Name: Fraud Examination 5th Edition W Steve Albrecht Chad O Albrecht Conan C Albrecht Mark F Zimbelman-Test bank - Eazyquizes
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Fraud Examination 5th Edition W Steve Albrecht Chad O Albrecht Conan C Albrecht Mark F Zimbelman-Test bank

Sample Questions

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Chapter 02

1. Which of the following is NOT a primary control procedure to minimize the occurrence of fraud?

	a.	Dual custody
	b.	Systems of authorization
	c.	Internal audit department
	d.	Documents and records

ANSWER:

FEEDBACK:

	a.	Incorrect. Dual custody, or segregation of duties, is a control activity.
	b.	Incorrect. Systems of authorization are a control activity.
	c.	Correct.
	d.	Incorrect. Documents and records are control activities–they produce an audit trail.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

2. Which of the following is NOT a common rationalization of fraud perpetrators?

	a.	The organization owes me
	b.	I’m only borrowing the money
	c.	No one will get hurt
	d.	No one will care

ANSWER:

FEEDBACK:

	a.	Incorrect. This is a common rationalization for committing fraud.
	b.	Incorrect. This is a common rationalization for committing fraud.
	c.	Incorrect. This is a common rationalization for committing fraud.
	d.	Correct. Fraud perpetrators usually rationalize their actions by thinking “I deserve more.”

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-7

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

3. Each of the following is an example of an abuse of a control environment EXCEPT:

	a.	The HR department failed to check an applicant’s background and hired someone who had committed fraud in the past.
	b.	A manager instructs employees not to share passwords, and then shares her passwords with her immediate assistant.
	c.	A company has established codes of conduct and conducts training meetings to teach employees to distinguish between acceptable and unacceptable behavior. Attendance is voluntary.
	d.	The employees know who has responsibility for each business activity. Procedures to follow are in place.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct. A clear organizational structure is an important fraud-deterring element. It is easier to track missing assets and money when all employees know exactly who is responsible for each business activity.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

4. A fraud perpetrator uses the float time between banks to give the impression that he had money in his accounts. Which crime is he committing?

	a.	Floating
	b.	Strip
	c.	Spinning
	d.	Kiting

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

5. Which is following observations is TRUE?

	a.	Research shows that only people with a criminal mind set commit fraud.
	b.	Fraud perpetrators usually can be distinguished from others on the basis of psychological characteristics.
	c.	Most fraud perpetrators have profiles that are similar to those of other people.
	d.	When fraud does occur, the most common initial reaction by those involved in the fraud is confession.

ANSWER:

FEEDBACK:

	a.	Incorrect. Research shows that anyone can commit fraud.
	b.	Incorrect. Fraud perpetrators usually can’t be distinguished from other people on the basis of demographic or psychological characteristics.
	c.	Correct.
	d.	Incorrect. When fraud does occur, the most common reaction by those around the fraud is denial.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

6. When management fraud occurs, companies usually:

	a.	overstate assets and net income.
	b.	understate assets and net income.
	c.	overstate assets and understate net income.
	d.	understate assets and overstate net income.

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect. Usually, when management fraud occurs, companies overstate assets on the balance sheet and net income on the income statement.
	c.	Incorrect. Usually, when management fraud occurs, companies overstate assets on the balance sheet and net income on the income statement.
	d.	Incorrect. Usually, when management fraud occurs, companies overstate assets on the balance sheet and net income on the income statement.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

7. Which of the following is NOT one of the key elements common to all frauds?

	a.	Perceived pressure
	b.	Perceived inequality
	c.	Perceived opportunity
	d.	Rationalization

ANSWER:

FEEDBACK:

	a.	Incorrect. This is a key element common to all frauds.
	b.	Correct.
	c.	Incorrect. This is a key element common to all frauds.
	d.	Incorrect. This is a key element common to all frauds.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

8. What is the most important element in a control environment?

	a.	Management’s communication
	b.	Management’s role and example
	c.	The hiring process
	d.	The internal audit department

ANSWER:

FEEDBACK:

	a.	Incorrect. Although management communication is critical, it is not the most important element in the control environment. Management’s role and example are the most important elements because employees will follow what management does more than what management communicates.
	b.	Correct.
	c.	Incorrect. The hiring process, although critical, cannot eliminate all fraud. Hiring only those with integrity can still lead to fraud if the example and role of management pushes employees into believing that fraud is okay. Also, the hiring process cannot screen out all dishonest employees.
	d.	Incorrect. Internal auditors only detect about 20% of employee fraud. The internal auditors do add a deterrent effect; however, the internal auditors are not the most critical element in the control environment.

