Topic 3 Fraud Fighting

Question 1

The most effective way to reduce losses from fraud is:
a. Detecting fraud early.
b. Implementing proactive fraud detection programs.
c. Preventing fraud from occurring.
d. Severely punishing fraud perpetrators.

Answer 1

c)

Question 2

To successfully prevent fraud, an organization must:
a. Identify and remedy internal control weaknesses.
b. Explicitly consider fraud risks.
c. Take proactive steps to create the right kind of environment.
d. All of the above.

Answer 2

d)

Question 3

The best way for management to model appropriate behavior is to:
a. Enforce a strict code of ethics.
b. Set an example of appropriate behavior.
c. Train employees about appropriate behavior. d. Make employees read and sign a code of conduct.

Answer 3

b)

Question 4

Which of the following is not a proactive way for a company to eliminate fraud opportunities?
a. Severely punishing fraud perpetrators.
b. Assessing risks.
c. Implementing appropriate preventive and detective controls.
d. Creating widespread monitoring of employees.

Answer 4

a)

Question 5

Most frauds start small and:
a. If not detected, continue to get larger.
b. Usually decrease in amount.
c. Remain steady and consistent.
d. None of the above.

Answer 5

a)

Question 6

Because of the ability to override internal controls, it is usually most difficult to prevent which type of fraud?
a. Investment scams.
b. Fraud committed by a company president.
c. Employee fraud.
d. Customer fraud.

Answer 6

b)

Question 7

Which of the following refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe fraud has occurred, is occurring, or will occur?
a. Evidential circumstance.
b. Investigation.
c. Invigilation.
d. Predication.

Answer 7

d)

Question 8

A method of classifying investigative approaches into testimonial evidence, documentary evidence, physical evidence, and personal observations is referred to as the:
a. Investigative square of evidence.
b. Investigation square.
c. Evidence square.
d. Fraud triangle plus.

Answer 8

c)

Question 9

Usually, for everyone involved—especially victims—the investigation of fraud is very:
a. Pleasant and relaxing.
b. Educational.
c. Exciting.
d. Traumatic and difficult.

Answer 9

d)

Question 10

To prevent fraud from recurring, most organizations and other fraud victims should:
a. Take no legal action.
b. Pursue only civil remedies.
c. Pursue only criminal remedies.
d. Pursue either civil or criminal action, depending on the circumstances, or both.

Answer 10

d)

Question 11

All of the following are ways to create a culture of honesty and high ethics except:
a. Creating a positive work environment.
b. Hiring the right kind of employees.
c. Having top management model appropriate behavior.
d. Eliminating opportunities for fraud.

Answer 11

d)

Question 12

The tone at the top when related to fraud usually refers to management’s attitude about:
a. How management labels appropriate behavior.
b. Management’s attitude about fraud prosecution.
c. Management’s attitude about employee absenteeism.
d. How management models appropriate behavior.

Answer 12

d)

Question 13

Research shows that fraud occurs less frequently when employees feel:
a. Abused by management.
b. Threatened.
c. Challenged with unreasonable performance goals.
d. Ownership in the organization.

Answer 13

d)

Question 14

Opportunities to commit fraud can be eliminated by identifying sources of fraud, by implementing controls, and through independent checks. One other effective way of eliminating opportunities is:
a. Teaching employees to monitor and report fraud.
b. Terminating and punishing employees who commit fraud.
c. Failing to terminate or punish employees who commit fraud.
d. Identifying indicators of fraud or red flags.

Answer 14

a)

Question 15

Drawbacks to establishing a hotline for employees to report fraud include all of the following except:
a. The expense of having a hotline.
b. Many incidents reported are hoaxes motivated by grudges and other non-fraud reasons.
c. Some symptoms reported are caused by non-fraud factors.
d. This method for finding fraud is outdated.

Answer 15

d)

Question 16

“Predication of fraud” is defined as:
a. Reasonable belief that fraud has occurred or is occurring.
b. Irrefutable evidence that fraud has been committed.
c. Motivation for committing fraud.
d. Punishment of fraud perpetrators.

