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Fraud Q&A Dr. Lynn Clements. Question #1 Given all of the following fraud prevention methods within organizations, which one is probably the most effective?

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Presentation on theme: "Fraud Q&A Dr. Lynn Clements. Question #1 Given all of the following fraud prevention methods within organizations, which one is probably the most effective?"— Presentation transcript:

1 Fraud Q&A Dr. Lynn Clements

2 Question #1 Given all of the following fraud prevention methods within organizations, which one is probably the most effective? A. reducing rationalization B. having an open-door policy C. increasing the perception of detection D. screening employees Source: Association of Certified Fraud Examiners Website

3 Answer #1 Increasing the perception of detection may well be the most effective fraud prevention method. Controls, for example, do little good in forestalling internal theft and fraud if their presence is not known by those at risk. In the audit profession, this means letting employees, managers, and executives know that auditors are actively seeking out information concerning internal theft. Source: Association of Certified Fraud Examiners Website

4 Question #2 Beta, a fraud suspect, said he stole money from the ABCCompany because the company didn’t pay its entry-level workers a living wage. The view that crime is primarily caused by a disadvantaged economic class position is called: A. economic theory B. social process theory C. social structure theory D. none of the above Source: Association of Certified Fraud Examiners Website

5 Answer #2 Social structure theories suggest that forces operating in lower-class areas of the environment push many residents into criminal behavior patterns. They hold that a disadvantaged economic class position is a major cause of criminality. Source: Association of Certified Fraud Examiners Website

6 Question #3  Blue, a fraud offender, had no known history of criminality. One theory of crime causation suggests that people are not inherently bad, but rather are taught to commit crime through life’s experiences. This is called the: u A. social causation theory u B. trait theory u C. social learning theory u D. none of the above

7 Answer #3 The social learning theory is the one most relevant to criminology, since it includes the acquisition of criminal behavior patterns. Social learning theorists, notably Albert Bandura, argue that people are not born with the ability to act criminally, but that they learn to be aggressive and commit crime through life’s experiences. Social learning theorists believe criminality is learned through a process called behavior modeling. In modern society, criminal and aggressive acts usually are modeled after three principal sources: family members, environmental experiences, and the mass media. Source: Association of Certified Fraud Examiners Website

8 Question #4 Lane, a Certified Fraud Examiner, conducted an examination of the Blue Corp. Betty was a prime suspect in the disappearance of money, but Lane could not prove it. Later, he discovered Betty had been recently hired by the Red Corp., another client of his. Under the Certified Fraud Examiner Code of Professional Ethics, Lane must: A. inform the Red Corp. B. not inform the Red Corp. C. inform the Red Corp. if the evidence is clear and convincing D. none of the above Source: Association of Certified Fraud Examiners Website

9 Answer #4 Article VI says that: “A CFE shall not reveal any confidential information obtained during a professional engagement without proper authorization.” Under this scenario, the CFE may not disclose the fact of Betty’s employment at the Blue Corp., or that she was a suspect in the disappearance of money without the authorization of the Blue Corp. However, even if that authorization was received, the CFE is limited as to what can be disclosed... Source: Association of Certified Fraud Examiners Website

10 Question #5 According to research, most embezzlers decide to commit their crimes because: A. they are essentially dishonest B. they are living beyond their means C. they have drug problems D. none of the above Source: Association of Certified Fraud Examiners Website

11 Answer #5 Donald R. Cressey found in a 1953 study of embezzlers that most of those he examined “had lived beyond their means for some time before deciding to embezzle.” Later authors have extended this statement more generally, remarking, “The most interesting fact about the white-collar offenders’ aggregate financial status is not the value of their assets but the extent of their liabilities…” Source: Association of Certified Fraud Examiners Website

12 Question #6 A control technique commonly used in computerized systems which checks each source document against a detailed list processed by the computer is referred to as: A. computer sequence checking B. computer matching C. one-for-one checking D. none of the above Source: Association of Certified Fraud Examiners Website

13 Answer #6 One-for-one checking consists of checking each source document against a detailed list processed by the computer. This technique is normally used for low volume input because of the cost and time involved. Source: Association of Certified Fraud Examiners Website

14 Question #7 One of the first steps in determining if financial statements contain fraudulent entries is to find out if the equity of the debits and credits has been maintained. In order to accomplish this task, which one of the following should be examined? A. the trial balance B. the income statement C. the balance sheet D. the statement of cash flows Source: Association of Certified Fraud Examiners Website

15 Answer #7 The equality of debits and credits in the ledger should be verified at the end of each accounting period, if not more often. If fraudulent financial statements are suspected, a verification of the equality of debits and credits also is one of the first steps. Frauds often result in books that don’t balance. Such a verification, which is called a trial balance, may be in the form of a calculator tape or in the form of a summary listing of both the balances and the titles of the accounts used in preparing the financial statements... Source: Association of Certified Fraud Examiners Website

16 Question #8 Cain, the authorized signer on his company’s accounts, prepared and signed a check payable to the company’s plumber. He gave the check to Baker, his secretary, and asked her to mail the check to the plumber. Instead, Baker took the check home, signed the plumber’s name on the back and had her husband cash the check at their grocery store. According to Occupational Fraud and Abuse, Baker committed which of the following schemes? A. an altered payee scheme B. a forged endorsement scheme C. a forged maker scheme D. an authorized maker scheme Source: Association of Certified Fraud Examiners Website

17 Answer #8 Forged endorsement frauds are those check tampering schemes in which an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line of the check. Source: Association of Certified Fraud Examiners Website

18 Question #9 White, an employee of ABC Corporation, intentionally issued two payments for the same invoice. After the disbursements had been mailed, White called the vendor and explained that a double payment had been made by mistake. She asked the vendor to return one of the checks to her attention. When the vendor returned the check, White took it and cashed it. According to Occupational Fraud and Abuse, this is an example of: A. a shell company scheme B. a pass-through scheme C. a receivables skimming scheme D. a pay-and-return scheme Source: Association of Certified Fraud Examiners Website

19 Answer #9 In pay-and-return schemes, employees intentionally mishandle payments which are owed to legitimate vendors. One way to do this is to purposely double- pay an invoice. For example, in one case a secretary was responsible for opening mail, processing claims and authorizing payments. She intentionally paid some bills twice, then requested the recipients to return one of the checks. She would intercept these returned checks and deposit them into her own account. Source: Association of Certified Fraud Examiners Website

20 Question #10 You are a Certified Fraud Examiner engaged by the ABC Company to trace the cash sales through the accounting records. The ABC Company is in the insurance industry and bills the premiums to the customers one month in advance. You expect to see a debit to cash or accounts receivable for the one-month amount and a credit to which of the following? A. unearned revenues B. prepaid assets C. deferred charges D. none of the above Source: Association of Certified Fraud Examiners Website

21 Answer #10 Deferred revenues may be listed on the balance sheet as a current liability, where they are called unearned revenues or revenues received in advance. If a long period is involved, they are presented on the balance sheet in a section called deferred credits... Source: Association of Certified Fraud Examiners Website

22 Question #11 The statute that specifically outlaws the giving or receiving of anything of value for the purpose of improperly obtaining or receiving favorable treatment in connection with U.S. Government contracts is A. The Foreign Corrupt Practices Act B. The Anti-Kickback Act of 1986 C. The Civil False Claims Act D. The “Honest Services” Act Source: Association of Certified Fraud Examiners Website

23 Answer #11 The Anti-Kickback Act of 1986 outlaws the giving or receiving of anything of value for the purpose of improperly obtaining or receiving favorable treatment in connection with U.S. government contracts. Source: Association of Certified Fraud Examiners Website

24 Question #12 A recorded transcription of a question and answer session between a witness and an attorney is called a(n) A. interrogatory B. subpoena C. deposition D. summons Source: Association of Certified Fraud Examiners Website

25 Answer #12 Depositions are probably the most popular and useful form of discovery. A deposition is sworn testimony given by a party or witness upon questioning by counsel for one of the parties before trial and outside of court, usually in a lawyer’s office. Source: Association of Certified Fraud Examiners Website

26 Question #13 Under the Sarbanes-Oxley Act, which of the following is responsible for establishing procedures for receiving and dealing with complaints and anonymous employee tips regarding irregularities in the company’s accounting methods, internal controls, or auditing matters? A. Board of Directors B. Audit committee C. Chief Executive Officer D. Internal auditor Source: Association of Certified Fraud Examiners Website

27 Answer #13 Under the Sarbanes-Oxley Act, the audit committee is required to establish procedures (such as a hotline) for receiving and dealing with complaints and anonymous employee tips regarding irregularities in the company’s accounting methods, internal controls, or auditing matters. Source: Association of Certified Fraud Examiners Website

28 Question #14 Which of the following statements in INCORRECT with respect to mail fraud? A. The predicate mailing must be placed in a post office or postal depository. B. The mailing must contain the false or fraudulent misrepresentation. C. The scheme need not be a success. D. The victim need not suffer a loss. Source: Association of Certified Fraud Examiners Website

29 Answer #14 The mailing does not need to contain the false and fraudulent representations, as long as it is an integral part of the scheme. What is integral or incidental depends on the facts of each case; generally a mailing that helps advance the scheme in any significant way will be considered sufficient. Source: Association of Certified Fraud Examiners Website

30 Question #15 The FBI asks IBC Manufacturing to assist it in an investigation of one of IBC’s employees. Specifically, the FBI asks one of IBC’s managers to search the employee’s locker and give the FBI any illegal drugs found. Which of the following statements is most correct? A. IBC cannot be guilty of violating the 4th Amendment because it is not a government agency. B. IBC’s actions would be private action, not state action; therefore, the 4th Amendment would not apply. C. IBC may be in violation of the 4th Amendment because it is acting at the request of the government. D. IBC could not be in violation of the 4th Amendment because it is a private company; however, it may be subject to civil liability. Source: Association of Certified Fraud Examiners Website

