Deck 6: Data-Driven Fraud Detection

Question 1

According to Benford's Law, the first digit of random data sets will most often begin with which number?

A) 7
B) 1
C) 3
D) 4

Answer 1

B

Question 2

What is the primary drawback of the data-driven approach?

A) It is more expensive and time intensive than the traditional approach.
B) It requires tips and other indicators to become glaring before the approach can be used.
C) It cannot highlight frauds while they are still small.
D) The investigator loses control of the fraud investigation process.

Answer 2

A

Question 3

has been adopted by most major accounting firms and is a powerful platform for data analysis.

A) ACL Audit Analytics
B) CaseWare's IDEA
C) Microsoft Office + Active Data
D) SAS

Answer 3

B

Question 4

For enhanced data analysis, which of the following is a good option for users who want a familiar interface and a less expensive alternative to ACL and IDEA?

A) ActiveData
B) Pearl
C) DataSource
D) Excel

Question 5

Which of the following statements is NOT true?

A) Accounting errors are usually spread evenly throughout a data set.
B) Traditional auditing methods are more suited to finding errors than fraud.
C) Accounting anomalies indicate fraud has occurred or is occurring.
D) Fraud investigation involves determining who committed the fraud, the schemes used, and how much money or assets were taken.

Question 6

Which of the following proactive fraud detection methods use Benford's Law to detect fraud?

A) Vertical analysis
B) Digital analysis
C) Real-time analysis
D) Time trend analysis

Question 7

One of the disadvantages of Benford's Law in detecting fraud is:

A) potential suspects are more likely to know you are trying to detect fraud than if you didn't use such detection techniques.
B) users must be thoroughly trained in its complexities to implement and use.
C) that those cases with the lowest probabilities do not match Benford's Law and may need further investigation.
D) it only broadly identifies the possible existence of fraud; it fails to narrow possibilities to a manageable field of promising leads.

Question 8

Which of the following is an extension of stratification?

A) Matosas matrix
B) A pivot table
C) Summarization
D) Soundex

Question 9

While using n-grams, a match percentage of or generally indicates very similar values.

A) 10 percent, smaller
B) 20 percent, greater
C) 5 percent, smaller
D) 40 percent, greater

Question 10

Digital analysis is:

A) the art of analyzing the digits that make up number sets like invoice amounts, reported hours, and costs.
B) a technique which calculates the average probability for each grouping of data.
C) the searching for expected relationships between numbers.
D) the use of numeric values for decision making.

Question 11

A red flag search to detect kickbacks would include:

A) invoices without valid purchase order.
B) employee and vendor telephone numbers are the same.
C) purchase orders with zero dollar amounts by buyer.
D) price increases greater than 20% for several consecutive years.

Question 12

From the select balance sheet items below, calculate the quick ratio.

A) 0.83
B) 1.25
C) 1.63
D) 1.08

Question 13

The red flag that is generally identified when employee and vendor telephone numbers are the same is:

A) dummy vendors.
B) employees purchasing goods for personal use.
C) billing more than once for the same purchase.
D) providing poor-quality goods.

Question 14

Which of the following is similar to ACL and is ACL's primary competitor?

A) Picalo
B) IDEA
C) Microsoft Office + ActiveData
D) Z-score

Question 15

Which of the following is true of most accounting errors?

A) They are primarily caused by lack of training.
B) They represent intentional sabotage of controls.
C) They are problems caused by failures in systems, procedures, and policies.
D) They represent fraud.

Question 16

The proactive method of fraud detection is a six-step process. Which of the following is the correct process sequence?

A) Identify possible frauds that could exist; catalog possible fraud symptoms; understand the business; use technology to gather data about symptoms; automotive detection procedures; analyze results; and investigate symptoms
B) Catalog possible fraud symptoms; understand the business; identify possible frauds that could exist; analyze results; use technology to gather data about symptoms; and investigate symptoms
C) Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; investigate symptoms; use technology to gather data about symptoms; and analyze results
D) Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; use technology to gather data about symptoms; analyze results; and investigate symptoms

Question 17

Which of the following is the most direct method of focusing on changes in the company's balance sheet and income statement?

