Chapter 14
1. Which of the following is more likely to help detect occupational frauds?
a.
An internal audit
b.
An external audit
c.
A tip
d.
Internal controls
c
c.
1
2. Larceny is easier to detect than skimming because:
a.
larceny involves stealing cash after it has already been recorded in the company’s accounting system.
b.
larceny involves fraudulent disbursements of cash, while skimming involves fraudulent
receipts of cash.
c.
larceny involves stealing cash as it is paid by a customer.
d.
larcenies can take place in any circumstance in which an employee has access to cash.
a
a.
b.
c.
d.
1
3. The 2010 ACFE Report to the Nation on Occupational Fraud & Abuse covers three types of fraud against
organizations: Which of the following is one of them?
a.
Corruption
b.
Bid-rigging
c.
Check tampering
d.
Lapping
a
c.
Incorrect. Check tampering is a type of fraudulent disbursement scheme.
d.
1
4. A conflict of interest occurs when:
a.
an employer knows of an employee’s interest in a business deal or negotiation.
b.
an employee has an economic or personal interest in a transaction that adversely affects the company.
Chapter 14
c.
employees offer, give, receive or solicit anything of value in order to influence an official act.
d.
employees demand payments from vendors for deciding in the vendors’ favor.
b
a.
b.
c.
d.
1
5. Asset misappropriation is defined as:
a.
a scheme that involves offering, giving, receiving, or soliciting anything of value to influence an official act.
b.
demanding payment from a vendor in order to make or influence a decision in a vendor’s favor.
c.
deceiving individuals in putting their money into a fake investment.
d.
a scheme that involves an employee prepares a fraudulent check for his or her own benefit.
d
a.
Incorrect. This is bribery.
b.
Incorrect. This is economic extortion.
c.
d.
1
6. Which fraud is committed by an employee who doesn’t record customer sales and pockets the payment?
a.
Larceny
b.
Disbursement
c.
Skimming
d.
Illegal gratuities
c
c.
1
7. An ice cream store cashier sells two-scoop ice cream cones to customers and enters the sales as single-scoop sales,
while keeping the difference for himself. Which fraud is being committed here?
a.
Larceny
b.
Disbursement
c.
Skimming
d.
Illegal gratuities
c
a.
Incorrect. Larceny involves stealing money after it has already been recorded in the company’s
8. Which of the following statements regarding larceny is NOT true?
a.
Larceny is easier to detect than skimming and is less common.
b.
Larceny occurs when employees steal cash before the amounts have been recorded in the accounting system.
c.
Smaller occurrences of larceny are often written off as “shorts” or “miscounts.”
d.
Perpetrators of larcenies must have direct access to inventory or other assets.
b
a.
Incorrect. This statement is true.
b.
Correct. Larceny occurs after transactions have been recorded in the accounting system.
c.
Incorrect. This statement is true.
d.
Incorrect. This statement is true.
1
9. Bid-rigging is a type of which of the following?
a.
skimming
b.
bribery
c.
extortion
d.
illegal gratuity
b
a.
b.
Correct. Bid-rigging is a common type of bribery.
c.
d.
1
10. Check tampering is a type of _____.
a.
larceny
b.
skimming
c.
fraudulent disbursement scheme
d.
fraudulent statement scheme
c
a.
b.
c.
Correct. Check tampering is a fraudulent disbursement scheme.
d.
1
c.
1
11. Which of the following occurs when an employee demands a payment from a vendor in order to make a decision in
that vendor’s favor?
a.
Bribery
b.
Larceny
c.
Economic extortion
d.
Illegal gratuity
c
b.
c.
Correct. Economic extortion is basically the flip side of a bribery scheme.
1
12. Which of the following defines Lapping?
a.
embezzling one customer’s payment and then crediting that customer’s account when a subsequent customer
pays.
b.
stealing cash from an organization before it is recorded on the organization’s books and records.
c.
helping a vendor illegally obtain a contract that should have involved competitive bidding.
d.
demanding a payment from a vendor in order to make a decision in that vendor’s favor.
a
a.
b.
Incorrect. This is skimming.
c.
Incorrect. This is bid-rigging.
d.
Incorrect. This is economic extortion.
