Question 1

Where are fraud discovery personnel assigned within an organization?
A) Within the customer service department.
B) Within the Human Resources department.
C) As their own department, operating independently.
D) Within any department that typically has the highest risk for fraud

Accepted Answer

D

Question 2

Pressure/incentive typically relates to:
A) Situations in which an employee has an unmet substantial financial need.
B) Opportunity, as without opportunity fraud can become possible.
C) The employee fabricating an internal moral excuse for the fraud.
D) Mafia or blackmail situations.

Accepted Answer

Pressure/incentive often relates to financial need, which can lead employees to consider fraudulent behavior as a means of alleviating their financial struggles. This pressure can create an incentive for employees to engage in fraudulent behavior.

Question 3

Accidental discovery of fraud is typically found:
A) While business owners are attempting to figure out why they don't have enough cash.
B) During a financial statement audit.
C) During the sale of a business.
D) By other employees through rumors.

Accepted Answer

Accidental discovery of fraud is more likely to be found while business owners or management are attempting to figure out why they don't have enough cash. This may be caused by discrepancies in the financial statements or cash flow.

Question 4

If an investigator cannot contact the tipster for more information, then this information was gathered:
A) With Confidentially and Anonymity not requested.
B) Confidentially.
C) Publicly.
D) Anonymously

Accepted Answer

If the investigator cannot contact the tipster for more information, it suggests that the information was provided anonymously, meaning the tipster did not reveal their identity.

Question 5

The fraud detection process involves:
A) Determining the level of crime involved as criminal or civil.
B) Identifying indicators of fraud that suggest a need for further investigation.
C) Identifying the GAAP that have been violated.
D) Assessing a loss value to the fraud.

Accepted Answer

The fraud detection process involves identifying indicators of fraud that suggest a need for further investigation. This includes analyzing transactions, data patterns, and other relevant information to uncover any irregularities or suspicious activity. The other choices, determining the level of crime involved as criminal or civil, identifying GAAP violations, and assessing a loss value to the fraud, are all important components of a fraud investigation but come after the initial step of identifying indicators of fraud.

Question 6

In order for a hotline to be sufficient, it should be combined with:
A) An ethics code.
B) Proper monitoring.
C) The right tone from the top of the company.
D) All of the above.

Accepted Answer

A hotline alone is not enough to ensure ethical behavior within an organization. An ethics code provides clear guidelines for employees to follow, proper monitoring ensures the hotline is effective and responsive to reports, and having the right tone from the top of the company sets the overall ethical culture of the organization. Therefore, all three elements are necessary for a hotline to be sufficient.

Question 7

Rationalization/attitude typically relates to:
A) situations in which an employee has an unmet substantial financial need.
B) Opportunity, as without opportunity fraud can become possible.
C) The employee fabricating an internal moral excuse for the fraud.
D) Mafia or blackmail situations

Accepted Answer

Rationalization/attitude relates to the employee fabricating an internal moral excuse for the fraud. They may try to justify their actions by convincing themselves that they are entitled to what they are stealing or that the victim deserves to be taken advantage of for some reason. This is a common tactic used by fraudsters to ease their conscience and avoid feelings of guilt or remorse.

Question 8

Why are tip hotlines or other tip reporting mechanisms important to formally have in place in a business?
A) Nearly 50% of all fraud detection occurs through tip hotlines.
B) Forensic accounting methods lack the ability to detect most fraud.
C) Civil court rules of evidence do not allow charges to be brought against someone unless it is reported first.
D) .Over 75% of all fraud detection occurs through tip hotlines.

Accepted Answer

Tip hotlines are crucial in businesses because they are a significant source of fraud detection. Studies and reports, such as those from the Association of Certified Fraud Examiners (ACFE), have shown that a large percentage of fraud is detected through tips, with hotlines being a common method for reporting suspicious activity. This makes them an essential tool for organizations in their efforts to uncover and address fraudulent activities.

Question 9

How does Internal Auditing help an organization?
A) It reduced the cost of external auditors having to spend as many billable hours during the audit because the internal auditor does most of the work.
B) It helps and organization by providing more credibility to the pubic so they will gain additional investors.
C) It brings the organization into compliance with several Federal and State mandated programs.
D) It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.

Accepted Answer

Internal auditing helps organizations in multiple ways, but the most significant one is by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes. By doing so, the organization can accomplish its objectives efficiently, make informed decisions, and mitigate potential risks. While options A, B, and C are also benefits of internal auditing, they are not as significant as the answer choice D.

Question 10

Within the U.S. Federal Government, how do Inspector General's operate?
A) They investigate possible fraud, independently of internal auditors.
B) They investigate possible fraud in conjunction with internal auditors.
C) They investigate only fraudulent situations that involve sexual harassment claims.
D) Inspector Generals have no authority or jurisdiction to investigate fraud.

Accepted Answer

Inspector Generals operate independently of internal auditors to investigate possible fraud, waste, and abuse within federal agencies, ensuring accountability and efficiency in government operations.

Question 11

Which of the following is NOT a way that fraud is usually detected?
A) Tips and hotlines.
B) Admission by the guilty party.
C) Financial Statement Audits.
D) By accident.

