TEST BANK: for Forensic Accounting and Fraud Examination 2nd Edition. by Mary-Jo Kranacher and Dick by welldoneassistant

Test bank project for Forensic Accounting and Fraud Examination (2nd Ed.) by Mary-Jo Kranacher and Dick Riley Test bank written by Brian L. Carpenter, PhD, CFE ∙ (989) 205-4182 ∙ Brian@BrianLCarpenter.com

CHAPTER 1 Module 1 1.

Which of the following is NOT one of the four essential elements of fraud under common law? A. B. C. D.

The “felonious stealing, taking and carrying, leading, riding, or driving away with another’s property, with the intent to convert it or deprive the owner thereof” is the legal definition of: A. B. C. D.

Swears an oath before taking office Acts for the benefit of another Betrays the trust of another Controls access to an organization’s cash or assets

An unauthorized assumption and exercise of the right of ownership over goods or personal chattels belonging to another, to the alteration of their condition or the exclusion of the owner’s rights is the definition of: A. B. C. D.

Embezzlement Tort Larceny Fraud

A fiduciary is someone who: A. B. C. D.

A material false statement Reliance on the false statement by the victim Knowledge that the statement was false when it was spoken Use of email, wire, or telephone with a criminal intent to deceive

Collusion Concealment Capital misappropriation Conversion

The intentional, deliberate misstatement, or omission of material facts or accounting data that is misleading and, when considered with all the information made available, that would cause the reader to change or alter his or her judgment or decision is defined by the Association of Certified Fraud Examiners as: A. B. C. D.

Financial statement fraud Financial statement misstatement Financial statement concealment Financial statement re-statement

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Which of the following is an example of financial statement and reporting fraud? A. B. C. D.

The essential characteristics of financial statement fraud are: A. B. C. D.

B. C. D.

Assessment of internal controls, preservation of evidence, whistleblower protection and increased penalties for securities fraud Mandatory separation of duties, two-factor authentication for online transactions, and prohibition of fraudulent financial reporting Mandatory quarterly reporting of shell company beneficial ownership, mandatory criminal background checks on all publicly traded company officers and directors, and annual review of internal controls by the SEC Auditing firm competence certification, annual disclosure of conflicts of interest by the board of directors, prohibition of illegal gratuities and penalties for whistleblowers

The occupational fraud and abuse classification system (fraud tree) arranges organizational frauds in which three categories? A. B. C. D.

10.

The misstatement is material and intentional and the users of the financial statements are investors in publicly traded companies. This misstatement is material and intentional and the preparers of the financial statements have a fiduciary obligation to the organization. The misstatement is material and intentional and the preparers of the financial statements fail to report the misstatement to the SEC or other applicable authority. The misstatement is material and intentional and the users of the financial statements have been misled.

As a result of the Sarbanes-Oxley Act (2002), which of the following became part of the business landscape? A.

Failing to post audit results on the company’s website Debt ratio is materially higher than industry standards Improper timing of revenue and expense recognition Net income for any quarterly filing is 17% or more below analyst predictions

The act, concealment, and conversion Existence of a fiduciary relationship, breach of duty, harm to the plaintiff or benefit to the fiduciary Asset misappropriation, corruption, and financial statement fraud Incentive, opportunity, and rationalization.

Internal fraud committed by one or more employees of an organization is more commonly referred to as: A. B.

Fiduciary breach and embezzlement Insider trading and market timing

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C. D. 11.

The approach to investigating fraud recommended by the text: A. B. C. D.

12.

Identify the specific law that was violated Examine relevant evidence with an eye toward demonstrating three attributes of fraud Defer decisions that are suited to an attorney’s expertise Provide reasonable evidence in support of any opinion of guilt

The three attributes of a fraud are: A. B. C. D.

13.

Occupational fraud and abuse Check tampering and billing schemes

The scheme or fraud act, the concealment activity, and the conversion or benefit. The motive, rationalization and opportunity. The intent, the planning, and the execution of a fraudulent act. Asset misappropriations, corruption, and financial statement fraud and other fraudulent statements.

Who said, “White collar criminals consider your humanity as a weakness to be exploited …”? A. B. C. D.

Dr. Joseph T. Wells Sherron Watkins Sam E. Antar Andrew Fastow

Module 2 14.

Forensic accounting is the application of financial principles and theories to facts or hypotheses in a legal dispute and consists of two primary functions: A. B. C. D.

15.

Litigation advisory services and investigative services Expressing an opinion of guilt or innocence in court regarding audit results and documenting the steps taken to reach that opinion Subjecting accounting data to a Benford Analysis and explaining the results to a judge or jury Providing courtroom testimony and administrative technical guidance to attorneys

Forensic and Valuation Services (FVS) professionals can expect that: A. B. C.

Their opinion will be carefully noted in court. The attorney for opposing counsel to defer to the FVS professional’s expert opinion on matters pertaining to forensic accounting. Their work will be carefully scrutinized by the opposing side and that engagements are adversarial in nature.

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D. 16.

Mediation, arbitration, and negotiations are directed by FVS professionals.

Which of the following is NOT typical of forensic and litigation advisory services? A. B. C. D.

Cost and lost profits associated with construction delays. Divorce and matrimonial issues. Environmental issues. Stating an expert opinion about the guilt or innocence of a plaintiff or defendant in a court of law.

Module 3 17.

Forensic accounting and fraud examination require at least three major skill types: A. B. C. D.

Inquisitive, persuasive, and authoritative Equanimity, objectivity, and a commitment to excellence Technical competence, investigative, and communication Specialization in law or accounting, experience, and ongoing professional development

Module 4 18.

Under current auditing standards, the auditor is required to: A. B. C. D.

19.

The interrelationship among auditing, fraud examination, and forensic accounting is dynamic and changes over time because of: A. B. C. D.

20.

Undertake a fraud-risk assessment but not for planning and performing auditing procedures to detect immaterial misstatements. Undertake a fraud-risk assessment to include planning and performing auditing procedures to detect immaterial misstatements. Undertake a fraud-risk assessment but not for planning and performing auditing procedures to detect immaterial misstatements unless such misstatements are caused by fraud (rather than error). Undertake a fraud-risk assessment to include planning and performing auditing procedures to detect immaterial misstatements whether caused by fraud or error.

the Internet and other technological advances high profile fraud cases such as Enron, Tyco, and WorldCom emerging research by the ACFE which casts doubts on previously existing theories of criminality political, social, and cultural pressures.

Fraud examination is the ________ of resolving allegations of fraud from tips, complaints, or accounting clues.

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A. B. C. D.

Tradecraft Art and science Discipline Accounting technique

Module 5 21.

If a company generates $12,000,000 in annual sales and has an operating margin of 5%, how many additional dollars in sales would it need to generate to make up for fraud losses of $180,000? A. B. C. D.

22.

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, median fraud losses are the highest in cases of: A. B. C. D.

23.

Billing Check tampering Expense reimbursements Skimming

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, what is the median loss for schemes that ran 19-24 months in duration? A. B. C. D.

25.

Asset misappropriation Corruption Financial reporting fraud Insider trading

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, what kind of fraud scheme resulted in the greatest percentage of cases? A. B. C. D.

24.

$3,600,000 $360,000 $180,000 $1,800,000

$178,000 $100,000 $150,000 $45,000

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, what percentage of asset misappropriation cases involved the creation of fraudulent physical documents? A. B.

60.7% 49.3%

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C. D. 26.

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, _______ remain the most frequent means by which occupational fraud is detected. A. B. C. D.

27.

Male; female Female; male Hourly; salaried Salaried; hourly

When it comes to fraud loss amounts in organizations, the data shows that there is a direct correlation between ________ loss and ________. A. B. C. D.

30.

Customers Vendors Shareholders Employees

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, ________ employees caused median losses that were more than twice as large as those of __________ employees. A. B. C. D.

29.

Internal audits Management reviews Tips Account reconciliations

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, the largest source of tips that fraud is occurring comes from: A. B. C. D.

28.

52.9% 42.2%

Average; perpetrator’s intelligence Average; perpetrator’s position Median; perpetrator’s intelligence Median; perpetrator’s position

Although most cases in the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse involved a single perpetrator, when two or more persons conspired, the median loss was more than ____ times higher. A. B. C. D.

Two Seven Nine Four

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31.

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, survey respondents were presented with a list of 17 common behavioral red flags associated with occupational fraud and asked to identify which, if any, of these warning signs had been displayed by the perpetrator before the fraud was detected. Rank the presence of the following four red flags in order of their prevalence from highest to lowest percentage of cases in which they were identified. A. B. C. D.

32.

According to the ACFE’s 2016 Report to the Nations on Occupational Fraud and Abuse, what percent of cases were perpetrated in companies with fewer than 100 employees? A. B. C. D.

33.

72.8% 12.8% 30.1% 49.7%

Antifraud professionals logically conclude that small organizations are particularly vulnerable to occupational fraud and abuse. The results from fraud surveys bear this out: losses in the smallest companies were comparable to or greater than those in organizations with the largest number of employees. It is suspected that this phenomenon exists for two reasons. A. B. C. D.

34.

Living beyond means, financial difficulties, past-employment related problems, excessive pressure from within organization Living beyond means, financial difficulties, wheeler-dealer attitude, unusually close association with vendor/customer Living beyond means, financial difficulties, addiction problems, divorce/family problems Living beyond means, financial difficulties, social isolation, complained about inadequate pay

Smaller businesses have fewer divisions of responsibility and there is a greater degree of trust where people know one another personally. Smaller businesses employ fewer highly trained business managers and employees are less supervised. Smaller businesses are more mission driven by nature and less inclined to formally orient new employees to their responsibilities. Smaller businesses employ more people with a wheeler-dealer mindset and don’t solicit competitive bids as frequently.

Which three antifraud measures are associated with the largest reduction in median losses (though not among the most commonly implemented antifraud controls)? A. B. C.

Proactive data monitoring/analysis, management review, surprise audits Proactive data monitoring/analysis, management review, fraud training for employees Proactive data monitoring/analysis, management review, hotline

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D. 35.

29.3% of respondents to the 2016 ACFE survey cited a lack of ________ as the victim organizations’ primary issue that contributed to the fraudster’s ability to perpetrate the scheme. A. B. C. D.

36.

B. C. D.

Fail to understand the many ways in which fraud and other white-collar fraud can be perpetrated Do not keep pace with the growing sophistication of fraud and other white-collar offenses Do not do enough to punish fraud and other white-collar offenses Are overwhelmed with other concerns to the extent that fraud and other whitecollar offenses are regarded as inconsequential in the grand scheme of things.

Regarding criminal prosecutions of occupational fraud and their outcomes, although the percentage of cases referred to prosecution ____________ gradually from the ACFE’s 2012 to the 2016 reports, the percentage of cases that prosecutors successfully pursued ___________. A. B. C. D.

38.

Management review Amoral corporate culture Employee fraud education Internal controls

A common complaint among those who investigate fraud is that organizations and law enforcement ___________________________________________. A.

37.

Proactive data monitoring/analysis, management review, code of conduct

Decreased; increased Increased; decreased Decreased; decreased Increased; increased

One goal of the ACFE survey was to try to determine why organizations frequently decline to take legal action against fraudsters. In cases where no legal action was taken, the survey provided respondents with a list of commonly cited explanations and asked them to mark any that applied to their case. Which of the following was NOT one of the explanations cited by the survey’s participants? A. B. C. D.

Fear of bad publicity Internal discipline sufficient Lack of evidence Credibility compromise

Module 6

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39.

Given that occupational fraudsters do not have distinguishing outward characteristics to identify them as such, the most effective way to catch a fraudster is to: A. B. C. D.

40.

Professional skepticism can be broken into three attributes. Which one of the following is NOT one of those three attributes? A. B. C. D.

41.

B. C. D.

Take disparate pieces of financial and non-financial data to tell a story of who, what, when, where, how, and why Base investigative conclusions on logic and arguments that the defendant is a “bad person” Connect the dots in a case consistent with the investigator’s interpretation of the evidence Excessively rely on evidence, especially when the plaintiff has a clear track record of ethical conduct or is an upstanding community leader

To prove fraud, the investigator has to deal with the issue of: A. B. C. D.

44.

Evaluate any personal biases that cause you to suspect fraud Assume that it probably indicates dishonest conduct by someone in the organization Pull on it and see what happens Recognize that its mere existence is very likely proof of fraud

One of the best ways to ruin an investigation, fail to gain a conviction, or lose a civil case, is to: A.

43.

A commitment to persuasive evidence A willingness to give others a presumption of goodwill until they prove otherwise A questioning mind and a critical assessment of the evidence A recognition that the plaintiff and/or the defendant may be masking the true underlying story

During the course of an investigation, you will encounter “loose threads” or “red flags” such as accounting anomalies. When encountering such anomalies, the fraud professional should: A. B. C. D.

42.

Set aside professional skepticism Rely on your own value system Think like one Accept evidence without being critical of it

Professional skepticism Prior bad acts Intent Specific laws that were broken

The triangle of fraud action is composed of which three elements:

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A. B. C. D. 45.

In most occupational fraud cases, it is ___________ that there will be direct evidence of the crime. A. B. C. D.

46.

Create hypotheses Draw conclusions Gather related data/evidence Identify a specific law or laws that may have been broken

When using a hypotheses-evidence matrix to evaluate evidence in support of any particular hypothesis in a fraud case, it is crucial to understand that: A. B. C. D.

49.

Not ethical Not lawful Not unusual Not in conformity with ACFE investigative standards

Using the fraud theory approach to investigate a case, which step should be your first in an investigation? A. B. C. D.

48.

Likely Unlikely Certain Impossible

You are a fraud examiner or forensic accountant that is about to conclude an investigation. You have gathered evidence that will allow you to compellingly connect the who, what, when, where, and why dots in court. You are also reasonably certain there is additional evidence that will support your conclusions, but you have been unable to find any. In the world of fraud investigations, moving forward without such evidence is: A. B. C. D.

47.

Incentive, opportunity, rationalization Surveillance, invigilation, documentation Devise a scheme, execute it, launder the proceeds Act, concealment, conversion

We can never prove any hypothesis We can never disprove intent We shouldn’t become distracted by the “direction” of evidence We shouldn’t become distracted by evidence that seems to eliminate alternative hypotheses

There are essentially three tools available to fraud examiners, regardless of the nature of the fraud examination or forensic accounting investigation. Which of the following is NOT one of these three tools?

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A. B. C. D. 50.

Using non-financial data to corroborate financial information is: A. B. C. D.

51.

Skill in examining financial statement, books and records, and supporting documents Interviewing skills Preserving a crime scene from contamination Observation (behavior, displays of wealth, specific offenses)

Powerful and its value cannot be overstated Amateurish and used primarily by inexperienced investigators Dangerous because it is usually misunderstood by juries Acceptable on an extremely limited basis

Link charts, flow charts, commodity and money flow diagrams, timelines are: A. B. C. D.

Popular in the movies, but rarely used in the real world of fraud investigation Useful during the hypothesis stage of an investigation but generally not beyond it Important as both investigative tools and communication tools Generally make complicated material less understandable because they leave too much room for speculation and interpretation compared to actual data

Module 7 52.

_______________ is the totality of circumstances that lead a reasonable, professionally trained, and prudent individual to believe that a fraud has occurred, is occurring, and/or will occur. All fraud examinations must be based on it. A. B. C. D.

Postulation Predication Proposition Premise

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CHAPTER 2 Module 1 1.

A number of theories about why the vast majority of people do not commit crime have been set forth over time. Which of the following is NOT one of the reasons cited in the text? A. B. C. D.

The term occupational fraud and abuse is defined as: A. B. C. D.

The use of one’s occupation for status enrichment through misuse or misapplication of the employing organization’s resources or assets. The use of one’s occupation for personal enrichment through the unintentional misuse or misapplication of the employing organization’s resources or assets. The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of a different organization’s resources or assets. The use of one’s occupation for personal enrichment through the deliberate misuse or misapplication of the employing organization’s resources or assets.

Four common elements to occupational fraud and abuse schemes were first identified by ACFE in its 1996 Report to the Nation on Occupational Fraud and Abuse. Which of the following does not contain all four elements? A.

B. C. D.

Social conditioning/parental upbringing Fear of punishment To act in a just and moral manner according to society’s standards Desire for rewards

The activity is clandestine, violates the employee’s fiduciary duties to the organization, is committed for the purpose of direct or indirect financial benefit to the employee, may or may not result in costs to the employing organization’s assets, revenues, or reserves. The activity is clandestine, violates the employee’s fiduciary duties to the organization, is committed for the purpose of direct or indirect financial benefit to the employee, and is a violation of state and/or federal law(s). The activity is clandestine, violates the employee’s fiduciary duties to the organization, is committed for the purpose of direct or indirect financial benefit to the employee, and costs the employing organization assets, revenues, or reserves. The activity is clandestine, violates the employee’s non-fiduciary duties to the organization, is committed for the purpose of direct or indirect financial benefit to the employee, and costs the employing organization assets, revenues, or reserves.

The term white-collar crime was coined by _____________ in 1939, when he provided the following definition: crime in the upper, white-collar class, which is composed of respectable or at least respected, business and professional men. A. B.

Steve Albrecht Edwin H. Sutherland 1 of 7

C. D. 5.

Organizational crime occurs when companies, corporations, not-for-profits, government bodies, and otherwise legitimate and law-abiding organizations are: A. B. C. D.

The RICO Act was adopted Forensic litigation advisory services are offered by forensic accountants The Sarbanes-Oxley Act was adopted SAS99 was adopted

Money laundering, mail and wire fraud, criminal conspiracy and racketeering are examples of crimes associated with: A. B. C. D.

Ordinary corporate behavior Occupational fraud and abuse Organizational crime More of a problem nationally than internationally

Civil litigation issues such as damage claims, lost wages, disability, wrongful death, assets and business valuations, costs and lost profits associated with construction delays or business interruptions, insurance claims, intellectual property infringement, environmental issues, tax claims are examples of the kinds of issues for which: A. B. C. D.

involved in unethical conduct involved in organized crime involved in a civil offense involved in a criminal offense

Unfair pricing, unfair business practices, violation of the FCPA and tax evasion are examples of: A. B. C. D.

Joseph T. Wells Donald R. Cressey

The fraud triangle A private or civil wrong or injury, other than breach of contract, for which the law will provide a remedy in the form of an action for damages Organized crime Occupational fraud and abuse

Black’s Law Dictionary defines a tort as: E. F. G. H.

A private or civil wrong or injury, other than breach of contract, for which the law will provide a remedy in the form of an action for damages An unlawful conduct of business affairs with funds derived from illegal acts When two or more people intend to commit an illegal act and take some steps toward its implementation Non-compliance with agency, regulatory, and court requirements

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10.

The legal standard for the tort of negligence does NOT include the following element: A. B. C. D.

11.

Damages Duty Cause in Fact Intent

A critical aspect of civil litigation for the forensic accountant and fraud examiner is the understanding that: E. F. G. H.

Both sides (plaintiff and defendant) are expected to tell their story Both sides (plaintiff and defendant) are expected to present only facts in court Both sides (plaintiff and defendant) are expected to countersue each other as a strategy Both sides (plaintiff and defendant) are expected to negotiate a settlement

Module 2 12.

In the fraud perpetrator profile presented in the text, which set of characteristics summarizes the typical fraud perpetrator? A. B. C. D.

13.

One of the interesting aspects of the characteristics of fraud perpetrators is that they do not typically have ______________. A. B. C. D.

14.

Male, middle-aged to retired, with the company for five or more years, never charged or convicted of a criminal offense, well educated, accountant, upper management, or executive, generally acts in collusion with others Male, middle-aged to retired, with the company for five or more years, previously charged or convicted of a criminal offense, well educated, accountant, upper management, or executive, acts in alone Male, middle-aged to retired, with the company for five or more years, never charged or convicted of a criminal offense, well educated, line employee or lower management, or executive, acts in collusion with others Male, middle-aged to retired, with the company for five or more years, never charged or convicted of a criminal offense, well education, accountant, upper management, or executive, acts alone

Respect within their community Much knowledge of accounting standards A criminal background A college degree

Edwin H. Sutherland (1883-1850), a criminologist, coined the term white-collar crime in 1939 and later developed the theory of _____________________ whose basic tenet is that crime is learned. A.

Constructivist association 3 of 7

B. C. D. 15.

Donald R. Cressey (1919-1987) used his doctoral dissertation to study embezzlers, whom he called “trust violators.” Upon completion of his research, he developed what still remains as the classical model for the occupational offender. In 1991, Dr. Steve Albrecht organized Cressey’s three conditions into a tool that has become known as the “fraud triangle.” Which answer below constitutes the three legs of the fraud triangle? A. B. C. D.

16.

General information Accounting know-how Observed gaps in internal controls Knowledge of financial fraud schemes

Fraud deterrence begins _______________. A. B. C. D.

19.

Financial greed Problems resulting from personal failure Depression or other mental health issues Amoral value system

In Cressey’s view, there were two components of perceived opportunity necessary to commit a trust violation: ____________________ and technical skill. E. F. G. H.

18.