1
13. According to the ACFE study, which of the following is the most common form of occupational fraud?
a.
bid-rigging.
b.
fraudulent statements.
c.
corruption.
d.
asset misappropriation.
14. Which of the following groups listed is most likely to perpetrate frauds against the organization?
a.
customers
b.
vendors
Chapter 14
c.
competitors
d.
employees
d
c.
d.
Correct. Employees are most likely to commit fraud against the organization.
1
15. Which of the following is NOT a form of corruption?
a.
extortion.
b.
conflict of interest.
c.
lapping.
d.
bribery.
c
c.
Correct. Lapping is a type of skimming.
1
16. Which of the following is the most common target regarding asset misappropriation?
a.
inventory
b.
cash
c.
equipment
d.
valuable information
b
a.
b.
c.
d.
1
17. Which is the least common expense disbursement scheme?
a.
Mischaracterizing expenses
b.
Submitting the same expenses multiple times
c.
Submitting fictitious expenses
d.
Overstating expenses
b
a.
18. According to the ACFE study, which of the following comprises the highest percentage of asset misappropriation?
a.
larceny
b.
skimming
c.
delayed payment recognition
d.
fraudulent disbursement
d
a.
b.
c.
d.
1
19. Which of the following is NOT a possible way to commit fraud by using a payroll scheme?
a.
overstating expenses.
b.
falsifying hours worked.
c.
creating ghost employees.
d.
producing false worker compensation claim.
a
a.
Correct. This is an expense scheme.
b.
c.
d.
1
20. Which of the following is the least costly disbursement scheme?
a.
check tampering.
b.
billing scheme.
c.
register disbursement scheme.
d.
expense scheme.
c
a.
b.
c.
d.
1
21. Identify the two basic bribery schemes.
a.
Larceny and skimming
b.
c.
d.
1
Chapter 14
b.
Kickbacks and bid-rigging
c.
Economic extortion and illegal gratuity
d.
Lapping and extortion
b
a.
b.
c.
d.
1
22. According to the ACFE study described in the text, which fraudulent disbursement scheme occurs most frequently?
a.
Billing scheme
b.
Wire transfers
c.
Payroll scheme
d.
Register disbursements
a.
Correct. This accounts for roughly 28% of total disbursement fraud cases.
b.
Incorrect. This accounts for roughly 6.5% of total disbursement fraud cases.
c.
Incorrect. This accounts for roughly 13% of total disbursement fraud cases.
d.
Incorrect. This accounts for roughly 1.7% of total disbursement fraud cases.
1
23. Claiming personal travel as a business expense, a personal lunch as a business lunch, altering a receipt to reflect a
higher amount than was actually paid, or submitting fictitious receipt is an example of which of the following?
a.
a billing scheme
b.
a payroll disbursement scheme
c.
a register disbursement scheme
d.
an expense reimbursement scheme
d
c.
Incorrect. Register disbursement schemes involve false refunds or voids.
d.
1
24. Thefts of inventory are divided into two groups. Identify them.
a.
Corruption and bribery
b.
Expense scheme and skimming
c.
Economic extortion and illegal gratuities
d.
Larceny and misuse
d
a.
Incorrect. These do not involve inventory.
25. Which of the following is the best example of theft of cash through skimming?
a.
Preparing fraudulent checks.
b.
Understating sales by recording larger-than reality sales discounts.
c.
Setting up dummy companies.
d.
Stealing cash after it has already been recorded.
b
a.
b.
c.
d.
1
26. Which of the following statements with reference to extortion is true?
a.
It is a crime even if the extortion message is only sent but not received.
b.
The words “pay up or else” are insufficient to constitute extortion.
c.
It is a crime even if the extortion message is sent either unwillingly or without the knowledge of the sender.
d.
An extortionate threat made to another in jest is not extortion.
a.
b.
c.
d.
1
27. Identify the statement that does NOT represent one of the four types of corruption.
a.
Offering, giving, receiving, or soliciting anything of value in order to influence an official act.
b.
Overbilling the company for travel and other related business expenses, such as business lunches, hotel bills,
and air travel.
c.
The employee demands a payment from a vendor in order to make a decision in that vendor’s favor.
d.
The exertion of an employee’s influence to the detriment of his or her company.
b
a.
Incorrect. This describes bribery.
b.