POINTS:

DIFFICULTY:

Challenging

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Applying

9. Which of the following statements about accounting systems is incorrect?

	a.	An effective accounting system provides an audit trail that allows frauds to be discovered.
	b.	An effective accounting system makes concealment difficult.
	c.	An effective accounting system can effectively prevent “kickbacks.”
	d.	Without a good accounting system, it is often difficult to distinguish between actual fraud and unintentional error.

ANSWER:

FEEDBACK:

	a.	Incorrect. This statement is true.
	b.	Incorrect. This statement is true.
	c.	Correct.
	d.	Incorrect. This statement is true. A good accounting system ensures that recorded transactions are valid, properly authorized, complete, properly classified, reported in the proper period, properly valued, and summarized correctly.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

10. Greed, living beyond one’s means and high bills all describe what type of fraud-related pressure?

	a.	Financial
	b.	Peer
	c.	Environmental
	d.	Work-Related

ANSWER:

FEEDBACK:

	a.	Correct. These are financial pressures.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

11. An effective accounting system is designed to provide which of the following to help discover fraud?

	a.	An audit trail
	b.	Matching of expenses to revenues
	c.	Set of controls
	d.	Set of accounting procedures

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect. Accounting systems do match expenses with revenues, but this does not help discover fraud.
	c.	Incorrect. Controls are used to prevent fraud, not to discover fraud.
	d.	Incorrect. Accounting procedures help set up the accounting system, not vice versa.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

12. When fraud occurs, the most common reaction to those affected by the fraud is:

	a.	Anger
	b.	Acceptance
	c.	Denial
	d.	Retribution

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

13. Which of the following is NOT an element of a good control environment?

	a.	Trust
	b.	Modeling
	c.	Appropriate hiring
	d.	Management’s communication

ANSWER:

FEEDBACK:

	a.	Correct. Regrettably this is not a positive characteristic of the control environment.
	b.	Incorrect. Examples of management strongly influence employees.
	c.	Incorrect. Basic screening can help prevent hiring fraudsters.
	d.	Incorrect. Employees need to receive clear communication from management that fraud will be pro-actively looked for and punished when found.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

14. The fraud triangle includes all of the following EXCEPT:

	a.	Validation
	b.	Perceived opportunity
	c.	Rationalization
	d.	Perceived pressure

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect. This is part of the fraud triangle.
	c.	Incorrect. This is part of the fraud triangle.
	d.	Incorrect. This is part of the fraud triangle.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

15. Poor credit could become a ____ that could lead to fraud.

	a.	Financial pressure
	b.	Social pressure
	c.	Family pressure
	d.	Financial threat

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

16. Modeling and labeling are sub-components of which fraud-related element of an organization?

	a.	Control environment
	b.	Accounting system
	c.	Audit procedures
	d.	Review procedures

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

17. ___________ requires every public company to have a code of ethics to help deter wrongdoing.

	a.	The Glass Steagall legislation
	b.	The Sarbanes-Oxley legislation
	c.	The Securities Act
	d.	Generally Accepted Auditing Standards

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

18. Which of the following is NOT a possible control activity?

	a.	Having separate authorization, bookkeeping, and custody functions.
	b.	Protecting access to important information with a password.
	c.	Requiring two individuals to work on the same task.
	d.	Supervisory review of each task completed by employees.