31 Answer #15 In order for an employee to sue an employer for the violation of a constitutional right, there must be some form of “state action” involved. State action is involved during any investigation by a state or federal entity, including investigations of their own employees. There are no bright-line rules regarding when an investigation can be considered to involve state action. However, the following examples could be considered to involve state action: Investigations conducted by a private company but at the suggestion of the state or federal authorities... Source: Association of Certified Fraud Examiners Website

32 Question #16 Able is a Certified Fraud Examiner and a private consultant. He is hired to perform a fraud investigation. In the preliminary stages of the investigation, before criminal or civil litigation, which of the following is probably the only method available to Able to obtain documentary evidence? A. search warrant B. subpoena C. subpoena duces tecum D. voluntary consent Source: Association of Certified Fraud Examiners Website

33 Answer #16 Evidence is obtained by three methods. “Subpoenas” are ordinarily issued by the court or by a grand jury. A “subpoena duces tecum” calls for the production of documents and records, whereas a regular subpoena is used for witnesses. Obtaining documents by subpoena is not possible if the examiner is not an agent of the grand jury or the court. “Search warrants” are issued by a judge upon presentation of probable cause to believe the records are being used or have been used in the commission of a crime. A search warrant will be issued only to members of law enforcement. Therefore, Able is limited to obtaining documents through voluntary consent, which can be oral or written. Source: Association of Certified Fraud Examiners Website

34 Question #17 The first three numbers of a Social Security number (with the exception of the 700 series) reflect: A. state of issue B. city of issue C. individual identifiers D. none of the above Source: Association of Certified Fraud Examiners Website

35 Answer #17 With the exception of the 700 series, the first three digits of a Social Security number reflect the state of issue. Source: Association of Certified Fraud Examiners Website

36 Question #18 Blue, a Certified Fraud Examiner, was interviewing Green, a fraud suspect. When Blue asked pertinent questions, Green would frequently repeat the question. One main reason Green would do this is because he is attempting to: A. ensure he understands the question B. gain time to frame his answer C. frustrate Blue and end the interview D. none of the above Source: Association of Certified Fraud Examiners Website

37 Answer #18 Repeating the question is another means for the deceiver to gain time to frame his or her answer. The question may be repeated verbatim, or the respondent may frame the answer with a request to repeat the question. Example: “What did you say, again?” or “Are you asking me if I took kickbacks?” A truthful subject usually does not have to contemplate his or her answer. Source: Association of Certified Fraud Examiners Website

38 Question #19 In interviews, most fictitious alibis can be detected by the suspect’s: A. selective memory B. inconsistent fact statements C. body language D. none of the above Source: Association of Certified Fraud Examiners Website

39 Answer #19 Most fictitious alibis surface in the suspect’s selective recollection of events. The guilty suspect will typically be able to remember, in great detail, events before and after the one of significance. But at the crucial time, the suspect frequently has memory problems. Source: Association of Certified Fraud Examiners Website

40 Question #20 Baker, a Certified Fraud Examiner, has obtained an oral confession from Gamma, a fraud suspect. In addition to fraud, Gamma also admitted he was smuggling drugs in an unrelated case. How should this be handled in Gamma’s written statement? A. Both crimes should be included in the same statement. B. Separate statements should be taken for separate crimes. C. Information concerning the drug smuggling should be omitted. D. none of the above Source: Association of Certified Fraud Examiners Website

41 Answer #20 There should not be more than one written statement for each offense. If facts are inadvertently omitted, they can later be added to the original statement as an addendum. For legal purposes, prepare separate statements for unrelated offenses... Source: Association of Certified Fraud Examiners Website

42 CFE Exam Four sections of 125 questions each: u Financial transactions u Legal elements of fraud u Fraud investigation u Criminology and ethics Source:

43 CFE Exam: Financial Transactions “This section tests your knowledge of the types of fraudulent financial transactions incurred in books of account. To pass this section, you will be required to demonstrate knowledge of these concepts: basic accounting and auditing theory, fraud schemes, proving illicit income, internal controls to deter fraud, and other auditing and accounting matters.” Source:

44 CFE Exam: Legal Elements of Fraud “This section’s purpose is to ensure that you are familiar with the many legal ramifications of conducting fraud examinations, including criminal and civil law, rules of evidence, rights of the accused and accuser, and expert witness matters.” Source:

45 CFE Exam: Fraud Investigation “CFEs must know how to conduct fraud investigations. This section includes questions in the following areas: interviewing, taking statements, obtaining information from public records, evaluating deception, and report writing.” Source:

46 CFE Exam:Criminology and Ethics “The purposes of this section are to test your knowledge of criminological concepts and to evaluate your understanding of the underlying ethics of the fraud examination profession. This part includes administration of criminal justice, theories of crime causation, theories of fraud prevention, crime information sources, and ethical situations.” Source:

47 CFE Exam  Preparing for the exam u On your own using the Fraud Examiners Manual u CFE Exam Prep Course (50 hours of A&A CPE only through )  Computer requirements  Timing of the exam  Grading of the exam  Pass guarantee  Exam fees Source:


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