Fraud 101. Course Instructions and Final Examination. The CPE Store 819 Village Square Drive Tomball, TX

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1 Fraud 101 Course Instructions and Final Examination Fraud 101 3rd Edition Stephen Pedneault CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Fraud 101 Table of Contents Page Course Objectives... 3 Course Instructions... 3 Final Examination

3 COPYRIGHT The CPE Store - ALL RIGHTS RESERVED No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Explain characteristics of various types of fraud including management fraud, embezzlement and banking schemes Identify areas of an organization or company that may be at risk for fraudulent activities Identify the motivation for committing various types of fraud Explain how situational ethics is used to rationalize committing fraud Define effective measures for eliminating financial statement fraud schemes Identify weaknesses within your organization s internal controls that may be contributing to fraudulent activity Segregate key duties within the organization to decrease the risk for fraud Assess relationships between employees and vendors to determine whether they are legitimate Explain defining characteristics of duplicate payment fraud, multiple payee fraud, shell fraud and defective delivery frauds Recognize areas of the organization that may be vulnerable to contract rigging schemes and implement policies and procedures that will increase awareness and combat fraud Explain how the Sarbanes-Oxley legislation reduces the likelihood of fraud Expand your ability to detect and deter fraud Construct and implement an internal control system designed specifically to satisfy your organization s needs Teach management-level employees how they can ensure the integrity of the corporate culture by setting an example for other employees Gather evidence to conduct a successful fraud investigation Recognize situations that require a full investigation Identify effective alternatives to conducting a full investigation Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation that accompanied the course and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 20 CPE credits

5 Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us in the envelope provided. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Please use this option only if you need fast turnaround (we want to keep this as a free service). Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store's courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state's Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

6 Fraud Hour Course Final Examination Answer each question on the accompanying answer sheet. A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. Chapter 1 The World of Fraud 1. What is commonly known as financial statement fraud? A. Management fraud B. Employee fraud C. Political malfeasance D. Tax fraud 2. What is embezzlement? A. Fraud committed exclusively by management-level employees B. Fraud committed by employees C. Fraud committed predominantly by individuals holding political office D. Fraud involving federal tax 3. Which of the following is often committed by elected officials who abuse their office or position? A. Management fraud B. Bid rigging C. Embezzlement D. Insurance fraud 4. Which of the following presents the greatest opportunity to obtain convictions? A. Embezzlement fraud committed by management-level employees B. State tax fraud C. Insurance fraud D. Fraud committed at the federal level 5. Which of the following is a type of fraud committed at the federal level? A. Wire fraud B. Higher education fraud C. Insurance fraud D. Collateral fraud 6. What is a common method of defrauding financial aid programs? A. Electronic banking B. Mail fraud C. Providing a version of the latest tax return showing lower than actual income D. Embezzlement 7. What is a typical rationale for committing insurance fraud? A. Too small to make a difference B. Fraud affects every program in existence C. Return on investment D. The entity is too big to notice 8. What type of entity is often linked to kiting fraud? A. Retail banking B. The lending side of banking C. Higher education D. Insurance - 5 -

7 9. What has evolved into a multifaceted area for fraud investigations? A. Internet-related fraud B. Mortgage fraud C. Investment fraud D. Collateral fraud 10. Which of the following can include hedge fund managers churning investments to generate commissions? A. Retail banking fraud B. Counterfeiting fraud C. Financial institution fraud D. Mortgage fraud Chapter 2 Why is Fraud Committed? 11. What is situational ethics? A. A personal guarantee that changes to satisfy the situation B. A mind-set in which an individual chooses how to behave based on the situation and potential consequences C. Consequences defined per the situation D. The act of fudging transactions and balances to meet financial goals 12. What effectively deters the occurrence of employee fraud? A. Absolute consequences B. Positive corporate culture C. Supportive management D. Implementing employee appreciation functions 13. What is a situation in which a common fraud scheme is capitalizing operating costs? A. A closely held business loses financing B. A warehouse experiences underachieved sales performance C. Stock price is linked to performance as well as executive compensation D. A non-profit organization has leftover funds at fiscal year end 14. What is one of the strongest incentives for an owner of a closely held business to commit fraud? A. Personal guarantee B. Promoting the company s overall performance C. Exaggerating the value of the company D. Excessive inventory 15. What is a common incentive for nonprofit organizations to commit fraud? A. Auditors are less likely to enforce consequences B. Situational ethics is an appropriate mind-set C. Avoid a decrease in the company s stock price D. Avoid the give-back requirement 16. Which of the following is least likely to be a fraud risk? A. Volunteers collecting donations at a charity event B. Accounts payable clerks C. An organization that enforces segregation of duties D. An individual who has been working for the organization for a long time Chapter 3 Financial Statement Fraud Schemes 17. What is the underlying objective behind every financial statement fraud scheme? A. To intentionally deceive the Board of Directors of the company B. To intentionally deceive the auditors C. To intentionally deceive the users of the financial information being provided D. To intentionally deceive the company s management - 6 -

