Topic 2 Why People Commit Fraud Flashcards
(87 cards)
1
Q
- When hiring, it is usually difficult to know which employees are capable of committing fraud, especially without performing thorough background checks.
T or F
A
T
2
Q
The three elements of the fraud triangle are a perceived pressure, a perceived opportunity, and rationalization.
T or F
A
T
3
Q
Management’s example or modelling is of little importance to the control environment.
T or F
A
F
4
Q
Good internal controls will often increase opportunities for individuals to commit fraud within an organization.
T or F
A
F
5
Q
Effective fraud-fighters usually put most of their time and effort into minimizing the pressures for fraud perpetrators to commit fraud.
T or F
A
F
6
Q
The greater the perceived opportunity or more intense the pressure, the less rationalization it takes for someone to commit fraud.
T or F
A
T
7
Q
Fraud can be perpetrated to benefit oneself or to benefit one’s organization.
T or F
A
T
8
Q
Fraud perpetrators who are prosecuted, incarcerated, or severely punished usually commit fraud again.
A
F
9
Q
Many organizations merely dismiss dishonest employees because of the expense and time involved in prosecuting them.
T or F
A
T
10
Q
Appropriate hiring will not decrease an organization’s risk of fraud.
T or F
A
F
11
Q
An individual who owns his or her own business and is the sole employee needs many internal control activities.
T or F
A
F
12
Q
A proper system of authorization will help ensure good internal controls.
T or F
A
T
13
Q
Good documents and records are some of the best preventive controls.
T or F
A
F
14
Q
Some frauds are allowed to be perpetrated because victims don’t have access to information possessed by the perpetrators.
T or F
A
T
15
Q
Power is rarely used to influence another person to participate in an already existing fraud scheme.
A
F
16
Q
Fraud perpetrators:
a. Look like other criminals.
b. Have profiles that look like most honest people. c. Are usually very young.
d. Are none of the above.
A
b)
17
Q
Which of the following is not one of the three elements of the fraud triangle?
a. Perceived pressure.
b. Perceived opportunity.
c. Rationalization.
d. Intelligence.
A
d)
18
Q
Which of the following is a common perceived pressure?
a. The ability to outsmart others.
b. Opportunity to cheat others.
c. A financial need.
d. The ability to “borrow” money by committing fraud.
A
c)
19
Q
If pressures and opportunities are high and personal integrity is low, the chance of fraud is:
a. High.
b. Medium.
c. Low.
d. Very low.
A
a)
20
Q
Which of the following is probably the least common type of fraud pressure?
a. Vices.
b. Work-related pressures.
c. Financial pressures.
d. Pressure to outsmart peers.
A
d)
21
Q
Fraud opportunity involves:
a. Opportunity to conceal fraud.
b. Opportunity to avoid being punished for fraud. c. Opportunity to commit fraud.
d. All of the above.
e. None of the above.
A
d)
22
Q
Which of the following is not one of the three elements of the control system of an organization?
a. The control environment.
b. The accounting system.
c. Management.
d. Control activities or procedures.
A
c)
23
Q
Which of the following non-control factors provides opportunities for fraud?
a. Inability to judge the quality of performance.
b. Lack of access to, or asymmetrical information.
c. Failure to discipline fraud perpetrators.
d. Lack of an audit trail.
e. All of the above provide opportunities for fraud.
A
c)
24
Q
Who generally has the highest risk of becoming a fraud victim?
a. Businessperson.
b. Older, less educated people.
c. College students.
d. None of the above.
A
b)
25
How frequently do most people rationalize?
a. Often.
b. Sometimes.
c. Rarely.
d. Never.
a)
26
11. Which of the following kinds of pressure is most often associated with fraud?
a. Work-related pressures.
b. Financial pressures.
c. Vice pressures.
d. None of the above.
b)
27
Which of the following is not a primary control activity?
a. Use of documents and records to create an audit trail.
b. Independent checks.
c. Decreasing work-related pressure.
d. Physical safeguards.
c)
28
It is the _____ and _____ of existing controls, not the _____ of controls, that allows most frauds to be perpetrated.
a. Existence, use, lack.
b. Lack, ignoring, existence.
c. Overriding, ignoring, lack.
