Deck 4: Preventing Fraud

Question 1

Control activities can be grouped as preventive controls and detective controls. Which of the following is a detective control?

A) System of authorizations
B) Segregation of duties
C) Independent checks
D) Physical safeguards

Answer 1

C

Question 2

What is the last stage in the current (default) model that most organizations typically use for dealing with fraud?

A) Fraud incident
B) Resolution
C) Investigation
D) Action

Answer 2

B

Question 3

focuses more on creating a culture of openness than eliminating opportunities.

A) Proactive auditing
B) Installing good internal controls
C) Monitoring employees
D) Creating a positive work environment

Answer 3

D

Question 4

A good fraud auditing involves four steps. Which of the following is the correct sequence?

A) Identifying fraud risk exposures; building audit programs to proactively look for symptoms and exposures; investigating fraud symptoms identified; and identifying the fraud symptoms of each exposure.
B) Identifying fraud risk exposures; identifying the fraud symptoms of each exposure; building audit programs to proactively look for symptoms and exposures; and investigating fraud symptoms identified.
C) Building audit programs that proactively check for symptoms and exposures; identifying fraud risk exposures; identifying the fraud symptoms of each exposure; and investigating fraud symptoms identified.
D) Identifying the fraud symptoms of each exposure; identifying fraud risk exposures; investigating fraud symptoms identified; and building audit programs to proactively look for symptoms and exposures.

Question 5

One of the most important responsibilities of an employer is the hiring and retention of employees. Which of the following situations reflects the current market scenario?

A) High turnover, high loyalty
B) High turnover, low loyalty
C) Low turnover, high loyalty
D) Low turnover, low loyalty

Question 6

An operating condition that can contribute to a higher risk of fraud is:

A) management by crisis.
B) high company loyalty.
C) flexible rules.
D) proper authorization.

Question 7

Which of the following would usually be an environment conducive to fraud?

A) Low turnover
B) Reactive rather than proactive management
C) Supportive rather than rivalrous relationships
D) Long-term business focus

Question 8

Approximately of all frauds are committed by an individual acting alone. The remaining involve collusion and often involve the thefts.

A) 63%, 37%, smallest
B) 71%, 29%, largest
C) 47%, 53%, smallest
D) 18%, 82%, largest

Question 9

Developing and promoting a well-defined corporate code of conduct is related to which element of the fraud-fighting model?

A) Investigation and follow-up
B) Education and training
C) Tone at the top
D) Proactive fraud detection

Question 10

Fraud is most commonly detected by:

A) monitoring employees.
B) auditors.
C) discouraging collusion.
D) tips and complaints.

Question 11

In order to detect fraud at the earliest, a manager should pay attention to:

A) present lifestyle.
B) past conduct.
C) attitude toward work.
D) absenteeism.

Question 12

An employee recently bought three new cars and remodeled his/her home. These facts would be considered as a:

A) lifestyle symptom.
B) spending addiction symptom.
C) extravagant behavior symptom.
D) financial symptom.

Question 13

Preventive controls include:

A) independent checks.
B) segregation of duties.
C) documents and records.
D) financial statement reviews.

Question 14

A good internal control system includes:

A) open work environments.
B) rigid rules.
C) segregation of duties.
D) following strict hiring procedures.

Question 15

Which of the following is NOT an indicator that a person with a salary of $50,000 per year is living above his or her means?

A) A person owns several expensive cars.
B) A person closely monitors his/her investments.
C) A person hosts extravagant parties in his or her home.
D) A person owns a valuable art collection.

Question 16

Which of the following is a sign of a positive work environment?

A) Rigid rules followed by the organization
B) Managers who care about the employee work ethic
C) Careful hiring policies
D) Having positive personnel and operating procedures

Question 17

Which of the following environments will be LEAST conducive to fraud?

A) Perceived inequalities in the organization and inadequate pay
B) Unreasonable budget expectations
C) Proactive management
D) High employee turnover

Question 18

What is the most widely recognized way to deter fraud?

A) Encourage employees to report suspicious activity.
B) Implement a good system of controls.
C) Keep management involved in company procedures.
D) Quickly punish employees found committing fraud.

Question 19

What is the most likely outcome when a company demotes the perpetrator but allows him or her to go unprosecuted?

A) The company will avoid bad publicity.
B) The perpetrator may commit another fraud in the future.
C) The perpetrator will be saved from pain and embarrassment.
D) Management will send a signal that fraud will not be tolerated.

Question 20

One way to create and communicate clear expectations about what is and is not acceptable in an organization is:

A) having separate, nonintegrated personnel and operating policies.
B) creating an expectation of punishment.
C) following a reactive management style.
D) having a clearly defined code of conduct in place.