8 18. Which of the following is responsible for preparing the financial statements, footnote disclosures, and all aspects of financial reporting? A. Management B. Internal auditor C. External auditor D. Board of directors 19. Which of the following contributes to the fraud risk issue? A. Auditors interacting with management to accomplish their procedures B. The diminishing number of individuals who pursue accounting as a career choice C. Auditors disclosing issued financial statements to third-party users D. Lack of turnover in public accounting firms 20. What can significantly combat fraud? A. Increase the quality level of training available to auditors B. Implement an internal control prohibiting auditors and accountants from receiving supporting information originated by management C. Limit the number of compilations and reviews allowed D. Hire an external auditor to prepare the financial statements 21. Which of the following may increase the potential for an organization seeking to commit fraud to conceal it from audit detection? A. Settling for a monthly review of bank statements that appears reasonable B. High turnover in public accounting C. Hiring experienced auditors D. Requiring auditors to complete audit procedures within the allotted timeframe per the engagement budget 22. Which of the following, according to the December 2008 report issued by Deloitte s Forensic Center, is the most commonly reported scheme? A. Manipulation of liabilities B. Manipulation of expenses C. Improper revenue recognition D. Improper disclosures 23. Which of the following, according to the December 2008 report issued by Deloitte s Forensic Center, reported the least amount of fraudulent activity? A. Manipulation of reserves B. Manipulation of accounts receivables C. Manipulation of assets D. Improper disclosures 24. What process will determine whether suspicious patterns exist within the financial statements? A. Month-to-month trending B. A close working relationship between an auditor and the client C. Scrutinizing inventory reports D. Field visits to a client s warehouse 25. What is horizontal trend analysis? A. Present major expense items as a percentage of sales B. Corroborating financial information between one source and another C. Comparing amounts on the balance sheet across periods D. Calculating cost of sales and gross margin 26. Which of the following presents major expense items as a percentage of sales? A. Horizontal trend analysis B. Vertical trend analysis C. Traditional audit D. Materiality - 7 -

9 27. What is materiality? A. The dollar thresholds auditors often set to determine what balances and transactions will be analyzed B. An analysis that compares related accounts and balances to ensure relationships between the accounts are reasonable C. Discoveries made during month-to-month trending D. Type of fraud also known as cooking the books 28. Which of the following is an ideal approach for auditors when conducting an engagement? A. Establish a friendly relationship with the client prior to the engagement B. Treat each engagement as if it was their first experience with a brand-new client C. Discuss planned procedures with the client prior to the engagement D. Extend clients the courtesy of scheduling an appointment 29. What could help determine whether reliance should be placed on financial information? A. Corroborating the financial information between one source and another, such as reconciling results and amounts between the financial reports and the entity s tax returns B. Evaluating the level of risk linked to users of the financial information C. Relying on the organization s management and personnel for providing verified financial information D. The type of relationship between the auditor and client Chapter 4 Employee Embezzlements 30. Which of the following, according to the Association of Certified Fraud Examiners, commit the greatest percentage of employee theft, at 39.9%? A. Manager-level employees B. Owners C. High-ranking employees D. Below-manager employees 31. Which of the following, according to PricewaterhouseCoopers 2007 survey, is used to rationalize fraudulent behavior 57% of the time? A. Greed B. Low temptation threshold C. Lack of awareness of wrongdoing D. Denials of financial consequences 32. What is the only corner of the fraud triangle over which the employer has control? A. Financial need B. Integrity C. Opportunity D. Rationalization 33. Which of the following is responsible for approving all new customers prior to accepting any orders? A. Customer service B. Billing C. Internal auditor D. Credit manager 34. Which of the following should be allowed system access only to process sales orders? A. Billing department B. Customer service C. Credit manager D. Accounts receivable 35. What is an effective strategy for combating fraud in the billing department? A. Segregation of duties B. Requiring a customer service representative to sign off on transactions C. Requiring the credit manager to sign off on transactions D. Yearly review of reports - 8 -