A) Calculating key ratios and comparing them from period to period
B) Comparing account balances in the statements from one period to the next
C) Performing a vertical analysis
D) Performing a horizontal analysis

Question 18

A is a financial statement that reflects account balances at a specific point in time like a snapshot.

A) periodic statement
B) position statement
C) change statement
D) static statement

Question 19

Which of the following is an analytical symptom of kickbacks?

A) Decreasing purchases from other vendors
B) Charging normal price for goods supplied
C) Providing better-quality goods
D) Smaller purchase quantities and more frequent orders

Question 20

Kickbacks from vendors to buyers might generate which one of the following symptoms?

A) Buyer not relating well to other buyers and vendors
B) Decreasing purchases from favored vendor
C) Increasing purchases from other vendors
D) Decreasing prices and increasing quality

Question 21

Which of the following ratios can be used to assess a company's solvency?

A) Current ratio
B) Return on assets
C) Times-interest-earned ratio
D) Inventory turnover

Question 22

Benford's Law can help detect fraud by:

A) establishing weaknesses in the accounting control system.
B) identifying accounting anomalies.
C) focusing on unexplained changes.
D) identifying possible attempts by fraudsters to make stolen amounts look random.

Question 23

One way to view the results of multiple indicators is to use a chart called a:

A) Soundex algorithm.
B) summarization chart.
C) Pareto chart.
D) Matosas matrix.

Question 24

Which of the following statements is true about ODBC?

A) It allows use of the powerful SQL language for searching and filtering data.
B) It is generally slower and less robust than text files.
C) IT departments are very comfortable in giving out ODBC connections.
D) It is an application-level setting rather than a system-wide setting.

Question 25

A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is:

A) inductive fraud detection.
B) deductive fraud detection.
C) Benford's Law.
D) horizontal analysis.

Question 26

Identify the formula used to calculate z-score.

A) (Mean − Value)/Standard Deviation
B) (Mean − Value)/(Mean + Value)
C) (Value − Mean)/Standard Deviation
D) (Value − Mean)/Median

Question 27

Which of the following is least effective while searching for anomalies?

A) Comparing account balances in the statements from one period to the next.
B) Calculating key ratios and comparing them from one period to the next.
C) Performing horizontal analysis.
D) Performing vertical analysis.

Question 28

While methods like high-low slope, average slope, handshaking, and Box-Jenkins exist, one of the most popular techniques for summarizing the slope of a graph is:

A) summarization.
B) stratification.
C) statistical regression.
D) arithmetic progression.

Question 29

Horizontal analysis is performed when:

A) total assets are set at 100% and all other balances are shown as a percentage of total assets.
B) financial statement data are shown for two periods with the amount and percentage of change for each line item.
C) there is a need to calculate and compare key ratios from period to period.
D) income statement amounts are shown as a percentage of total sales.

Question 30

Which statistical approach is one of the most powerful and yet simple methods for identifying outliers?

A) N-grams
B) Z-score
C) Time-trend analysis
D) Soundex algorithm

Question 31

Benford's Law:

A) applies to numbers that have built-in limits.
B) is most effectively used with assigned numbers.
C) applies best to numbers that occur naturally.
D) uses ratios to detect fraud.

Question 32

Identify the true statement about detecting fraud using financial statement reports.

A) Performing horizontal analysis requires converting the income statement balances into percentages of gross sales.
B) Vertical analysis is the most direct method of focusing on changes from period to period.
C) Before performing any data-driven analysis that targets fraud and corruption in financial statements, the numbers in all three types of financial statements need to be converted to percentages.
D) Small frauds may not affect the summarized financial statements significantly enough to be detected.

Question 33

What is the primary advantage of the data-driven approach?