Correct. This describes a typical expense scheme.
c.
Incorrect. This describes economic extortion.
d.
Incorrect. This describes conflict of interest.
1
28. Which of the following examples is NOT a billing scheme?
a.
Mary purchases a new laptop for her brother-in-law with company’s funds.
b.
Incorrect. These do not involve inventory.
c.
Incorrect. These involve cash.
d.
1
Chapter 14
b.
Mark submits a receipt of his cab fare for reimbursement, which includes an extra $10.
c.
Joven double pays a vendor for the purchase of inventory and then pockets the second payment when it is
returned.
d.
Harry submits invoices in the name of the dummy company and collects the amount.
b
a.
b.
Correct. This is an example of an expense reimbursement scheme.
c.
d.
1
29. Two basic fraudulent register disbursement schemes are:
a.
purchase schemes and sales schemes.
b.
bid-rigging schemes and kickbacks.
c.
ghost employees and commission schemes.
d.
false refunds and false voids.
d
a.
b.
c.
d.
1
30. Identify the most common conflict of interest schemes.
a.
purchase schemes and sales schemes
b.
bid-rigging schemes and kickbacks
c.
ghost employees and commission schemes
d.
false refunds and false voids.
a
a.
b.
c.
d.
1
31. Which of the following is an example of a register-disbursement scheme?
a.
A perpetrator who processes transactions as if a customer were returning merchandise, even though there is no
actual return.
b.
A perpetrator uses the expense register to falsely record expenses that are then paid out by the A/P department.
c.
A perpetrator physically prepares a check from the check register claiming it is a legitimate expense when it is
not.
d.
A perpetrator slowly takes money from the register drawer after making regular sales, showing that a discount
was given to a customer on the receipt.
a
32. The most common occupational frauds in small businesses involve employees doing all of the following EXCEPT:
a.
skimming revenues.
b.
fraudulently writing company checks.
c.
processing fraudulent invoices.
d.
altering financial statement.
d
a.
b.
c.
d.
1
33. Which department or group accounted for the maximum percentage of fraud incidents according to the study
conducted by ACFE in 2010?
a.
sales
b.
accounting
c.
human resources
d.
top management
b
a.
b.
c.
d.
1
34. Which function of the victim company is usually involved in Kickback schemes?
a.
sales
b.
accounting
c.
human resources
d.
purchasing
d
a.
b.
c.
d.
1
35. Employees, vendors, and customers of organizations have three opportunities to steal assets. Which of the following is
a.
Correct. This is the best example of a register-disbursement scheme.
b.
Incorrect. This is an example of a billing scheme.
c.
Incorrect. This is an example of a check tampering scheme.
d.
Incorrect. This is an example of skimming.
Chapter 14
NOT one among them?
a.
Steal receipts of cash and other assets as they are coming into an organization.
b.
Steal cash, inventory, and other assets that are on hand.
c.
Commit disbursement fraud by having the organization pay for something it shouldn’t pay for or pay too much
for something it purchases.
d.
Paying off public officials or company insiders for preferential treatment.
d
a.
b.
c.
d.
1
36. Which of the payroll fraud scheme listed below tend to generate the largest losses?
a.
commission
b.
falsified hours and salary
c.
ghost employee
d.
false worker compensation
c
a.
b.
c.
d.
1
37. What is known as the net asset value (NAV)?
a.
The closing price of the securities that comprise a particular fund’s portfolio plus the value of any uninvested
cash that the fund manager maintains for the fund.
b.
A concept used in finance and economics, defined as a rational and unbiased estimate of the potential market
price of a good, service, or asset.
c.
The value of an entity’s assets less the value of its current liabilities at the end of the trading day.
d.
The difference between the replacement cost of a fixed asset and its book value appearing on the balance
sheet.
a
a.
b.
c.
d.
1
38. For ghost-employee fraud schemes to work, four things must happen. Which of the following is NOT one among
them?
a.
The ghost must be added to the payroll.
b.
Timekeeping and wage rate information must be collected.
Chapter 14
c.
A paycheck must be issued to the ghost.
d.
A member of Human Resources must be involved in the fraud.
d
a.
b.
c.
d.