Answer 16

a)

Question 17

Which of the four types of evidence includes interrogation and honesty testing?
a. Testimonial.
b. Documentary.
c. Physical.
d. Personal observation.

Answer 17

a)

Question 18

The three elements present in most cases of fraud are:
a. Theft act, rationalization, and opportunity.
b. Pressure, opportunity, and conversion.
c. Theft act, concealment, and conversion.
d. Theft act, pressure, and opportunity.

Answer 18

c)

Question 19

Most often, victims of fraud do not take legal action against perpetrators. This is because legal action can be:
a. Unproductive.
b. Embarrassing.
c. Expensive.
d. All of the above.

Answer 19

d)

Question 20

The best argument for taking legal action against fraud perpetrators is:
a. Huge cash settlements from prosecuting fraud are an excellent source of revenue.
b. Legal action usually results in positive publicity for the company.
c. Prosecution of perpetrators is a way to keep lawyers busy.
d. Prosecution of perpetrators discourages future occurrences of fraud.

Answer 20

d)

Question 21

Factors that are usually associated with high levels of employee fraud include all of the following except:
a. Negative feedback and lack of recognition of job performance.
b. Perceived inequalities in an organization.
c. Long and difficult hours shared equally by everyone in the organization.
d. High turnover and absenteeism.

Answer 21

c)

Question 22

Which of the following is true regarding the Sarbanes-Oxley Act of 2002:
a. Companies with revenues exceeding $10 million must have a whistle-blower system in place.
b. Public companies must have a whistle-blower system in place.
c. Public companies with revenues exceeding $10 million must have a whistle-blower system in place.
d. All companies must have a whistle-blower system in place.

Answer 22

b)

Question 23

People will often be dishonest if they are placed in an environment of:
a. Poor controls.
b. High pressure.
c. Low integrity.
d. Loose accountability.
e. All of the above.

Answer 23

e)

Question 24

Which of the following factors contribute to creating a corporate culture of honesty and openness?
a. Hiring honest people.
b. Performing criminal background checks.
c. Not having an open-door policy.
d. Having a well-understood and respected code of ethics.
e. Both a and d.
f. All of the above.

Answer 24

e)

Question 25

Which of the following personnel and operating policies contribute to high-fraud environments?
a. Management by crisis.
b. Rigid rules.
c. High employee lifestyle expectations.
d. Poor promotion opportunities.
e. All of the above.

Answer 25

e)

Question 26

The single most effective tool in preventing and detecting fraud is usually:
a. Monitoring employees.
b. Having a good system of internal controls.
c. Having a well-written company code of ethics.
d. Following strict hiring procedures.

Answer 26

b)

Question 27

A company’s control environment includes:
a. The tone that management establishes toward what is honest and acceptable behavior.
b. Corporate hiring practices.
c. Having an internal audit department.
d. All of the above.

Answer 27

d)

Question 28

Which of the following factors generally results in a high-fraud environment?
a. Hiring honest people.
b. Providing an EAP.
c. Autocratic management.
d. Both a and b.

Answer 28

c)

Question 29

Which of the following aspects of fraud usually results in the largest savings?
a. Fraud prevention.
b. Fraud detection.
c. Fraud investigation.
d. It is impossible to tell.

Answer 29

a)

Question 30

Which of the following is usually the most effective tool in preventing and detecting fraud?
a. Discouraging collusion between employees and customers or vendors.
b. Effective investigations of fraud symptoms.
c. Having a good system of internal controls.
d. Creating an expectation of punishment in the company.

Answer 30

c)

Question 31

Which of the following is the typical fraud model that describes most firms?
a. Fraud incident, assessing risk, investigation, reporting.
b. Fraud incident, investigation, action, resolution.
c. Assessing risk, fraud incident, investigation, resolution.
d. Assessing risk, investigation, implementing a fraud program, reporting.