d. Overriding, lack, use.
c)
29
On what element of the fraud triangle do most fraud-fighters usually focus all or most of their fraud preventive efforts?
a. Perceived pressure.
b. Perceived opportunity.
c. Power structure.
d. Rationalization.
b)
30
Which of the following is not an internal control activity (procedure)?
a. System of authorizations.
b. Appropriate hiring procedures.
c. Independent checks.
d. Documents and records.
e. All of the above are internal control activities.
b)
31
Which of the following is not a common vice that motivates people to commit fraud?
a. Gambling.
b. Drugs.
c. Expensive extramarital relationships.
d. Alcohol.
e. All of the above are vices that motivate people to commit fraud.
e)
32
Which of the following is not a way that management can establish a good internal control environment?
a. Having a clear organizational structure.
b. Proper training.
c. Communicating openly.
d. Appropriate hiring procedures.
e. All of the above are ways that management can establish a good internal control environment.
e)
33
Which of the following is not an element of most frauds?
a. Taking the assets.
b. Concealment.
c. Breaking and entering.
d. Conversion.
c
34
Which of the following is an example of legitimate power?
a. The offer of valuable stock options.
b. A decision to participate in fraud based upon fear.
c. Your boss tells you to do something.
d. You do something because your colleague is more knowledgeable than you are in that particular subject matter.
c)
35
Which of the following is an example of referent power?
a. Fear that you may lose your job.
b. Your friend asks you to do a special favour for him or her. c. The offer of a job promotion.
d. Your teacher asks you to do an assignment.
b)
36
Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?
a. Dual custody
b. System of authorizations
c. Internal audit department
d. Documents and records
c) Dual custody is segregation of duties
37
Which of the following is NOT a common rationalization of fraud perpetrators?
a. The organization owes me.
b. I'm only borrowing the money.
c. No one will get hurt.
d. No one will care.
d)
38
Which of the following is NOT an example of a control weakness or violation?
a. The HR department failed to check an applicant's background and hired someone who had committed fraud in
the past.
b. A manager instructs employees not to share passwords, and then shares her passwords with her immediate
assistant.
c. A company has established codes of conduct and conducts training meetings to teach employees to distinguish
between acceptable and unacceptable behavior. Attendance is voluntary.
d. The employees know who has responsibility for each business activity. Procedures to follow are in place.
d)
39
A fraud perpetrator used the float time between banks to give the impression that he had money in his accounts.
Which crime is he committing?
a. Floating
b. Strip
c. Spinning
d. Kiting
d)
40
Which of the following observations is true?
a. Research shows that only people with a criminal mindset commit fraud.
b. Fraud perpetrators usually can be distinguished from others based on psychological characteristics.
c. Most fraud perpetrators have profiles that are similar to those of other people.
d. When fraud does occur, the most common initial reaction by those involved in the fraud is confession.
c)
41
When management fraud occurs, companies usually:
a. overstate assets and net income.
b. understate assets and net income.
c. overstate assets and understate net income.
d. understate assets and overstate net income.
a)
42
Which of the following is NOT one of the key elements common to all frauds?
a. Perceived pressure
b. Perceived inequality
c. Perceived opportunity
d. Rationalization
b)
43
What is the most important element in a control environment?
a. Management's communication
b. Management's role and example
c. The hiring process
d. The internal audit department
b)
44
Greed, living beyond one's means, and high bills all describe what type of fraud-related pressure?
a. Financial
b. Peer
c. Environmental
d. Work-related
a)
45
An effective accounting system is designed to provide which of the following to help discover fraud?
a. An audit trail
b. Matching of expenses to revenues
c. Set of controls
d. Set of accounting procedures
a)
46
When fraud occurs, the most common reaction to those affected by the fraud is:
a. anger.
b. acceptance.
c. denial.
d. retribution
c)
47
Which of the following is NOT an element of a good control environment?
a. Trust
b. Modeling
c. Appropriate hiring
d. Management's communication
a)
48
Poor credit could become a ____ that could lead to fraud.
a. financial pressure
b. social pressure
c. family pressure
d. financial threat
a)
49
Modeling and labeling are subcomponents of which fraud-related element of an organization?
a. Control environment
b. Accounting system
c. Audit procedures
d. Review procedures
a)
50
. ___________ require(s) every public company to have a code of ethics to help deter wrongdoing.
a. The Glass Steagall legislation
b. The Sarbanes-Oxley legislation
c. The Securities Act
d. Generally Accepted Auditing Standard
b)
51
Which of the following is NOT a possible control activity?
a. Having separate authorization, bookkeeping, and custody functions.
b. Protecting access to important information with a password.
c. Requiring two individuals to work on the same task.
d. Supervisory review of each task completed by employees.
d)
52
An employee who has the responsibilities of both writing checks and making bank deposits would have ____ to
commit fraud.
a. financial pressure
b. a perceived opportunity
c. the rationalization
d. validation
b)
53
Most fraud perpetrators have profiles that look like:
a. those of other honest people.
b. those with criminal records.
c. those who are uneducated.
d. those who use alcohol and drugs
a)
54
According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed on:
a. Form 10-K.
b. Form 1120.
c. Form 8-K.
d. Form 10-Q
c)
55
What is the strongest factor in deterring future fraud activity?
a. Legal prosecution
b. Sanctions
c. Termination
d. Counseling
a)
56
Which of the following is NOT a true statement?
a. Almost every fraud involves rationalization.
b. All frauds involve financial or vice-related pressures.
c. Perceived opportunity diminishes when fraud perpetrators are prosecuted.
d. All of these statements are true.
b)
57
A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Statement of retained earnings
a)
58
Which of the following factors creates an opportunity for fraud?
a. Greed
b. Living beyond one's means
c. Lack of an audit trail
d. The organization owes it to me
c)
59
Which of the following is NOT a common financial pressure associated with fraud?
a. Living beyond one's means
b. High bills or personal debt
c. Personal financial losses
d. Desire to hurt employer financially
d)
60
Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?
a. Perceived opportunity
b. Perceived pressure
c. Rationalization
d. Authorization
a)
61
According to the study mentioned in the text, which of the following is true about fraud perpetrators compared to
property offenders?
a. Fraud perpetrators are more likely to be caught than property offenders.
b. Fraud perpetrators are more educated than property offenders.
c. Fraud perpetrators are more likely to be men than property offenders.
d. Fraud perpetrators are much younger than property offenders.
b)
62
Which of the following creates opportunities for fraud?
a. Requirement to change passwords on a regular basis
b. Inability to judge quality of performance
c. Controls that prevent or detect fraud
d. Segregation of duties
b)
63
Which of the following people is most likely to have opportunities to commit fraud?
a. Rob is a convicted bank robber who has been out of jail for 7 years and is working for a small firm whose
manager knows about Rob’s criminal background.
b. Jane is a recent high school graduate who loves shopping. She is on the lookout for a job.
c. Steve was just hired by his company, but he is always acting suspicious.
d. Sixty-two-year-old Dave has loyally worked up his company's corporate ladder for the past 24 years.
d)
64
According to the study mentioned in the text, people who commit fraud are most similar to which of the following
groups?
a. Property offenders
b. College students
c. Convicted felons
d. Animal lovers
b)
65
The theory behind _____ is that if people know their work or activities will be monitored by others, the opportunity to
commit and conceal a fraud will be reduced.
a. documentation
b. segregation of duties
c. system of authorizations
d. independent checks
d)
66
Which of the following is usually the most expensive of all control procedures?
a. Documents and records
b. Segregation of duties
c. System of authorizations
d. Independent checks
b)
67
Segregation of duties, as a control procedure, is most often used:
a. when the task involved is complex.
b. when it is impossible for one person to complete a task.
c. when appraisals are conducted.
d. when cash is involved.
d)
68
Documents and records are an important control activity. Which of the following statements concerning this activity is
true?
a. They serve as excellent preventive controls.
b. Adequate accountability can exist even in their absence.
c. The entire accounting system serves as a documentary control.
d. They are poor detective controls.
c)
69
Which of the following is an example of an authorization control procedure?
a. Password protection
b. Periodic job rotation
c. Cash counts or certifications
d. Supervisor review
a)
70
Who do criminologists compare fraudsters to in relation to repeat offenses and why?
a. Rapists. They repeat their crimes because they are not severely punished.