Perceived opportunity, perceived motive, and intellectualization Perceived pressure, perceived isolation, and rationalization Perceived motive, perceived opportunity, and minimization Perceived pressure, perceived opportunity, and rationalization

Cressey identified six categories of non-shareable financial pressures that prompted embezzlers to act. These included violation of ascribed obligations, business reversals, physical isolation, status gaining, employer-employee relationships, and ______________. A. B. C. D.

17.

Fraud triangle association Attributional association Differential association

In the existence of sound internal controls In the organizational mission and values In the employee’s mind In the beliefs of the culture at large

When considering antifraud measures within an organization, the axiom that “fraud deterrence begins in the employee’s mind” most closely means that there has to be a _________________. E. F. G.

Perception of detection Perception of punishment (if caught) Perception of fairness within all levels of the organization 4 of 7

H. 20.

Findings in the ACFE’s 2016 Report to the Nations suggest that organizations that lacked _______________ were more susceptible to asset misappropriation schemes. A. B. C. D.

21.

After Before While Seldom

One of the most fundamental observations of the Cressey study was the _____________, i.e., that the conditions under which a trust violation occurs necessitate all three elements (of what was later named the fraud triangle). E. F. G. H.

23.

Employee perception of detection A proper tone at the top Internal controls A reporting mechanism

Cressey observed that rationalization as it applies to occupational fraud occurs _________________ the crime. A. B. C. D.

22.

Perception of shared values within the organization

Conjuncture of events Timing of events Circumstances of events Sequence of events

Findings in the ACFE’s 2016 Report to the Nations indicate that at least one warning sign had been displayed by the perpetrator before the fraud was detected in more than 91% of cases. In 57% of cases, two or more such red flags were seen. According to the study, the six most commonly observed behavioral red flags were: living beyond means, financial difficulties, unusually close association with a vendor or customer, a “wheeler-dealer” attitude, recent divorce or family problems, and ______________. I. J. K. L.

Control issues or unwillingness to share duties Addiction problems Irritability, suspiciousness, or defensiveness Excessive pressure from within the organization

Module 3 24.

While Dr. Steve Albrecht’s research findings on fraud perpetrator characteristics were very similar to the non-shareable problems and rationalizations identified by Cressey, Albrecht introduced the ____________________ into the actions of the fraudsters. A.

The role of compensation

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B. C. D. 25.

Dr. Steve Albrecht substituted _______________ for rationalization in the development of the “Fraud Scale.” A. B. C. D.

26.

Age Myers-Briggs Personality Types Arrogance (or lack of conscience) Garden variety greed

Crowe expanded the fraud triangle into a pentagon by adding ______________ and ___________. A. B. C. D.

29.

Internal control environment Myers-Briggs Personality Types The role of arrogance Individual capability

In 2010, Jonathan Marks argued for the role of _____________ in fraud. A. B. C. D.

28.

Emotional distress Greed Personal integrity Sociopathic tendencies

In a 2004 CPA Journal article, Wolfe and Hermanson argue that the fraud triangle could be enhanced to improve both fraud prevention and detection by considering a fourth element, ________________. A. B. C. D.

27.

The role of the organization The role of social isolation The role of (an unfair) performance evaluation system

Compensation equity and cultural norms Arrogance and competence Myers-Briggs Personality Types and educational attainment Internal control environment and organizational pressure

Significant research suggests that increasing _______________ may be the best way to deter employee theft. A. B. C. D.

The threat of punishment by the employer The presence of internal security The perception of detection The frequency of fraud prevention education

Module 4

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30.

In addition to the fraud triangle, typical motivations of fraud perpetrators may be identified with the acronym M.I.C.E. This stands for money, ideology, _________, and ego/entitlement. E. F. G. H.

31.

Coercion Conversion Collusion Concealment

According to the AICPA, the “Achilles Heel” of an organization’s antifraud efforts is _______________ and ___________________. A. B. C. D.

An amoral corporate culture; an arrogant CEO Missing internal controls; lack of management review Collusion; management override A weak board of directors; an arrogant CEO

Module 5 32.

In contrast to the fraud triangle which US courts have deemed to be more of a theoretical concept rather than a set of measurable standards or a specific, practical methodology for arguing that fraud occurred, the triangle of fraud action can be used in developing prosecutorial evidence. In particular, the element of ________________ provides a compelling argument that the act was intentional. A. B. C. D.

33.

The Act Conversion Opportunity Concealment

The triangle of fraud action is sometimes referred to as _______________. A. B. C. D.

The fraud triangle The elements of fraud The fraud diamond Crowe’s Fraud Pentagon™

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CHAPTER 3 Module 1 1.

(75) One reality of what is known as the criminal justice funnel is: A. B. C. D.

Few cases result in convictions and incarcerations A majority of cases result in convictions and incarcerations Regulatory agencies play an important role in monitoring illegal activities Civil and criminal cases cannot be pursued simultaneously

Module 2 2.

(76) Individual rights are grounded in four amendments to the US Constitution associated with due process. Which of the following is not one of these four amendments? A. B. C. D.

(76) Regarding interviews conducted by a nonpublic entity and the Sixth Amendment, an employee: A. B. C. D.

Does not have a right to consult a lawyer prior to an interview but has a right to have one present during one Does not have a right to have a lawyer present during an interview but has a right to consult one prior Does not have a right to have a lawyer present or to consult one prior to the interview Has a right to have a lawyer present during an interview and to consult one prior

(76) In order for a confession to be valid, it must be deemed to be: E. F. G. H.

The Fourth Amendment prohibits unreasonable searches and seizures The Seventh Amendment which entitles the accused the right to a speedy trial The Fourteenth Amendment entitles a person to due process of law and equal protections under the law The Fifth Amendment provides that a person cannot be compelled to provide incriminating information against himself in a criminal case

Voluntary Coerced Factual Sincere

(77) The overriding rule regarding searches and search warrants is that individuals have: A. B. C.

A right to not self-incriminate An expectation of absolute privacy within their home or vehicle A reasonable expectation of privacy

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D. 6.

(77) A workplace search is considered reasonable under two circumstances: The search must be justified at its inception because it is likely to reveal evidence of work-related misconduct, and: E. F. G. H.

B. C. D.

Any information derived from confidential informants cannot be introduced if the CI has a felony record. Any information from evidence that was in “plain view” of law enforcement cannot be introduced. Any information derived from voluntary consent to search cannot be introduced. Any information derived from illegal evidence cannot be introduced.

(78) Surveillance is generally legal, however, once the investigator enters the realm of electronic (audio) surveillance, the laws become more complicated. Generally federal law prevents ________________________: A. B. C. D.

The search is necessary to further the investigation. The search is necessary to satisfy a court order. The search is necessary to preserve public order. The search is necessary to operational efficiency.

(77) In the contexts of searches, the expression “fruit from the forbidden tree” means: A.

A right to privacy in the workplace (such as lockers, desks, etc.)

The interception and/or recording of wire, oral, or electronic communications except if it is collected by a certified fraud examiner (CFE) as part of a legitimate investigation. The interception and/or recording of wire, oral, or electronic communications except if it is recorded in a public venue. The interception and/or recording of wire, oral, or electronic communications except by law enforcement officers with a warrant. The interception and/or recording of wire, oral, or electronic communications except if it is evidence of a class B or higher felony investigation.

(79) The Daubert standard is related to the admissibility of expert testimony (expert opinions). Under the Daubert standard, the trial judge makes an assessment of whether an expert’s scientific testimony is based on reasoning or methodology that is scientifically valid and can properly be applied to the facts at issue. Which of the following is NOT one of the considerations in determining whether the methodology is valid? A. B. C. D.

Whether the theory or technique in question can be used and has been tested. Whether the theory or technique in question has been verified through a doubleblind study that includes a control group. Whether the theory or technique has been subject to peer review and publication. Whether the theory or technique has attracted widespread acceptance within a relevant scientific community.

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Module 3 10.

(80) While grand juries have great leeway related to issuing subpoenas, the Fourth Amendment requires reasonableness. To meet the reasonableness standard, the subpoena must be likely to generate evidence that is: E. F. G. H.

11.

Relevant to the issue under consideration, be particular and reasonably specific, and be limited to a reasonable time frame. Relevant to the issue under consideration, be particular and reasonably specific, and be limited to class B felony (or higher) investigations. Relevant to the issue under consideration, be particular and reasonably specific, and be based on a higher than average probability that a crime has been committed. Relevant to the issue under consideration, be particular and reasonably specific, and must meet the Daubert standard.

(81) A search warrant has several advantages over a subpoena. Which of the following is NOT one of the advantages described in the text? A. B. C. D.

A warrant allows the holder of the warrant, not the target of the defense counsel, to decide which documents are relevant and must be produced. A warrant avoids, but does not eliminate, the possibility of the destruction of evidence. A warrant gives the investigator the ability to interview key witnesses while the search is being conducted. A warrant gives the investigator the ability to seize any unlawful item that may be discovered in the search if it is part of a class B (or higher) felony.

Module 4 12.

13.

(81) Generally, evidence is admissible in court if it is relevant, its probative value outweighs any prejudicial effects, and: A. It is trustworthy, meaning that it is presented by credible witnesses. B. It is trustworthy, meaning that it is subject to examination and cross-examination. C. It is trustworthy, meaning that it is fact based rather than opinion. D. It is trustworthy, meaning that it is neutral in its impact on the jury. (82) Even relevant evidence may be excluded from judicial proceedings if it is prejudicial, confusing, or ____________. A. B. C. D.

Contradictory Material Misleading Inconclusive

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14.

(82) Prior to admissibility of evidence in court, the attorney must lay the foundation demonstrating relevance, materiality, and ____________ (reliability). A. B. C. D.

15.

(82) You are testifying in a criminal trial where the CFO of a publicly traded company is accused of embezzling $2.7 million. Which of the following would be considered facts at issue? A. B. C. D.

16.

Illustrative (or summative) Probative in value Unbiased Reliable

(82) The chain of custody protects against the _____________ of evidence as a result of investigators losing control of it. A. B. C. D.

18.

A Panama Papers leak showing the existence of an offshore shell company account with the CFO listed as the beneficial owner. Whether or not the CFO stole the money. An email from the CFO directing the Head of Accounting to disregard the absence of invoices for purchases of “business consulting services” authorized by the CFO. Documentation of special purpose entities created and controlled by the CFO that do not appear on the company’s balance sheet.

(82) Documentary evidence is at the heart of most fraud and forensic accounting investigations. Five considerations must be given to any piece of documentary evidence: The document must not have been forged, original documents are preferred, the document must not be hearsay or objectionable, the document needs to be authenticated, and the document must be _____________. A. B. C. D.

17.

Validity Competence Probative value Non-speculative

Shredding Possible corruption Leaking Unauthorized distribution

(82) Evidence is anything legally presented at trial to ___________ and convince a jury. A. B. C. D.

Link the facts at issue into a story Explain or demonstrate the facts (such as a PowerPoint presentation) Prove a contention Secure a guilty verdict

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19.

(82) Evidence may be testimonial, real or demonstrative, or ______________. E. F. G. H.

20.

(82) Demonstrative evidence may include photographs, charts, diagrams, drawings, scale models, but because it is not real evidence it must not ___________ and it must not materially alter any significant aspect of the facts at issue. A. B. C. D.

21.

Circumstantial or direct Probative in value Expert opinion-based (if admissible) Sealed under the Foreign Intelligence Act of 1978

Have been outside the chain of custody Be speculative or conjectural Raise doubts in the mind of the jury Create prejudice

(82) The best evidence rule allows copies of documents to be presented at trial

under: A. B. C. D.

No circumstance whatsoever The rules of admissibility Certain circumstances Oath that the copy has been altered

Modules 5 & 6 22.

(84) The primary purpose of a civil action is to:

23.

E. Recover losses and possibly reap punitive damages F. Redress criminal wrongdoing through incarceration G. Reduce the case load in criminal courts H. Restore societal faith in the court system (84) ____________ is the process by which each side may explore the merits of the

other side’s arguments by obtaining documentary and testimonial evidence. A. B. C. D. 24.

No lo contendere Cross examination Discovery Cease and desist

(86) A civil action requires a _________________ of the evidence, meaning that

the evidence stacks up slightly more heavily on one side than the other. This contrasts with the criminal threshold of “____________________.” E. F.

Preponderance; beyond a reasonable doubt Predication; proof-positive 5 of 7

G. H.

Probative evaluation; facts at issue Proportionality; beyond any reasonable doubt

Module 7 25.

(86) Basic (accounting) bookkeeping involves the recording, classifying, and summarizing of economic events in a logical manner for the purpose of providing accounting, financial, and _____________ information for decision making. I. J. K. L.

26.

Nonfinancial Factual Investment Complex

(86) In an audit or investigation, the antifraud professional must design _____________ to identify anomalies, investigate those anomalies, form and test hypotheses, and evaluate the evidence generated. A. B. C. D.

Statistical models Algorithms A spreadsheet with conditionally formatted cells Procedures

Module 8 27.

(93) An audit is performed to ensure that ___________________________________. A. B. C. D.

28.

Reasonable assurance of SOX compliance can be attained by holders of a company’s stock. The organization is complying with PCAOB, FASB, and AICPA accounting standards. The financial statements are fairly presented and are free from material misstatement. Financial fraud is not occurring within the organization.

(93) Professional skepticism entails three overlapping concepts: An attitude that includes a questioning mind and a critical assessment of audit evidence, conducting of the engagement that recognizes the possibility of material misstatement due to fraud, and ____________________ with less-than-persuasive evidence. A. B. C. D.

Tentative acceptance Professional tolerance Dissatisfaction Discarding documents

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29.

(94) The Sarbanes-Oxley Act of 2002 was signed into law to address corporate governance and accountability as well as public accounting responsibilities in improving the quality, reliability, integrity, and transparency of financial reports. Which of the following is NOT one of the measures the law aimed to accomplish? A. B. C. D.

30.

(94) The Sarbanes-Oxley Act of 2002 authorized the SEC to issue implementation rules on many of its provisions intended to improve corporate governance financial reporting, and audit functions. Which of the following was NOT one of the rules summarized in the textbook? A. B. C. D.

31.

New standards of professional conduct for attorneys Certifications of legality by the owners of special purpose entities Disclosures regarding a Code of Ethics for Senior Financial Officers and Audit Committee Financial Experts Conditions for use of non-GAAP financial measures

(94) The fundamental purpose of the COSO ERM framework approach is to help entities ensure that they will be able to achieve their operational financial objectives and goals. Which of the following are NOT included in the framework? A. B. C. D.

32.

Establishing higher standards for corporate governance and accountability Creating an independent regulatory framework for the accounting profession Establishing new protections for corporate whistleblowers Diminishing fraud, waste and abuse among 501(c)(3) tax-exempt charities

Achieving high-level strategic goals and the entity’s mission Effective and efficient use of the company’s operational resources Safeguarding of company resources by preventing loss through fraud, theft, waste, inefficiency, bad business decisions, etc. Whether realistic organizational goals and objectives are set!

(105) The primary role of _________________________ is to protect investors, create long-term shareholder value, ensure investor confidence and support strong and efficient capital markets. E. F. G. H.

Corporate governance Certified Fraud Examiners and CPAs The SEC, PCAOB and COSO ERM Framework Wall Street analysts

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CHAPTER 4 1.

Known as “off-book” frauds, skimming schemes involve the theft of cash before it is recorded in the victim company’s books. As a result, __________________________. A. B. C. D.

A cashier at Pretty Good Shoes, Inc. sold a pair of shoes to a cash paying customer who did not wait for a receipt. Instead of ringing up the sale and placing the cash in the drawer, the cashier rang “no sale” and then pocketed the cash after the customer left. Which type of fraud strategy did the cashier utilize? E. F. G. H.

Viable oversight presence Dispersion of cash registers throughout the store Continuous presence of management Roster of trustworthy employees

One simple measure that makes it easy to detect off-hours sales is to compare the organization’s hours of operation to cash register _________________. M. N. O. P.

Skimming Lapping Filching Layering

Perhaps the key to preventing sales skimming is to maintain a _________________ at any point where cash enters an organization. I. J. K. L.

Such schemes are typically used by corrupt CEOs/CFOs It may be difficult to detect that money has been stolen SOX standards impose stricter penalties on skimmers Salespeople, tellers, and wait staff are obviously not the most likely candidates to skim funds because they need their jobs

Same store daily average sales totals Voided transaction totals Beginning/ending cash in the drawer compared to daily deposit slips User log-in/log-out time records

Skimming receivables requires _________ than skimming sales. Q. R. S. T.

Less risk of detection More opportunity More effort Less effort

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You have been hired by the owner/CEO of Tread Lightly Tires, a family held private company in the automotive tire business, to investigate whether a back office receivables clerk has been skimming customer payments. Which of the following, if it exists, will greatly aid in your investigation? U. V. W. X.

As the bookkeeper for Somewhat Healthy Foods, Inc., Ted stole $250,000 over four years (using an intricate lapping scheme). In cases such as this, it is common for the perpetrator to have developed a reputation as a/an ________________. Y. Z. AA. BB.

Regulated Separated Ordered Documented

Whereas skimming schemes involve the theft of ___________, cash larceny schemes involve the theft of money ___________. GG. HH. II. JJ.

10.

Substandard employee because they have a bad attitude and are disliked by coworkers Average employee because they do what they’re supposed to do, but will not go the extra mile or put in overtime if needed Model employee because they put in a lot of overtime and rarely take vacations Dangerous individual because they often threaten people around them

If the accounting duties associated with accounts receivable are properly __________ so that there are independent checks of all transactions, skimming payments is very difficult to commit and very easy to detect. CC. DD. EE. FF.

Accurate inventory records Surveillance footage from the cash register area Whether the clerk has an unusually close relationship with one or more large vendors A second set of books

Checks only; and checks Off-book funds; that has already appeared on a victim company’s books Cash at the point of sale; during the bookkeeping process Company assets; with criminal intent

In the occupational fraud setting, a cash larceny may be defined as the ____________________ without the consent and against the will of the employer. KK. LL. MM. NN.

Intentional taking away of an employer’s cash Theft of more than $1,000 (in either currency or checks) Skimming of cash before it hits the company’s books The theft of more than $10,000 (in either currency or checks)

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11.

A large percentage of cash larceny schemes occur at the point of sale because ______________. OO. PP. QQ. RR.

12.

If a retail cashier perpetrates larceny, there will be an imbalance between the _________ and the ____________. SS. TT. UU. VV.

13.

Skimming, by comparison, is much more difficult It is easy to conceal Low level employees are typically less honest than management That’s where the money is

Register tape; cash drawer Register user log-in/log out records and store hours Cash drawer; bank deposit slips Register sales; store’s inventory

In point of sale cash larceny schemes, several methods are used by fraudsters to conceal their thievery. These include thefts from other registers, death by a thousand cuts, reversing transactions, altering cash counts or register tapes, and _________________. WW. Padding the perpetual inventory XX. Volunteering to work overtime and rarely taking vacations YY. Appearing to be a model employee ZZ. Destroying register tapes

14.

Most cash larceny schemes only succeed because of a lack of ____________. AAA. Qualified people BBB. Internal controls CCC. Training DDD. Trust (in the organization)

15.

Not all cash larceny schemes occur at the point of sale. Larceny of receivables is generally concealed through one of three methods: force balancing, reversing entries and _____________. EEE. Thefts from other registers FFF. Skimming GGG. Destruction of records HHH. Appearing to be a model employee

16.

Within the context of concealing larceny, adjusting customer accounts with unauthorized “courtesy discounts” is an example of _____________. III.

Reversing entries

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JJJ. Destruction of records KKK. Force balancing LLL. Shrinkage 17.

Within the context of concealing larceny, making unsupported entries in the company’s books to produce a fictitious balance between receipts and the ledger is an example of: MMM. Destruction of records NNN. Force balancing OOO. Lapping PPP. Reversing entries

18.

The most important factor in preventing cash larceny from deposits is ______________. A. B. C. D.

19.

A key anti-fraud control in preventing/detecting deposit larceny and lapping is: E. F. G. D.

20.

Vendor fraud Deposit larceny Fraudulent shipments Bribery and corruption

There are essentially two ways a person can misappropriate a company asset: the asset can be ____________, or it can be _______________. A. B. C. D.

22.

Placing surveillance cameras at each point of sale Assigning unique ID numbers to cashiers Prohibiting deposits from being made in night drops Itemizing deposit slips

In general, noncash misappropriations fall into one of the following categories: misuse, unconcealed larceny, asset requisitions and transfers, purchasing and receiving schemes, and _______________. E. F. D. E.

21.

Separating duties To hire honest people Entrusting new employees Requiring the person who prepares the deposit to also receive and log incoming payments

Misused; stolen Misclassified in inventory; “borrowed” Misstated (on the balance sheet); concealed altogether Misdirected to a shell company; deposited in an offshore account

Most noncash larceny schemes are not very ____________.

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E. F. D. E. 23.

To prevent larceny of noncash assets, the duties of requisitioning, purchasing, and ___________ the assets should be segregated. F. G. H. D.

24.

An indicator with which management should be overly concerned A reliable indicator of anything other than normal business fluctuations An unambiguous signal An anomaly

One of the simplest methods for concealing shrinkage is to change the ___________ inventory record so that it matches the ____________ inventory count. I. J. K. L.

27.