Question 21

Which of the following observations is true?

A) The effectiveness of an ideal control system should be independent of the people enforcing it.
B) No internal control structure can ever be completely effective, regardless of the care followed in its design and implementation.
C) A control system by itself can provide assurance that fraud will be prevented.
D) The types of control activities include reactive controls and proactive controls.

Question 22

Which method will result in the biggest savings?

A) Fraud prevention-including EAP plans
B) Fraud detection-including audit proactively, monitoring
C) Investigation-including criminal prosecution
D) Promotion-including raising rank or position

Question 23

What does the acronym "EAP" stand for?

A) Entrepreneurial Assistance Program
B) Employee Assistance Program
C) Ethical Awareness Program
D) Employee Anti-Fraud Program

Question 24

Which of the following help employees deal with substance abuse (alcohol and drugs), gambling, money management, and health, family, and personal problems?

A) Employee Assistance Programs
B) Equal Employment Opportunity Programs
C) Employees Anonymous Programs
D) Whistle-Blowing Programs

Question 25

Which of the following describes the overall tone of the organization that management establishes through its modeling and labeling, organization, communication, and other activities?

A) Detection framework
B) Risk mitigation channel
C) Support network
D) Control environment

Question 26

Which of the following questions should be avoided during a job interview?

A) Can you tell me your birth date?
B) If the opportunities in your previous assignment were good, why did you leave it?
C) Can you relate an instance in which you resolved a conflict with a co-worker?
D) What motivates you at work?

Question 27

When only a very small amount of money has been embezzled:

A) taking no action is the best course of action.
B) the perpetrator should be punished by publishing the details of the fraud in the local newspapers.
C) the perpetrator should be prosecuted.
D) the company should transfer the perpetrator to a position with more supervision.

Question 28

Which of the following allows managers and others to become aware of employees' pressures, problems, and rationalizations, thus enabling them to take fraud prevention steps?

A) Office grapevine
B) Open-door policies
C) Code of ethics
D) Pygmalion effect

Question 29

A company used computer auditing techniques to compare employees' telephone numbers with vendors' telephone numbers. This is an example of which step in a proactive fraud auditing?

A) Identifying fraud risk exposures
B) Identifying the fraud symptoms of each exposure
C) Building audit programs to proactively look for symptoms and exposures
D) Investigate fraud symptoms identified

Question 30

Which of the following is the foundation for all other components of internal control, providing discipline and structure?

A) Open-door policy
B) Control environment
C) Whistle-blowing system
D) Surveillance

Question 31

What are the key attributes for a low-fraud environment?

A) Rules, control, and consequences
B) Recognition, prosecution, and restitution
C) Honesty, openness, and assistance
D) Rules, consequences, and rewards

Question 32

Recruitment interview questions that deal with an applicant's race, sex, age, religion, color, national origin, or disability:

A) are allowed in most circumstances.
B) are allowed as long as the interviewee has verbally agreed.
C) are prohibited unless the criterion is pre-approved by the company management.
D) are usually prohibited unless the criterion is a bona fide occupational qualification.

Question 33

Jim was a crook. He embezzled $450,000 from his employer. When his employer found out about his misdeeds, before even conducting a thorough investigation, he went and gave all the details to a local newspaper agency. The next day Jim read his own story, with his own name, in the newspaper. Which of the following is correct?

A) The company did the right thing by publishing Jim's identity in the newspaper because it punished him for stealing as well as served a warning to his neighbors who might also be at the risk of being defrauded.
B) The company should not have put Jim's name and story in the paper because when other employees will come to know about it, they might leave the organization.
C) Jim may have been misrepresented in the story by the newspaper agency and the company might face legal consequences.
D) Publishing the story in the newspaper was a wrong thing to do because Jim's family will be embarrassed.

Question 34

The correct order of the six elements of the fraud-fighting model is:

A) tone at the top; education and training; proactive detection; integrity risk and controls; reporting and monitoring; investigation and follow-up.
B) tone at the top; education and training; integrity risk and controls; reporting and monitoring; proactive detection; investigation and follow-up.
C) education and training; integrity risk and controls; reporting and monitoring; proactive detection; investigation and follow-up; tone at the top.
D) education and training; tone at the top; integrity risk and controls; reporting and monitoring; proactive detection; investigation and follow-up.

Question 35

Identify a situation that could usually lead to a conflict of interest.

