Chapter 03
1. Research has shown that ______ detect most frauds.
a.
Auditors
b.
Customers
c.
Vendors
d.
Employees
Easy
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2. All of the following are methods that organization can adopt to proactively eliminate fraud opportunities EXCEPT:
a.
Accurately identifying sources and measuring risks.
b.
Implementing appropriate preventative and detective controls.
c.
Creating widespread monitoring by employees.
d.
Eliminating protections for whistle blowers.
Easy
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3. Audits, public record searches, and net worth calculations are used to gather what type of evidence in fraud
investigation?
a.
Testimonial
b.
Forensic
c.
Documentary
d.
Observational
4. Which of the following is NOT a part of the evidence square?
a.
Management evidence
b.
Documentary evidence
c.
Testimonial evidence
d.
Physical evidence
Incorrect. This is part of the evidence square.
Incorrect. This is part of the evidence square.
Incorrect. This is part of the evidence square.
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5. All of the following factors can be associated with high levels of fraud and detract from a positive work environment
EXCEPT:
a.
top management that does not pay attention to behavior of employees.
b.
lack of recognition of job performance.
c.
unrealistically low pay.
d.
low turnover.
Incorrect. Underappreciated employees lack loyalty to the company.
Incorrect. Underpaid employees will rationalize stealing.
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6. Which of the following approaches is most useful in creating a culture of honesty and integrity in the workplace?
a.
Hiring right kind of employees
b.
Security cameras
c.
Peer evaluations
d.
Ergonomics
a
Easy
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7. Which of the following is a component of the evidence square?
a.
Rationalization
b.
Perceived pressure
c.
Personal observation
d.
Perceived opportunity
c
Incorrect. Rationalization is an element of the Fraud Triangle.
Incorrect. Perceived pressure is an element of the Fraud Triangle.
Correct. Personal observation is the fourth element of the Evidence Square.
Incorrect. Perceived opportunity is an element of the Fraud Triangle.
Easy
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8. Civil suits are usually quite rare in cases of employee fraud because:
a.
there is usually not enough evidence to prosecute.
b.
employee fraud is a victimless crime.
c.
it is difficult for a jury to unanimously decide on a conviction.
d.
perpetrators have usually spent the money.
Incorrect. If fraud is found there is usually enough evidence.
Incorrect. Civil cases do not require a unanimous jury.
Bloom’s: Understanding
9. Which of the following key activities related to fraud, is the most important and cost-effective way to reduce losses
from fraud?
a.
Follow-up legal action
b.
Early fraud detection
c.
Fraud investigation
d.
Fraud prevention
Incorrect. Legal costs are expensive for the organization.
Incorrect. Fraud investigations can be extremely expensive to the organization.
Correct. Fraud prevention programs are the most cost-efficient way to deter fraud.
Easy
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10. Which of the following elements listed is one of the three basic elements of the fraud motivation triangle?
a.
Concealment
b.
Theft Act
c.
Opportunity
d.
Conversion
c
Incorrect. This is an element of fraud element triangle.
Incorrect. This is an element of fraud element triangle.
Incorrect. This is an element of fraud element triangle.
Moderate
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11. Communicating expectations about honesty and integrity throughout a company includes all of the following elements
EXCEPT:
d.
Moderate
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Chapter 03
a.
identifying appropriate values and ethics.
b.
fraud awareness training.
c.
consistent punishment for violators.
d.
insisting that top management model appropriate behavior.
Incorrect. This is, indeed, a way to communicate expectations.
Incorrect. This is, indeed, a way to communicate expectations.
Incorrect. This is, indeed, a way to communicate expectations.
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12. In an organization, individuals who suspect fraud usually don’t come forward because they:
a.
feel that perpetrator will get caught anyway.
b.
do not want to accuse someone.
c.
fear being branded as a whistle-blower.
d.
will lose the friendship of the perpetrator.
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13. Studies show that legal action against fraudsters is typically taken:
a.
Less than 25 percent of the time.
b.
Less than 50 percent of the time.
c.
More than 75 percent of the time.
d.
At least 50 percent of the time.
14. Which of the following is NOT one of the ways in which a fraud investigation must be conducted?
a.