ANSWER:

FEEDBACK:

	a.	Incorrect. By separating authorization, bookkeeping, and custody functions, key duties are segregated.
	b.	Incorrect. Protecting access to important information with a password is considered a system of authorization and is a possible control activity.
	c.	Incorrect. Requiring two individuals to work on the same task is similar to segregation of duties in that multiple people are doing one job.
	d.	Correct.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

19. Financial statement fraud is typically committed by:

	a.	Employees with access to company assets
	b.	Top management
	c.	Customers
	d.	Vendors

ANSWER:

FEEDBACK:

	a.	Incorrect. Employees usually commit fraud against the organization, not for the organization.
	b.	Correct. Top management is usually responsible for fraud committed on behalf of the organization.
	c.	Incorrect. Customers usually commit fraud against the organization.
	d.	Incorrect. Vendors usually commit fraud against the organization.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

20. An employee who has the responsibilities of both writing checks and making bank deposits would have ____.

	a.	Financial pressure
	b.	Perceived opportunity
	c.	Rationalization

ANSWER:

FEEDBACK:

	a.	Incorrect. A financial pressure is when a person feels a need for money that he does not have.
	b.	Correct.
	c.	Incorrect. Rationalization occurs when perpetrators justify their fraudulent acts as acceptable.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

21. Most fraud perpetrators have profiles that look like:

	a.	Those of other honest people
	b.	Those with criminal records
	c.	Those who are uneducated
	d.	Those who use alcohol and drugs

ANSWER:

FEEDBACK:

	a.	Correct. Fraud perpetrators fit the profile of those who are educated and appear to have good traits that organizations look for when hiring employees.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

22. According to the Sarbanes-Oxley legislation, current changes to, or waivers of codes of ethics should be disclosed in:

	a.	Form 10-K.
	b.	Form 1120.
	c.	Form 8-K.
	d.	Form 10-Q.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

23. What is the strongest factor in deterring future fraud activity?

	a.	Legal prosecution.
	b.	Sanctions.
	c.	Termination.
	d.	Counseling.

ANSWER:

FEEDBACK:

	a.	Correct. When fraud perpetrators are prosecuted others in the organization understand that fraud is a serious crime.
	b.	Incorrect. Sanctions carry no public scrutiny; hence, perpetrators can conceal their crimes from family and commit fraud again in the future.
	c.	Incorrect. This can actually help perpetrators build an impressive resume; it does not deter future fraud.
	d.	Incorrect. This is a “distracter” answer; counseling was not listed in the text as a possible factor in deterring future fraud.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

24. Which of the following is NOT a true statement?

	a.	Almost every fraud involves rationalization.
	b.	All frauds involve financial or vice-related pressures.
	c.	Perceived opportunity diminishes when fraud perpetrators are prosecuted.

ANSWER:

FEEDBACK:

	a.	Incorrect. This statement is true.
	b.	Correct. Not every fraud involves financial or vice-related pressures. There may exist work-related pressures, or pressures from a spouse.
	c.	Incorrect. This statement is true. Perceived opportunity diminishes when fraud perpetrators are prosecuted. Prosecution also benefits the perpetrator in the long term.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

25. A smart fraudster usually manipulates which financial record in order to better avoid an audit trail?

	a.	Income statement.
	b.	Balance sheet.
	c.	Statement of cash flows.
	d.	Statement of retained earnings.

ANSWER:

FEEDBACK:

	a.	Correct. Income statements report on activity only for a certain period. At the end of that period accounts are closed to zero, thus erasing the audit trail.
	b.	Incorrect. Balance sheets carry over numbers from period to period, making it harder to conceal fraud.
	c.	Incorrect. The statement of cash flows also carries over financial data from period to period, making it hard to conceal the fraud over the long term.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

26. Which of the following factors creates an opportunity for fraud?

	a.	Greed
	b.	Living beyond one’s means
	c.	Lack of an audit trail
	d.	The organization owes it to me

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct. Opportunity is the second factor of the fraud triangle. It consists of several items including the lack of an audit trail.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

27. Which of the following is NOT a common financial pressure associated with fraud?

	a.	Living beyond one’s means
	b.	High bills or personal debt
	c.	Personal financial losses
	d.	Desire to hurt employer financially

ANSWER:

FEEDBACK:

	a.	Incorrect. This is a common financial pressure associated with fraud.
	b.	Incorrect. This is a common financial pressure associated with fraud.
	c.	Incorrect. This is a common financial pressure associated with fraud.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

28. Generally, internal controls are implemented in a corporation to help prevent which element of the fraud triangle?

	a.	Perceived opportunity
	b.	Perceived pressure
	c.	Rationalization
	d.	Authorization