Accepted Answer

Admission by the guilty party is not a usual way that fraud is detected.

Question 12

SAS 99 charges the auditor with the responsibility:
A) For implementing internal controls after their audit.
B) To asses and document managements overly strict internal controls.
C) To assess and document managements overriding of internal controls.
D) .Both A and B

Accepted Answer

SAS 99 requires auditors to assess and document any management overrides of internal controls. This means that if management intentionally disregards or overrides a control, the auditor must report it. The responsibility for implementing internal controls lies with management, not the auditor. Additionally, there is no requirement for the auditor to document overly strict controls.

Question 13

Fraud detection, as compared to prevention:
A) Is considered a second line of defense.
B) Is considered equally important
C) Is totally unrelated.
D) Is considered the first line of defense.

Accepted Answer

Fraud detection is considered a second line of defense because it involves identifying and investigating potential fraud after it has occurred or been attempted. Fraud prevention, on the other hand, is considered the first line of defense because it involves implementing measures to prevent fraud from occurring in the first place.

Question 14

Which of the following is NOT part of the fraud triangle?
A) pressure/incentive.
B) opportunity.
C) financial distress.
D) rationalization/attitude.

Accepted Answer

The three elements of the fraud triangle are pressure/incentive, opportunity, and rationalization/attitude. Financial distress can be a contributing factor to the pressure/incentive element, but it is not considered an independent element within the fraud triangle.

Question 15

Fraud is typically limited to:
A) Employees.
B) Employees, Vendors, Customers and the public.
C) Employees and owners.
D) .Vendors, Customers and public.

Accepted Answer

Fraud can happen not only by employees but also by vendors, customers and the public. These parties may attempt to deceive or manipulate a company for financial gain. Therefore, the best choice is B as it covers all the potential sources of fraudulent activity.

Question 16

A tip hotline should include:
A) The Securities and Exchange Commission's toll free number.
B) A hotline disclosure policy to protect the tipster as well as the accused.
C) Caller ID so the receiving agency can call the tipster back.
D) A minimum of three language options.

Accepted Answer

A tip hotline should include a hotline disclosure policy to protect both the tipster and the accused, ensuring confidentiality and fair treatment. Caller ID and language options are not mandatory features, and the SEC's toll-free number is specific to financial or securities-related tips, not a general requirement for all tip hotlines.

Question 17

Which of the following is NOT a step for financial statement auditing concerning fraud?
A) Gather information relevant to risks of misstatements in the financial reports.
B) Compare the financial statements to the owners personal assets.
C) Analyze and assess risks of misstatement in light of the entity's programs and controls.
D) Apply the information gathered to the structure and application of the audit.

Accepted Answer

Comparing the financial statements to the owners personal assets is not a step for financial statement auditing concerning fraud. The other options are all relevant steps for auditing financial statements concerning fraud.

Question 18

Which of the following is NOT a key element to internal auditing?
A) Independence.
B) Predictability.
C) Objectives.
D) Systematic.

Accepted Answer

The three key elements of internal auditing are independence, objectives, and systematic. Predictability is not considered a key element.

Question 19

The objectives of fraud detection include:
A) Detect fraud.
B) Prevent fraud.
C) Comply with SOX.
D) .Both A and B.

Accepted Answer

The objectives of fraud detection are to both detect and prevent fraud. Compliance with SOX may be a requirement in certain cases, but it is not one of the primary objectives of fraud detection.

Question 20

In many cases fraud indicators lead to:
A) The need for additional auditors to be present for the audit.
B) Criminal or civil actions against the CEO or CFO of the Corporation.
C) The discovery of errors or unusual events that can reasonably be explained upon further examination.
D) .The discovery of loop holed in the IRS Tax Code that are left up to interpretation.

Accepted Answer

Fraud indicators may suggest that further examination of the financial statements is necessary, but this does not always mean that fraud has occurred. It could simply mean that there are errors or unusual events that require explanation. Therefore, the most likely outcome in many cases is the discovery of events that can be reasonably explained. Option A is incorrect because the need for additional auditors is not always necessary. Option B is incorrect because criminal or civil actions are not always taken as a result of fraud indicators. Option D is incorrect because fraud indicators are not directly related to the IRS Tax Code.

Quiz 6: Fraud Detection

Where are fraud discovery personnel assigned within an organization?

Pressure/incentive typically relates to:

Accidental discovery of fraud is typically found:

If an investigator cannot contact the tipster for more information, then this information was gathered:

The fraud detection process involves:

In order for a hotline to be sufficient, it should be combined with:

Rationalization/attitude typically relates to:

Why are tip hotlines or other tip reporting mechanisms important to formally have in place in a business?

How does Internal Auditing help an organization?

Within the U.S. Federal Government, how do Inspector General's operate?

Which of the following is NOT a way that fraud is usually detected?

SAS 99 charges the auditor with the responsibility:

Fraud detection, as compared to prevention:

Which of the following is NOT part of the fraud triangle?

Fraud is typically limited to:

A tip hotline should include:

Which of the following is NOT a step for financial statement auditing concerning fraud?

Which of the following is NOT a key element to internal auditing?

The objectives of fraud detection include:

In many cases fraud indicators lead to: