Accounting Information Systems, 11e (Bodnar/Hopwood)
Chapter 5 Fraud Examination and Fraud Management
1) Fraud examination and fraud investigation both refer to the application of accounting and
other specialized skills to the prevention, detection, investigation, correction, and reporting of
fraud.
2) Fraud prevention requires implementing control checklists that contain items such as firewalls
and anti-virus software.
3) The ISO 27000 family of standards has over 5,000 controls.
4) COBIT standard is based on 16 high-level objectives that are broken down into 318 detailed
control objectives.
5) Fraud detection includes several standalone processes such as fraud prevention, investigation,
correction, reporting, and recovery.
6) Fraud detection involves identifying indicators of fraud that suggest a need for further
investigation.
7) Data-driven fraud detection involves the formal analysis of small sets of data in search for
fraud indicators.
8) Fraud detection software and services often use sophisticated statistical techniques.
9) Benford analysis exploits the pattern relating to the first digit of numbers appearing in a
random data set.
10) The external auditor is a good candidate to receive tips.
11) Fraud detection is often an imperfect process.
12) Type 1 error occurs when a fraud indicator fails to signal fraud.
13) Type 2 errors result in unnecessary fraud investigations.
14) Total fraud cost is defined as the summation of costs of prevention, costs of investigations,
costs of detections, and costs of losses.
15) The fraud engagement process includes various steps in which evidence is collected in
support of the scope and objectives of the investigation.
16) A fraud incident report can be anything from a red flag to a formal report written by a
responsible person.
17) A company-generated incident report may serve as the basis of a probable-cause justification
that would be required to obtain subpoenas, search warrants, and even arrest warrants.
18) CEO/owner, legal counsel, and the internal auditors are among the possible candidates to
receive notifications regarding a fraud investigation.
19) Evidence is anything that relates to the truth or falsity of an assertion made in an
investigation or legal proceeding.
20) The first question a fraud investigator should always ask is “why.”
21) A fraud theory provides answers to the basic question regarding who, what, when, where,
how, and why.
22) Physical and document evidence include things such as fingerprints, trace evidence, and
forged or incriminating documents.
23) Physical and document evidence include audio or video recordings of suspects’ activities.
24) Evidence should be collected in a specific order.
25) A subpoena is an order from a government agency or officer of a court that compels the
recipient, under penalty, to produce physical evidence, documents, or testimony.
26) A search warrant is an order from a government agency or officer of a court that compels the
recipient, under penalty, to produce physical evidence, documents, or testimony.
27) Tracing involves beginning with a source document and following the related transaction
through the entire accounting cycle.
28) Vouching begins with numbers in accounts and follows them backward to the source
documents.
29) It is common for fraud investigators to question the authenticity or authorship of documents.
30) Observational evidence can be the most powerful form of evidence.
31) Invigilation is a technique used by fraud investigators to authenticate documentation.
32) A well-prepared interview conducted by a skilled interviewer can sometimes result in a
confession that completely unwinds a complicated case.
33) Calibration is part of the fraud triangle.
34) Polygraphs may sometimes be used to detect dishonesty in fraud investigations.
35) Individuals who respond more to audio stimuli typically look down and to the right, or
simply vertically to the right, when recalling information.
36) Fraud investigator should immediately present the suspect with a written confession to sign
once an oral confession is obtained.
37) The fraud report presents conclusions regarding a suspect’s guilt.
38) Loss recovery options include accepting the loss, collecting insurance if available, and
pursuing the perpetrator in court.
39) Expert consultants provide expert opinions and analyses to attorneys.
40) Discovery is a process in which opposing parties can require each other and relevant parties
to produce out-of-court evidence
41) Expert qualifications include things such as race, gender, and social status.
42) Earnings management is always illegal and can never be justified by GAAP.
43) Managers can legally manipulate or manage reported financial statement figures within
GAAP.
44) Stock option is an executive mechanism to prevent financial statement fraud.
