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
a.
Incorrect. This is a preventive control.
b.
Incorrect. This is a preventive control.
c.
d.
Incorrect. This is a preventive control.
1
LO: 4-2
United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
1
LO: 4-1
United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
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.
d
a.
b.
c.
1
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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
b
a.
b.
c.
d.
1
LO: 4-2
United States – BUSPROG: – Technology
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.
b
1
LO: 4-1
United States – BUSPROG: – Technology
Bloom’s: Remembering
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.
b
a.
b.
c.
d.
1
Easy
LO: 4-3
United States – BUSPROG: – Technology
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.
a
a.
b.
c.
d.
1
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United States – BUSPROG: – Technology
Bloom’s: Understanding
a.
Incorrect. Interviewing is not the best way to deter fraud.
b.
d.
1
Moderate
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United States – BUSPROG: – Technology
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
a.
b.
c.
d.
1
LO: 4-1
United States – BUSPROG: – Technology
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
a.
b.
c.
d.
1
LO: 4-1
United States – BUSPROG: – Technology
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.
a.
b.
c.
d.
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
b
a.
b.
c.
d.
1
Easy
LO: 4-5
United States – BUSPROG: – Technology
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
d
a.
b.
c.
d.
1
Moderate
LO: 4-1
United States – BUSPROG: – Technology
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
1
Easy
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Bloom’s: Understanding
Chapter 04
b
a.
b.
c.
d.
1
Moderate
LO: 4-4
United States – BUSPROG: – Technology
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.
a
a.
b.
c.
d.
1
LO: 4-5
United States – BUSPROG: – Technology
Bloom’s: Remembering
16. Fraud is most commonly detected by:
a.
monitoring employees.
b.
auditors.
c.
discouraging collusion.
d.
tips and complaints.
d
a.
b.
c.
d.
1
Easy
LO: 4-5
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
1
LO: 4-1
United States – BUSPROG: – Technology
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.
b
a.
b.
c.
d.
1
LO: 4-4
United States – BUSPROG: – Technology
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
Chapter 04
d
a.
b.
c.
d.
1
Easy
LO: 4-1
United States – BUSPROG: – Technology
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.
b
a.
Incorrect. Gone are the days when prosecution resulted in bad publicity.
b.
c.
Incorrect. The perpetrator will commit fraud again.
d.
Incorrect. Management will send a signal that they are not harsh to fraudsters.
1
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United States – BUSPROG: – Technology
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.
d
a.
b.
c.
d.
Correct. II & IV are correct.
1
Easy
LO: 4-4
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.
a
a.
Correct. Prevention results in the biggest savings.
b.
c.
d.
1
Easy
LO: 4-5
United States – BUSPROG: – Technology
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.
b
a.
b.
c.
d.
1
Easy
LO: 4-4
United States – BUSPROG: – Technology
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.
United States – BUSPROG: – Technology
Bloom’s: Remembering
Chapter 04
d
a.
b.
c.
d.
1
Easy
LO: 4-5
United States – BUSPROG: – Technology
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.
c
a.
b.
d.
1
Easy
LO: 4-1
United States – BUSPROG: – Technology
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.
c
a.
b.
c.
d.
1
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.
b
a.
b.
c.
d.
1
Easy
LO: 4-2
United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
1
Easy
LO: 4-1
United States – BUSPROG: – Technology
Bloom’s: Remembering
29. What are the key attributes for a low-fraud environment?
a.
Rules, control, and consequences.
Easy
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United States – BUSPROG: – Technology
Bloom’s: Understanding
Chapter 04
b.
Recognition, prosecution, and restitution.
c.
Honesty, openness, and assistance.
d.
Rules, consequences, and rewards.
a.
b.
c.
d.
1
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United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
1
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United States – BUSPROG: – Technology
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.
a.
b.
c.
d.
LO: 4-1
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.
d
a.
b.
c.
d.
1
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United States – BUSPROG: – Technology
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?
a.
b.
c.
d.
1
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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.
a.
b.
United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
1
Easy
LO: 4-3
United States – BUSPROG: – Technology
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.
d
a.
b.
c.
d.
Correct. There is a direct conflict of interest here.
1
Moderate
LO: 4-2
United States – BUSPROG: – Technology
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?
c.
d.
1
Easy
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Chapter 04
a.
Employee Assistance Programs
b.
Equal Employment Opportunity Programs
c.
Employees Anonymous Programs
d.
Whistle-Blowing Programs
a
a.
b.
c.
d.
1
Moderate
LO: 4-1
United States – BUSPROG: – Technology
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
d
a.
b.
c.
d.
1
Easy
LO: 4-2
United States – BUSPROG: – Technology
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
b
a.
b.
c.
d.
1
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.
b
a.
b.
c.
d.
1
Moderate
LO: 4-3
United States – BUSPROG: – Technology
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
a
a.
b.
c.
d.
1
Easy
LO: 4-3
United States – BUSPROG: – Technology
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
Easy
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United States – BUSPROG: – Technology
Bloom’s: Remembering
Chapter 04
d.
Independent checks
d
a.
b.
c.
d.
1
LO: 4-3
United States – BUSPROG: – Technology
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.
a.
b.
c.
d.
LO: 4-3
United States – BUSPROG: – Technology
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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.
a.
b.
c.
d.
1
United States – BUSPROG: – Technology
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
d
a.
b.
c.
d.
1
LO: 4-5
United States – BUSPROG: – Technology
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
d
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.
1
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
a.
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.
1
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.
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.
1
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.
b
a.
Distrust would increase discontent which could increase fraud.
b.
c.
This is a preventive action and not part of proactive auditing.
d.
Collusion cannot be eliminated through proactive auditing.
1
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
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.
1