Investigators should be experienced and objective professionals.
b.
Investigators should closely guard all hypotheses regarding guilt or innocence of individuals being
investigated.
c.
Investigators should inform management of only the basics of the investigations in case they are involved.
d.
Investigators must be sure to follow appropriate investigative techniques.
Correct. Management should be aware of the investigation.
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15. Stuart, a CFE, is investigating a possible management fraud. He found an email on an employee’s computer to use as
evidence in the case. Under which category of evidence would an email message fall?
a.
Testimonial evidence
b.
Documentary evidence
c.
Physical evidence
d.
Personal observation
Correct. Emails are an example of documentary evidence.
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16. Organizations and individuals that have proactive fraud prevention measures usually find that their prevention efforts:
a.
help in training employees about appropriate behavior.
b.
often prompt smaller frauds.
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Chapter 03
c.
pay big dividends.
d.
aid in punishing fraud perpetrators.
c
Easy
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17. When perceived pressures and(or) opportunities are low, a person needs more ________ to commit fraud.
a.
support from people at workplace
b.
rationalization
c.
courage
d.
motivation
Moderate
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18. Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical
decisions, and there are four levels in it. Which of the following level is NOT one among them.
a.
Personal ethical understanding
b.
Corporate code of ethics
c.
Application of ethics
d.
Ethical courage
e.
Ethical leadership
19. Recent research has shown that there is an ethical maturity model (EMM) that explains why people make unethical
decisions. Which of the following represents the foundation of ethics according to this model?
a.
Personal ethical understanding
b.
Ethical courage
c.
Ethical leadership
d.
Application of ethics to business situations
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20. A person may have very strong ethics in the way he or she treats family and friends, but not understand how failure to
submit tax withholdings to the government affects peoples’ lives or constitutes unethical or fraudulent behavior. This is an
ethical issue encountered in which level of the ethical maturity model?
a.
Personal ethical understanding
b.
Ethical courage
c.
Ethical leadership
d.
Application of ethics to business situations
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21. Which level in the ethical maturity model can be summarized as “willingness to pay the price for ethics?”
a.
Ethical positioning
b.
Ethical courage
c.
Personal ethical understanding
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Chapter 03
d.
Application of ethics to business situations
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22. Which is the highest level in the ethical maturity model?
a.
Ethical leadership
b.
Ethical courage
c.
Personal ethical understanding
d.
Application of ethics to business situations
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23. Which of the following is the largest employee group in most organizations?
a.
Employees who display ethical leadership
b.
Group of employees who will always be honest
c.
Group of employees who will be dishonest anytime it benefits them
d.
Swing group of employees who could be honest or dishonest
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24. Which of the following is true of the “swing group” of employees in organizations?
a.
Individuals in this group have situational ethics.
b.
Individuals in this group are dishonest most of the time.
c.
Individuals in this group do not know how to translate their ethical values to the business world.
d.
Individuals in this group lack ethical courage.
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25. Research on honesty shows that individuals fall into three groups:
(1) those who will almost always be honest,
(2) those who are situationally honest, and
(3) those who will always be dishonest.
Which of these groups is (are) the biggest?
a.
Group 1 (50%)
b.
Group 2 (40%)
c.
Group 3 (45%)
d.
Groups 1 and 3 (35% each)
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26. Which legislation makes it compulsory for every public company to have a code of conduct to convey expectations
about what is and is not appropriate for its directors and officers?
a.
Sherman Act
b.
Glass-Steagall Act
c.
Sarbanes Oxley Act
d.
Gramm-Leach-Bliley Act
27. Which of the following statements is TRUE?
a.
External auditors are usually specifically trained to detect fraud.
b.
Audits of books and records rarely discover frauds.
c.
Less than 5 percent of all frauds are detected by auditors.
d.
The presence of auditors provides a major deterrent effect.
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28. In the ethical maturity model, instilling in others a desire to develop ethical awareness and courage is referred to as:
a.
Personal codes of ethics.
b.
Ethical motivation.
c.
Ethical leadership.
d.
Application of ethics to business situations.
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29. In the past, most frauds were detected:
a.
b.
c.
d.
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