ANSWER:

FEEDBACK:

	a.	Correct. Internal controls are generally implemented to help prevent perceived opportunity.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

29. Which racial group is most likely to commit fraud?

	a.	Caucasian
	b.	African American
	c.	Asian
	d.	Hispanic
	e.	People of every race commit fraud

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.
	e.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

30. According to the study mentioned in the text, which of the following is true about fraud perpetrators compared to property offenders?

	a.	Fraud perpetrators are more likely to be caught than property offenders
	b.	Fraud perpetrators are more educated than property offenders
	c.	Fraud perpetrators are more likely to be men than property offenders
	d.	Fraud perpetrators are much younger than property offenders

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct. When compared to other property offenders, fraud perpetrators are much more educated.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

31. Which of the following creates opportunities for fraud?

	a.	Requirement to change passwords on a regular basis
	b.	Inability to judge quality of performance
	c.	Controls that prevent or detect fraud
	d.	Segregation of duties

ANSWER:

FEEDBACK:

	a.	Incorrect. This is a deterrent to fraudulent behavior.
	b.	Correct.
	c.	Incorrect. This is a deterrent to fraudulent behavior.
	d.	Incorrect. This is a deterrent to fraudulent behavior.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

32. Which of the following people is most likely to have opportunities to commit fraud?

	a.	Rob is a convicted bank robber who has been out of jail for 7 years and is working for a small firm whose manager knows about Rob’s criminal background.
	b.	Jane is a recent high school graduate who loves shopping. She is on the look out for a job.
	c.	Steve was just hired by his company but he is always acting suspicious
	d.	62 year old Dave has loyally worked up his company’s corporate ladder for the past 24 years

ANSWER:

FEEDBACK:

	a.	Incorrect. As a convicted felon, Rob’s opportunity to commit fraud will be limited–especially if his employer is aware that he is a convicted felon.
	b.	Incorrect. Fraud perpetrators have usually worked for the company for several years.
	c.	Incorrect. More controls will be in place for Steve because he is not trusted.
	d.	Correct. Dave will be given the most opportunities.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-1,6 – LO: 2-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

33. According to the study mentioned in the text, people who commit fraud are most similar to which of the following groups?

	a.	Property offenders
	b.	College students
	c.	Convicted felons
	d.	Animal lovers

ANSWER:

FEEDBACK:

	a.	Incorrect. Fraudsters are not generally property offenders.
	b.	Correct. Fraudsters tend to differ only slightly from typical college students.
	c.	Incorrect. Fraudsters don’t generally have criminal records.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

34. The theory behind _____ is that if people know their work or activities will be monitored by others, the opportunity to commit and conceal a fraud will be reduced.

	a.	documentation
	b.	segregation of duties
	c.	system of authorizations
	d.	independent checks

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 2-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

35. Which of the following is usually the most expensive of all control procedures?

	a.	Documents and records
	b.	Segregation of duties
	c.	System of authorizations
	d.	Independent checks

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 2-6

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

Chapter_04

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

	a.	System of authorizations
	b.	Segregation of duties
	c.	Independent checks
	d.	Physical safeguards

ANSWER:

FEEDBACK:

	a.	Incorrect. This is a preventive control.
	b.	Incorrect. This is a preventive control.
	c.	Correct.
	d.	Incorrect. This is a preventive control.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Low turnover
	b.	Reactive rather than proactive management
	c.	Supportive rather than rivalrous relationships
	d.	Long-term business focus

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	High turnover, high loyalty
	b.	High turnover, low loyalty
	c.	Low turnover, high loyalty
	d.	Low turnover, low loyalty

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	having separate, nonintegrated personnel and operating policies.
	b.	creating an expectation of punishment.
	c.	following a reactive management style.
	d.	to have a clearly defined code of conduct in place.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct. A clearly defined code of conduct labels for employees what is acceptable and unacceptable.

POINTS:

DIFFICULTY:

Easy

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

5. Preventive controls that provide early fraud detection opportunity include:

	a.	independent checks.
	b.	segregation of duties.
	c.	documents and records.
	d.	financial statement reviews

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

6. What is the most widely recognized way to deter fraud?

	a.	Encourage employees to report suspicious activity.
	b.	Implement a good system of controls.
	c.	Keep management involved in company procedures.
	d.	Quickly punish employees found committing fraud.