A) The investigator makes hypotheses and tests to see if each one holds true.
B) It is less expensive and time intensive than the traditional approach.
C) The investigator takes charge of the fraud investigation process.
D) Data-driven fraud detection is proactive in nature.

Question 34

Which of the following statements is true about the characteristics of real-time analysis?

A) With real-time analysis in place, there is no need for continual improvement and updating of indicators.
B) It is a distinct technique because it specifically analyzes each transaction for correctness rather than for fraud.
C) Effective real-time analysis allows real-time modification and deletion of less-effective indicators.
D) The most effective real-time analysis uses indicators that are hard-coded into the system.

Question 35

Which approach converts financial statement numbers to percentages of total assets or total sales?

A) Horizontal analysis
B) Vertical analysis
C) Ratio analysis
D) Variance analysis

Question 36

While using financial statement analysis, which ratio will be most useful in assessing the company's operational efficiency?

A) Current ratio
B) Quick ratio
C) Cost of goods sold percentage
D) Inventory turnover

Question 37

is the splitting of complex data sets into case-specific tables.

A) Deviation
B) Stratification
C) Data mining
D) Soundex

Question 38

are a two-dimensional view with cases in one dimension and the calculations in the other.

A) N-grams
B) Z-scores
C) Pivot tables
D) Soundex algorithms

Question 39

According to Benford's Law, 5 will be the first digit of a random number set:

A) more often than 1.
B) less often than 4.
C) about the same as 6.
D) more often than 3.

Question 40

Most software packages have functions for generating about columns of data, which include statistical summaries like control totals, mean, maximum, minimum, standard deviation, number of zero values, number of empty records, and so on.

A) captions
B) histograms
C) headings
D) descriptives

Question 41

Which of the following records data for each case in a graph and analyzes the slope?

A) summarization analysis
B) time trend analysis
C) fuzzy matching method
D) cross tables method

Question 42

Which of the following financial statements can be used to answer the question, "Where did the cash come from to pay dividends?"

A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Trial balance

Question 43

One of the most common errors investigators make when analyzing time trends is:

A) incorrect data preparation.
B) focusing only on one variable, time (the x-axis if graphed).
C) not monitoring the time taken.
D) not standardizing for time.

Question 44

Which of the following statements regarding ODBC is NOT accurate?

A) ODBC stands for Open Database Communications.
B) ODBC is a standard method of querying data from corporate relational databases.
C) ODBC is a connector between the front-end analysis and the back-end corporate database.
D) ODBC is already included with most operating systems.

Question 45

In a Matosas matrix, there is a for each indicator, and there may be as many as .

A) row; 50 rows
B) column; 10 columns
C) column; 100 columns
D) row; 1,000 rows

Question 46

Which of the following is true?

A) Stratification is the splitting of data into case-specific tables.
B) Stratification is an extension of summarization.
C) Summarization provides detail for each grouping into tables.
D) Stratification is utilized to create a z-score across data sets.

Question 47

Which of the following is a true statement regarding the United States Social Security Administration (SSA)?

A) The SSA publishes a monthly list of newly issued Social Security numbers.
B) The SSA publishes a monthly list of Social Security numbers that are no longer in use.
C) The SSA database of valid numbers can be accessed by interested parties.
D) The SSA database can be used to create mailing lists.

Question 48

Specific implementations of delimited text are called TSV. What does TSV stand for?

A) toxicity screening value
B) time segmented volume
C) tab separated values
D) tactical secure voice

Question 49

Which of the following may result from a careful review of a Matosas matrix?

A) This action identifies indicators that have been circumvented.
B) This action identifies indicator information that has been incorrectly input.
C) This helps investigators improve the set of indicators utilized.
D) This helps investigators identify fraud perpetrators.

Question 50

Which of the following is the most important step in data analysis?

A) Gathering the right data in the right format in the right time period
B) Understanding the available data
C) Learning the basics of table structure and field types
D) Learning the basics of key relationships and query syntax