10 36. What control measure can detect cash disbursement fraud? A. Determine which employees had the greatest opportunity to commit the fraud B. Independent review of the returned check images C. Route all cash disbursements through an outside financial entity D. Require the controller s authorization for all cash disbursement transactions 37. Which of the following is a control measure that could help an employer s recovery efforts following fraud? A. Assigning a primary check signer B. Requiring the business manager to maintain the company s electronic accounting system C. Obtaining employee dishonesty coverage D. Outsourcing the purchasing function 38. What should an efficient independent review of payroll address? A. Gross pay amounts B. Net pay amounts C. Gross and net pay amounts D. Outstanding invoices Chapter 5 Other Fraud Schemes 39. What control measure can decrease the risk of duplicate payment fraud? A. Field visit to verify the validity of the transaction B. Only pay on original invoices C. Review credit directories to confirm the client exists D. Only pay on an invoice that includes an electronic copy 40. Who typically initiates whatever procedures are required to execute duplicate payment fraud? A. An employee of the paying entity B. An employee of the client C. An external auditor D. A middleman 41. What makes multiple payee fraud relatively resistant to detection? A. Most supporting documentation supporting a transaction cannot be duplicated so a fraudulent copy is never detected B. The perpetrator works in collusion with an employee of an existing vendor C. Always generates payment to a fictitious vendor D. Never involves working with a vendor 42. Which of the following refers to shell fraud? A. Success depends upon the payment being generated to a real vendor for a real invoice B. Success depends upon the payment being generated to a fictitious vendor for a real invoice C. The basis for the operation is totally fictitious D. Always involves delivery of tangible goods 43. What is the best way to obtain assurance that shell fraud has not occurred? A. Select a payment transaction and go wherever necessary to verify that the item or service was received B. Verify the quality of items or services being distributed C. Complete a receiving report D. Independently determine at or about the time claimed that the project, supplies, or service had been delivered 44. What is a common example of defective delivery fraud? A. Interior painting B. Carpet installation C. Establishing a fictitious vendor D. Internet sales - 9 -

11 45. Which of the following frequently involves a middleman? A. Defective delivery of goods B. Duplicate payment fraud C. Multiple payee fraud D. Shell fraud 46. What fraud scheme may be deterred by requiring poof of professional certifications and licenses held? A. Defective delivery of building construction B. Defective delivery of labor C. Defective receipt fraud D. Defective shipment fraud 47. Which of the following involves a victim organization paying for something it never receives? A. Defective delivery of goods B. Defective delivery of building construction C. Defective shipment fraud D. Defective receipt fraud 48. What is the most effective way of ensuring the prevention and/or deterrence of defective shipment fraud? A. Random auditing B. Complete receiving reports C. Requiring a credit manager to review the purchasing order D. Referring to Dun & Bradstreet credit directories to confirm the vendor 49. What is an effective control measure that may deter defective pricing fraud? A. Rotate control personnel B. Trust suppliers to set terms of the transaction C. Eliminate the middleman D. Adopt a zero-gratuity policy Chapter 6 Contract Rigging Schemes 50. What stage of a contract rigging scheme involves the actual mechanics of defrauding the victim? A. Stage one B. Stage two C. Stage three D. Stage four 51. What does contract rigging most frequently involve? A. Conspiracy between an employee of the contracting entity and the contractor B. Conspiracy between two contracting entities C. Conspiracy between internal auditors and the contractor D. Conspiracy between two contractors 52. Which of the following is not a standard procedure in the bidding process? A. Providing project specifications to contractors interested in bidding B. Informing contractors of the dollar amount of the bids as they are received C. Requiring all bids received be sealed and opened only in a public forum attended by all interested bidders D. All of the above are standard procedures in the bidding process 53. What is necessary for a dishonest contractor to execute a successful contract rigging scheme? A. Preventing the paying entity from publicly advertising the project B. Obtaining the award of the contract C. Developing a relationship with an employee working for the contracting entity D. Pursuing contracts that do not require an unsealed bid

