Questions and Answers of Fraud Examination

Concealment is the covering of tracks, obscuring of evidence, and removal of red flags to hide a perpetrator’s fraud. (True/False)
Computer forensics is a rapidly expanding field with new software packages appearing all the time. Beyond the two largest players right now, search the Internet to find an open source or proprietary
In August 2001, it was discovered that the McDonald’s Monopoly game was a fraud. Simon Marketing, which ran the game on behalf of McDonald’s, was responsible for the fraud. During the
As a recent graduate with a bachelor's degree, you land a job with a local accounting firm. The firm hired you because of your expertise in computer forensics (a skill you gained during school). Up
Assume that someone in your company is taking money from the petty cash fund. Complete a vulnerability chart similar to the one in the chapter in order to coordinate the various aspects of the fraud.
A snapshot of active memory should be done:a. Before seizure of the computer.b. After seizure of the computer but before turning off the computer.c. After turning off the computer but before
When seizing computers, a calculation (also called a hash) that ensures you have an exact clone and have not changed data is called a(n):a. NIST number.b. ODBC connection.c. Internet packet
Who should be consulted before any form of surveillance takes place?a. Public investors and the company’s board of directors.b. State attorney general.c. Legal counsel and human resources.d. All
Which theft investigative method is most limited in value during employee fraud investigations because of concerns regarding employees’ privacy at work?a. Electronic surveillance.b. Invigilation.c.
Wiretapping, a form of electronic surveillance, can be used by:a. Internal auditors.b. Company controllers.c. CPAs.d. All of the above.e. None of the above.
Surveillance logs should include all of the following except:a. Time the observation began and ended.b. Cost of the surveillance equipment used.c. Movements and activities of the suspect.d. Distance
Fixed-point, or stationary, observations can be conducted by:a. Certified fraud examiners.b. Company personnel.c. Private investigators.d. Anyone.
A vulnerability chart:a. Forces investigators to explicitly consider all aspects of a fraud.b. Shows the history of fraud in a company.c. Identifies weaknesses in every aspect of a company’s
Which of the following is not included in a vulnerability chart?a. Explanations of the fraud triangle in relation to suspects of fraud.b. Breakdowns in key internal controls that may have created
Surveillance, when properly performed, is done:a. Without the perpetrator’s knowledge.b. During nonworking hours.c. Only by law enforcement agents.d. None of the above.
When deciding whether or not to investigate, which of the following factors should an organization not consider?a. Possible cost of the investigation.b. Perceived strength of the predication.c.
Which of the following is not a theft investigative method?a. Invigilation.b. Honesty testing.c. Seizing and searching computers.d. Surveillance and covert operations.
Invigilation:a. Is most commonly associated with crimes such as robbery, murder, and property offenses.b. Can create tremendous amounts of documentary evidence.c. Provides evidence to help determine
When beginning a fraud investigation, which of the following methods is most useful in identifying possible suspects?a. Preparing an identification chart.b. Preparing a vulnerability chart.c.
When conducting interviews during an investigation, which of the following words should usually be avoided?a. Audit.b. Inquiry.c. Investigation.d. Record examination.
When beginning an investigation, fraud examiners should use techniques that will:a. Not arouse suspicion.b. Identify the perpetrator.c. Determine the amount of the fraud.d. Identify when the fraud
Which of the following is not a category used in the fraud triangle plus inquiry paradigm?a. Theft investigative techniques.b. Concealment investigative techniques.c. Action investigative
The SHA-1 checksum method is more advanced and is considered more robust than the MD5 method. (True/False)
It is impossible to retrieve the data from a file that has been deleted on a computer. (True/False)
Seizing and searching computers is illegal because it infringes on the rights guaranteed by the Fourth Amendment to the Constitution. (True/False)
In determining which investigative method to use, it is most important that investigators focus on the costs of each possible method. (True/False)
To get an accurate reading, it is generally agreed that the invigilation period should be at least four days in length. (True/False)
Invigilation is a theft act investigative technique that involves close supervision of suspects during an examination period. (True/False)
Tailing includes the use of video, e-mail, wiretapping, and access to PCs. (True/False)
If possible, when using theft act investigation methods, interviewing the prime suspects should happen last. (True/False)
Investigation of fraud should only take place when predication has first been established. (True/False)
Not only are undercover operations both legal and valid, but they are also inexpensive. (True/False)
Surveillance logs should always be drafted before an investigation begins. (True/False)
During invigilation, no controls are imposed on any activities. (True/False)
Mobile observation is usually much more risky than stationary surveillance. (True/False)
Surveillance is a theft investigation technique that relies on the examination of documents. (True/False)
Electronic surveillance is often of limited value in the investigation of employee fraud because of concerns regarding employees’ privacy rights. (True/False)
One advantage of using a vulnerability chart is that it forces investigators to consider all aspects of a fraud. (True/False)
The fraud triangle plus inquiry paradigm is an effective way to understand the various types of investigative methods.(True/False)
Sampling is the bread and butter of a significant portion of audit work. As a team (or as a class), list several of the most common audit techniques as well as fraud investigation methods. For
The Soundex algorithm:a. Uses consonants but ignores vowels.b. Creates a numerical score representing how a word sounds.c. Is useful when fuzzy matching values.d. All of the above.
