud is the ______.
a. government
b. employer
c. vendor
d. insurance carrier

Answer 54

d)

Question 55

What is the point of difference between illegal gratuity and bribery schemes?
a. Compared to illegal gratuities, briberies occur relatively infrequently and are usually quite small.
b. Illegal gratuities do not necessarily involve an intent to influence a business decision but rather to reward
someone for making a favorable decision.
c. Illegal gratuities usually involve the use of actual or threatened force, fear, or economic duress.
d. Illegal gratuities are made before deals are approved

Answer 55

b)

Question 56

What is known as dilution?
a. The artificial difference between the net asset value (NAV) and the fair value of the securities
b. An investment technique that involves short-term “in-and-out” trading of mutual fund shares
c. The loss resulting from “forward pricing” requirements
d. The harm caused by the transfer of wealth from long-term investors to market timers

Answer 56

d)

Question 57

Orders placed for buying shares of a mutual fund any time up to 4:00 p.m. are priced at that day’s net asset value
(NAV), and orders placed after 4:01 p.m. are priced at the next day’s NAV. What is this practice known as?
a. Forward pricing
b. Late trading
c. Price arbitrage
d. Price dealing

Answer 57

a)

Question 58

What is the term that describes allowing selected investors to purchase mutual funds after 4:00 p.m., using that day’s
net asset value (NAV), rather than the next day’s NAV, as required under the law?
a. Forward pricing
b. Late trading
c. Backdating
d. Circular trading

Answer 58

b)

Question 59

Which of the following is the most likely reason fraud within a company is detected?
a. Internal audits are conducted both routinely and unexpectedly.
b. External auditors have become more knowledgeable in how to look for fraud.
c. Internal controls have become more sophisticated.
d. Employees who have suspicions about possible fraud report them

Answer 59

d)

Question 60

What has been verified as the most significant impact for companies who have antifraud controls in place?
a. More employee fraud is prevented.
b. Victim organizations have lower losses.
c. More management fraud is prevented.
d. Consumer loyalty is increased.

Answer 60

b) Antifraud controls help detect fraud sooner when it does occur.