ANSWER:

FEEDBACK:

	a.	Incorrect. Interviewing is not the best way to deter fraud.
	b.	Correct.
	c.	Incorrect. Management may also be involved in fraud, so this is not the best way to deter fraud.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	A person owns several expensive cars.
	b.	A person closely monitors his/her investments.
	c.	A person who hosts extravagant parties in their home.
	d.	A person who owns a valuable art collection.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	present lifestyle.
	b.	past conduct.
	c.	attitude toward work.
	d.	absenteeism.

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	Investigation & follow-up
	b.	Education & training
	c.	Tone at the top
	d.	Proactive fraud detection

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

10. Which of the following is an operating condition that can contribute to a higher risk of fraud is?

	a.	management by crisis
	b.	high company loyalty
	c.	flexible rules
	d.	proper authorization

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

11. A good internal control system includes:

	a.	open work environments.
	b.	rigid rules.
	c.	segregation of duties.
	d.	following strict hiring procedures.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	Fraud incident
	b.	Resolution
	c.	Investigation
	d.	Action

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Rigid rules followed by the organization
	b.	Managers who care about the employee work ethic
	c.	Careful hiring policies
	d.	Having positive personnel and operating procedures

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	63%, 37%, smallest
	b.	71%, 29%, largest
	c.	47%, 53%, smallest
	d.	18%, 82%, largest

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-4

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	lifestyle symptom.
	b.	spending addiction symptom.
	c.	extravagant behavior symptom.
	d.	financial symptom.

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

16. Fraud is most commonly detected by:

	a.	monitoring employees.
	b.	auditors.
	c.	discouraging collusion.
	d.	tips and complaints.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Perceived inequalities in the organization and inadequate pay
	b.	Unreasonable budget expectations
	c.	Proactive management
	d.	High employee turnover

ANSWER:

FEEDBACK:

	a.	Incorrect. This can lead to disgruntled employees who develop motives to commit fraud.
	b.	Incorrect. This can lead to disgruntled employees who develop motives to commit fraud.
	c.	Correct. If management is proactive, there will be an open line of communication between management and the employees and most of the employee frustration will be resolved before someone decides to commit fraud.
	d.	Incorrect. This can lead to disgruntled employees who develop motives to commit fraud.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	Identifying fraud risk exposures; building audit programs to proactively look for symptoms and exposures; investigating fraud symptoms identified; and identifying the fraud symptoms of each exposure.
	b.	Identifying fraud risk exposures; identifying the fraud symptoms of each exposure; building audit programs to proactively look for symptoms and exposures; and investigating fraud symptoms identified.
	c.	Building audit programs that proactively check for symptoms and exposures; identifying fraud risk exposures; identifying the fraud symptoms of each exposure; and investigating fraud symptoms identified.
	d.	Identifying the fraud symptoms of each exposure; identifying fraud risk exposures; investigating fraud symptoms identified; and building audit programs to proactively look for symptoms and exposures.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-4

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Proactive auditing
	b.	Installing good internal controls
	c.	Monitoring employees
	d.	Creating a positive work environment

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

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

	a.	The company will avoid bad publicity.
	b.	The perpetrator may commit another fraud in the future.
	c.	The perpetrator will be saved from pain and embarrassment.
	d.	Management will send a signal that fraud will not be tolerated.

ANSWER:

FEEDBACK:

	a.	Incorrect. Gone are the days when prosecution resulted in bad publicity.
	b.	Correct.
	c.	Incorrect. The perpetrator will commit fraud again.
	d.	Incorrect. Management will send a signal that they are not harsh to fraudsters.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

21. Which of the following should be emphasized in an employee-reporting program?

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

	a.	II and III.
	b.	I, II, III, and IV.
	c.	I, II, and IV.
	d.	II and IV.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct. II & IV are correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-4

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

22. Which method will result in biggest savings?

	a.	Fraud prevention–including EAP plans.
	b.	Fraud detection–including audit proactively, monitoring.
	c.	Investigation–including criminal prosecution.
	d.	Promotion–including raising rank or position.

