CHAPTER 3
ETHICS, FRAUD, AND INTERNAL CONTROL
REVIEW QUESTIONS
Chapter 1 Page 2
2. Business ethics concern the issue of how managers determine what is considered to be right in
7. The lowest level of computer ethics—pop—merely reflects the exposure to stories and reports
regarding the ramifications of computer technology, such as computer viruses (bad
ramifications) and educational enhancements for handicapped individuals (good ramifications).
8. Ethical computer issues are considered to be new problems to those groups that feel intellectual
Chapter 1 Page 3
9. Individuals wish to have control over what information is kept about them and to whom this
information is disseminated. Databases exist that store such items as merchandise purchases
10. The ethical issues regarding computer security center on unauthorized access to systems and
databases. Individuals can be harmed by the dissemination of inaccurate information to
11. The ethical question regarding ownership is: What can an individual (or organization) own?
Ideas? Media? Source code? Object code? A related question is whether or not owners and
users should be constrained in their use or access to software. This includes making copies or
placing software on a network to permit access by multiple users. Some believe that copyright
Chapter 1 Page 4
12. Some barriers to access (security systems) are intrinsic to the technology of information
systems, but some are avoidable through careful system design. Factors that can limit access to
computing technology include financial cost, cultural barriers, and physical limitations
13. Increased computing and the low cost of high-speed printers have caused many users to print
more hard copies of documents than is necessary. Since paper is not usually considered a
14. One issue is the responsibility for the completeness and accuracy of a knowledge base, as well
as maintenance to reflect changes. Further, from where does the knowledge stem? This issue
becomes of particularimportance whenexpert systems replace the tasks of middle managers,
15. The nature of most jobs is changing as a result of computer technology. In many cases, certain
Chapter 1 Page 5
16. The ethical computer issues regarding misuse of computers are the copying of proprietary
software, using a company’s computer for personal benefit, and snooping through other
18.
a. false representation
b. material fact
19. a. Situational pressure
Chapter 1 Page 6
20. Employee fraud is an act committed by non-management employees, and it is generally
21. Management fraud is usually more threatening to the organization than employee fraud. These
frauds are usually committed at a level above the one to which internal controls generally relate.
22. a. situational pressures
24. Lapping involves a cash receipts clerk stealing customer payments that are in the form of
checks, by cashing the check him/ herself. Many employees view this as borrowing, since they
plan to repay it someday. Lapping of accounts receivable works as follows:
Period 1: Cashier receives $1000 from ABC Company and keeps it.
25. Collusion involves two or more employees working together to perpetrate
a fraudulent act that internal controls would have otherwise prevented. For example, the
Chapter 1 Page 7
Chapter 1 Page 8
26. Bribery involves giving, offering, soliciting, or receiving things of value to influence an official in
the performance of his or her lawful duties. Officials may be employed by government (or
27. Economic extortion is the use (or threat) of force (including economic sanctions) by an individual
28. A conflict of interest occurs when an employee acts on behalf of a third party during the
30. Billing schemes, also known as vendor fraud, are perpetrated by employees who cause their
31. Cash larceny involves schemes in which cash receipts are stolen from an organization after
33. a. to safeguard the assets of the firm.
Chapter 1 Page 9
b. to ensure the accuracy and reliability of accounting records and
37. Manual procedures to correct a batch that is not accepted because of an incorrect Social
38. Section 302 requires that corporate management (including the CEO) certify the organization’s
internal controls on a quarterly and annual basis. Section 404 requires the management of
39. a. control environment
b. risk assessment
Chapter 1 Page 10
42. Check digits can effectively be used to determine that all of the numbers in a numeric data
stream were entered. This method involves adding up the numbers in the data stream in order
Chapter 1 Page 11
43. The primary objectives of a batch control are to provide assurance that:
a. all records in the batch are processed
44. The run-to-run control is a control device to ensure that no records are lost, unprocessed, or
45. The transaction log serves as a journal, as it is a record of every transaction that the system
46. The creation of an output file as an intermediate step in the printing process presents an added
48. Many times data have upper and lower limits to their acceptable values. For example, if the
49. A validity check compares actual field values against known acceptable values. This control is
50. The control record contains relevant information about the batch, such as:
a. A unique batch number
Chapter 1 Page 12
b. A batch date