Answer 31

b)

Question 32

The “tone at the top” is an important element in fighting fraud, which involves:
a. Doing a good job of integrity risk assessment.
b. Having a positive organization where effective fraud teaching and training is conducted.
c. Setting a proper example or modeling appropriate management behavior.
d. Both b and c.

Answer 32

c)

Question 33

Which of the following is not a recognized method of eliminating fraud opportunities?
a. Having good internal controls.
b. Monitoring employees.
c. Creating an expectation of punishment.
d. Engendering employee goodwill by having lax rules.

Answer 33

d)

Question 34

Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?
a. Lack of anonymity.
b. Pressure to comply.
c. Culture.
d. Lack of awareness.

Answer 34

b)

Question 35

Alerting vendors and contractors to company policies often results in:
a. Loss of interest in the organization by vendors.
b. Discovery of current frauds and the prevention of future frauds.
c. Strained vendor/purchaser relationships.
d. Heightened incidence of recurrent reverse vendor fraud.

Answer 35

b)

Question 36

Which of the following is NOT a method that an organization can adopt to proactively eliminate fraud opportunities?
a. Accurately identify sources and measure risks.
b. Implement appropriate preventative and detective controls.
c. Create widespread monitoring by employees.
d. Eliminate protections for whistle-blowers.

Answer 36

d)

Question 37

Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud
investigation?
a. Testimonial
b. Forensic
c. Documentary
d. Observational

Answer 37

c)

Question 38

Which of the following is NOT a part of the evidence square?
a. Management evidence
b. Documentary evidence
c. Testimonial evidence
d. Physical evidence

Answer 38

a)

Question 39

All of the following factors can be associated with high levels of fraud and detract from a positive work environment
EXCEPT:
a. top management that does not pay attention to behavior of employees.
b. lack of recognition of job performance.
c. unrealistically low pay.
d. low turnover

Answer 39

d)

Question 40

Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?
a. Hiring the right kind of employees
b. Security cameras
c. Peer evaluations
d. Ergonomics

Answer 40

a)

Question 41

Which of the following is a component of the evidence square?
a. Rationalization
b. Perceived pressure
c. Personal observation
d. Perceived opportunity

Answer 41

c)

Question 42

Civil suits are usually quite rare in cases of employee fraud because:
a. there is usually not enough evidence to prosecute.
b. employee fraud is a victimless crime.
c. it is difficult for a jury to unanimously decide on a conviction.
d. perpetrators have usually spent the money.

Answer 42

d)

Question 43

Which of the following key activities related to fraud is the most important and cost-effective way to reduce losses
from fraud?
a. Follow-up legal action
b. Early fraud detection
c. Fraud investigation
d. Fraud prevention

Answer 43

d)

Question 44

Which of the following is one of the three basic elements of the fraud motivation triangle?
a. Concealment
b. Theft act
c. Opportunity
d. Conversion

Answer 44

c)

Question 45

Communicating expectations about honesty and integrity throughout a company includes all of the following elements
EXCEPT:
a. identifying appropriate values and ethics.
b. fraud awareness training.
c. consistent punishment for violators.
d. insisting that top management model appropriate behavior.

Answer 45

d)

Question 46

In an organization, individuals who suspect fraud usually don’t come forward because they:
a. feel that the perpetrator will get caught anyway.
b. do not want to accuse someone.
c. fear being branded as a whistle-blower.
d. will lose the friendship of the perpetrator.

Answer 46

c)

Question 47

Studies show that legal action against fraudsters is typically taken:
a. less than 25 percent of the time.
b. less than 50 percent of the time.
c. more than 75 percent of the time.
d. at least 50 percent of the time.

Answer 47

b)

Question 48

Which of the following is NOT one of the ways in which a fraud investigation must be conducted?
a. Investigators should be experienced and objective professionals.
b. Investigators should closely guard all hypotheses regarding guilt or innocence of individuals being investigated.
c. Investigators should keep all managers apprised of investigation activities.
d. Investigators must be sure to follow appropriate investigative techniques.