Shrinkage Removing the stolen inventory from the premises Trust Physical access (to secure areas)

While inventory shrinkage may be a red flag that fraud is occurring, it is not _______________. E. F. G. H.

26.

Inventorying Classifying Tagging Receiving

When inventory is stolen, the key concealment issue for the fraudster is _________. A. B. C. D.

25.

Logical Easy to perpetrate Complicated Easy to prevent/detect

Warehouse; sales floor Digital; manual Perpetual; physical Inspection of the; random

_____________ inventory and other assets is a relatively common way for fraudsters to remove assets from the books before or after they are stolen. A. B. C. D.

Writing off Fictitious sales of Simply walking off with False shipments of

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28.

To prevent fraudulent shipments of merchandise, organizations should make sure that every ___________ is matched to an approved _________ before the merchandise goes out. E. F. G. D.

29.

A significant increase in ___________ could indicate an inventory theft scheme. E. B. C. D.

30.

Warehouse employee turnover Scrap levels Changing usual vendors Perpetual inventory

Assets should be removed from operations only with _______________. E. F. G. H.

31.

Transaction; system Warehouse worker; supervisor of shift leader Sales record; order form Packing slip; purchase order

The proper authority An internal auditor’s approval Verification of perpetual inventory Proper adjustments to journal entries

In the purchasing function, it is important to separate the duties of requesting (requisitioning) goods, ordering goods, receiving goods, maintaining perpetual inventory records, and _______________. I. J. K. D.

Verifying of physical (against the perpetual) inventory Executing purchasing Spot checking supporting documents Issuing payments

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CHAPTER 5 1.

In a ____________________, the perpetrator uses false documentation—such as an invoice, purchase order, or credit card bill—to cause his employer to issue payment for some fraudulent purpose. A. B. C. D.

Billing schemes generally fall into one of three categories: shell company schemes, nonaccomplice vendor schemes, and _______________. A. B. C. D.

Names of vendors; shell company invoices Invoices; purchase orders Employees’ home addresses; addresses of vendors Employee names; payment authorizers

Those with the authority to approve purchases would be among the most likely to engage in ___________ since they have fewer hurdles to overcome than other employees. I. J. K. L.

Personal purchases schemes Check writing schemes Skimming schemes False documentation schemes

One basic fraud detection approach is to run a computer query that compares ________________________ to the ___________________ in the accounts payable system. E. F. G. H.

False documentation scheme Billing scheme Skimming scheme Corruption scheme

Personal purchases schemes Skimming schemes False documentation schemes Billing schemes

A primary purpose of _________________ is to prevent any one person from having too much control over a particular business function. A. B. C. D.

Separating duties Conducting criminal history checks of employees Oversight and supervision Antifraud training

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Many times, shell companies schemes involve the purchase of services rather than goods such as “consulting services.” Why is this? E. F. G. H.

A subcategory of shell company schemes in which actual goods or services are sold to the victim company are known as pass through-schemes because: I. J. K. L.

O. P.

Known shell companies in order to compare names of vendors with it. Approved vendors that should be verified by someone independent of the purchasing function. Offshore banks whose routing numbers can be compared to vendor bank accounts (using the endorsements on cashed checks). Purchases by employees that have no purchasing authority (because no one suspects them).

One common red flag useful in detecting fraudulent invoices is. Q. R. S. T.

10.

The perpetrator has to devise a way to add value to actual goods and services before they pass through to the victim company. The perpetrator has to pass through customs to place stolen funds in offshore bank accounts. The perpetrator has to pass through several layers of internal controls to make the fraud work. The perpetrator purchases actual goods and services which simply pass through a shell company to the victim company at inflated prices.

One of the best ways to prevent and detect shell company schemes is to maintain and regularly update a list of: M. N.

Because services have no fixed market price, it is harder to compare value. Because services are often authorized by organizational management, no one questions them. Because services are not tangible, it is more difficult to confirm or deny their receipt. Because services are non-durable, it is more difficult to capitalize them.

The often poor printing/formatting quality used A lack of detail A disproportionate cost relative to the services rendered An unanticipated/inexplicable vendor discount

Sally was a secretary/assistant bookkeeper at a local non-profit food pantry. Part of her duties included opening mail, processing invoices, and authorizing payments. She used her position to intentionally pay some bills twice, then requested that recipients return one of the checks which she then intercepted and subsequently deposited into her own bank account. Sally’s scheme is known as a:

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U. V. W. X. 11.

Prevention of nonaccomplice vendor invoicing schemes is largely dependent on: A. B. C. D.

12.

Conducting thorough review of each credit card statement. Requiring users to obtain a purchase order prior to using the card. Spot checking receipts for appropriateness. Implementing a policy that prohibits users from making personal purchases with company cards.

There are five principal methods use to commit check tampering. Which of the following is NOT one of the five? E. F. G. H.

15.

Pay-and-return scheme. Pass-through scheme. Shell company scheme. Personal purchasing scheme.

The most important step in preventing credit card fraud is ____________________: A. B. C. D.

14.

Purchasing functional controls Hiring honest employees The competence of internal auditors Regular ethics training

Dr. Rudding was superintendent of a charter school. Because of his responsibilities, the school issued a credit card to him to use when making certain kinds of purchases (such as travel expenses while on school business). Over time, Dr. Rudding perceived that no one on his board was reviewing the credit card statements, nor was he questioned by anyone in the business department, so he began using the card to fill up his own car, buy coffee on the way to work, and take his wife out to fine dining restaurants. The kind of fraud that Dr. Rudding committed is known as a: E. F. G. H.

13.

Double-bill and intercept scheme Pay-and-return scheme Pass-through scheme Forged maker scheme

Forged maker schemes Forged endorsement schemes Shell company schemes. Authorized maker schemes.

Jed is an accounts payable clerk for a mid-sized office supply company. Although he has access to check stock, he is not a signer. One day he decided to “borrow” some company money to cover some past-due personal bills by forging his boss’s signature on a company check. One of Jed’s biggest challenges will likely be:

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I. J. K. L. 16.

A key to preventing check forgeries is to maintain a strict stet of procedures for the handling of outgoing checks, which include safeguarding blank check stock, establishing rules for custody of checks that have a been prepared but not signed, and _______________________: A. B. C. D.

17.

“Rubber stamp”/inattentive supervisors that sign checks without proper scrutiny. Making checks payable to “cash.” Failing to secure blank check stock under lock and key. Returning the signed check to the employee that prepared it.

When organization bank statements are reconciled, double endorsements on checks should always raise suspicions, particularly when the second signer is ______________. A. B. C. D.

20.

False purchase requisition Pay-and-return Intercept and conversion Forged endorsement

One of the most common breakdowns of internal controls in forged endorsement fraud is: I. J. K. L.

19.

Separating the duties of check preparation and check signing. Using a signature stamp or mechanical signer. Making checks payable to “Cash” Requiring check signers to reconcile the bank statement

A scheme whereby an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line is known as a ________________ fraud. E. F. G. H.

18.

Facing prosecution if he gets caught. Concealing the forged check from the company. Producing a reasonable facsimile of his boss’s signature. Whether to make the check payable to himself or his wife (using her maiden name).

An employee of the organization A relative of a vendor company key employee A signature stamp or an automated signature A ghost employee

James Dunham was the CEO at a small non-profit ministry dependent on donor contributions that sent medical doctors and supplies to Haiti. The name of the non-profit was “Limye Medical Missions” (Limye means light in Haitian Creole). Eventually, the board received a tip from an employee that James had been stealing money from the organization. The investigation revealed that the way James did this was to direct his office staff to place the mail unopened on his desk each day. When James returned from lunch, he entered his office and locked his door and sorted the mail. He placed

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contributions into two stacks. One stack contained only checks that were made payable to Limye Medical Missions. These were deposited in the ministry’s bank account. The other stack contained checks made payable simply to, “Limye.” To these checks, James simply added the words “and Friends, Inc” on the payee line. The latter were then deposited by James into a shell company bank account called Limye and Friends. The type of check tampering scheme used by James is known as a ___________ scheme: E. F. G. H. 21.

Most successful altered payee schemes occur when the person who prepares checks also has: A. B. C. D.

22.

Approve invoices for payment Forge the maker’s signature reasonably well Cash them at a local bank without any suspicions Reconcile the bank statement

The most basic way an employee accomplishes an authorized maker scheme is to: I. J. K. L.

24.

Access to those checks after they have been signed. A knowledge of offsetting debits and credits. A perceived pressure and a perceived opportunity. An unusually close relationship with one or more company vendors.

In almost all successful altered payee schemes, the perpetrator was able to prepare checks and __________________. E. F. G. H.

23.

Fraudulent payee Tacking on Payments diversion Forged endorsement

Have authority to approve purchases as well as maintain the general ledger. Forge the signature of an authorized signer. Override controls designed to prevent fraud. Appear to be a model employee.

Which of the following represents the three main categories of payroll fraud? A. B. C. D.

Ghost employee schemes, falsified hours and salaries schemes, commission schemes. Forged maker schemes, forged endorsement schemes, and personal expense schemes. The act, concealment and conversion Check tampering, erasable ink, and intercepted check schemes

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25.

For a ghost employee scheme to work, four things must happen: (1) the ghost must be added to the payroll, (2) timekeeping and wage rate information must be collected and submitted for processing, (3) a paycheck must be issued to the ghost, and (4): A. B. C. D.

26.

Regardless of how hiring of new employees is handled within a business, it is ___________________ that are in the best position to put ghosts on the payroll. E. F. G. H.

27.

Employees to submit itineraries or travel agency receipts Employees to report their expenses accurately Copies of credit card statements Original receipts for all expense reimbursements

There are a number of red flags that may indicate an employee is seeking reimbursement for fictitious travel and entertainment expenses. One of the most common is the employee who claims items—particularly high dollar items—were paid for _________: Q. R. S. T.

30.

Mischaracterized expense reimbursements Multiple reimbursements Extravagant expense reimbursements (e.g., flying first class instead of coach) Overstated expense reimbursement

In preventing and detecting overstated expense reimbursement schemes, it is particularly important that the organization require: M. N. O. P.

29.

The CEO and CFO The person or persons with authority to add new employees Perpetrators of occupational fraud Supervisors

There are four methods by which employees typically abuse the expense reimbursement process. Which of the following is NOT one of these? I. J. K. L.

28.

The check must be delivered to the perpetrator or accomplice. Income tax withholding must be filed in the name of the ghost. An accomplice of the fraudster must cash the check. At least three after-hours specter sitings on company property must have been independently reported in the previous pay period

Without obtaining a receipt In cash Purportedly for business but are actually personal With another employee’s P-card

An organization’s accounting system should be set up to _________________ that are coded as travel and entertainment expense.

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A. B. C. D. 31.

Fraudulent cash register disbursement schemes differ from cash register skimming and larceny in that when the money is taken from the cash register: E. F. G. H.

32.

It is always a collusive act involving an employee and an accomplice. It is recorded on the register tape. It results in a credit to inventory because the merchandise was not actually returned. It leaves the victim company’s books in balance.

There are two methods that perpetrators who commit fraudulent register disbursements use to impede detection. These are: I. J. K. L.

33.

Flag duplicate payment amounts Require original credit card statements in lieu of receipts for expenses Run an automatic Benford analysis on all expenses (especially on 0’s and 5’s) Closely scrutinize expenses

Model employee and rarely takes vacations. Steal inventory equal to the disbursement and adjusting the perpetual inventory records. Small disbursements and destruction of records. Post a credit to perpetual inventory records and take part in the physical count.

The best way for organizations to prevent fraudulent register disbursements is to always maintain ___________________________: M. N. O. P.

A policy permitting cashiers to have access to the register control key. Appropriate separation of duties. Hidden camera surveillance of all cash register areas. Cashier authority for reversing their own transactions (but no one else’s).

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CHAPTER 6 1.

In the ACFE Fraud Tree, corruption schemes are broken down into four classifications. Which of the following is NOT one of the four? A. B. C. D.

Offering, giving, receiving, or soliciting anything of value to influence an official act is the definition of: A. B. C. D.

F. G. H.

Something of value is offered to influence to a government agent in order to influence a business decision Something of value is offered to reward a transaction rather than influence it Something of value is offered to influence a business decision rather than an official act of government Something of value is offered to reward a government decision rather than to influence it

Conflicts of interest are essentially different from bribery, illegal gratuities, and economic extortion cases in that a conflict of interest occurs when an employee, manager, or executive, has ________________________________. A. B. C. D.

Bribery Economic extortion Bid rigging Illegal gratuity

The key difference between bribery and commercial bribery is that in cases of commercial corruption: E.

Bribery Bid rigging Economic extortion Conflict of interest

An undisclosed economic or personal interest in a transaction that adversely affects the organization. A relative with less than two degrees of consanguinity serving on the organization’s board of directors. Materially benefited from a business transaction whose profits should have gone to his/her organization. An officer/director position on the board of another company with which the employing organization does business (e.g., purchasing insurance)

Bribery schemes generally fall into two broad categories: E. F.

Governmental acts and commercial decisions Conflict of interest and self-dealing schemes

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G. H. 6.

In a kickback scheme, the funds come directly from: A. B. C. D.

Use cash from falsified travel and entertainment expenses Divert funds from nonaccomplice vendors engaged in overbilling schemes Approve the formation of an offshore shell company through an entity such as Mossack Fonseca Divert funds to lobbyists through invoices for “consulting fees,” “referral fees,” “commissions,” or the like

By regularly monitoring the prices paid for good and services as compared to market rates, which type of fraud is an organization trying to detect? I. J. K. L.

10.

The purchasing manager A ghost employee The warehouse manager The head of accounts receivable

Ted is Director of External Affairs for a large pharmaceutical company. Part of his responsibilities include coordinating the company’s national lobbying efforts in order to create more favorable business conditions for the operations of its six regional distribution centers. If Ted decides to create a slush fund with company money in order to provide bribes and gratuities for legislators and others, which way would he most likely use to generate the necessary money for the slush fund? E. F. G.

The victim company A nonaccomplice vendor An accomplice vendor Employees with purchasing authority

Internal auditors for Stuff You Need for Your House, Inc., uncovered what appears to be a kickback scheme amounting to some $30,000 in over-billing by a vendor in the previous 18 months. The company has contacted you to investigate the fraud in order to identify the perpetrator(s). All things being equal, which of the following employees is likely to be involved? A. B. C. D.

Kickbacks and bid-rigging schemes Bribery and corruption schemes

Gouging schemes Kickback schemes Commission schemes Bribery schemes

Because any examination of a kickback scheme will likely necessitate a review of the corrupt vendor’s books, all contracts with supplies should contain a _____________ clause.

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M. N. O. P. 11.

_________________ is a process by which several bidders conspire together to split up contracts and ensure that each gets a certain amount of work. Q. R. S. T.

12.

Facilitating payments (for things such as obtaining permits) UK citizens acting outside of the UK Bribery of public officials An unduly complex legal or banking structure

Illegal gratuities are similar to bribery schemes except there is not necessarily: E. F. G. H.

15.

Shell company schemes Bid rigging FCPA violations Economic extortion

The UK Bribery Act parallels the FCPA in many aspects, however, one key difference is that the former provides no exception for ________________________. A. B. C. D.

14.

Bid phishing Bid pooling Bid peaking Bid conspiring

Payments to offshore bank accounts in cash or by wire; undocumented business entertainment expenses; unusual payments for commissions, loans, temporary employees and directors’ fees are red flags associated with possible: U. V. W. X.

13.

“right to independent counsel" “right to terminate without cause” “right to audit” “right to be reimbursed for kickbacks”

A code of ethics violation for most companies and government employees Economic extortion Intent to influence a particular business decision A cash payment

Economic extortion is basically the flip side of a bribery scheme. I. J.

Instead of an illegal gratuity, the payment comes with an explicit or implied threat to harm the vendor unless they capitulate to demands. Instead of a vendor offering a payment to an employee to influence a decision, the employee demands a payment from a vendor in order to make a decision in that vendor’s favor.

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K. L. 16.

The majority of conflict of interest schemes fit into one of two categories: A. B. C. D.

17.

Billing; extortion Undisclosed; purchasing Purchasing; billing Sales; gratuities

Not every false billing scheme is categorized as a conflict of interest. For a scheme to be classified as a conflict of interest: M. N. O. P.

20.

Not necessarily tied to an economic interest Undisclosed Purchasing schemes Sales schemes

The majority of conflict schemes are ___________ schemes, and the most common of these is the _____________ scheme. I. J. K. L.

19.

Purchasing schemes and sales schemes Bribery and illegal gratuities Conflict of interest and economic extortion Kickback and “pay it forward” schemes

The majority of conflict schemes are: E. F. G. H.

18.

Instead of a private company, the payment comes with an explicit or implied threat to harm a government employee unless they capitulate to demands. Instead of cash, “rewards” such as free international vacation may be used.

The relationship with the vendor company has to be disclosed in advance unless the cost of goods are cheaper. The employee (or a friend or relative of the employee) must have some ownership or employment interest in the vendor that submits the invoice. The employer has an undisclosed conflict of interest in one or more a shell companies. The fraudster’s intent is unlawful in a conflict of interest scheme, whereas in a false billing scheme, they are merely unethical.

Shell company schemes are classified as: Q. R. S. T.

Economic extortion Undisclosed relationship schemes False billing schemes Conflict of interest schemes

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21.

A short rule of thumb that can be used to distinguish between overbilling schemes that are classified as asset misappropriations and those that are conflicts of interest: if the bill originates from a ______________ in which the fraudster has an economic or personal interest, and if the fraudster’s interest in the company is undisclosed to the victim company, then the scheme is a conflict of interest. A. B. C. D.

22.

A board member of a school voted in favor of the school doing a bond issue to acquire a multi-million-dollar piece of property for a future campus. It was later discovered that the board member’s wife had part-ownership in the property, a fact that the board member never disclosed to the school. What kind of fraud scheme did the board member perpetrate? A. B. C. D.

23.

A business diversion scheme. None. It’s a free market. A resource diversion scheme. A turnaround sale

_______________ are violations of the rule that a fiduciary, agent, or employee must act in good faith, with _______________, in the best interest of the principal or employer. A. B. C. D.

25.

A conflict of interest scheme A false billing scheme A bid rigging scheme A duty of care scheme

Bob was CFO for a chain of Lucky Clucky chicken franchises owned by Tim. By virtue of Bob’s position as CFO, he knew that Tim was planning to open another store in a particular location. Bob hurriedly created a shell company using his wife’s maiden name as the beneficial owner and then purchased the location. The shell company then resold the property to Tim’s company a few weeks later for a greasy little profit of $172,000. What kind of purchasing scheme did Bob commit? E. F. G. H.

24.

Real company Shell company Offshore bank Nonaccomplice vendor

Conflict of interest schemes; full disclosure Purchasing schemes; clear intent Shell company schemes; full transparency Ethical lapses; proper duty of care

To detect conflicts of interest, organizations should concentrate on establishing ________________ to receive tips and complaints. E.

A whistle-blower protections policy

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F. G. H. 26.

In any antifraud effort, we must always keep in mind that _________________ will deter occupational fraud; we must attack the problem _________________. I. J. K. L.

27.

Anti-fraud messaging (such as posters) displayed throughout the organization Adequate reporting programs Foster a climate of trust Prosecute offenders

Fraud reporting programs should emphasize at least six points: fraud, waste, and abuse occur at some level in nearly every organization; this problem cost jobs, raises, and profits; the organization actively encourages employees to come forward with information; there are no penalties for furnishing good-faith information; there is an exact method for reporting, such as a telephone number or address; and ________________. U. V. W. X.

30.

Classroom Implementation of sound internal controls Hiring process The employee’s mind

There are at least six positive steps that organizations can employ to increase the perception of detection: employee education, proactive fraud policies, a higher stance, increased use of analytical review, surprise audits where feasible, and _____________. Q. R. S. T.

29.

Nothing can ultimately; from a psychological point of view Fostering trust in employees; with a presumption of goodwill No one factor; on several fronts It is people who will ultimately; through anti-fraud training and internal controls

The deterrence of occupational fraud and abuse begins in the _______________. M. N. O. P.

28.

Robust internal controls An anonymous reporting mechanism A segregation of duties policy

Incentives offered for information leading to successful prosecution of fraudsters Mandatory participation in regular anti-fraud training A report of suspicious activity does not have to be made to the employee’s immediate supervisor Adequate compensation (to deter wages in kind motivated frauds)

According to the ACFE’s Report to the Nations, _________________________(i.e., employees, vendors, customers, and anonymous individuals) are the most common means by which occupational fraud is detected. Y. Z.

Surprise audits of Tips from various sources

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AA. BB.

Confessions by individuals Red flags observed among

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CHAPTER 7 1.

Among the factors associated with financial statement fraud, the most common is pressure on upper management to ______________. A. B. C. D.

There are three main groups of people who commit financial statement fraud. In descending order of likelihood of involvement, they are as follows: Senior management, mid- and lower-level employees, and ___________________. A. B. C. D.

Publicly traded companies Privately held enterprises Senior management Organized criminals

Senior managers and business owners may “cook the books” for any of several reasons: to conceal true business performance, to preserve personal status/control, and to __________________________. I. J. K. L.