12 54. What advantage does a dishonest contractor have over an honest contractor when submitting a price proposal? A. They do not have to submit a price proposal that will make a profit B. They are privy to project specifications C. They are not required to actually obtain the contract D. They make their bid based on past observances of the contracting entity 55. Which of the following is legitimate? A. A contractor submits an extremely low bid based on the contracting entity s history of not being able to resist changing contract specifications B. Bid a low price on contract items that the contractor is assured will be eliminated during the term of the contract C. A contractor substitutes cheaper materials than those specified D. Unbalance the bid in such a way as to profit disproportionately as items are changed or eliminated 56. What does the fallback provision allow dishonest contractors to do to escape from fulfilling the terms of the contract? A. Turn the contract over to a legitimate contractor claiming the terms go beyond their capacity to complete the job B. Outsource most of the contract requirements C. Substitute cheaper materials than those specified D. Claim bankruptcy 57. What increases a contracting entity s vulnerability to cost liability that the dishonest contractor has planned? A. Adopting a hands-off attitude B. Failing to have an external auditor review the contract C. Submitting a contract change order D. Deferring some contract items 58. What is a self-protective policy that a contracting entity may follow to ensure cost liabilities are the responsibility of the architect and/or contractor? A. Sealed envelope bidding B. Turn-key C. Fraud examination D. Specify the required quality and/or manufacturer of the goods used to satisfy terms of the contract 59. What do contractors anticipate when attempting to execute unbalanced bidding fraud? A. The contracting entity will submit a change order B. The contracting entity will be hands-off during the project C. The contracting entity will cancel a requirement D. The contracting entity will trust the contractor s choice of materials 60. What will likely go a long way toward stopping contract rigging fraud? A. Require balanced bidding B. Commit to start-to-finish involvement with the project C. Require an appraisal of all materials D. Stop contract changes 61. What is a defining characteristic of rotation fraud? A. Change orders to correct omissions B. The contract change order functions as a sole-source contract C. Two or more contractors who dominate an industry in a region conspire to share business D. The dishonest contractor files bankruptcy

13 62. What measure can detect and/or stop rotation fraud? A. Identify and contact all contractors who should have been interested in the contract and ask them why they didn t bid B. Deliberately omit an important specification of the project to gauge the contractor s response C. Include a no-contract-change policy to all interested bidders D. Include a disclaimer in the contract indicating that the contracting entity has the right to hire a new contractor at any point during the project Chapter 7 Responses to Fraud 63. What can significantly reduce instances of fraud? A. Prosecution by the SEC B. Civil prosecution C. Identify audit failures quicker D. Strengthen the consequence of being arrested for committing fraud 64. What purpose does the Sarbanes-Oxley Act serve? A. Reduces the likelihood of fraud by making public company CEOs and CFOs directly accountable for their organization s internal controls B. Requires all publicly traded companies to form an audit committee to combat the risk of fraud C. Developed professional certifications qualifying an individual as an expert fraud investigator D. Established the Institute of Internal Auditors 65. What is required of all audit committee members? A. Being a member of the board of directors B. Serving at least one additional corporate duty C. Incorporating standards referred to as management s responsibility into all official policies D. Ensuring an external source hires the auditors and any other consultants 66. What requirement must be satisfied when forming an audit committee? A. At least one member must be classified as a gray director B. Members must have a high level of equity interest with the company C. At least one member must be a financial expert D. Members are not permitted to be directors on other boards 67. Which of the following is the correct application of a code of ethics? A. The code of ethics should have two sections, one for frontline employees and one for senior executives B. The code of ethics should be written, distributed, and explained to employees at all levels within the company C. The code of ethics should focus exclusively on professional interests D. The code of ethics should not focus on full disclosure of matters in the company s regular filings 68. What is designed to look for weaknesses and opportunities for fraud within the organization s internal controls? A. SOX B. Code of ethics C. External audit D. Forensic audit 69. Which of the following spells out the auditor s responsibilities for assessing, documenting, evaluating and testing an audited entity s system of internal controls? A. AS5 B. SAS No. 104 C. SAS No. 109 D. SAS No