ANSWER:

FEEDBACK:

	a.	Correct. Prevention results in the biggest savings.
	b.	Incorrect.
	c.	Incorrect
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Tone at the Top; Education and Training; Proactive Detection; Integrity Risk and Controls; Reporting and Monitoring; Investigation and Follow-up.
	b.	Tone at the Top; Education and Training; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and Follow-up.
	c.	Education and Training; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and Follow-up; Tone at the Top.
	d.	Education and Training; Tone at the Top; Integrity Risk and Controls; Reporting and Monitoring; Proactive Detection; Investigation and Follow-up.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-4

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

24. A “right-to-audit” clause:

	a.	provide rights to the vendor to audit the company’s books at any time.
	b.	gives an external auditor the right to audit the company’s books.
	c.	is considered in civil court as an invasion of privacy.
	d.	alerts vendors that the company reserves the right to audit the vendor’s books at any time.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	taking no action is the best course of action.
	b.	the perpetrator should be punished by publishing the details of the fraud in the local newspapers.
	c.	the perpetrator should be prosecuted.
	d.	the company should transfer the perpetrator to a position with more supervision.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct. The perpetrator should be prosecuted regardless of the amount of money embezzled.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

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

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Understanding

27. Who has the primary responsibility for establishing and maintaining good internal controls?

	a.	Primary responsibility for controls belongs to internal auditors. They are the ones who create the controls and investigate potential violations of the controls.
	b.	Primary responsibility rests with management. Management both conveys acceptable culture and has the final say in how fraud cases are treated.
	c.	Primary responsibility lies with employees. They are the ones most likely to fully understand the system on a day-to-day basis and know where controls should be put in place.
	d.	Primary responsibility is not attributable to one person or group of people within an organization. Each member of an organization must consider himself or herself personally responsible for the organization’s control environment.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

28. What does the acronym “EAP” stand for?

	a.	Entrepreneurial Assistance Program
	b.	Employee Assistance Program
	c.	Ethical Awareness Program
	d.	Employee Anti-fraud Program

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Rules, control, and consequences.
	b.	Recognition, prosecution, and restitution.
	c.	Honesty, openness, and assistance.
	d.	Rules, consequences, and rewards.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	A verbal authorization
	b.	A hold harmless agreement
	c.	A privacy statement
	d.	A no-objection certificate

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Conduct a covert investigation on the background of each candidate.
	b.	Consider the candidate’s word as truth to ensure a culture of trust and honesty.
	c.	Require candidates to certify that all information on their résumé is accurate.
	d.	Verify the candidate’s race, age, and religion during the interview.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	are allowed in most circumstances.
	b.	are allowed as long as the interviewee has verbally agreed.
	c.	are prohibited unless the criterion is pre-approved by the company management.
	d.	are usually prohibited unless the criterion is a bona fide occupational qualification.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

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

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

34. Which of the following explains the Pygmalion effect?

	a.	Employees who commit fraud are likely to do so more than once.
	b.	The probability of fraud detection increases with the number of people involved.
	c.	People generally perform according to a leader’s expectations.
	d.	Absence of controls leads to increased incidents of dishonesty.

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Correct.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Office grapevine
	b.	Open door policies
	c.	Code of ethics
	d.	Pygmalion effect

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

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

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct. There is a direct conflict of interest here.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Evaluation

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

	a.	Employee Assistance Programs
	b.	Equal Employment Opportunity Programs
	c.	Employees Anonymous Programs
	d.	Whistle-Blowing Programs

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-1

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	detection framework
	b.	risk mitigation channel
	c.	support network
	d.	control environment

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Open door policy
	b.	Control environment
	c.	Whistle-blowing system
	d.	Surveillance

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-2

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

40. Which of the following observations is true?

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

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Correct.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Evaluation

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

	a.	Segregation of duties
	b.	Proper authorizations
	c.	Physical safeguards
	d.	Documents and records

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Easy

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

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

	a.	Segregation of duties
	b.	Proper authorizations
	c.	Physical safeguards
	d.	Independent checks

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

43. Which of the following observations concerning collusive frauds is true?

	a.	They are usually slower to develop than frauds committed by one individual.
	b.	Research indicates that majority of the frauds involve collusion.
	c.	Frauds involving collusion are usually the easiest to detect because of the involvement of multiple players.
	d.	Recent trends in business have dramatically decreased the number of collusive frauds.