A) A manager has to choose between two of his best employees for the post of assistant manager.
B) A sales supervisor has to allocate targets to her team members, based on revenue generation probability per region.
C) A market analyst is asked to create a comparative growth forecast for four firms in an industry.
D) A purchase manager in the company runs an operation that produces the raw materials required by the company.

Question 36

Which of the following should be emphasized in an employee reporting program? I. Fraud, waste, and abuse occur in few companies.
II) The company actively encourages employees with information to come forward.
III) The name of the employee reporting the fraud must be known.
IV) The report need not be made to one's immediate supervisor.

A) II and III.
B) I, II, III, and IV
C) I, II, and IV
D) II and IV

Question 37

Which of the following is a step that organizations should undertake while recruiting employees?

A) Conduct a covert investigation on the background of each candidate.
B) Consider the candidate's word as truth to ensure a culture of trust and honesty.
C) Require candidates to certify that all information on their résumé is accurate.
D) Verify the candidate's race, age, and religion during the interview.

Question 38

Which of the following should employers always obtain from the applicant to obtain information from references?

A) A verbal authorization
B) A hold harmless agreement
C) A privacy statement
D) A no-objection certificate

Question 39

A "right-to-audit" clause:

A) provides rights to the vendor to audit the company's books at any time.
B) gives an external auditor the right to audit the company's books.
C) is considered in civil court as an invasion of privacy.
D) alerts vendors that the company reserves the right to audit the vendor's books at any time.

Question 40

Which of the following explains the Pygmalion effect?

A) Employees who commit fraud are likely to do so more than once.
B) The probability of fraud detection increases with the number of people involved.
C) People generally perform according to a leader's expectations.
D) Absence of controls leads to increased incidents of dishonesty.

Question 41

Company X has a good whistle-blowing program in place. Sara used the whistle-blowing system to alert management about a fraud being committed by a senior employee in the human resources department. The company investigated the allegation and punished the fraudster. However, Sara was shocked to find later that everyone on her team knew that she was the one who blew the whistle. What could be a major issue with the program at the company?

A) Unclear policies regarding whistle-blowing
B) Lack of awareness about the program
C) Management inaction regarding anonymity policies
D) Lack of adherence to anonymity policies

Question 42

Once a fraud has occurred and a preventive solution developed, the solution should:

A) not be implemented because of the reactive circumstance in which it was created.
B) be implemented only after testing by external auditors.
C) always be implemented by default.
D) be implemented only if it meets the cost-effectiveness test.

Question 43

What is a purpose of proactive fraud auditing?

A) It creates an atmosphere of distrust between and among employees.
B) Its purpose is to deter employees from committing fraud.
C) It provides ways for employees to deal with personal pressures.
D) It eliminates collusion as a means of committing fraud.

Question 44

Which of the following observations concerning collusive frauds is true?

A) They are usually slower to develop than frauds committed by one individual.
B) Research indicates that the majority of frauds involve collusion.
C) Frauds involving collusion are usually the easiest to detect because of the involvement of multiple players.
D) The right-to-audit clause has been ineffective in discouraging collusive frauds.

Question 45

Which of the following is the role of an internal auditor in an organization?

A) To establish the controls for the organization
B) To write the code of ethical business conduct for the organization
C) To test the system of internal controls in order to attest that there are no material weaknesses
D) To assist management with the evaluation of internal controls currently in place

Question 46

An organization requires that employees in its accounting department take mandatory, two-week-long, continuous vacations once a year. It allows no exceptions to this rule. Which control activity is the company using?

A) Segregation of duties
B) Proper authorizations
C) Physical safeguards
D) Independent checks

Question 47

An organization has a policy requiring the dual counting of all incoming cash receipts. Which control activity is being used here?

A) Segregation of duties
B) Proper authorizations
C) Physical safeguards
D) Documents and records

Question 48

Which of the following best describes an action that can cause a whistle-blowing system in place in the organization to fail?

A) The organization requires employees to report all suspicious activity.
B) The employee suspecting fraud reports directly to his/her supervisor's manager.
C) Management is slow to act on reports of suspected fraud.
D) An extensive code of ethics is in place and on file in order to answer employee inquiries.

Question 49

Which of the following is FALSE regarding a comprehensive approach to fighting fraud?

A) Detecting fraud is the responsibility of the independent auditors
B) Evaluating controls is the function of the internal auditor
C) Corporate security officers see their role as investigative
D) Employees are in the best position to prevent and spot fraud

Question 50

Which of the following indicates proactive fraud auditing?

A) Creating an awareness among employees that their actions can be reviewed at any time
B) Establishing controls to discourage collusion between employees
C) Creating an expectation of punishment for a fraud act
D) Establishing a system of segregation of duties throughout the organization