14 70. Which of the following are not required to comply with SOX legislation? A. Publicly traded companies B. Companies with an approved audit committee C. Non-profit organizations D. Companies lacking a board of directors 71. What did the new audit standard (SAS 99) mandate? A. Every audit team would meet, prior to commencing any audit procedures, to hold a brainstorming session B. Implement internal controls which are so effective that degradation of the system through fraud is virtually impossible C. The internal auditor s detailed operational knowledge was to be coordinated with the work of the external auditor to develop anti-fraud controls D. Every auditor would conduct a forensic audit 72. Which of the following, according to the ASB, is one objective of new Statement of Auditing Standards? A. Assist in the development of a system of internal controls for non-profit organizations B. Improved audit procedures so effective that degradation of the system of internal controls through fraud is virtually impossible C. Improved linkage between the internal auditor s detailed operational knowledge and the work of the external auditor to develop anti-fraud controls D. Improved linkage between the assessed risks and the nature, timing and extent of audit procedures performed 73. Which of the following is an area in which a CFFA may specialize? A. External audit function B. Financial litigation C. PCAOB auditing standards D. ASB standard-setting Chapter 8 The Importance of Internal Controls and Internal Audit 74. What is least effective for ensuring the strength of an organization s internal controls? A. Expectations B. Compliance C. Consequences D. Identification 75. What is the value of an efficient system of internal controls? A. Activity within an organization is authorized, approved, transacted, and reported in a prescribed, consistent, and conforming manner B. Strengthens the outside auditors ability to identify shortfalls or design weaknesses as part of the annual financial statement audit serving entities with little to no documentation C. Create the need for audit firms to train their auditors in the art of documenting, assessing, and testing their clients internal and external audit functions D. Create a more efficient auditing function by enforcing timeframes for completing audit procedures 76. What frequently dictates an effective level of internal controls? A. Whether the organization s outside auditors are capable of consistently identifying weaknesses as part of their annual financial statement audit B. The size and sophistication of the organization C. Whether SOX legislation is consistently enforced D. Whether management deters fraud by consistently enforcing expectations, compliance, and consequences 77. Which of the following is strictly management s responsibility? A. Monitoring senior management activity B. Reviewing the effectiveness of internal controls C. Overseeing the internal audit function D. The design and implementation of the control system

15 78. Which of the following is an example of a weak internal control? A. Utilizing forms to standardize authorization of transactions and checklists to ensure all required steps are completed B. Ensuring one individual or department will authorize, process, approve, record, and report transactions C. Independent approvals at appropriate levels based upon authorization thresholds D. Regular independent reviews of the financial information prepared and provided by management 79. What is a proactive strategy for creating a more controlled environment? A. Establish one internal control environment that applies to all positions up to senior management and another for audit and finance committees B. Management sets the tone for a positive culture change by adopting and adhering to a formal code of conduct C. Segregate the audit committee from senior management activity D. Reassure employees that by confessing their participation in a fraudulent scheme they avoid being terminated 80. What internal audit function creates a deterrent, as well as a means for detecting a potential problem? A. Surprise field visit to perform a test count or reconciliation B. Create and distribute forms to standardize procedures C. Integrate feedback loops into all organizations D. Confirm that the external function provides detailed information identifying shortfalls and/or design weaknesses as part of the annual financial statement audit Chapter 9 Evidence 81. What is a primary reason many fraud cases are not prosecuted? A. Reliance on electronically stored evidence B. Source of evidence is not diverse C. Inexperienced investigators lack training in fraud detection and investigative techniques D. Evidence is not admissible 82. Which of the following is not a necessity for managing evidence? A. Take physical possession of identified items B. Ensure at least one component of the evidence is gathered in a digital/electronic format C. Document the source and description of each item D. Preserve the original items in the state and condition they were found to ensure no changes are possible from the time each item was collected until the time each item is offered in court as evidence 83. Which of the following is generally not required to ensure evidence is admissible? A. Have at least three people present when evidence is collected B. Take physical possession of identified items C. Document the source and description of each item D. Preserve the original items in the state and condition they were found 84. What is one of the most important steps when dealing with evidence? A. Store copies of evidence on a third-party server accessible via the Internet B. Present copies versus original evidence C. Meticulous documentation D. Choose tangible evidence over intangible evidence, such as verbal reports 85. What is an important measure when multiple individuals are involved with conducting investigations? A. Making multiple copies of evidence B. Using various types of tools to collect the evidence C. Standardized start-to-finish protocol D. Ensuring at least one individual is a specialist in the area being investigated