Organized criminals Government bureaucrats Directors and officers of governing boards Employees with purchasing authority

According to a 2010 study of 347 financial statement frauds from 1998 to 2007 conducted by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), ____________________ is the group most likely to commit financial statement fraud. E. F. G. H.

Comply with PCAOB regulations Show earnings Manage board relationships Increase market share

Deceive stockholders Comply with PCAOB-mandated income targets Maintain personal income/wealth Get revenge on the organization (e.g., wages in kind)

In FRF, senior management may ____________ business performance to meet certain objectives. M. N. O. P.

Destroy accounting records that reflect Frame another employee as a fraudster to conceal their own Delay the production of financial reports that show actual Overstate or understate

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There are three general ways in which fraudulent financial statements can be generated: playing the accounting system, beating the accounting system, and ____________________. Q. R. S. T.

Using data spanning 2002-2013 from the ACFE Report to the Nations on Occupational Fraud and Abuse, and made available through the Institute for Fraud Prevention (IFP), the authors examined private company FRF cases in comparison to those at public companies and found several key differences. These included the observation that a stronger antifraud environment in public companies appears to lead public company FRF perpetrators to use ____________ perhaps to make the fraud less obvious, rather than other fraud schemes such as fictitious revenues. U. V. W. X.

Monetary unit Going concern Economic entity assumption Periodicity principle

Fraud, in the going-concern context, usually results from attempts by an entity to _____________________. CC. DD. EE. FF.

10.

Off balance sheet liabilities Bribery and illegal gratuities Timing differences Classifying expenditures as assets

The premise of the ____________________ is that the activity of a business enterprise should be kept separate and distinct from its owners and other business entities. Y. Z. AA. BB.

Inverting the accounting system (i.e., intentionally reversing debits and credits) Claiming to have no knowledge of fraudulent transactions in the accounting system Coercing employees who control the accounting system Going outside the accounting system

Overstate/understate its assets Conceal its terminal business condition Establish a sales value for the asset without selling it Conceal the existence of special-purpose entities (SPEs)

Fraud can occur when purposeful attempts are made to manipulate the ___________ concept. For example, through controlling the year-end cut-off in financial figures, many companies boost their current net income by counting revenue from the following year early, and by delaying the post of this year’s expenses until the following year. A. B. C.

Matching Periodicity Historical cost

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D. 11.

Many major financial frauds have resulted from the purposeful omission of _____________ in the financial statements. E. F. G. H.

12.

Transparency; “matching;” transparency Periodicity; “smoothing earnings;” periodicity Conservatism; “lower of cost or market”; conservatism Materiality; “net present value;” materiality

If a company changes the way it keeps its books from one year to the next, and if these changes have a material impact on the financial statements, they must be disclosed in a note. Fraud occurs when ___________ is intentionally avoided to show false profits. A. B. C. D.

15.

User-oriented Transparency Universal Regulatory

An example of ______________ in accounting is the use of the _______________ rule as it relates to inventory valuation. That simply means that if a company paid one dollar for a widget and at a later date the price fell fifty cents, the lower of those two prices should be carried on the balance sheet; the resulting price fall should then be recorded on the income statement. If a company’s financial statements violate the ____________ constraint, they could be fraudulent. E. F. G. H.

14.

Periodicity Note disclosures Conflicts of interest Net realizable value (NRV) of assets

Materiality, according to GAAP, is a _________________ concept. A. B. C. D.

13.

Transparent disclosure

Consistency Net realizable value Relevance Clarity

Financial statements are the responsibility of company ____________. E. F. G. H.

Bookkeepers Shareholders Management External auditors

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16.

Financial statement fraud schemes are most often perpetrated against _________________ financial statements by management. I. J. K. L.

17.

The term financial statement includes almost any financial data presentation prepared according to ____________________ or another __________________. M. N. O. P.

18.

“Earnings management” Financial statement fraud Defalcation Irrelevancy

_____________________ in the quality and reliability of financial statements, caused by alleged fraudulent activities, is the most damaging and costly effect of financial statement fraud. I. J. K. L.

21.

Fictitious revenues Senior management fraud Materiality Inflated inventory

________________ is defined as the use of deliberate misstatements or omission of amounts or disclosures of financial statements to deceive financial statement users, particularly investors and creditors. E. F. G. H.

20.

The CEO’s reasonable interpretation; officer within the company Generally accepted accounting principles; comprehensive basis of accounting A professional auditor’s opinion; legitimate source of accounting expertise SEC rulings; regulatory body such as the PCAOB

Financial statement frauds can be broken down into five distinct categories: concealed liabilities and expenses, _______________, improper asset valuations, improper disclosures, and timing differences. A. B. C. D.

19.

Publicly traded companies that are required to prepare PCAOB regulations pertaining to GAAP requirements for preparation of Potential users of

Increased instances since 2000 of material misrepresentations Worldwide decline in market capitalization can be observed Loss of public confidence Increased regulatory compliance costs

Which of the following categories of harm resulting from fraudulent financial statements was NOT presented in the text?

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M. N. O. P. 22.

_____________________ schemes involve the recording of sales of goods or services that did not occur. Q. R. S. T.

23.

Off balance sheet liabilities Sales with conditions Material omissions Undisclosed speculative revenue recognition (SAB 104)

Which of the following red flags was NOT listed in the text as being associated with fictitious revenues? CC. DD. EE. FF.

26.

Recorded Received Invoiced Earned

____________________ are a form of fictitious revenue scheme in which a sale is booked even though some terms have not been completed and the rights and risks of ownership have not passed to the purchaser. Y. Z. AA. BB.

25.

Bribery and corruption Matching Disclosure Fictitious or fabricated revenue

Generally speaking, revenue is recognized when it is realized or realizable and _____________. U. V. W. X.

24.

It jeopardizes the integrity and objectivity of the auditing profession. It makes the capital markets less efficient. It results in huge litigation costs. It increases taxpayer costs for corrections as a result of white collar convictions.

Rapid growth or unusual profitability Recurring negative cash flows from operations Significant, unusual, or highly complex transactions, especially those to period end Intentional omissions of disclosures regarding accounting principles and policies

Persuasive evidence of an arrangement does not exist, delivery has not occurred or services have not been rendered, the seller’s price to the buyer is not fixed or determined, or collectability is not reasonably assured are all examples of common problems associated with which type of financial statement fraud? GG. HH. II.

Liabilities/expense omissions Premature revenue recognition Improper disclosures

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JJ. 27.

Liability omissions, subsequent events, management fraud, related-party transactions, and accounting changes are all associated with which type of financial statement fraud? KK. LL. MM. NN.

28.

Ratio analysis Inventory turnover Horizontal analysis Analysis of nonfinancial numbers

Stewart was an iconic CEO with a $32-million-a-year salary until he was convicted of embezzlement. An internal auditor was the first to notice a red flag on a balance sheet ratio. What did she notice? E. F. G. H.

32.

Certified analysis and non certified analysis In-depth analysis and cursory analysis Vertical analysis and horizontal analysis Disclosure analysis and related-party transactions analysis

Current ratio, quick ratio, debt to equity, and return on assets are all examples of what kind of analysis: A. B. C. D.

31.

Improper asset valuation Revenue recognition Improper disclosures Undisclosed related-party transactions

There are traditionally two methods of percentage analysis of financial statements: E. F. G. H.

30.

Timing differences Revenue recognition Improper disclosures Channel stuffing

Inventory valuation, accounts receivable, business combinations, and long-term assets are categories that involve which kind of financial statement fraud? A. B. C. D.

29.

Off balance sheet special-purpose entities

A decrease in the company’s debt to equity ratio A decrease in the company’s current ratio An increase in the company’s quick ratio An increase in the company’s profit margin ratio

When conducting a fraud examination, variables such as weather data, employee headcount, production facilities, and production capacity might provide useful clues. These types of data are known as:

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A. B. C. D. 33.

One of the challenges of detecting financial statement fraud is that: E. F. G. H.

34.

Non-financial measures (NFMs) Dupont Expression Return on assets (ROA) Return on equity (ROE)

Auditors tend to over-analyze even relevant NFMs The financial statements of publicly traded companies are insufficiently regulated Either the CEO or the CFO was involved in 89% of financial statement frauds studied (implying an override in traditional internal controls) Employees within the accounting department can commit immaterial frauds

Organizational avoidance of setting unachievable or unreasonable financial goals is an example of: A. B. C. D.

Reducing the pressure to commit financial statement fraud Reducing the opportunity to commit financial statement fraud Reducing the grounds for rationalizing financial statement fraud Reducing the incentives for reaching performance targets

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CHAPTER 8 1.

_______________ must take the lead in establishing, implementing, and maintaining a formal fraud risk management program. A. B. C. D.

“Management is responsible for adopting sound accounting policies and for establishing and maintaining internal control that will, among other things, initiate, authorize, record, process, and report transactions (as well as events and conditions) consistent with management’s assertions embodied in in the financial statements.” What is the source of this standard? A. B. C. D.

SAS No. 1 COSO Internal Control Framework, Section 3 SEC Regulation D Rule 502 PCAOB Standard No. 1

Because prevention through segregation of duties, approvals, and authorizations is not possible in a collusive environment, the principal internal control procedures will be centered on _____________. E. F. G. H.

Corporate shareholders Board and management Regulatory agencies such as the PCAOB and SEC Internal auditors

Authority Mitigation Detection Deterrence

Generally, three procedures are effective in identifying breakdowns in internal controls due to override and collusion: journal entries recording in the books and records, as well as other adjustments to financial information should be examined for proper back-up document; significant accounting estimates needs to be reviewed; and ___________________________. I. J. K. L.

Care should be taken by the board to ensure that the external auditor is indeed, independent in fact, and in appearance. A properly functioning board-operated audit committee which has the ability to independently investigate anomalies should be established. A robust whistleblower mechanism should be implemented and its existence widely published throughout the organization. Unusual “one-time” transactions should be scrutinized to ensure they have an appropriate underlying business rationale.

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The 2016 ACFE Report to the Nations found that ___________ of existing controls is the second most frequently observed internal control weakness that contributed to fraud; the lack of internal controls was the only weakness more frequently cited by the ACFE’s survey respondents. M. N. O. P.

The perception of the public—particularly with regard to asset misappropriation, corruption, and misstated financial statements—is that independent auditors are: Q. R. S. T.

Errors Scope Intent Red flags

_______________ is a relative concept. A misstated amount that would be immaterial to a large company could be large enough to wipe out the net worth of most small companies. A. B. C. D.

Largely corrupt and untrustworthy themselves Responsible for fraud detection Not generally trained in the specific techniques of fraud examination Antiquated in the age of big data and artificial intelligence (AI)

When conducting an audit, the auditor has a responsibility to design audit tests to address the risk of management override of internal controls. _____________ can be discerned by looking for evidence of concealment such as missing documents, altered documents, nonreconcilable items, misinformation obtained during management inquiries, and other indicators of concealment. U. V. W. X.

A lack of clarity A lack of awareness Overly complex design Override

Materiality Truth Fraud An external audit

The materiality amount—once established—is _______________ for the duration of the audit engagement. E. F. G. H.

Essentially a footnote Not set in stone Fixed and cannot be adjusted Determined by management

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10.

____________ involves deliberate actions by management to meet specific earnings objectives, generally for private gain. A. B. C. D.

11.

Management has some latitude to manage earnings as long as the choices are considered ____________, however, any sign of deliberate efforts to do so should be considered a red flag by auditors, because it can be fraud, whether or not material. E. F. G. H.

12.

The skillsets of the individual(s) involved. Its ability to parse large volumes of data. The increased perception that fraud perpetrators will be detected. Assisting senior management in establishing the “tone at the top.”

A major difference between auditors and fraud examiners is that most auditors __________________. Fraud examiners and forensic accountants who detect fraud go beyond this. They determine whether __________________, whether expenditures make sense, and whether all aspects of the documentation are in order. Q. R. S. T.

15.

A persistent relic of another era in management An unnecessary layer if an internal auditor (or team) exists An optional approach to board oversight but not recommended for publicly traded companies An integral internal control mechanism

The primary deterrent effect of an internal audit group is related to: M. N. O. P.

14.

Reasonable by investors Necessary to achieve performance bonuses GAAP-compliant Board approved

The board’s audit committee is __________________ with regard to management override and high-level management collusion. I. J. K.

13.

“Earnings management” “Willful non-transparency” “Vertical and horizontal ratios” “Ego/Entitlement”

Are not trained in detecting fraud; red flags exist Merely match documents to numbers to see whether support exists and is adequate; the documents are real or fraudulent Have at least a 5% threshold for materiality; fraud at any threshold exists Don’t have the interview skills to assess fraud; people make inconsistent statements

In most cases, asset misappropriation, corruption, and financial statement fraud last about ____________ from inception to conclusion.

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A. B. C. D. 16.

__________________ is an attempt to identify the fraud as early as possible, in contrast to the optimal situation in which the fraud is prevented or deterred. E. F. G. H.

17.

Professional skepticism Unbiased professionalism Professional pessimism Professional rigor

Generally, enhanced skepticism has three defining elements. First it includes the recognition that fraud may be present. Second, professional skepticism is exemplified by a professional’s attitude, an attitude that includes a questioning mind and a critical assessment of evidence. Third, professional skepticism asks professionals to make a commitment to __________________________. E. F. G. H.

20.

Earnings management Transaction adjustments Risks Anomalies

The starting point for the antifraud professional or forensic accountant is an attitude of ______________________. A. B. C. D.

19.

Conducting an annual fraud risk assessment Separation of duties Effective fraud detection Implementing internal controls that prevent collusion

____________ are part of the day-to-day operations of most organizations and are often observed by auditors. I. J. K. L.

18.

24 months 6 months 2.4 months 16 months

Doing whatever it takes to convict the guilty Persuasive evidence to determine whether or not fraud is present Never giving up when it comes to identifying and locating more evidence Extending a presumption of goodwill unless or until evidence suggests otherwise

Fraud detection techniques require that fraud and forensic accounting professionals pay particular attention to the possibility of ________________ because it suggests deception. A. B.

Concealment Collusion

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C. D. 21.

There are two major approaches to fraud detection: E. F. G. H.

22.

B. C. D.

Indicators of fraud if one knows how and where to look. Typically, indicative of fraud if a targeted risk assessment was not completed. Not indicators of fraud but are a function of the dynamic environment in which organizations operate. Indicators of unskilled fraudsters who don’t have sufficient knowledge to conceal their defalcations.

Irregularities such as missing documents, excessive voids or credit memos, excessive write-offs, duplicate payments, second endorsement on checks, and questionable handwriting are all examples of: A. B. C. D.

25.

Develop an understanding of the control environment—the environment as opposed to the controls themselves. Develop an audit plan that includes discussions with senior management about potential fraud risks Develop a network of insiders who may have knowledge of actual fraud Remind your team of the importance of professional skepticism

Most red flags are: E. F. G.

24.

Through tips (allegations) and the preponderance of evidence Through external audits and internal audits Through the identification of red flags and through a targeted risk assessment Through the use of covert and overt surveillance (both physical and digital)

The first step to detecting fraud is to build an understanding of the organization and the environment in which it operates. The second step is to ______________________. A.

23.

Override of internal controls Conversion

Accounting anomalies Analytical anomalies Behavioral red flags Internal control irregularities and weaknesses

From a fraud perspective, internal controls have at least three different objectives: E. F. G. H.

Increase perception of detection, improve deterrence, and create a reporting mechanism Deterrence, detection, and mitigation Segregation of duties, checks and balances, and detection Prevention, deterrence, and detection

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26.

Data such as laundromat electricity usage and cycle time, beer purchase quantities, and travel dates are examples of: I. J. K. L.

27.

The targeted fraud risk assessment approach assumes that there should be a direct relationship between the ________________ and the _________________________. M. N. O. P.

28.

R. S. T.

Propose the scope of the audit, execute the scope, report the findings to the board, and reply to management concerns. Money, Ideology, Coercion, and/or Ego/Entitlement (MICE). Act, concealment, and conversion. Evaluate the fraud risk factors, identify possible fraud schemes and scenarios, prioritize individual fraud risks, evaluate mitigating controls.

The text outlines a ten-step approach to implementing a targeted fraud risk assessment. Which of the following is NOT one of those steps. U. V. W. X.

30.

Specific industry involved; risk levels typically associated with that industry Accounts receivable department; accounts payable department Level of risk associated with a material weakness in the company’s controls; amount of attention devoted to that area during an audit Organization’s tolerance for risk; implementation of appropriate internal controls

An overview of the fraud risk assessment process includes the following components: Q.

29.

Accounting anomalies Nonfinancial numerical performance data Red flags that have little to no potential value in verifying or disproving fraud Tend to be “corrupted” sources of data

Identify the “process owner” for each of the identified significant processes. Identify the parties who have the ability to commit the potential fraud. Identify specific vendors that have a reputation for fraud within the industry. Identify, understand, and evaluate the company’s operating environment and the pressures that exist.

When the text refers to a “process owner,” it is referring to an individual who has: Y. Z. AA. BB.

Subject matter expertise in the processes that should be used within the industry. Significant influence or sway in the processes used by the organization to accomplish its goals, but little ability to alter those processes despite “owning” them. The responsibility for conducting a particular aspect of a targeted fraud risk assessment. Day-to-day authority and ability to alter standard operating procedures to accomplish the goals and objectives of the organization.

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31.

Residual fraud risk includes those _______________ that are not adequately mitigated by control activities, and, as such, requires a fraud audit response. A. B. C. D.

32.

The risk of management override and collusion are _________ residual fraud risks and require a specific audit response, if detection activities do not exist. E. F. G. H.

33.

Occasionally Always Rarely Never

In an electronic environment that captures a huge amount of transactions annually, many transactions and data relationship anomalies appear to be a potential fraud or error. To utilize the computer environment effectively, _________________ must be completed. A. B. C. D.

34.

Fraud schemes Personnel Industry norms Company specific characteristics

The targeted fraud risk assessment process A hypothesis/null hypothesis matrix CAATT training by the auditor or examiner A Benford analysis on all journal entries

The most challenging issue regarding fraud detection in a digital environment is the potential for: E. F. G. H.

The inherent susceptibility of digitally stored data to be fraudulently altered without detection. Historical transaction data to be lost over time due to the high costs of digital storage. An over-whelming number of fraud symptoms (i.e., red flags). Hackers and other unauthorized users gaining access to proprietary information.

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CHAPTER 9 1.

To complete a fraud examination, the fraud examiner or forensic accountant needs to answer the essential questions of ____________________ with ________________. A. B. C. D.

You have been hired by the prosecution to provide expert testimony in a fraud case you helped investigate. As you provide answers to key questions around the fraud examination, your testimony will be more convincing to the judge and jury if you: E. F. G. H.

A certified fraud examiner Sophisticated perpetrators with a deep knowledge of accounting Judges that legislate from the bench Opposing attorneys

An excellent tool to analyze evidence and develop a compelling storyline is the _______________________. A. B. C. D.

Can articulate a clear opinion about the guilt of the perpetrator(s). Have woven the answers into a coherent storyline grounded in the evidence. Ground your answers in the elements of the fraud triangle, particularly with respect to motive. Omit any reference to evidentiary shortcomings in your testimony.

Fraud professionals need to understand that no one is better at generating alternative theories of a case than _____________________. I. J. K. L.

Opportunity, motive, and rationalization; conviction Money, ideology, coercion, and ego/entitlement (MICE); clarity Who, what, when, where, and why; evidence Which specific fraud laws were violated; authority

Hypothesis-Evidence Matrix The Fraud Triangle A correlation coefficient of .95 or greater for each variable associated with the fraud Use of software tools such SAS or IDEA geared toward fraud analysis

_______________ is defined as the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe that a fraud has occurred, is occurring, or is about to occur. E. F. G. H.

Premonition Prevarication Probable cause Predication

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Typically, a few _______________ are not in themselves sufficient as a basis for a fraud examination. A. B. C. D.

Auditors and accountants often direct their fraud prevention and deterrence efforts toward using internal controls to minimize _______________ because fraud is highly improbable without it. E. F. G. H.

It eliminates the need to develop a compelling storyline grounded in the evidence Fraudsters use them in attempt to outwit fraud examiners Courts are required to consider the findings admissible The evidence of each element can be developed

In fraud cases, evidence of ______________ in particular, provides some of the best circumstantial evidence that the act and conversion (benefits) were intentional. A. B. C. D.

11.

Perceived pressure Rationalization Intent Ego/entitlement

The main benefit of using the elements of fraud in an investigation is that in virtually every fraud or financial crime, ____________________. M. N. O. P.

10.

Perceived pressure Opportunity Competing hypotheses Coercion and entitlement

The difference between a mistake and fraud is ____________. If the fraud examiner or forensic accountant cannot prove it, a civil or criminal conviction for fraud most likely cannot be sustained. I. J. K. L.

Red flags Instances of missing cash or other assets Tips with some corroborating evidence Falsified financial reports

Concealment Motive, intent, concatenate, and elude (MICE) A bribe Rationalization

There is a debate in the profession about whether tracing money to a perpetrator’s bank account is sufficient evidence of conversion, or whether the fraud examiner or forensic accountant needs to show how the ill-begotten money was used. Legal precedent indicates

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that tracing the money into the hands of the perpetrator or his or her bank account is____________________. E. F. G. H. 12.