An advantage of using ODBC to import data into a data warehouse is that:a. ODBC doesn’t require the use of corporate database servers.b. ODBC compresses data when stored on a CD or DVD.c. ODBC
When trying to identify outliers, what is one of the best statistical approaches?a. A pie graph indicating the relative amounts.b. Stratification of cases by value.c. Time trending using the high-low
When conducting financial statement analysis, which ratio will be the most useful in determining whether a company has erroneously inflated accounts receivable?a. Current ratio.b. Profit margin.c.
If a search reveals that an employee and a vendor have the same telephone number, this result may indicate that:a. Vendors are overcharging for goods purchased.b. Employees may be establishing dummy
Benford’s Law is:a. The most expensive of all the digital analysis methods to implement and use.b. The most effective way to identify actual frauds.c. A method that uses vertical financial
Which of the following is an advantage of using data analysis software to detect fraud?a. It is a static approach, and results cannot be recombined in different ways.b. Data analysis software can
Horizontal analysis is different from vertical analysis in that:a. There is no difference between horizontal and vertical analysis.b. Horizontal analysis calculates the percentage change in balance
When vertical analysis is performed:a. Ratios are used to detect fraud.b. Changes in significant balance totals are examined.c. Financial statement balances are converted to percentages.d. Total
Profit margin, return on assets, and return on equity are all examples of:a. Vertical analysis.b. Key financial statement ratios.c. Horizontal analysis.d. None of the above.
The most effective way to convert balance sheets and income statements from position and period statements to change statements is to:a. Compare balances in the statements from one period to the
Fraud is best detected through financial statements by focusing on:a. Unexplained changes in financial statement balances.b. Consistencies.c. Intuition.d. Management’s behavior when financial
When deciding which detection method to use, it is important to:a. Determine the advantages and disadvantages of each approach.b. Identify the costs involved.c. Determine which method will meet the
A detection method that focuses on the kinds of frauds that can occur and then uses technology to determine whether those frauds actually exist is called:a. Fishing fraud detection.b. Data mining.c.
Benford’s Law:a. Is usually unsuccessful as a fraud detection tool.b. Predicts that the first digit of random number sets will begin with a 1 more often than a 2, a 2 more often than a 3, and so
The most obvious disadvantage of the data-driven approach is:a. Databases are very large and often cannot be analyzed using analysis packages like ACL, IDEA, or Picalo.b. High cost.c. The decrease in
Once a buyer starts accepting kickbacks from a supplier:a. Prices often increase.b. Purchases from other vendors often decrease.c. The supplier usually takes control of the purchasing relationship.d.
Data-driven fraud detection:a. Determines the cost of fraud.b. Identifies possible fraud suspects.c. Looks for anomalies in databases.d. All of the above.
When detecting fraud, it is important that fraud investigators:a. Remain objective and neutral.b. Assume guilt.c. Assume innocence.d. None of the above.