16 86. What does the success of an investigation greatly depend upon? A. Video recordings of the site where evidence is collected B. Standardization of procedures C. On-staff electronics specialist D. The existence and strength of the evidence available 87. What control measure allows an investigation to continue if the original evidence is ruined? A. Best information available rule B. Requiring at least one item be verbally recorded C. Requiring at least one item be stored electronically on a third-party server D. Requiring at least one copy be made of all evidence 88. What determines whether an item qualifies as evidence? A. Originality B. Accessibility C. What and how the evidence will be used to support or refute an issue D. Documentation Chapter 10 Conducting Fraud Investigations: A Practical Approach 89. Which of the following is often initiated based on an educated hunch? A. Proactive investigation B. Discovery investigation C. Supportive investigation D. Predication 90. Which of the following focuses on obtaining sufficient credible evidence to prove what actually occurred and that no other explanations could be possible? A. Discovery investigation B. Supportive investigation C. Proactive investigation D. Initial strategy-setting meeting 91. What strategy significantly increases the likelihood that an investigation will be successful? A. Performing procedures within high fraud-risk areas B. Performing procedures within areas susceptible to fraudulent activity, even when no fraud indicators are present C. A goal-setting discussion with the client, client s counsel and stakeholders D. Securing probable cause 92. Which of the following defines the basis or reason for initiating an investigation? A. A belief that something might be wrong within the company or organization B. Pre-procedure planning C. Investigative plan D. Predication 93. What is the value of a written plan identifying the investigative approach? A. Ensure the completeness of an investigation B. Identify probable cause C. Expand upon the who, what, when, where, and why of the procedures D. Protect investigators against harassment, defamation and other malicious claims 94. Which of the following is encouraged when compiling the findings in a written report? A. Use appropriate technical terms and accounting jargon in your report B. Write the report for a universal audience C. Fluctuate between past tense and present tense to distinguish a time line D. Identify and define procedures performed to test compliance with a particular control or procedure

17 Chapter 11 Fraud Investigation Alternatives 95. What is one of the first objectives when assessing the feasibility of a full investigation? A. Identifying individuals or entities that may be involved B. Identifying major aspects C. Verifying the reliability of the source D. Determining the type of fraud that potentially has occurred 96. Which of the following is a situation in which a full investigation may not be a viable option? A. Only the major aspects of the potential scheme were uncovered B. The amount of money involved in the potential fraud scheme is less than the resources required to pursue an investigation C. The potential scheme involves a trust account D. The potential fraud is linked to individuals holding political offices 97. What situation requires conducting a full investigation? A. Organizations without efficient measures in place to monitor the potential scheme activity B. The potential fraud scheme involves federal funds C. The potential fraud scheme could be embezzlement D. Key individuals cannot be identified 98. What circumstance may require surveillance procedures prior to initiating a full fraud investigation? A. An anonymous tip is received indicating fraud is occurring B. Determine the most efficient method for collecting evidence C. Determine the best timeframe for collecting evidence D. Identify major aspects vital for initiating the investigation 99. What is one reason an organization may choose not to pursue a full investigation? A. The potential fraud scheme involves a well-known political official who would suffer professional damage due to the publicity B. An investigation would lower the value of state funds held by the organization C. The devastating and irreversible impact on the organization s stock prices in response to publicity hinting at a fraud inquiry D. An investigation would weaken the reliability of federal funds 100. Which of the following is part of the feasibility assessment? A. Designate a certain amount of time to evaluating the organization s internal controls and procedures B. Hire an expert to monitor the organization s premises while investigators uncover major aspects of the potential scheme C. Ensure every aspect of the potential fraud scheme will be investigated D. Identify and weigh the potential consequences to the victim organization against the benefit of conducting the investigation Thank you for taking our course. We hope you enjoyed it