Things such as the timing of key transactions, altered documents, concealed documents, destroyed evidence, missing documents, false statements, patterns of suspicious activity, and breaks in patterns of expected activity are examples of ___________________ that may indicate the act, concealment, or conversion in fraud. I. J. K. L.

13.

Direct (rather than circumstantial) Trustworthy Compelling Reasonably conclusive

Three types of evidence may be offered at trial: testimony, real, and ____________. A. B. C. D.

16.

Predication Perceptibility The Federal Rules of Evidence Evidence

Generally, evidence is admitted at trial provided that: it is relevant to the issue at hand, any probative effect outweighs any prejudicial effect, and the evidence is ________. Q. R. S. T.

15.

Predication Direct evidence Circumstantial evidence MICE

___________________ is defined as anything perceivable by the five senses, any proof, such as testimony of witnesses, records, documents, facts, data, and tangible objects, legally presented at trial to prove a contention and to induce a belief in the minds of the jury. M. N. O. P.

14.

Insufficient Sufficient More powerful than showing how the perpetrator benefited from it Only useful to the extent that you can show how the money was used

Demonstrative Compelling Reliable/trustworthy Non-prejudicial

Most fraud and forensic accounting cases are proved with ___________ evidence. E.

Demonstrative

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F. G. H. 17.

To be admitted at trial, evidence must be shown to have unique identifiers (preferable), or that the chain of evidence has been followed. This process is known as: I. J. K. L.

18.

Probative values Red flags Examinations Daubert challenges

Analysis of cash flows, analysis of competing hypotheses, consideration of analytical and accounting anomalies, big data and data analytics, consideration of the fraud triangle, use of graphical tools for analysis and communication, internal controls, the control environment and opportunity, interviewing for information and admissions, analysis of nonaccounting and nonfinancial numbers and metrics, financial statement and ratio analysis, consideration of red flags, and analysis of related parties are all examples of: I. J. K. L.

21.

Validity Demonstrative value Probative value Authenticity

In essence, ____________ are where evidence intersects with the tools and techniques of the antifraud and forensic accounting profession. E. F. G. H.

20.

Verisimilitude certification Authentication Chain of custody audit Invigilation

You are a fraud examiner investigating a case involving a large amount of physical evidence (e.g., emails, journal entries, checks, etc.). In addition to having a system for gathering, documenting, organizing, retaining, and retrieving the evidence, you also need to review it for relevance, reliability, and ______________. A. B. C. D.

19.

Direct Documentary Circumstantial

Direct evidence. Methods by which evidence can be assessed for validity and reliability. Board and management responsibilities. Forensic accounting and fraud examination tools/techniques.

___________ evidence is the backbone of most financial forensic examinations. M. N.

Compelling Demonstrative

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O. P. 22.

_____________ is an examination technique that considers periods before, during, and after a suspected fraud has occurred. Q. R. S. T.

23.

Wiretaps Email Video surveillance Confidential informants

True big data, data analytics, and data mining software doesn’t just change the presentation, but actually discovers _____________________ among the data. M. N. O. P.

27.

Large Cash Purchase Report (LCPR) Suspicious Activity Report (SAR) Currency Transaction Report (CTR) IRS Form 8300

The value of ________, to include “smoking gun” evidence of financial crimes, fraud, motivations for activity, and other information cannot be overstated. I. J. K. L.

26.

Depositions Negotiations Indictments Covertly recorded conversations

You are conducting a fraud examination in which a confidential informant told you that the key suspect purchased a brand new luxury vehicle with cash that was embezzled. Which kind of report should you obtain to verify this? E. F. G. H.

25.

Consideration of red flags Invigilation Earnings management Defalcation

In a civil case, interviews are most often carried out in the form of ____________. A. B. C. D.

24.

Documentary Circumstantial

Materiality Fraud schemes Previously unknown relationships Patterns/breaks in patterns

According to ACFE research, ______________________ are the most common concealment methods for all three categories: asset misappropriation, corruption, and financial reporting fraud.

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A. B. C. D. 28.

Accounting books and records that are found during the course of an examination to have been altered provide compelling evidence of ______________. A. B. C. D.

29.

Place the titles in an undisclosed safe deposit box Make payments to insurance policies from unknown accounts Pay down mortgages without running the payments through known bank accounts Transfer those assets to another party over which the person holding the assets has some element of control

Using indirect methods to estimate assets controlled by an entity, or income to an entity, is referred to as ________________. M. N. O. P.

32.

Debits to equity Debits to liabilities Debits to expense accounts Debits to revenues

The most common means for hiding real estate and business ownership is to __________________________________________. I. J. K. L.

31.

Concealment Conversion Concatenation Collusion

You are a fraud examiner who is investigating a suspected embezzlement. As you comb through the general ledger looking for debit entries to offset credits to cash, which account of those listed below is the most commonly used in concealment in such cases? E. F. G. H.

30.

Creating fraudulent documents and altering physical documents Creating fraudulent transactions in the accounting system Creating fraudulent electronic documents or files Creating fraudulent audit records

“financial ghosting” “financial profiling” “intrusion upon seclusion” “conjectural accounting”

The primary challenge related to using financial profiling methods is the _________________________________________. A. B. C.

Amount of legwork involved in developing sources of information Difficulty in dealing with offshore banks and foreign laws Identification of shell company beneficial owners

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D. 33.

The _________________ provides circumstantial evidence that amounts paid for assets and expenditures exceed income from known sources for a given period of time. E. F. G. H.

34.

Bank records method Invigilation method Net worth method Lifestyle analysis method

In preparing to rebut defenses to cash from unknown sources, the fraud examiner should develop an evidence trail, if possible, which suggests that defenses are not feasible. Four common defenses to unknown sources of cash include the assertion that the cash was: accumulated in prior periods, obtained by gift or inheritance, obtained from loan proceeds, or a result of: I. J. K. L.

35.

Difficulty in accessing tax returns without a court order

Selling some other asset (such as a painting) Foreign held investments Frugality Lottery or gambling winnings

The primary benefits of using public sources of data such as the local county courthouse, database searches, Internet searches, and other extra-organizational sources of data are that open sources of data provide evidence of conversion, and can be useful in ________________________. M. N. O. P.

Cases where the perpetrator deals mostly in cash Expressing an opinion of guilt grounded in the evidence Developing new leads Investigating high profile suspects

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CHAPTER 10 1.

In the fraud examination and forensic accounting professions, nothing is more important to the successful resolution of a case than the ability to conduct thorough interviews of ____________ and interrogation of ________________________. A. B. C. D.

_____________ is the systematic questioning of a person who has knowledge of events, people, evidence, and other details surrounding a fraud or forensic accounting issue. E. F. G. H.

Facts; hypothesis Hypothesis; facts Specific; general General; specific

By arranging interviews in order of probable culpability, the fraud examiner is in a position to ______________________________________. A. B. C. D.

Interviewing Examination Interrogation Instigation

In a fraud examination, evidence is usually gathered in a manner that moves from __________ to __________. M. N. O. P.

Interrogating Interviewing Canvassing Structured dialoguing

_____________ generally involves the questioning of a suspect, target, or uncooperative witness to obtain evidence, to obtain an admission of guilt or complicity in an act, or to give the interviewee an opportunity to volunteer facts and circumstances that may eliminate them as a suspect or target of the examination. I. J. K. L.

Subjects and targets; witnesses Employees and board members; fraudsters Witnesses; subjects and targets Fraudsters; felons

Have as much information as possible by the time the prime target is interviewed Save the time and cost of depositions until last for the most probable targets Use lawful threats (e.g., jail, conviction, fines) for uncooperative suspects Seek any additional grand jury indictments needed based on the evidence gathered

Under which kind of fraud would an examiner start with the suspected perpetrator?

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E. F. G. H. 7.

You are a fraud examiner who has been hired to investigate a potential embezzlement case. In which order should you go about gathering the evidence? I. J. K. L.

Document analysis, neutral third-party witnesses, co-conspirator(s), corroborative witnesses, target. Target, co-conspirator(s), corroborative witnesses, document analysis, neutral thirdparty witnesses. Document analysis, neutral third-party witnesses, corroborative witnesses, coconspirator(s), target. Target, co-conspirator(s), corroborative witnesses, neutral third-party witnesses, document analysis.

Many antifraud professionals, forensic accountants, and attorneys will suggest that the outcome of an interview or interrogation may be determined before the first question is asked. What is the underlying belief to this axiom? M. N. O. P.

Cases of collusion where a co-conspirator agrees to testify against the perpetrator Fraudulent representations (such as tax returns and financial statements) Almost every instance where the suspected perpetrator has a prior fraud conviction If surveillance footage contains “smoking gun” evidence against the perpetrator

If you position yourself as an expert, witnesses will generally be reluctant to lie. Professional experience trumps attempts at concealment in most frauds. Eyewitness testimony is reasonably reliable. Preparation is the primary key to success.

You are a fraud examiner investigating the theft of a company’s automotive parts inventory. After reviewing documents and interviewing witnesses, you have narrowed the list of probable perpetrators to three warehouse workers who appear to have colluded with each other: a forklift operator, a shift leader, and a loader. All three have high school diplomas and earn about 15% more than minimum wage (except for the shift leader, who earns a little more). You decide to interview the forklift driver first (on the belief that the shift leader and the loader are the probable the primary targets). As you talk, you use the terms, “collusion,” “defalcation,” and “predication.” Which of the following statements is most applicable? Q. R. S. T.

You should use technical terms and language whenever possible as a power dynamic to persuade witnesses into cooperating with you. You should avoid technical terms and language because they may confuse the interviewee. You should use technical terms and language frequently, especially with people not trained in accounting or forensics because it may prompt them to confess sooner because they tend to assume you know what you are doing. You should avoid technical terms and language because it may cause the interviewee to want to play “one-upmanship” games with you.

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10.

Instead of taking detailed notes during an interview, the authors advise jotting down keywords. The reason they recommend this is that: A. B. C. D.

11.

Interviewers need to have complete command of the facts, events, dates, other relevant details, especially in potentially adversarial interviews, in order to _____________________________________. E. F. G. H.

12.

K. L.

Be subpoenaed by opposing counsel which may give it information it didn’t have Create tunnel vision and distract the interviewer from looking for signs of deception Cause the interviewer to lose credibility with the witness because they make the interviewer look like they don’t know what they’re doing Inadvertently divulge to a witness critical information known to the interviewer

In a typical interview, in what stage would the question be asked, “Is there anyone else I should speak with about the matter?” A. B. C. D.

14.

Appear to not be caught off guard by previously unknown information Present a professional image that establishes the authority of the interviewer Focus on more granular details that would likely be known only by the subject or target Deflate attempts at misdirection and deception by the subject or target

One issue that arises in interviews is the use of checklists and prewritten questionnaires. The main benefit of these is that the interviewer will be well prepared and less likely to miss an important inquiry. However, checklists can _________________. I. J.

13.

Taking extensive notes distracts interviewers from their main responsibility to watch and listen. Taking extensive notes tends to make witnesses uncomfortable which may cause them to be less forthcoming. Taking extensive notes allows the opposing side to obtain them during discovery which may reveal your side’s strategy. Taking extensive notes is impractical and will cause interviews to last unnecessarily long, thereby fatiguing both the examiners and witnesses.

The close The nadir The introduction The body

You are conducting an admission-seeking interview of a suspected embezzler. At some point during the interview, you might say something like, “I totally get it. You were under such financial pressure at home, you just didn’t see any other way out. That’s a pretty common feeling, if you ask me, especially in this day and age where we’re expected to do

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so much at work with so few resources.” What are you attempting to do by saying this to the target? E. F. G. H. 15.

Regardless of whom we interview, and about what, there are five general types of questions we can ask: introductory, informational, assessment, closing, and ____________. I. J. K. L.

16.

C. D.

The more informal the interview, the more relaxed the respondent will be. Titles can be misleading. As an example, how much authority does a company senior vice-president possess v. the company’s executive vice-president? Putting too much Personally Identifiable Information (PII) into the public about yourself can compromise your privacy and security. Plain sounding titles such as “associate” may lead the respondent to think you don’t have any real expertise or authority.

Engaging in “small talk” for a few minutes at the beginning of an interview is: E. F. G. H.

18.

Probative Relational Admission-seeking Confirmation

In conducting an interview, it is advisable to indicate your name and your company but not to use your title. Why is this? A. B.

17.

Make yourself feel less conflicted about being confrontational. Gain the confession without reducing the legal responsibility for the act. Establish a firm moral boundary in the target’s mind between right and wrong. Make yourself seem more human to a jury if the case goes to trial.

Not advisable because it’s not on-point where the purpose of the interview is concerned. Not advisable because most people see it for what it is: a banal social custom. Advisable because it can be a means of breaking the ice and establishing a flow of communication. Advisable because you want to extend the interview for as long as possible in an attempt to breakdown the witness.

There are few hard-and-fast rules in interviewing, but one of them is: I. J. K. L.

Seek continuous agreement. Get a commitment for assistance. Ask non-sensitive questions. Question only one person at a time.

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19.

Given a choice between using the words, “theft” or “shortage,” an interviewer should generally opt for “shortage.” This is because: A. B. C. D.

20.

____________ is the process of observing behavior before critical questions are asked, as opposed to doing so during questioning. E. F. G. H.

21.

To identify potential co-conspirators or other matters salient to the investigation To establish a rapport with the subject and make them feel relaxed To obtain from the confessor a written statement acknowledging the facts. To establish the credibility of the respondent

During the admission-seeking interview, the interviewer must, at some point, make a direct accusation of the subject. Which of the following accusations below would best serve this purpose? M. N. O. P.

23.

Indexing Norming Reflective feedback Posturing

Admission-seeking questions are reserved specifically for individuals whose culpability is reasonably certain. Such questions have at least three purposes: (1) to distinguish the innocent from the culpable, (2) to obtain a valid confession, and (3) ______________________. I. J. K. L.

22.

Words that normally put people on the defensive should be avoided. Interviewees who are innocent may feel that you are implying they are to blame. Until the facts are resolved, you don’t actually know whether the shortage is attributable to theft. It may help lull a target into a false sense of security because he may assume that the interviewer doesn’t believe a theft has occurred.

We have reason to believe that you … Our examination has clearly established that you … It seems likely, based on statements from your co-workers, that you … You are suspected of …

One of the most effective techniques for stopping or interrupting a denial is _________________________. A. B. C. D.

Through the use of a delaying tactic To confront the accused about their persistence in lying Through appearing to be confused To offer a moral rationalization

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24.

Rather than being confrontational in interviews, constantly seek agreement from the accused. No matter what the accused has supposedly done, do not express shock, outrage, or condemnation. This posture is recommended because: E. F. G. H.

25.

In the course of an admission-seeking interview, you could display physical evidence of the fraud, discuss the testimony of witnesses, or discuss the accused’s deceptions. All of these may be useful to: A. B. C. D.

26.

Benchmark admission Fork-in-the-road admission Lesser-of-two evils admission Exculpatory admission

As with any interview, there are three general approaches to obtaining the verbal confession: chronologically, by transaction, or by: E. F. G. H.

28.

Defuse alibis Establish rapport Increase fear Appear compassionate

In an admission-seeking interview, there comes a point at which the accused is deliberating whether or not to confess. When this occurs, the interviewer should present an alternative question to the accused which forces him or her to make one of two choices. One alternative allows the accused a morally accepted reason for the misdeed; the other paints the accused in a negative light. Regardless of which answer the accused chooses, her or she is acknowledging guilt. This is known as a/an: A. B. C. D.

27.

Only trained experts in a controlled environment should risk provoking a suspect. It limits the interviewer’s liability to formal charges of harassment. The goal is to remain in control while still appearing compassionate and understanding. The evidence in the case may ultimately point elsewhere.

Association Display of physical evidence Event Official documentation (e.g., tax return)

Because of the nature of the psychology of confessions, most confessors will lie about one or more aspects of the offense, even though confirming overall guilt. When this happens during the verbal confession, the interviewer should ________________________. I. J.

Offer a moral rationalization for the lie but make sure the confessor knows that you know he lied Firmly but politely debunk the confessor’s lie with the evidence

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K. L. 29.

_________ is an essential element in all criminal and civil actions involving fraud. M. N. O. P.

30.

C. D.

Did someone else know? Who else knew besides you? Give me the names, right now, of everyone who knew besides you! Who are the other losers involved in this?

When it is time to obtain a signed statement from the confessor, which approach is best? I. J. K. L.

33.

Say to him or her to “tell me about it” Express some moral indignation so that the confessor knows he or she has done wrong Remind the confessor that actions have consequences Immediately get the confessor to sign a written statement

Most frauds are solo ventures—committed without the aid of an accomplice. However, the interviewer should still seek to determine whether other parties were involved. Which choice from the list below would be the best way to phrase this? E. F. G. H.

32.

Motive Intent Conversion Ego/entitlement

Once the subject has admitted to remembering the first instance, the interviewer should ___________________________________. A. B.

31.

Gently confront the confessor while remaining as compassionate as possible Make a mental note of the discrepancy and proceed as if the falsehood had been accepted as truthful

The interviewer should have the confessor draft the statement, preferably in his or her own handwriting. The interviewer should suggest that the confessor’s legal counsel draft a statement. The interviewer should prepare the statement for the confessor to sign. The interviewer should have the confessor dictate the statement to him or her for signature.

Giving vague or evasive answers to questions, avoiding eye contact with the interviewer, casting guilt to others in general but not specifically, and being indignant may be signs of ____________________________________________. M. N. O. P.

The interviewer having failed to adequately prepare A pathological liar Stress that may accompany deception A confessor who is almost ready to admit their guilt

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34.

According to research, the average person’s ability to judge deception is relatively poor. Some studies have indicated that interviewers fail to identify lies as much ____ of the time. Q. R. S. T.

35.

Generally, truthful behavior includes direct answers that give the impression that the interviewee has nothing to hide, spontaneous answers that indicate that the interviewee has nothing to think about, a perception by the interviewee of attentiveness and interest in the interview outcomes, an orientation toward the interviewer, and ________________________. U. V. W. X.

36.

25% 50% 35% 70%

Increased or decreased use of illustrators in speech during threatening questions Being overly friendly and polite Appearing outwardly unconcerned Behavioral consistency between verbal and nonverbal cues

A liar will often request that the interviewer “Check with my wife,” or “Talk to my minister.” Why do they say this? A. B. C. D.

To add credibility to the false statement. To vindicate themselves. To gain sympathy from the interviewer. To identify co-conspirators without having to name them.

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CHAPTER 11 1.

The starting point for the use of electronic data in the fraud or forensic accounting area, as a means of fraud prevention and deterrence is a/an _______________________. A. B. C. D.

Many of the process controls applicable to paper-based information systems are analogous to the internal controls surrounding digital information systems. An information technology system (IT) audit consists of (1) planning, (2) test of controls, and (3) _____________. A. B. C. D.

G. H.

System-generated criteria Used to detect input errors by flagging those transactions that fall outside accepted ranges Techniques to ensure that data relationships within a record make sense Operator generated flags

Fraud professionals in the IT audit environment need to be cognizant of the possibility that ___________________________________________________. A. B. C. D.

Auditor training on specific systems with which the fraud examiner may be unfamiliar Substantive tests An audit plan whose scope limitations receive buy-in from the company Establish a materiality threshold for IT errors that may be encountered

Batch controls are __________________ that ensure data integrity for groups of transactions as they move through the system. E. F.

Evaluation of the integrity of the data and their related systems Robust antifraud training program focused on the IT infrastructure Anti-virus, malware detection system running in the background of all company IT Suitable software that can crunch big data sets (such as Excel or IDEA)

IT personnel may not understand accounting standards and terminology Sophisticated spear-phishing attacks may have altered the data in the system One or more of the IT systems personnel may be colluding with others to commit or conceal fraud. Ghost IT systems can exist within a company (much like shell companies) that can be almost impossible to detect

The IT professional may be in a unique position to commit and conceal a fraud, simply because ______________________________________. A. B.

They can make important data disappear while credibly explaining it was caused by malware or a hard drive crash They sometimes have access to all of a company’s financial transaction data

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C. D. 6.

The assertions of management related to financial statements include (1) the existence of assets and transactions, (2) the completeness of the transactions reflected in the financial statements and related notes, (3) proper disclosure of all rights and obligations associated with assets and liabilities, (4) the reasonableness of the valuation of transactions and balances reflected in the financial statements, and (5) _____________________________________. E. F. G. H.

B. C. D.

The ways in which it can be encrypted The sheer volume of exchanges Identifying the total universe of devices on which the information could exist That software has been invented to make it irretrievable by investigators

One of the main concerns in the digital environment is related to the initial acquisition of the evidence. Auditors and forensic accountants may ________________ when they first encounter digital evidence. E. F. G. H.

10.

With the assistance of IT or MIS professionals working in collaboration with investigators By examining the unused space on computer hard drives (assuming files have not been lost due to defragging) Through the use of digital tools such as Road MASSter 3 and EnCase By computers and electronic devices

As with other digitized information, the challenge with electronic communication is ____________________________. A. B. C. D.

Proper financial statement presentation and disclosure of the related notes Certification of responsibility for the internal control environment Formal attestation of any incidents of known fraud since prior audit Internal auditor statement that they have not been coerced into overriding controls

Electronic evidence refers to any evidence captured ___________________. A.