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Remembering

44. Identify a recent business trend that could be contributing to the increased number of collusive frauds.

	a.	Reducing costs and product quality by using same suppliers.
	b.	Advances in technology that simplify the process of conducting business.
	c.	Increasing frequency of supplier alliances, and closer relationships between buyers and suppliers.
	d.	Increased competition amongst suppliers.

ANSWER:

FEEDBACK:

	a.	Correct.
	b.	Incorrect.
	c.	Incorrect.
	d.	Incorrect.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-3

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Applying

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

	a.	Unclear policies regarding whistle blowing
	b.	Lack of awareness about the program
	c.	Management inaction regarding anonymity policies
	d.	Lack of adherence to anonymity policies

ANSWER:

FEEDBACK:

	a.	Incorrect.
	b.	Incorrect.
	c.	Incorrect.
	d.	Correct.

POINTS:

DIFFICULTY:

Moderate

LEARNING OBJECTIVES:

LO: 4-5

NATIONAL STANDARDS:

United States – BUSPROG: – Technology

KEYWORDS:

Bloom’s: Evaluation

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

	a.	to establish the controls for the organization
	b.	to write the code of ethical business conduct for the organization
	c.	to test the system of internal controls in order to attest that there are no material weaknesses
	d.	to assist management with the evaluation of internal controls currently in place

ANSWER:

FEEDBACK:

	a.	Incorrect, the internal auditor does not initially write the controls.
	b.	Incorrect, the management writes the ethical conduct code.
	c.	Incorrect, this is a duty of the outside auditor.
	d.	Correct, the internal auditor is an advisor or staff member of the organization.

POINTS:

47. Which of the following indicates proactive fraud auditing?

	a.	creating an awareness among employees that their actions can be reviewed at any time
	b.	establishing controls to discourage collusion between employees
	c.	creating an expectation of punishment for a fraud act.
	d.	establishing a system of segregation of duties throughout the organization

ANSWER:

FEEDBACK:

	a.	Correct
	b.	Incorrect, in order to audit for fraud, the controls have to already be in place.
	c.	Incorrect, creating an expectation of punishment is part of the organization culture.
	d.	Incorrect, segregation of duties is a control set up previously.

POINTS:

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

	a.	The organization requires employees to report all suspicious activity.
	b.	The employee suspecting fraud reports directly to his/her supervisor’s manager.
	c.	Management is slow to act on reports of suspected fraud.
	d.	An extensive code of ethics is in place and on file in order to answer employee inquiries.

ANSWER:

FEEDBACK:

	a.	This is not a suggested part of a whistle-blowing system.
	b.	This is not a suggested part of a whistle-blowing system.
	c.	This will cause employees to feel that the system does not work.
	d.	This statement indicates that the code is not readily available to employees for reference.

POINTS:

49. What is a purpose of proactive fraud auditing?

	a.	It creates an atmosphere of distrust between and among employees.
	b.	Its purpose is to deter employees from committing fraud.
	c.	It provides ways for employees to deal with personal pressures.
	d.	It eliminates collusion as a means of committing fraud.

ANSWER:

FEEDBACK:

	a.	Distrust would increase discontent which could increase fraud.
	b.	Correct.
	c.	This is a preventive action and not part of proactive auditing.
	d.	Collusion cannot be eliminated through proactive auditing.

POINTS:

50. Which of the following is false regarding a comprehensive approach to fighting fraud?

	a.	detecting fraud is the responsibility of the independent auditors
	b.	evaluating controls is the function of the internal auditor
	c.	corporate security officers see their role as investigative
	d.	employees are in the best position to prevent and spot fraud

ANSWER:

FEEDBACK:

	a.	This is a false statement. The independent auditors assess the risks for fraud.
	b.	This is a true statement.
	c.	This is a true statement.
	d.	This is a true statement.

POINTS:

Fraud Examination 5th Edition W Steve Albrecht Chad O Albrecht Conan C Albrecht Mark F Zimbelman-Test bank

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