1
39. Check tampering is unique among the disbursement frauds because:
a.
the fraud perpetrator processes the transaction as if a customer were returning merchandise, even though there
is no actual return.
b.
it is the one group of schemes in which the perpetrator physically prepares the fraudulent check.
c.
it is the one group of schemes in which the culprit generates a payment to himself or herself by submitting
some false document to the victim company, such as an invoice or a timecard.
d.
the perpetrator does not have to undergo the risk of taking company cash or merchandise.
b
a.
b.
c.
d.
1
40. Which of the following is NOT one of the most common types of billing schemes?
a.
Setting up dummy companies (shell companies) to submit invoices to the victim organization.
b.
Altering or double-paying a nonaccomplice vendor’s statements
c.
Overbilling the company for travel and other related business expenses, such as business lunches, hotel bills,
and air travel.
d.
Making personal purchases with company funds.
a.
b.
c.
d.
1
41. Identify the unlawful trading schemes engaged in through mutual funds.
a.
Leveraging and layering
b.
Commission fraud and speculative trading
c.
Market timing and late trading
d.
Circular trading and NAV manipulation
a.
b.
42. Which of the following is NOT an example of a commission-based payroll fraud?
a.
Creating fictitious sales.
b.
Manipulating the number of hours worked and the rate of pay.
c.
Falsifying the value of sales made by altering prices listed on sales documents.
d.
Overstating sales by claiming sales made by another employee or in another period.
b
a.
b.
c.
d.
1
43. Commercial bribery is similar to the traditional definition of bribery except that in commercial bribery:
a.
something of value is offered to influence a business decision
b.
payment is received by an employee with the employer’s consent.
c.
the employee extorts money from a potential purchaser or supplier.
d.
something of value is offered to influence an official act of government.
a.
b.
c.
d.
1
44. The primary victim of a workers’ compensation fraud is ______.
a.
the government
b.
the employer
c.
the vendor
d.
the insurance carrier
d
a.
c.
1
45. What is the point of difference between illegal gratuity and bribery scheme?
d.
1
Chapter 14
a.
Compared to illegal gratuities, briberies occur relatively infrequently and are usually quite small.
b.
Illegal gratuities do not necessarily involve an intent to influence a business decision but rather to reward
someone for making a favorable decision.
c.
Illegal gratuities usually involve the use of actual or threatened force, fear, or economic duress.
d.
Illegal gratuities are made before deals are approved.
b
a.
b.
c.
d.
1
46. What is known as dilution?
a.
The artificial difference between the net asset value (NAV) and the fair value of the securities.
b.
An investment technique that involves short-term “in-and-out” trading of mutual fund shares.
c.
The loss resulting from “forward pricing” requirements.
d.
The harm caused by the transfer of wealth from long-term investors to market timers.
d
a.
b.
c.
d.
1
47. Orders placed for buying shares of a mutual fund any time up to 4:00 p.m. are priced at that day’s net asset value
(NAV), and orders placed after 4:01 p.m. are priced at the next day’s NAV. What is this practice known as?
a.
Forward pricing
b.
Late trading
c.
Price arbitrage
d.
Price dealing
a.
b.
c.
d.
1
48. What is the term that describes allowing selected investors to purchase mutual funds after 4:00 p.m., using that day’s
net asset value (NAV), rather than the next day’s NAV, as required under the law?
a.
Forward pricing
b.
Late trading
c.
Backdating
d.
Circular trading
b
49. Which of the following is the most likely reason fraud within a company is detected?
a.
Internal audits are conducted both routinely and unexpectedly.
b.
External auditors have become more knowledgeable in how to look for fraud.
c.
Internal controls have become more sophisticated.
d.
Employees who have suspicions about possible fraud report them.
d
a.
b.
c.
d.
Tips remain the most common way fraud is detected.
1
50. What has been verified as the most significant impact for companies who have antifraud controls in place?
a.
More employee fraud is prevented.
b.
Vicitm organizations have lower losses.
c.
More management fraud is prevented.
d.
Consumer loyalty is increased.
b
a.
Incorrect; there is no way to accurately measure fraud that is prevented (does not occur).
b.
Correct; antifraud controls help detect fraud sooner when it does occur.
c.
Incorrect; there is no way to accuratly measure fraud that is prevented (never happens).
1
a.
b.
c.
d.