So few others understand IT and how data can be manipulated They often know how to navigate the Dark Web undetected

Attempt to “do too much” Copy a hard drive with a special device Seize it during a search without first confirming that it is covered by the warrant Feel overwhelmed by certain technologies

Forensic accountants and fraud examiners seldom perform the work that is within the expertise of computer forensic professionals—usually, computer and electrical engineers and management information systems (MIS) personnel—who have specialized training and experience in digital evidence associated with fraud and forensic accounting issues. It is not only the need to protect the integrity of the data that justifies the use of specialized

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knowledge, skills, and abilities of the computer forensic specialist, but also ______________________________. A. B. C. D. 11.

Students (of forensic accounting and fraud examination) should understand that, with regard to digital evidence, only those with specialized training, experience, and appropriate professional certifications should _____________________. A. B. C. D.

12.

Safely boot up and operate computers as soon as they are seized in a search Reconcile their work back to initially retrieved “master” datasets Defrag all seized computer hard drives to ensure that deleted files are not occupying unused space Acquire some mastery of any number of tools used to gather and protect digital evidence such as Road MASSter3, EnCase, UNERASER for Windows, Data Rescue 5 for Apple Computers

It may be possible to recover deleted emails if _______________________. A. B. C. D.

14.

Be involved in establishing materiality thresholds for IT audits Use CAATTs to do “black box” or “white box” investigations Initially handle digital evidence Provide expert testimony

To maintain data integrity and admissibility, the antifraud/forensic accounting professional needs to be able to _____________________________________. A. B. C.

13.

The requirement in court to prove that the data was not inadvertently altered The need to preserve the credibility of the forensic examination profession Their ability to find hidden information, deal with encrypted data, and retrieve previously deleted or erased files. Their ability to find accounting anomalies within large data sets through the use of CAATTs.

A program such as Privacy Guardian was used by the perpetrator The service provider is named in the warrant (e.g., Google for gmail) An MIS or IT professional uses the “Defrag” command while the computer is in safe mode An email recovery tool is used prior to compaction/overwrite of data storage location

Fraud examiners and forensic accountants need to be able to _______________, and they need to understand _______________________________. E.

Identify situations that demand a forensic computer specialist; how legal proceedings against a perpetrator can be jeopardized if evidence is gathered by one who lacks appropriate skills

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F. G. H. 15.

Fraud examiners and auditors use data analysis software as ___________________, detecting a potential fraud in situations for which manual examination would prove extremely difficult or impossible. A. B. C. D.

16.

Develop a targeted risk-assessment Utilize an H-E Matrix Analyzing accounting and non-financial data anomalies Conducting a fraud examination

The expression, “a rifle shot” approach as opposed to a “shotgun” approach when referring to data extraction and analysis refers to: A. B. C. D.

18.

A substitute for paper and pencil computations for An internal control useful for The ultimate system of red flags Supplements to analytical work in

The fraud examiner or auditor must have an understanding of what could go wrong, what did go wrong, and how those concerns would manifest in the information system. This requires knowledge of the schemes, the industry, the organization, its IT control environments, its history of fraud, and other aspects outlined in the steps to __________________. With this foundation, the antifraud professional has an idea of what he or she is looking for. E. F. G. H.

17.

Immediately copy all hard drives seized during a search so that embedded countdown software doesn’t automatically destroy all the data they contain; how such data is stored and indexed Develop familiarity with CAATs; the differences between “black box” and “white box” audit environments Deal with the sheer volume of electronic data; how to examine that data without compromising it

Conducting a large series of tests such as a Benford’s Law test on data to look for specific patterns Developing a targeted risk assessment followed by incorporating IT tools and techniques that search for specific anomalies. Convicting a perpetrator with a precise analysis of highly detailed transactions Carefully evaluating (potentially) thousands of anomalies that may be indicative of fraud, errors, internal control breakdowns, or other issues.

Nonfinancial, processes, control points, demographics, geographic, business sector product line, etc. are examples of types of digital data that: A. B. C.

By their nature are difficult to correlate with financial transactions. Can be disaggregated to help formulate conclusions and opinions. Do not lend themselves very well to electronic analysis.

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D. 19.

_____________ is like an activity log that captures file details, such as who created the file, when, who last edited the file and when, etc. This data can be crucial to answering many of the questions—who, what, when, where, and how. A. B. C. D.

20.

C. D.

Establish that any and all pertinent data will be made available to examiners Focus and shape the examination while permitting a deep dive into the details under examination Eliminate the need to do a complex targeted risk-assessment Develop a reasonable expectation upon which deviations can be accurately and effectively identified

________________ are defined as “evaluations of financial information through analysis of plausible relationships among both financial and non-financial data …” E. F. G. H.

23.

Working in an audit setting with many key subgroups (such as defense contractors) No application-specific audit software is available for the type of data being analyzed (e.g., utilities meter readings) An initial big data examination that leads to a large number of anomalies Beginning your career as a fraud examiner so that you can learn to refine your hypotheses development skills about areas of concern

Fraud and forensic examinations often have scope limitations. These serve to ____________________________________________________________________. A. B.

22.

A computer hard drive index A master file overview A safe mode partitioned drive Metadata

The suggestion that, “The examiner may stratify the preliminary results to identify subgroups that are more like to be of concern,” is recommended in an AICPA publication when _______________________________. A. B.

21.

Are better analyzed using “paper-and-pencil” approaches

Analytical procedures Targeted correlations Scope limitations and targeted risk-assessment Coefficient analyses

A critical aspect of substantive _______________ is the development of ________________ upon which deviations and anomalies can be accurately and effectively identified. A. B.

Critical thinking; data relationships Auditing; targeted risk-assessment

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C. D. 24.

Investigators can learn a lot about data by observing how variables _________, ____________ or have little to no relationship with one another. E. F. G. H.

25.

B. C. D.

C. D.

Graphics can reduce the amount of time it takes to investigate a case. Graphics can be useful to communicate investigative findings, conclusions, and results. Graphics can demonstrate to the jury that the investigator has done their duty of care in the investigation. Graphics can be printed in color to make the evidence more compelling to the jury, whereas accounting reports, etc. tend to be only black and white.

A/an __________________ is useful for identifying major players who are central to an examination and to identify linkages between those players. A. B. C. D.

28.

Is often practiced by novice examiners because it’s easy but isn’t really useful in a real-world fraud examination Can be a good technique if more difficult analyses are not within your skillset Is discouraged as a practice because it looks like a fishing expedition to the jury May suggest further investigative steps

Graphics have at least three distinct roles in an examination. First, they can be used as an investigative tool. Second, graphics can help the investigator identify holes in the case or problem areas where further examination is required. Third: A. B.

27.

Move together; disparately Are entered into company books; by whom and when Interact under stress; are ignored Are accurate; or inaccurate

Looking for correlations where none had previously existed, as well as correlations that no longer exist _________________________. A.

26.

Analytical procedures; a reasonable expectation Examinations; big data sets

Timeline Flow diagram Predication matrix Association matrix

A/an __________________ is a graphic representation of known and suspected associations among businesses, individuals, organizations, telephone numbers, addresses, email accounts, websites, etc. A. B.

Relationship matrix Link chart

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C. D. 29.

You are investigating a case of suspected fraud in a Tri-state area chain of convenience stores. In all, there are 172 stores. Of these, 22 are operated by tribal governments. As your investigation unfolds, you suspect that there may be a connection between the regional manager of the tribal-based stores and one of the regional managers of multiple non-tribal-based stores, but you don’t have any evidence to support this notion at present. In creating an association matrix, how would you illustrate the possible connection between the two individuals? A. B. C. D.

30.

Demonstrating intent Prepping demonstrative evidence for trial Identifying shortcomings in the case and areas where further work is necessary Prevailing in a Daubert Challenge

A/an __________________ allows the investigator to analyze the movements of events, activities, and commodities. A. B. C. D.

32.

A solid black line A question mark placed between the two names A dashed line A solid red line

Link charts and other graphics are not only beneficial as investigative and communication tools but can also be helpful in _________________________. A. B. C. D.

31.

Flow diagram Timeline

Relationship matrix Flow diagram Association matrix Timeline

You have completed an investigation of a complex money laundering scheme whereby an art gallery was “selling” ordinary paintings for tens of thousands of dollars. In actuality, several drug cartels were “buying” the paintings under shell company names by wiring payments to the gallery. Once enough transactions were completed, the art gallery owner transported cash in moving boxes in the back of his pickup truck across the US/Mexican border. What kind of graphic would you create to demonstrate the movement of money into the country and then back out again? E. F. G. H.

A flow diagram A link chart An association matrix A timeline

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33.

A/an __________________ organizes information about events or activities chronologically to determine what has, or may have occurred, and the impact that these actions have had on the activity under examination. A. B. C. D.

34.

Link diagram Timeline Association matrix Flow diagram

_________________ can be used in a number of situations to oversee cases and case data, organize it in meaningful ways, and even present information for use in reports during testimony. A. B. C. D.

CAATTs PowerPoint Bates numbering Case management software

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CHAPTER 12 1.

The common fraudster is usually depicted with the following characteristics: first-time offender, middle-aged, male, well-educated, married with children, trusted employee, in a position of responsibility, and possibly considered a “good citizen” through works in the community or through a church organization. The terminology used to refer to such a person has gravitated over time from “accidental” to ____________ fraudster. A. B. C. D.

A repeat offender is not a ___________ fraudster; he or she is better described as a __________. A. B. C. D.

Organizational; criminal Corporations; suspicious Situational fraudster perpetrated; unregulated Predator perpetrated; financial

Because the activities of predators and organizational crimes are more deliberate from the outset than those of the situational fraudster, they are _______________, have more __________________, and are _________________ E. F. G. H.

Situational; predator Accidental; situational fraudster Predator; white collar criminal White collar criminal; situational fraudster

______________ crimes occur when public and private companies, nonprofits, and government entities; otherwise, legitimate and law-abiding organizations are involved in a pattern of ____________ activity. A. B. C. D.

“Non-accidental” “Intentional” “Predator” “Situational”

More collusive by definition; offshore banking activities; more difficult to investigate Better organized; sophisticated concealment schemes; well-prepared to deal with auditors and other oversight mechanisms More expensive; reach into the banking system; usually foreign entities Harder to detect; offshore banking activities; complex in their internal structure

______________ and ______________ include the following: money laundering associated with organized criminal activities, terrorism financing, money flows associated with drug trafficking, tax evasion, deliberate misrepresentation of an entity’s performance, and deliberate bankruptcy misreporting. Violations arising from these schemes may

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include money laundering, corruption, tax fraud, financial statement fraud, conspiracy, and mail and wire fraud. I. J. K. L. 6.

A central element of complex frauds and financial crimes is that of ___________. A. B. C. D.

J. K. L.

Individuals with accounting know-how; a C-suite position; ability to override internal controls Highly respected community leaders; a graduate degree; opportunity Highly educated; ego/entitlement problems; non-shareable financial problem Younger males; close ties to customers or vendors; wheeler-dealer attitude

The primary concern when collusion is involved is that ________________ are generally ineffective in preventing fraud and other financial crimes. M. N. O. P.

10.

Are usually to large to accurately estimate Decrease dramatically Increase dramatically That are recovered by investigators can be shared among multiple jurisdictions

Research suggests that collusive fraud leaders are more likely to be ____________ with ___________________ and a/an _________________. I.

Collusion Invigilation A more difficult-to-follow money flow (once it goes offshore) Being more sophisticated than situational fraud.

When collusion is in involved in complex frauds, dollar losses _________________. E. F. G. H.

Crime rings; drug cartels Career politics; shareholder controlled corporations Complex frauds; financial crimes FCPA provisions; FinCen monitoring

Auditors Preventive internal controls Governing boards of corporate entities PCAOB mandates

_____________ internal controls include independent checks on performance and assurance of compliance with applicable laws and regulations. Q. R. S. T.

Research-based Robust Preventive Detective

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11.

Another element of complex frauds and financial crimes is that perpetrators often mix ____________________ with _____________________. U. V. W. X.

12.

When conducting a complex fraud investigation, it is critical for fraud and forensic accounting professionals to be aware that a greater ___________ may exist, even if it is not recognized as a _______________. A. B. C. D.

13.

Instituting solid internal controls Identifying and convicting criminal ringleaders Asset forfeiture or seizure Use of case management software

_______________ by seizing operational assets, confiscating cash, and freezing funds is an effective tool for forensic professionals in pursuit of their responsibilities. A. B. C. D.

16.

Avoid becoming a target of organized crime rings Isolate the illicit activities from the legitimate activities Identify specific internal controls failed to prevent it Identify the true beneficial owners of shell companies

_______________ is an important part of the process of dismantling an organization, particularly with complex frauds or financial crimes. I. J. K. L.

15.

Organization; legal entity Scam; problem out the onset of the investigation Number of players; collusive fraud Underlying scam; fraud at first glance

One of the main challenges for examiners in complex fraud and financial crimes investigations is to ________________________________. E. F. G. H.

14.

Business; pleasure Legitimate business activities; their unlawful transactions Accounting know-how; a criminal mindset Unlawfully derived funds; shell companies and offshore bank accounts

Dismantling the organization Concluding a complex fraud investigation Sending clear message to criminals occurs Increasing the materiality threshold of an audit

Financial statement fraud is, more often than not, _______________. E. F.

A function of organized crime Usually involves rank-and-file employees as opposed to this in the c-suite

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G. H. 17.

Corruption is __________ by its very nature and tends to be _________. I. J. K. L.

18.

Racketeering Collusion Predation Organized crime

With respect to terrorist groups and money, the goal of fraud examiners and financial forensic professionals is to _______________ the international banking system. E. F. G. H.

22.

The DOJ Mail fraud Wire fraud The Bank Secrecy Act (1970)

____________ is the act of engaging in criminal activity as a structured group, and individuals in organized criminal organizations are often prosecuted for it under RICO. A. B. C. D.

21.

Banks located in countries on the FCPA watchlist Offshore banks Shell banks Money Service Businesses (MSBs)

______________ is one of the workhorses of federal white-collar prosecutions and is available, among other statutes, to investigate and prosecute complex frauds and financial crimes. Q. R. S. T.

20.

Situational; organized Unlawful; situational Collusive; predatory Organized; situational

The USA Patriot Act prohibits U.S. financial institutions from allowing correspondent account transactions with __________________. M. N. O. P.

19.

Against the law A complex fraud

Gain the cooperation of Intercept wire deposits made in Deny them access to Track their investment activities in

Islamic terrorists have been known to use less restrictive overseas banks, or informal banking systems known as __________ to smuggle cash.

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I. J. K. L. 23.

Similar to the fraud triangle for the situational fraudster, the _______________ is necessary as a precursor set of conditions for terrorist activities to exist. M. N. O. P.

24.

Anything of value that The root of fraud when it A tracking problem when it Necessary for terrorism and it

The process of laundering money relies upon movement and takes place in three distinction stages: E. F. G. H.

27.

Conversion Concealment Organized crime Money laundering

Money is ________________ can be easily transferred between individuals or entities, and that most persons would accept as an item of value or as a form of payment for goods, services, and debts owed. A. B. C. D.

26.

“organized crime fraud triangle” “terrorism triangle” “middle east triangle" “collusive organizations triangle”

_________________ is, essentially, any activity designed to hide the nature, location, source, ownership, or control of proceeds used for, or derived from, criminal activity. Any time an examiner sees evidence consistent with this definition, a money laundering issue may exist. Q. R. S. T.

25.

Adab Hawala Riba Barzakh

Depositing, structuring, withdrawing Non-shareable pressure, opportunity, rationalization Placement, layering, integration The act, concealment, conversion

From the perpetrator’s perspective, the main issue with ____________ is ensuring that the source of the money and transaction itself appear to be legitimate. I. J. K.

Placement Integration Concealment

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L. 28.

A conspiracy involves three elements: (1) the co-conspirators must have an agreement (actus reus) between them, (2) the co-conspirators must act or demonstrate in inclination to commit a crime, and (3) _____________________________________. A. B. C. D.

29.

Variety Verve Velocity Valuation

_________________ offer an alternative to banks for both financial services and money laundering. This industry includes check cashers, money transmitters, foreign exchange dealers, and sellers of money orders, stored value products, and travelers’ checks. I. J. K. L.

32.

Check Clearing for the 21st Century Act The USA Patriot Act The Bank Secrecy Act The Know Your Customer Act (KYC)

With regard to the movement of money (value), the three V’s are important: volume, ___________, and venue. E. F. G. H.

31.

The participants must mentally commit to the act through their state of mind (mens rea or intent) The co-conspirators must have an active plan toward committing an SUA (ut actio) The co-conspirators must demonstrate a collusive will (actum pra varicatione) The participants have to possess prior knowledge that their intended act was unlawful (prior scientia)

________________, went into effect on October 28, 2004. This Act effectively allows the first bank to touch a check to image the front and back of the check and then shred the original. Fraud examiners will have access to the electronic images that can serve as evidence. A. B. C. D.

30.

Collusion

Casinos Shell banks Credit unions Money Service Businesses (MSBs)

______________ is the process by which criminals use a legitimate trade to disguise their criminal proceeds from their unscrupulous sources. M. N. O.

Informal Value Transfer System (IVTS) Attempts to avoid OFAC (Office of Foreign Assets Control) Trade-Based Money Laundering (TBML)

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P. 33.

Lack of transparency of ___________________ can be a desirable characteristic for some legitimate uses of shell companies, but it is also an attribute that can make some shell companies ideal vehicles for money laundering and other illicit financial activity. Q. R. S. T.

34.

Using prepaid Access Devices

Offshore banking Beneficial ownership Country of origin High net-worth individuals

The primary distinction in whether an individual has committed tax fraud or simply committed an error is ______________________________________. A. B. C. D.

The intent of the individual Whether the return was mailed or filed electronically The knowledge (accountant) of the person filing it Documentation

All bankruptcy cases are filed at the _____________________________. E. F. G. H. 35.

Bankruptcy crimes are investigated by the _____________ and prosecuted by the _____________, if warranted. I. J. K. L.

36.

State Bankruptcy Commission in which the person or entity resides State court level in which the person or entity resides Local courthouse in which the person or entity resides Local district of the U.S. Bankruptcy Court

IRS; U.S. Treasury FBI; U.S. Attorney’s Office State Attorney General; state Bankruptcy Commission FinCen Criminal Division; U.S. Bankruptcy Court

___________ is the excessive sale of securities by a broker for the purposes of generating commissions. A. B. C. D.

Churning Flipping Round trip transacting Front running

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CHAPTER 13 1.

_________________ is an illegal offense that is committed where the computer or electronic data device is __________ the criminal act. A. B. C. D.

______________ and _______________ are any defalcation, fraud, or financial crime accomplished by tampering with computer programs, data files, operations, equipment, or media, and resulting in losses sustained by the organization whose computer was compromised. A. B. C. D.

F. G. H.

Through the Dark Web where the value of the stolen funds can be stored on hidden servers In violation of computer internal controls whether by management override or other means With the intent to execute a fraudulent scheme or financial criminal act When a hacker or virus successfully bypasses the firewall protecting financial data

______________ is defined as an act where the computer hardware, software, or data is altered, destroyed, manipulated, or compromised due to acts that are not committed with the intent to execute financial fraud. A. B. C. D.

Computer-based fraud; financial crimes Cybercrime; complex frauds Computer crime; asset misappropriation schemes Financial crimes; blockchain compromises

One of the distinguishing characteristics of computer-based fraud is that access occurs ________________________. E.

Computer phishing; reprogrammed to carry out Computer hacking; a tool in Computer fraud; an object of Computer crime; integral to

Computer crime Hacking Phishing Distributed Denial of Service (DDoS)

Damaged equipment, restoration of data or programs, lost sales, lost productivity, and harm to reputation or goodwill are examples cited by the text of economic losses associated with: E. F. G.

Computer fraud Computer crimes Computer compromises

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H. 6.

In a digital world, ________ is often stored on computer servers of service providers and financial institutions, which do not necessarily have to exist in the jurisdiction of activity where the account holder resides. I. J. K. L.

Organized criminals especially in around the former Soviet Union Robotics Process Automation (RPA) Employees inside an organization HTTP exploits and buffer overflow exploits

The most prevalent method of committing computer fraud is ________________________________. A. B. C. D.

10.

Anti-phishing software A cryptocurrency A trojan horse virus Distributed ledger technology

One of the greatest threats to information systems, in terms of digital crime, comes from: Q. R. S. T.

Personally Identifiable Information (PII) Value A virus or malware program Blockchain data

Blockchain is an example of: M. N. O. P.

Computer risks

Alteration or falsification of input transactions (and/or documents) Digital device hacking Social engineering Network weaving

Access privileges beyond those required to perform assigned job functions, exception reports not reviewed and resolved, access logs not reviewed, production programs run at unusual hours, and lack of separation of duties in the data center are cited in the text as examples of: E. F. G. H.

Social engineering Red flags that may suggest a heightened risk to exposure from outside attacks and Distributed Denial of Service (DDoS) and ransomware such as Wannacry Typical weaknesses existing in logical controls that exist in most small to medium organizations Indicators of insider computer fraud that suggest increased risk and require additional security

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11.