Answer 48

c)

Question 49

Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee’s computer to use as
evidence in the case. Under which category of evidence would an email message fall?
a. Testimonial evidence
b. Documentary evidence
c. Physical evidence
d. Personal observation

Answer 49

b)

Question 50

When perceived pressures and/or opportunities are low, a person needs more ________ to commit fraud.
a. support from people at workplace
b. rationalization
c. courage
d. motivation

Answer 50

b)

Question 51

Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical
decisions, and there are four levels in it. Which of the following is NOT one of them?
a. Personal ethical understanding
b. Memorization of the corporate code of ethics
c. Ethical courage
d. Ethical leadership

Answer 51

b)

Question 52

Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical
decisions. Which of the following represents the foundation of ethics according to this model?
a. Personal ethical understanding
b. Ethical courage
c. Ethical leadership
d. Application of ethics to business situations

Answer 52

a)

Question 53

A person may have very strong ethics in the way he or she treats family and friends, but not understand how failure to
submit tax withholdings to the government affects peoples’ lives or constitutes unethical or fraudulent behavior. This is
an ethical issue encountered in which level of the ethical maturity model?
a. Personal ethical understanding
b. Ethical courage
c. Ethical leadership
d. Application of ethics to business situations

Answer 53

d)

Question 54

Which level in the ethical maturity model can be summarized as a “willingness to pay the price for ethics”?
a. Ethical positioning
b. Ethical courage
c. Personal ethical understanding
d. Application of ethics to business situations

Answer 54

b)

Question 55

Which is the highest level in the ethical maturity model?
a. Ethical leadership
b. Ethical courage
c. Personal ethical understanding
d. Application of ethics to business situations

Answer 55

a)

Question 56

Which of the following is true of the “swing group” of employees in organizations?
a. Individuals in this group have situational ethics.
b. Individuals in this group are dishonest most of the time.
c. Individuals in this group do not know how to translate their ethical values to the business world.
d. Individuals in this group lack ethical courage.

Answer 56

a)

Question 57

Which of the following statements is accurate?
a. External auditors are usually specifically trained to detect fraud.
b. Audits of books and records rarely discover frauds.
c. Less than 5 percent of all frauds are detected by auditors.
d. The presence of auditors provides a major deterrent effect.

Answer 57

d)

Question 58

In recent years, organizations have implemented a number of initiatives to more proactively detect fraud. The first and
most common proactive fraud detection approach has been to:
a. install reporting hotlines.
b. conduct undercover operations.
c. install surveillance cameras.
d. collect physical evidence.

Answer 58

a)

Question 59

Which of the following is a prerequisite for a fraud investigation?
a. Predication
b. A specific allegation of fraud against another party
c. Consistent bottom-line improvement
d. Rationalization

Answer 59

a)

Question 60

Although there are multiple approaches to fraud investigation, most investigators tend to rely heavily on:
a. invigilation.
b. surveillance.
c. interviews.
d. confrontation.

Answer 60

c)

Question 61

Which type of evidence is gathered from individuals using investigative techniques such as interviewing, interrogation,
and honesty tests?
a. Documentary evidence
b. Testimonial evidence
c. Physical evidence
d. Personal observation

Answer 61

b)

Question 62

What is the overall term for the investigative technique that includes gathering evidence through data mining, audits,
computer searches, net worth calculations, and financial statement analysis?
a. Documentary evidence
b. Testimonial evidence
c. Physical evidence
d. Personal observation

Answer 62

a)

Question 63

The gathering of this type of evidence in a fraud investigation often involves forensic analysis by experts.
a. Documentary evidence
b. Testimonial evidence
c. Physical evidence
d. Personal observation

Answer 63

c)

Question 64

. _______ refers to the circumstances, taken as a whole, that would lead a reasonable, prudent professional to believe
a fraud has occurred, is occurring, or will incur.
a. Audit process
b. Surveillance
c. Predication
d. Investigation

Answer 64

c

Question 65

Which of the following was NOT discussed as a way to create a culture of honesty and integrity?
a. Offer rewards for honest behavior
b. Communicate expectations throughout the organization
c. Hire the right kinds of employees
d. Create a positive work environment

Answer 65

a)