b. Shoplifters. They steal goods frequently and in small quantities until they are confronted.
c. Bank Robbers. They steal a lot of money from wealthy sources.
d. Bank Tellers. They have access to a large amount of resources and they are perceived to be trustworthy
people
a)
71
Studies show that in advanced countries, levels of honesty are:
a. generally stable.
b. increasing slightly and erratically.
c. increasing at a steady rate.
d. decreasing.
d)
72
Every fraud is comprised of all the following elements EXCEPT:
a. the theft act.
b. concealment.
c. conversion.
d. assault.
d)
73
According to Max Weber, ______ is the probability that a person can carry out his or her own will despite resistance.
a. power
b. persuasion
c. prejudice
d. potency
a)
74
____________ is the ability of the fraud perpetrator to make an individual perceive punishment if he or she does not
participate in the fraud.
a. Expert power
b. Coercive power
c. Legitimate power
d. Reward power
b)
75
A fraud perpetrator is able to convince a potential victim that he will receive a large bonus if he supports him in a
fraud scheme. Which type of power is the fraud perpetrator using?
a. Expert power
b. Coercive power
c. Legitimate power
d. Reward power
d)
76
Individuals often participate in fraud because they believe that by not participating in the fraud scheme, they may lose
their job. Which type of power is at play here?
a. Expert power
b. Legitimate power
c. Coercive power
d. Reward power
c)
77
Wilma participates in a fraud scheme by executing some derivative trades because she believed that a senior analyst
knew more about complex derivative transactions than she did. These transactions were fraudulent in nature. Which
type of power was employed to deceive Wilma?
a. Expert power
b. Referent power
c. Coercive power
d. Reward power
a)
78
_____ is the ability of the perpetrator to relate to the potential co-conspirator.
a. Expert power
b. Legitimate power
c. Referent power
d. Reward power
c)
79
Many individuals, when persuaded by a trusted friend to participate in fraud, will rationalize the actions as being
justifiable. Which type of power is being employed in such situations?
a. Referent power
b. Legitimate power
c. Coercive power
d. Reward power
a)
80
Which of the following is NOT a perceived pressure that can lead to employee fraud?
a. Experiencing high medical bills because of illness in the family
b. Frustration with work
c. Anticipated actual financial reports that are below published expectations
d. A challenge to beat the system
c)
81
Which of the following is true regarding the fraud triangle?
a. The three elements of the fraud triangle are interactive.
b. Rationalization for the fraud act is thought of after the fraud has been committed.
c. The perceived ability to conceal the fraud act concerns the rationalization side of the fraud triangle.
d. Work-related pressure to commit fraud is the strongest of the pressure triangle element.
a)
82
Some researchers have added a fourth element to the fraud triangle making it a fraud diamond. What is that element?
a. Propensity toward illegal acts
b. Lack of self-respect
c. Greed
d. Capability
d)
83
Which of the following is a true statement regarding the fraud scale depicted in the text?
a. The greater the perceived opportunity to commit fraud, the less rationalization it takes to commit fraud.
b. The more dishonest a person is, the higher the need to rationalize the fraud act.
c. When the financial pressure increases, even low perceived opportunity is sufficient to commit fraud.
d. As the “need” to gamble increases, rationalization to commit fraud becomes easier.
a)
84
Studies of honesty levels in advanced countries have led to which of the following expectations regarding fraud?
a. Rationalizations will become more sophisticated.
b. Pressures to commit fraud will increase.
c. Less perceived opportunity will have to be present for fraud to occur.
d. Honesty tests in the workplace will increase
c)
85
Which of the following is an example of a vice pressure?
a. An expensive extramarital relationship
b. An extravagant lifestyle
c. Needing to appear successful
d. Being offered a bribe
a)
86
Which of the following is NOT a work-related pressure?
a. Fear of losing one's job
b. Wanting to appear successful
c. Getting overlooked for a promotion
d. Insufficient/little recognition for work performance
b)
87
Which of the following about rationalization is NOT true?
a. Rationalization is a form of self-justification.
b. Rationalization is a way to lie to one's self.
c. People who rationalize feel they are basically honest people.
d. Rationalizing is unnecessary when there are multiple opportunities present to commit fraud.
d)