You have just completed a fraud examination in which you concluded, based on security camera footage, that an outside intruder entered the company dressed as a computer repair person. The footage shows the intruder chatting amiably with several individuals in the bookkeeping department, followed by logging onto their computers as they stand watching over his shoulder, using credentials they shared when he showed them his vendor badge (which was counterfeit). This type of attack is executed using: I. J. K. L.

12.

Properly designed and implemented ________________ can be used to minimize the risk that any intercepted data can be used for nefarious purposes. M. N. O. P.

13.

B. C. D.

Periodic reviews of telecommunications security should be performed by internal or external auditors or other professionals Anti-social engineering training for all users with passwords Buffer over-flow backup and redundancy streaming with auto EXE piggybacking Use of distributed ledger technology

Following someone with a badge reader in through a door, using an authorized user’s identification and password to gain digital device access, and tapping into the terminal link of a user to cause the device to believe that both terminals are the same person are ways that can be used to gain access to restricted areas. These techniques are known as _________________________. A. B. C. D.

15.

Logical controls Encryption techniques Simulation and modeling techniques Privilege escalation exploits

Adequate hacker detection programs contain three primary components: (1) log files should be printed and regularly reviewed by the data security officer, (2) the data security function should have sufficient resources and staff to administer passwords, maintain security software, review system activity reports and follow up on potential security violations, and (3): A.

14.

Spear phishing Shoulder surfing Social engineering a Trojan horse

Piggybacking/impersonation Simulation and modeling Social engineering Salami techniques

_______________ include management security policies, user authentication systems, data access controls, network firewalls, security awareness training, encryption

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algorithms, penetration testing, intrusion detection software, and incident response plans are examples of: E. F. G. H. 16.

Which of the following is NOT one of the “top ten” Internet schemes in 2017: A. B. C. D.

17.

Foreign “tax-free” trusts Prime bank notes Get rich quick schemes such as “$50,000 First Ten Months” and “Secrets of Millionaires” New distributorships

A fraud scheme in which the fraudster offers extremely high yields in a relatively short period of time (e.g., “a year and a day”) in which they purport to have access to “bank guarantees” is known as a _________________ scheme. M. N. O. P.

20.

62% 30% 50% 110%

In a pyramid scheme, the real profit is earned not by the sale of the product, but by the sale of _____________. I. J. K.

19.

Two-factor authentication similes Advance feel loans/credit arrangers Phishing/spoofing Friendship and sweetheart swindles

Digitally connected consumers who (a) have social media presence, (b) tend to shop online, and (c) adopt new technologies have a ____ higher risk of fraud. E. F. G. H.

18.

Privilege escalation exploits Heuristic techniques Anti-cybercrime social engineering Logical controls

Prime bank traunch Prime bank debacle Prime bank note Prime bank Ponzi

A type of Internet fraud that is intended to fool users into entering sensitive data (such as a password or credit card number) into a malicious website that impersonates a legitimate website is known as: Q.

Captcha

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R. S. T. 21.

The U.S. government agency charged with investigating counterfeiting, credit card fraud, and some computer crimes is the: A. B. C. D.

22.

F. G. H.

The Dark Web makes it impossible to track, identify, capture, and prosecute cybercriminals. Beyond the difficulty of catching cybercriminals is successfully prosecuting them. Cybercriminals frequently use blockchain technology (i.e., distributed ledgers) to conceal their cybercrime. The majority of cybercrime originates from offshore havens such as Nevis and St. Kitts where local laws allow criminals to flourish.

Money laundering, which involves disguising the origins of illegally generated cash flow to give it the appearance of legitimate income, is ___________ on the Internet due to ___________________. I. J. K. L.

24.

Secret Service Financial Crimes Enforcement Network (FINCEN) Financial Action Task Force (FATF) Internet Cybercrime Counterinsurgency Center (IC3)

Several attributes of the Internet make it an attractive operational location for criminal enterprises. First, individuals and businesses have come to realize that information is power. Criminals have determined they can profit by stealing and selling information. Second, cyberspace gives the criminal a worldwide reach. Third, The World Wide Web is relatively anonymous. Fourth: E.

23.

Phishing Spear phishing Pharming

Challenging; the pervasive number of scams Impeded; federal watchdog agencies such as FinCen that track money flows Enhanced; the near anonymity that can be achieved Decreasing; an increased risk of detection by law enforcement

Worldwide efforts, often led by U.S. law enforcement, the International Monetary Fund (IMF), and the World Bank, have tried multiple approaches to combat money laundering in cyberspace, including measures aimed at reducing the ability to make anonymous financial transactions, mapping global payments to develop a better understanding of the flow of money, facilitating international information sharing, requiring all financial transactions to include “Know Your Customers” policies, and _______________________. M. N.

Conducting raids on cybercriminals coordinated with law enforcement from other countries Harmonizing and coordinating international money movement regulations

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O. P. 25.

A 1996 study placed the total annual value of global Internet money laundering at: A. B. C. D.

26.

$500 billion $50 billion $500 million $5 trillion

The primary federal law enforcement agencies that investigate domestic crime on the Internet include the FBI, the Secret Service, ICE, the U.S. Postal Inspection Service, and: E. F. G. H.

27.

Digitizing all currency in order to improve ownership transparency Inserting digital “die packs” into transactions so that money can be traced anywhere

FinCen IC3 The U.S. Attorney General The ATF

IC3 refers to an agency that receives Internet-related criminal complaints, furthers research, and refers criminal complaints to federal, state, local, or international law enforcement/regulatory agencies. What do the letters stand for? I. J. K. L.

Internet Cybercrime Conviction Center Internet Complaints Cybercrime Center Internet Crime Complaint Center Internet Cybercrime Counterinsurgency Center

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CHAPTER 14 1.

Ethics has certain key elements. Which of the following is NOT one of the four described elements in the text? A. B. C. D.

Three ethical principles were discussed in the text: (1) The imperative principle, (2) the utilitarian principle, and (3) ____________________________. A. B. C. D.

The generalization principle The situational principle The societal principle The moral norm principle

Professions are set apart by five characteristics. Which of the following is NOT one of the five characteristics listed in the text? E. F. G. H.

Ethics involves questions requiring reflective choice and their consequences to the individual and others (decision problems). Ethics is often a useful guide for determining a course of action that is technically correct but that might be otherwise considered imprudent or unlawful Ethics is concerned with outcomes, the assigned impact associated with making a decision where the impact reflects the underlying values of individuals and organizations. Ethics considers the rules and regulations that are in place to guide behavior as well as the consequences for breaking those rules and regulations.

Standards of conduct for dealing with the public, other professionals, and clients A specialized body of knowledge Mandatory certification or licensure of professional practitioners An organizational body devoted to the advancement of responsibilities for the profession

Certified Fraud Examiners (CFE), as designated by the Association of Certified Fraud Examiners (ACFE), have a code of ethics. Which of the following is NOT one of the eight elements of that code? A. B. C. D.

A Certified Fraud Examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for expressing opinions regarding the guilt or innocence of applicable persons or parties. A Certified Fraud Examiner shall not engage in any illegal or unethical conduct, or any activity which would constitute a conflict of interest. A Certified Fraud Examiner shall continually strive to increase the competence and effectiveness of professional services performed under his or her direction. A Certified Fraud Examiner will comply with lawful orders of the courts, and will testify to matters truthfully and without bias or prejudice.

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__________ is the foundation for fraud deterrence and prevention both by individuals within an organization and by the organization itself. E. F. G. H.

Ethics at the organizational level starts with __________________. I. J. K. L.

80% 64% 40% 15%

Creating an antifraud environment also means minimizing opportunities for fraud. To accomplish this goal, companies need to establish and maintain a good internal control environment; _________________________; alert vendors and contracts to company policies; create tip hotlines; create expectations that fraudsters will get caught and will be punished; and proactively audit for fraud. I. J. K. L.

10.

A code of ethics signed by all personnel To conduct criminal background checks on key employees To establish a thorough antifraud training program A fraud-risk assessment using COSO standards

One of the most effective antifraud deterrents is a hotline to receive anonymous tips from employees, customers, suppliers, vendors, contractors and others. According to the 2016 ACFE Report to the Nations, tips and accidental discovery account for almost ___ of fraud detection. E. F. G. H.

Sound hiring practices Corporate governance Senior management Training

The first step in developing an ethical culture is __________________________. A. B. C. D.

Training Internal controls The tone at the top Ethics

Select a competent external auditor Conduct criminal background checks on key employees Perform antifraud training on a regular basis Monitor employee relationships for collusive potential

Best practices to deter fraud include ___________, surprise audits and reviews, open-door policies by upper-level management, and ___________ of internal controls.

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A. B. C. D. 11.

The who, what, where, when, how, and why are questions fraud examiners and forensic professionals often investigate once fraud is discovered. Those same attributes need to be considered, proactively, ________________________. E. F. G. H.

12.

Strong cultures Strong leaders Strong antifraud training Strong reporting mechanisms

The text provides a five-step approach to compliance, fraud prevention, deterrence, and detection. Which of the following is NOT one of those five steps? E. F. G. H.

15.

Having failed to take fraud risk seriously within the organization Having been observed lying to employees and external stakeholders Saying one thing but doing another (i.e., contradiction between words and behavior) Perpetrating financial statement fraud

According to longitudinal research by the Ethics & Compliance Initiative (ECI), misconduct drops substantially when organizations have ____________ in place. Yet, only one in five employees [surveyed] indicate that their company had such. A. B. C. D.

14.

At the commencement of each audit cycle As companies develop their antifraud environment When tips are reported or allegations of fraud are made Before shareholders invest their money

According to longitudinal research by the Ethics & Compliance Initiative (ECI), the most common form of ethical misconduct is leadership _________________________. I. J. K.

13.

Job rotation; periodic testing Criminal background checks on key personnel; annual review Antifraud training; widespread dissemination A fraud risk management assessment; evaluating the effectiveness

Know the exposures (brainstorming, risk assessment, audit planning) Translate exposure into likely symptoms Treat every red flag seriously because most indicate some kind of fraud Pursue symptoms to their logical conclusion and ground examination conclusions in the evidence (evidence-based decision-making)

A robust compliance program helps an organization to _____________ and improve ______________, I. J.

Satisfy PCAOB obligations; its bottom line Understand its obligations; its performance

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K. L. 16.

The expectation of good governance and compliance efforts requires the attention of the _______________________________, to ensure overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or notfor-profit) and regardless of relative size or industry. A. B. C. D.

17.

At one level higher than the level of In light of who makes Relative to the likelihood of That will validate or invalidate

With respect to organizational compliance, the text recommends being proactive, as well as following three best practices including communicating expectations, training employees in areas important for organizational compliance, and __________________________. E. F. G. H.

20.

Useful but not always essential to operational Critical elements of compliance Sometime inadvertent impediments to organizational Required for compliance but may not necessarily improve operational

Generally, compliance issues need to be examined ______________________ the allegation. A. B. C. D.

19.

Organization’s board of directors or equivalent oversight body CEO and CFO Internal and external auditors Employees across all levels of the organization

Robust policies and processes are __________ efficiency and effectiveness. E. F. G. H.

18.

Manage operational risks; shareholder relationships Proactively identify risks; ethical behavior

Pursuing symptoms to their logical conclusion and ground examination conclusions in the evidence (evidence-based decision-making) Ensuring overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or not-for-profit) and regardless of relative size or industry Making available a variety of reporting mechanisms, including anonymous tip hotlines Knowing the exposures (brainstorming, risk assessment, audit planning)

Internal controls and fraud prevention efforts are not always _______________. In essence, the perceived benefits of prevention do not, or may not, exceed the costs of setting up robust prevention efforts. In some cases, while the cost of prevention is known, the benefits of prevention are much harder to quantify.

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I. J. K. L. 21.

Anecdotally, fraud deterrence is centered on two ideas: (1) the fear of getting caught, and (2) _____________________. A. B. C. D.

22.

Researched (in line with best practices) Communicated Critically evaluated by the board and management as to their effectiveness over time Assessed by internal and external auditors

It’s the _____________ of those at the top that is more effective in encouraging personnel at all levels to act appropriately. A. B. C. D.

25.

Prove Create the perception that Aren’t necessary in every size of organization, even though they suggest that Encourage reporting by assuring tipsters that

One key aspect of effective deterrence is that the organization’s antifraud efforts need to be ________________. I. J. K.

24.

The fear of getting punished A way for people to report tips anonymously Internal controls Accountability

Deterrence efforts should include detection controls (e.g., supervisory reviews, surprise audits). Such efforts ________________________ would-be fraudsters are likely to get caught. E. F. G. H.

23.

Effective at their intended purposes Leadership’s most effective tools Cost-effective Welcomed by board and management as necessary

Conduct Message Authority Accountability

The primary role of corporate governance is to ___________ investors, create long-term shareholder value, ensure investor confidence, and support strong and efficient capital markets. E. F.

Attract Be a conduit for

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G. H. 26.

The text list six mechanisms for effective corporate governance. Which of the following is NOT one of those six? I. J. K. L.

27.

Whistleblowers will not suffer retribution Prosecution is to be expected No one, including leadership, is above the law Antifraud is everyone’s responsibility

Professional skepticism includes three key points: (1) A recognition that fraud, illegal acts, and unethical behavior may be present, (2) an attitude that includes a questioning mind and a critical assessment of audit evidence to carefully examine red flags, and (3) a commitment to _________________________________. E. F. G. H.

30.

Internal auditing department Public relations team External auditor Audit committee

The words and actions of organizational leadership need to communicate the following: compliance is expected, fraud is not tolerated, fraudulent/unethical behavior is dealt with swiftly and decisively, and _________________________________. A. B. C. D.

29.

An organizational code of conduct supported by an embedded culture of honesty and ethical behavior An independent and empowered board of directors The offices of board president and CEO residing with the same individual Effective legal and regulatory compliance and risk assessment

The _______________ fulfills its risk management responsibility by monitoring the organization’s effort to identify, prioritize, and respond to organizational risks. M. N. O. P.

28.

Retain Protect

Striving to increase the competence and effectiveness of professional services performed under his or her direction. Persuasive evidence (whether or not fraud or some other bad act is present) Ensuring overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or not-for-profit) and regardless of relative size or industry Effective legal and regulatory compliance and risk assessment

One of the keys to fraud deterrence is to prevent, to the extent possible, applicants who have a demonstrated track record of ___________________ from becoming employees. I.

Less than satisfactory job performance

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J. K. L. 31.

In terms of closing down the fraud triangle role of _______________, accountants properly trained and motivated, are integral to effective compliance and antifraud efforts. M. N. O. P.

32.

R. S. T.

Behavior symptoms Related parties transactions Prior convictions Non-shareable financial pressures

Fraud prevention involves deploying tools and techniques designed to ensure that _________________ cannot occur. E. F. G. H.

35.

The organization and its leadership must demonstrate a commitment to compliance and an antifraud program. Disclosures of conflict-of-interest situations result in automated action. A conflict of interest involves “a situation in which a person is in a position to derive personal benefit from actions or decision made in their official capacity.” Organizational leaders and stakeholders are asked to acknowledge and affirm their commitment to compliance and effective antifraud efforts by reading, understanding, complying, and signing documentation. Compliance and fraud risk management evaluation improvement activities are designed to ensure high-quality programs.

Dr. Steve Albrecht references six types of anomalies that should be investigated at the earliest point of recognition: accounting anomalies, weak internal controls, analytical anomalies, lifestyle symptoms, _______________, and tips from potential informants. A. B. C. D.

34.

Concealment Motive Rationalization Opportunity

An effective fraud risk management and compliance program is at the heart of fraud deterrence. According to the Fraud Risk Management Guide, such a program has ten key points of focus. Which of the following is NOT one of those ten keys? Q.

33.

Related parties transactions Improper conduct, unethical behavior, or prior frauds Being uncooperative

False-positive red flags Collusion Corruption A particular fraud

The fundamental internal controls are designed and implemented based on the separation of duties among ________ “employees.”

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I. J. K. L. 36.

Accounting All Four Independent

Process controls are consistent with the notion of deterrence, including the perception that fraud acts will be discovered. As noted in the fraud deterrence module, basic process controls include (1) accounting reconciliation, (2) independent reviews, approvals and sign-offs. (3) physical inspections/counts, (4) Analyses (expectations/relationships), and (5) _________________. M. N. O. P.

Signed code of conduct agreements (or ethics) Pre-employment screening Antifraud training Audits (periodic and surprise)

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CHAPTER 15 1.

The association of Certified Fraud Examiners (ACFE) offers the Fraud Examiners Manual, a virtual encyclopedia of information that addresses four major topics: Financial Transactions and Fraud Schemes, Law, Investigation, and ________________. A. B. C. D.

Although testifying professionals ___________________ themselves, they are expected to be able to describe the nature, extent, and timing of all work performed. A. B. C. D.

Complexity Adversarial nature Scope Importance

The fraud examiner can have no opinion about the _______________________. I. J. K. L.

Need not complete the work Need to complete the work Must not complete the work May not testify about the work done by others, but only work done by

Given the ________________ of fraud examination, litigation support, and forensic accounting engagements, practicing professionals should expect their work product to be scrutinized closely, and they should be prepared to describe and defend all choices made. E. F. G. H.

Report writing Valuation and calculation Ethics Fraud Prevention and Deterrence

The accounting choices made by the client if they are GAAP compliant The accuracy of prior financial statements unless he/she was involved in the audit Guilt or innocence of alleged fraudsters The conditions or causes within an organization that created the opportunity for fraud

General standards require professional competence, due professional care, ____________________, and the collection and analysis of sufficient relevant data to support (provide a reasonable basis for) the conclusions and opinions offered. M. N. O. P.

Professional cynicism Proper engagement planning and supervision Proper disclosures to be made if he/she is not independent An ongoing commitment to improve one’s professional mastery of essential skills

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____________________ is a methodology for resolving fraud allegations—from inception to disposition. Q. R. S. T.

The ultimate decision to qualify a witness as an expert is _________________. A. B. C. D.

F. G. H.

Only publicly disclosed portions of the work product; are discoverable by the other party Only small portions of the work product; may be discoverable by the other party The entire work product; is discoverable by the other party None of the work product; is discoverable by the other party

The term ____________ is generally defined as used in or suitable to courts of law or public debate A. B. C. D.

10.

At the judge’s discretion Based on whether or not they are certified and otherwise appropriately credentialed A 2/3 majority jury vote Determined by a Daubert challenge

Generally, ____________ of the designated expert _______________. Work product includes not only the expert’s report and main analyses but also all notes, work papers evidentiary materials collected as part of the case, supporting analyses, research, documents, and data reviewed or relied upon by the expert as part of their engagement. Drafts of reports, handwritten notes, and marginalia are all considered part of the expert witness’s work product. E.

Properly authorized surveillance Interviewing/confession seeking interview Valuation and calculation Fraud examination

Forensic Judicial discoverability Daubert challenge Expert witness

The typical fraud examination, forensic accounting, or litigation support engagement usually requires __________________________ of the business models, operational procedures, and other aspects unique to the organization and industry under examination. E. F. G. H.

A thorough level of expertise The examiner to question the assumptions The examiner to accept the assumptions The development of at least some knowledge

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11.

AICPA Practice Aid 07-1 describes seven forensic investigative techniques and compares and contrasts them with similar evidence gathering activities of auditors. These seven are: public document reviews and background investigations, interviews of knowledgeable persons, confidential sources of information and evidence, laboratory analysis of physical and electronic evidence, physical and electronic surveillance, undercover operations, and ________________________________. I. J. K. L.

12.

The act, concealment, and conversion provide ___________________ for evaluating the participation, intention, and actions of a party to litigation. M. N. O. P.

13.

Generally do not conduct interrogations Are expected to participate in interviews May offer inducements but may not coerce targets Sometimes directly cross-examine witnesses

Forensic professionals understand that skilled fraudsters _______________ by altering documents or limiting the amount and timing of data made available to the opposing side. E. F. G. H.

16.

Obtain an admission of guilt without the use of coercion or inducements Demonstrate objectivity in full view of the trier-of-facts Gather testimonial evidence Ultimately express an opinion as to who is guilty/innocent

In litigation-type engagements, forensic accountants and fraud examiners acting as consultants and experts ______________________ in order to obtain admission of guilt. A. B. C. D.

15.

A workable alternative to reliance upon Cressey’s fraud triangle A powerful investigative basis Largely unassailable predication Compelling evidence grounded in a story

The purpose of an interview is to ______________________. Q. R. S. T.

14.

A commitment to nothing less than persuasive evidence Development and analysis of competing hypotheses (e.g., use of an H-E Matrix or similar tool) Graphical display tools such as link charts, flow diagrams, and timelines Analysis of financial transactions, financial performance, financial condition and relevant non-financial evidence

Often move their gains offshore Often manipulate data Use shell companies created Try to appear innocent and will not generally interfere with investigations

Similar to fraud examinations, forensic accounting engagements are ____________.

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I. J. K. L. 17.

Examinations, in essence, are where _________ intersects with _____________ of the antifraud and forensic accounting profession. M. N. O. P.

18.

Intent Conversion Damages Tortious harm

_____________ is central to the issue of damages. M. N. O. P.

22.