A single symptom (red flag) is almost always enough information to identify the type of fraud scheme occurring. (True/False)
The z-score calculation is the best way to stratify data. (True/False)
Vertical analysis is a useful detection technique because percentages are easily understood. (True/False)
Vertical analysis is a more direct method than horizontal analysis in focusing on changes in financial statements from one period to another. (True/False)
Balance sheets must be converted to change statements before they can be used in detecting fraud. (True/False)
Unexplained changes are common in financial statements. (True/False)
Data-driven fraud detection can pay large dividends and is an effective way to reduce the cost of fraud in any organization. (True/False)
Digital analysis using Benford’s Law can be performed on databases of any size. (True/False)
Understanding the kinds of frauds that can occur is not important when using a data-driven detection method. (True/False)
When using Benford’s Law, potential suspects are less likely to know you are trying to detect fraud than if you use more direct detection techniques. (True/False)
According to Benford’s Law, the first digit of natural sets of numbers will begin with a 9 more often than with an 8. (True/False)
Data-driven analysis uses the company’s database to search for normal relationships between numbers. (True/False)
ODBC is the best approach to import because it achieves a direct, rich connection to the source database. (True/False)
Unusual patterns always indicate the existence of fraud. (True/False)
Which element is not a common element of fraud?a. Concealment.b. Coercion.c. Conversion.d. Theft act.e. None of the above.
Which of the following is a common fraud symptom relating to ledgers?a. A ledger that does not balance.b. A ledger that balances too perfectly.c. Master account balances that do not equal the sum of
If a perpetrator has stolen assets, which of the following is the easiest method for concealing the theft?a. Reduce liabilities (such as payables).b. Manipulate dividend or stock accounts.c. Increase
A letter is most likely to be fraudulent if:a. It is signed by only one person.b. It is addressed to an individual, rather than a department.c. It is a photocopy of an original letter.d. It is
Fraud is usually detected by recognizing and pursuing:a. Synonyms.b. Symptoms.c. Equity.d. Legends.
Once in a while, someone commits fraud or another crime and does not feel stress. Such people are referred to as:a. Psychopathic.b. Altruistic.c. Philanthropic.d. Magnanimous.
Which of the following is not a common internal control fraud symptom or problem?a. Lack of segregation of duties.b. Unexplained adjustments to receivables, payables, revenues, or expenses.c. Lack of
Which of the following is not a fraud symptom related to journal entries?a. Unexplained adjustments to receivables, payables, revenues, or expenses.b. Journal entries that do not balance.c. Journal
Embezzlement of assets reduces the left side of the accounting equation. To conceal the theft, the embezzler must find a way to reduce the right side of the accounting equation. A perpetrator would
Which of the following is not one of the categories of employee fraud symptoms?a. Accounting anomalies.b. Analytical anomalies.c. Tips and complaints.d. Firm structure.
Which of the following is not a reason people are hesitant to come forward with knowledge or suspicions of fraud?a. They often think that squealing on someone is wrong.b. They fear reprisal for being
Most people who commit fraud:a. Use the embezzled funds to build a savings account..b. Give the embezzled funds to charity.c. Experience no change in their lifestyle.d. Use the embezzled funds to
When a person commits a crime:a. He or she usually becomes engulfed by emotions of fear and guilt.b. He or she will experience no changes in behavior.c. He or she usually becomes friendly and nice.d.
In the three elements of fraud (theft act, concealment, conversion), who is usually in the best position to detect the fraud?a. Coworkers and managers.b. Customers.c. Owners.d. Vendors.
Which of the following is a fraud symptom related to an internal control weakness?a. Lack of proper authorization.b. Lack of independent checks.c. Inadequate accounting system.d. Lack of physical
Which of the following is not a fraud symptom related to source documents?a. Duplicate payments.b. Missing documents.c. A tip from an employee.d. Photocopied documents.
Which of the following is true regarding fraud?a. It is easily identified.b. It is seldom observed.c. When a fraud occurs, there is no question whether or not a crime has been committed.d. Many
Nearly all individuals and organizations are subject to pressures and can rationalize. (True/False)
Fraud perpetrators often live beyond their means since their income does not support their lifestyle. (True/False)
Coworkers are usually in the best position to detect fraud. (True/False)
New whistle-blowing laws have helped make tips and complaints more effective. (True/False)
Employee transfers, audits, and mandatory vacations are all ways to provide independent checks on employees. (True/False)
Fraud perpetrators who manipulate accounting records to conceal embezzlements often attempt to balance the accounting equation by recording expenses. (True/False)
Studies have found that the most common internal control problem when frauds occur is having a lack of proper authorizations. (True/False)
Most people who commit fraud are under financial pressure. (True/False)
Because of the nature of fraud, auditors are often in the best position to detect its occurrence. (True/False)
Fraud is a crime that is seldom observed. (True/False)

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