45) Internal auditors should report directly to the audit committee and operate completely
independent of the CEO, the CFO, and top management.
46) Half of all financial statement frauds involve overstating inventory.
47) In the United States, employee fraud represents a small percentage of loss for most
organizations.
48) The corporate culture plays a key role in fostering employee dishonesty.
49) Swapping checks for cash is a cash-register fraud that involves removing cash from the cash
register and replacing it with bogus checks.
50) Computer forensics is the application of computer science to computer-related matters that
might come before a court.
51) It is not possible for fraudsters to crack any passwords or encryption keys.
52) IP tracing is not a foolproof method.
53) ________ ________ ________ typically involves an employee pocketing cash but not
recording its collection.
54) The solution in preventing lapping of accounts receivable is ________ ________ ________
________.
55) ________ ________ typically involves using a stolen customer check to make a payment on
account.
56) ________ ________ ________ ________ may occur when cash register receipts are not
reconciled with sales receipts per each individual cash register.
57) The solution to prevent employees from stealing cash in the mailroom is to have ________
employees work together.
58) ________ ________ ________ ________ requires that the bookkeeper for accounts
receivable also handle incoming payments for customer accounts.
59) ________ ________ involves using chemicals to remove a check’s payment details and then
adding new details for the payee, date, or amount of payment.
60) ________ ________ ________ occur when a dishonest purchasing agent purchases from a
friend even though to do so is not in the best interest of the company.
61) ________ ________ may involve improper hiring, improper changes to employee personnel
files and pay rates.
62) ________ ________ ________ can involve misappropriation of waste, scrap, and spoiled
goods.
63) Content analysis determines the ________ of computer files and electronic communications.
64) Locating and extracting data of interest from computer-storage devices is known as a(n)
________ ________.
65) ________ ________ represents the gaining of access to files or communications that are
encrypted or protected by passwords.
66) Pulling the plug can defeat certain ________ techniques sometimes used by sophisticated
fraudsters.
67) In many cases, the investigator will seek to find the ________ location associated with a
computer device that is used to communicate over the Internet.
68) ________ ________ are normally issued to individuals and organizations through Internet
service.
69) Some hackers would connect through ________ server chains in order to hide their IP
addresses
70) The widely accepted principle of ________ requires that investigations be started or continue
only when there is a reasonable basis to do so.
71) Evidence is collected in a specific order. First, ________ evidence is collected, then
________ are conducted, and finally the ________ are conducted.
72) A(n) ________ ________ is a court order that authorizes law enforcement to search for and
seize evidence.
73) The method that involves beginning with a source document and following the related
transaction through the entire accounting cycle is called ________.
74) The method that begins with numbers in accounts and follows them backward to the source
documents is called ________.
75) ________ ________ are individuals who specialize in analyzing questioned documents.
They can detect document alterations by analysis of things such as the paper, the ink, and
typefaces.
76) The observation technique that involves observing a suspect’s behavior before, during, and
after an announced investigation is called ________.
77) The three sides of the fraud triangle are: ________, ________, and ________.
78) ________ ________ options include accepting the loss, collecting insurance if available, and
pursuing the perpetrator in court.
79) Fraud investigators would prepare a(n) ________ ________ at the conclusion of an
investigation.
80) Individuals who provide expert opinions and analyses to attorneys under the umbrella of
attorney-client privilege are called ________ ________.
81) Before an expert can be permitted to testify, he or she must first demonstrate ________
________.
82) The U.S. federal court system is governed by Rule ________ which permits those qualified
as experts to present expert testimony in court.
83) In order for an expert witness be permitted to present his or her testimony in court, his or her
testimony needs to be based upon ________ ________.
84) Financial statement fraud is the ________ ________ of any information included as part of a
financial statement or report.
85) Roughly half of all financial statement frauds involve overstating ________.
86) Information security management systems (ISMS) have which of the following objectives?
A) Confidentiality
B) Integrity
C) Availability
D) All of the above are correct.