Relevant non-financial data Differing storylines Accounting anomalies in the case Past and present performance of the organization

Generally, to successfully pursue a claim for legal damages, the allegedly injured party must prove two points: (1) liability, and (2) ________________. I. J. K. L.

21.

Estimate damages Develop a compelling storyline even if not completely grounded in the evidence Create demonstrative evidence such as link charts Interrogate cybercriminals

The forensic accountant as an independent, objective professional must examine the ________________ and compare each side’s position to the evidence. E. F. G. H.

20.

Justice; the integrity Convicting white-collar criminals; the professional standards Evidence; the tools and techniques The fraudster’s skill; the skill

The ability to ___________ is both an art and a science. A. B. C. D.

19.

Regulated by the PCAOB Highly specialized affairs Expensive to conduct An iterative process

Intent Substantiality Causality Harm

_________________ are those amounts designed to compensate the injured party for some specific loss.

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A. B. C. D. 23.

Economic loss or restitution damages compensate for a specific loss and recognize that the damages _______________________. A. B. C. D.

24.

A relationship between the parties can’t always be proved A preliminary starting point is not available The liability may include punitive damages Causality is not always clear-cut

The accepted concept for measuring lost revenues, excess expenses, and/or lost profits is to project these incremental changes _________________. I. J. K. L.

27.

The loss period How much of the evidence will be available through the discovery process Whether opposing counsel’s “storyline” is more compelling than your side’s Causality

The measurement period for commercial damages related to torts can be more difficult because, unlike breach of contract claims, _________________________. E. F. G. H.

26.

May carry into future periods Arose out of intentional or negligent causality Awarded are intended to punish the defendant as a financial deterrent Put the injured parties back where they would have been if the cause of action had not happened

One of the first steps in measuring commercial damages is determining _____________. A. B. C. D.

25.

Compensatory damages Punitive awards Special awards Clawback provisions

Into the future As having been directly caused by the adversarial party regardless of intent Based on industrywide norms Over a loss period

The method of quantifying lost revenues and increased expenses whereby some data exist that can be used to demonstrate how the revenues, expenses, and/or profits related to the liability claim for the loss period would have been performed “but for” the actions, or lack thereof, of the adversarial party, is referred to as the _______ method. M. N. O.

Standard industrial classification (SIC) Before and after Benchmark

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P. 28.

Although the liability claim alleged by the plaintiff against the defendant is often centered on lost revenues and/or incremental expenses, the actual amount of damages is ___________________. A. B. C. D.

29.

Valuation; competence and judgment Before and after; communication Yardstick; certification Loss period; skepticism

In assessing what is necessary to complete a valuation engagement with professional competence, one should consider the ability to identify, gather, and analyze the relevant data; apply the appropriate valuation methodologies; incorporate critical thinking, objectivity, and professional judgment in the decision-making process that will ultimately determine _______________. E. F. G. H.

32.

Maintain their commitment to persuasive evidence Communicate and defend their work Abide by the ethical standards of their professional association(s) Name the guilty party clearly and compellingly

_____________ engagements are created to value a business, business ownership interest, security, or intangible asset. Similar to the estimates associated with commercial damages, in the case of these engagements, the work of the forensic accountant requires professional ___________________. A. B. C. D.

31.

A function of lost profits Determined by whatever a jury considers “reasonable” Can include punitive multipliers Virtually limitless

Regardless of the choices made and the underlying assumptions, the “tire hits the road” for antifraud professionals and forensic accountants when they ___________________. E. F. G. H.

30.

Calculating lost profits

One’s credibility/reputation within the profession The amount of value One’s likely success in any given engagement The causality underlying the claim

AICPA Statement on Standards for Valuation Services No. 1 describes two types of engagements: I. J. K.

Civil and criminal Commercial and individual Valuation and calculation

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L. 33.

Essentially, two considerations ultimately determine the market and fair market value of an asset: the future income stream that can be derived and the difference between that and ___________________________. A. B. C. D.

34.

Establishing; for the loss period Projecting; into the future Auditing; during similar historical periods Benchmarking; based on industry norms

The asset valuation model starts with the assumption that the organization’s _______________ does a reasonably good job of identifying the company’s assets and liabilities M. N. O. P.

37.

Loss-period average Risk and return weighted future value “Pin the tail on the donkey” method Weighted average cost of capital

One of the most challenging issues associated with the discounted income and cash flows model is ______________ income and cash flows ___________. I. J. K. L.

36.

The income stream from alternative investment options The present value of a lump sum The future value of an annuity The best-case scenario based on industry norms

Generally, at least four methodologies can be used to develop the risk-adjusted discount rate and its related cash flows (income): CAPM, the bond-equity additive method, the build-up method, and the _____________________. E. F. G. H.

35.

Contractual and tortious

Management audit disclosure notes P&L Earnings management strategy Balance sheet

The three types of damages that ensue in personal injury cases are losses to the individual, losses to survivors, and losses to _______________. Q. R. S. T.

Future earnings The estates of decedents The income of antecedents Alternative investments

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38.

One of the major challenges in calculating losses in personal injury cases arises from _______________. U. V. W. X.

39.

The primary circumstance with court actions and related loss claims is that the injured person survived the incident and ________________________. Y. Z. AA. BB.

40.

Losses from pain and suffering Losses associated with the ability to perform “non-market” services Loss of employment benefits associated with earnings Medical costs

The estimate of earning losses requires the evaluation of five examination areas. Which of the following is NOT one of the five areas listed in the text? E. F. G. H.

42.

Was not the cause of it Subsequently lost income Suffered as a result Has financial obligations to minor children

An injured person may suffer up to five types of losses, both past and future. Which of the following is NOT one of the five losses listed in the text? A. B. C. D.

41.

Incomplete data Foreseeable risks Inflation Establishing causality

Analysis of employment history and related past earnings Projection of probable career paths: before and after the loss Benchmark of mobility freedom: before and after the loss Consideration of other factors on earnings losses such as age and experience

The fundamental premise in a wrongful death examination is that _____________________. A. B. C. D.

The loss must be sustained by the survivors The decedent was not at fault The loss can be calculated or valued only if sufficient data exist The plaintiff was either willful or reckless

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CHAPTER 16 1.

James (Jimmy) J. Vaughn is a Certified Public Accountant who worked as a forensic auditor with the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF) for 32 years. He retired as the Deputy Division Chief of the Financial Investigative Services Division, responsible for all ATF financial investigations on the east coast of the United States. In the text, Jimmy offered the following key points of advice for those testifying in a court of law. These included: Be alert as to how you answer questions about your qualifications posed by the opposition while qualifying as an expert witness, offer factbased testimony, be prepared, be objective, be truthful, avoid technical jargon, be aware of your body language, and __________________________. A. B. C. D.

____________ is characterized as the steps necessary to “clean up the mess” after a fraud, financial crime, or civil dispute has been discovered, examined, and the examination results have been prepared. A. B. C. D.

Employee dishonesty insurance coverage Their work product The U.S. Justice System The convicted party

Money stolen, other assets stolen, value lost interest, fines and penalties, and punitive damages are listed in the text as examples of: I. J. K. L.

Remediation Predication Mitigation Propitiation

Antifraud and forensic accounting professionals would like ______________ to be a resource that the client can use to obtain the largest recovery allowed by the evidence and the law. E. F. G. H.

Be unequivocal in opining as to the guilt or innocence of the defendant Give only yes or no answers during cross-examination by opposing counsel Know the law (i.e., the provisions applicable to the case) Maintain your composure

Types of monetary values that can be converted to Bitcoin Types of monetary losses attributable to white collar crimes Types of monetary remuneration that may be available to victims and plaintiffs Types of monetary losses that have to be investigated before a case goes to trial

Normally some of the issues to consider when attempting to recover assets include the following: (1) Amounts stolen and amounts that may be recovered, (2) the prospect of

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winning the case, (3) the value of the assets held by the defendant and whether they are sufficient, and (4) ______________________________________________. M. N. O. P. 6.

The first step to successfully recover money and other assets is to ______________. A. B. C. D.

The perpetrator was involved Intent was clearly demonstrated Predication exists Specific laws were violated

Generally, in order to be in a position to recover money from a civil suit, the injured party must prove two points: (1) Liability: the defendant was responsible for all or part of the damages claimed, and (2) ________________________________________. E. F. G. H.

Identify them during the examination process Petition a federal court to issue a 45-day freeze on the account where the funds are residing immediately upon successfully locating it Work with counsel to submit a Section 803 filing for the plaintiff File for disgorgement under Sarbanes-Oxley § 304

To prove fraud, the investigator needs to provide evidence that _________________ in the act, the concealment, and the conversion. A. B. C. D.

Specificity, whereby the investigator can track the exact assets in question from the plaintiff to the defendant The difficulties associated with trying to recover assets under many foreign jurisdictions The cost of converting assets back into cash (e.g., selling stolen real estate or auctioning stolen art) The legal costs involved in pursuing the financial claim and subsequent collection

Misconduct: the actions leading to the loss by the claimant were the result of someone acting outside the scope of their agency Intent: the defendant could reasonably foresee that his or her actions, or lack thereof, were likely to result in damages to the plaintiff Losses or damages: the claimant suffered damages as a result of the actions or inactions of the offending party Reasonable certainty: the amount of damages claimed are reasonable (to a jury)

The types of losses available for recovery in a civil suit include (a) compensatory damages and restitution of losses such as value, cash, and other assets; (b) economic losses (e.g., wages, incremental expenses, or profits); (c) reliance, intended to restore the claimants back to where they would have been but for the action of the defendant; and (d) ___________________________________. I.

Legal costs, to pursue the financial claim and subsequent collection

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J. K. L. 10.

In a civil framework, the plaintiff must demonstrate three attributes: (1) That the defendant was the proximate cause of any damages, meaning that the plaintiff caused or contributed to the lost amounts as a direct result of the conduct at issue, (2) __________________________, and (3) that the defendant could reasonably foresee that his or her actions, or lack thereof, were likely to result in damages to the plaintiff. M. N. O. P.

11.

Following; tracing Tracing; following Tracking; tracing Following; tracking

In theory, complex financial crimes, fraud, organized crime, drug trafficking, money laundering, and terrorism financing can be ____________ by _____________ the money. E. F. G. H.

14.

Recovering Following Tracing Locating

In contrast to __________ the money, _________ is a process of identifying both its present location and its current form of value relevant to the claim brought by the plaintiff. A. B. C. D.

13.

Intent was clearly demonstrated by the concealment phase of the fraud Conversion resulted in assets that can be located and returned or liquidated Specificity, whereby the investigator can track the exact assets in question from the plaintiff to the defendant Reasonable certainty as to the amounts (damages) claimed

____________ the money assumes an ability to directly track funds from the victim to the alleged perpetrator and involves specificity, whereby the investigator can track the exact assets in question from the plaintiff to the defendant. Q. R. S. T.

12.

Punitive damages, to punish the defendant Intangible asset losses, for example, losses to an organization’s goodwill value Pain and suffering losses, arising from the victimization of the claimant by the perpetrator’s actions (or inactions)

Investigated; tracing Remediated; following Prosecuted; following Prevented; safeguarding

A _________________ that “money” is no longer cash and coin; it can be anything of value that can be traded, transferred, or sold, such as cash, coin, certificates of deposit, stocks, bonds, money orders, cashier’s checks, cyber currencies, airline tickets, gift

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certificates, gift cards, prepaid credit and debit cards, diamonds, jewels, minerals, mineral rights, or deeds. I. J. K. L. 15.

Once illegal money has been combined with money from legitimate sources, one can no longer _________ the money; the money must be __________. M. N. O. P.

16.

Ex parte orders Lockout orders Search warrants Judicial injunctions

Preferably, freezing orders are obtained ex parte so that _____________________. A. B. C. D.

19.

Have been converted in back into cash and moved offshore Are concealed in shell companies where the beneficial owner cannot be determined Have have depreciated or have little to no residual value Have increased in worth

Freezing orders, restraining orders, and _______________ are used early in a legal action to secure funds so that they do not disappear prior to obtaining a favorable verdict or negotiated settlement. U. V. W. X.

18.

Recover; returned legally through the judicial system Investigate the source of; written off as a loss in most cases Follow; traced Hide; taxed

One of the issues related to tracing money involves assets that _____________. Generally, the courts have held that the perpetrator was acting to make an investment on behalf of the victims or plaintiff and any increases accrue to the victim or plaintiff; however, that may not always be the case in every jurisdiction. Q. R. S. T.

17.

Fraud perpetrator understands better than most Complicating factor is Valuable commodity in the global economy is Consumer benefit of 21st century technology is

They can surprise the defendant and prevent assets from disappearing before the resolution of the case The claimant’s team can immediately confiscate cash, assets, or property The judge has time to consider all the facts supporting the claim The claimant is caught off-guard

A ____________ is a formal and final decision made by a court of law. E.

Judicial injunction

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F. G. H. 20.

When a defendant does not pay amounts owed to victims and plaintiffs as outlined in a ____________, the claimant may return to court to obtain various types of orders for the seizure and sale of specific property, usually at auction. In some jurisdictions, these court orders are referred to as confiscation orders, and in others they are called compensation orders or ______________. I. J. K. L.

21.

An ex parte order A third-party debt order A claimant judicial bypass order A judicial assignment

Providing consultations, periodic communication of findings and investigative issues, wiring reports, attendance at opposing party depositions, being deposed, testifying in hearings, being present during settlement negotiations, and testifying in court are all examples in the text of: A. B. C. D.

23.

Judicial injunction; freeze orders Freeze order; judicial injunctions Judgment; forfeiture orders Petition; damage awards

___________________ is similar to a garnishment and requires that the defendant’s debtors pay the claimant (the victim or plaintiff) instead of remitting the money to the defendant. M. N. O. P.

22.

Petition Freeze order Judgment

Supporting the plaintiff or prosecuting attorney through the second major area of the remediation process Common activities of fraud examiners and forensic accountants while building a case against a target Costly support activities that the investigator should avoid when possible Strategies used by opposing counsel with the intent of disqualifying the fraud examiner from becoming an expert witness in a case

No matter what the engagement, the professional should remember that he or she __________________________. E. F. G. H.

Must maintain their independence from counsel Is not an advocate for any side Will be expected to express an opinion of guilt or innocence grounded in the evidence May only charge what the market will bear for their services

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24.

Generally, ____________ must testify to firsthand facts and knowledge. They are not permitted to offer opinions unless those views are based on specialized knowledge required as part of their normal responsibilities. A. B. C. D.

25.

A/an _________ witness may be permitted to offer “everyday” opinions under three conditions: (1) The opinion must be based on the witnesses personal perceptions (as opposed to hearsay), (2) The opinion must be helpful to the trier-of fact, and (3) __________________________________. E. F. G. H.

26.

J. K. L.

And is willing to use that knowledge in the pursuit of justice without thought of personal gain In order to explain technical information to judges, juries, and opposing counsel So that the truth in a case can be knowledgeably and objectively established Sufficient that others may officially (and legally) rely upon the opinion

To educate counsel, reconstruct cash flows and performance from records, guide additional investigation and discovery, make connections, determine whether evidence supports theories of the case, provide objective evaluations of the information data and evidence, draft reports and exhibits, and offer deposition and trial testimony are all examples of _________________________________________: M. N. O. P.

28.

Expert; the opinion must not be confusing to the average person in everyday life Expert; the opinion must be based on specialized knowledge of the witness, for example, a mine supervisor Fact; the opinion must be the product of reasoning processes familiar to the average person in everyday life Fact; the opinion must pertain to something not already known to the trier-of-fact

An expert witness is one who, by virtue of education, profession, publication, or experience, is believed to have special knowledge of his or her subject beyond that of the average person, ______________________________________________. I.

27.

Fact witnesses Expert witnesses Fraud examiners and forensic accountants Claimants/defendants

The role of fact witnesses in a case The role of the fraud examiner or forensic accountant when working with attorneys and other persons related to legal matters Responsibilities that only qualified law enforcement personnel should engage in Fraud examiner or forensic accountant independence

An expert’s opinion is subject to two types of challenges: Q.

Disqualification and overruled

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R. S. T. 29.

Jim DiGabriele, CPA, PhD, CVA, shared an anecdote in the text where a forensic accountant offered a different answer during a deposition than the one he gave on direct examination. The lesson learned as shared by Jim urges professionals to: U. V. W. X.

30.

Weak evidence or the logical leap is rather large Expert opinion v fact Circumstantial evidence Conclusions that are dependent on one’s “interpretation” of accounting procedures

____________ are positions grounded in the evidence, whereas ___________ are based on the fraud examiner’s or forensic accountant’s interpretation of the facts. E. F. G. H.

33.

Cost-effective Objective Defensible Relevant

The analyses and central issues in a case should be presented in a coherent storyline— clear, accurate, precise, and relevant to the issues under consideration; presented in reasonable depth to establish credibility; and logical. The fraud examiner or forensic accountant could have vulnerability where the storyline is supported by______________________. A. B. C. D.

32.

Avoid contradicting yourself (and thereby impair or destroy your credibility). Always tell the truth. Read your deposition transcript before trial testimony and remember the details. Avoid taking sides or agreeing to be an advocate.

The professional should ensure that all conclusions and opinions are grounded in the evidence, supportable, and _______________. Y. Z. AA. BB.

31.

Opinion v fact and hearsay v firsthand knowledge During deposition and cross-examination The Daubert Rule and The Frye Rule

Facts; conclusions Conclusions; opinions Depositions; answers to cross-examination questions Fact-based options; storyline elements

For the fraud examiner or forensic accountant, ____________ is essential—in substance and in appearance. I. J. K.

Preparation Professionalism Tone

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L. 34.

The essence of criminal and civil litigation is ______________—both sides get the opportunity to present the facts and circumstances from their opposing perspectives. M. N. O. P.

35.

Credibility; preparation The law; accounting Facts; opinions Attorneys (on both sides); witnesses (on both sides)

The first goal of the opposing attorney during cross-examination is to ____________________. E. F. G. H.

39.

A cruel game in which the fraud examiner is the court jester A fait accompli where the verdict is concerned An act of presentation and choreography An anachronistic ritual to establishing liability

Direct examination is the intersection of ____________ and ____________. A. B. C. D.

38.

The preliminary phase A mediated arbitration A deposition An ex parte injunction

Essentially, based on discovery in civil litigation (including depositions), each side knows the other side’s theory of the case and what the witnesses are expected to say. As such, the civil trial becomes, to some extent, ________________________. U. V. W. X.

37.

Fairness and balance Predicated on a presumption of goodwill until proven otherwise Managed mediation Controlled confrontation

_______________ is a pretrial process during which the parties to a civil litigation are allowed to examine the other side’s fact and expert witnesses. Q. R. S. T.

36.

Credibility

Discover what the expert knows and to assess their level of preparation Prove that there is some other reasonable explanation for the missing money Present an alternative narrative (i.e., a different interpretation) of the facts Challenge the expert’s credibility, if possible

The Primrose Path, The Nodding Chicken, Ask Until You Admit, You’ve Got to Be Kidding, This Means Nothing, and You Really Didn’t Mean to Say, are all examples of what?

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A. B. C. D. 40.

A good system of internal controls has four separate areas of responsibility: one person is responsible for safeguarding the assets; another person has authority over transactions associated with the asset; a third person is responsible for recording transactions for assets; and a fourth person should _____________________. E. F. G. H.

41.

How most fraud occurs within that particular industry The players involved The control environment Red flags in order to establish the scope

At a minimum, corporate governance should address three issues: (1) creating and maintaining a culture of honesty and high ethics, (2) evaluating fraud risks and implementing programs and controls to mitigate them, and (3) _____________________. M. N. O. P.

43.

Prepare the financial statements Orchestrate a system of audits, physical inventories, and reconciliations Perform criminal background checks on people with access to the assets Investigate allegations of fraud, waste, and abuse

At the inception of an examination, the fraud examiner or forensic accountant needs to develop an understanding of: I. J. K. L.

42.

Techniques used in cross-examinations Scenarios in which the defendant is extremely vulnerable Diversions directed at the jury which are employed by attorneys when the facts are not in their client’s favor Chapters in a book titled, The Expert Testimony Game: How to Win Big While Maintaining Your Credibility

Keeping sound meeting minutes that reflect that the board reasonably performed its duty of care Engaging in strategic planning as a means of ensuring appropriate company goals Hiring a capable CEO and maintaining robust oversight of that individual Developing an appropriate antifraud oversight process

The following is a five-step approach to fraud prevention, deterrence, and detection: (1) know the exposures, (2) translate exposure into likely symptoms, (3) always be on the lookout for these symptoms, (4) build supervisory, review and audit programs to look for symptoms, and (5) ________________________________________. Q. R. S. T.

Maintain defensible documentation on all investigations Establish a proper tone at the top in both words and actions Follow up on these issues to their logical, evidence-based conclusions Train employees to be able to identify and report these issues

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44.

According to the AICPA’s Statement on Auditing Standard (SAS) No. 99, “Risk Factors Relating to Misstatements Arising from Fraudulent Financial Reporting,” high turnover of senior management, counsel, or board members may be evidence of: A. B. C. D.

A complex or unstable organizational structure Ineffective monitoring of management Internal controls are deficient Excessive pressure on management or operating personnel to meet financial targets set by the board of directors or management, including sales or profitability incentive goals.

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