Course Introduction
Corporate Fraud
Textbook Exam Questions
Corporate Fraud examines the theories, methods, and practices related to fraudulent activities within business organizations. The course explores the motives, mechanisms, and impacts of fraud, including financial statement manipulation, asset misappropriation, and corruption. Students will analyze real-world case studies, learn to identify fraud risk factors, and study the regulatory frameworks and ethical considerations surrounding corporate governance. Emphasis is placed on detection, prevention, and investigation techniques, equipping students with the knowledge and skills required to mitigate fraud in contemporary corporate environments.
Recommended Textbook
Forensic Accounting and Fraud Examination 2nd Edition by William S. Hopwood
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Page 2
Chapter 1: Introduction to Forensic Accounting and Fraud Examination
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Q1) Which of the following is NOT a way to become a Certified Fraud Specialist (CFS)?
A) Successfully completing a multipart examination that covers the detection, deterrence, investigation, and prosecution of white-collar crime.
B) A bachelor's degree in business or ten years of accounting-related experience and pass the two parts of the Certified Fraud Specialist examination.
C) Completing the ACFS Academy core courses and taking an examination at the end of each course.
D) Being grandfathered in by means of submitting information on the experience and education.
Answer: B
Q2) The Institute of Business Appraisers offers which certification?
A) CPa.
B) CBA.
C) AICPA.
D) EA.
Answer: B
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Chapter 2: The Forensic Accounting Legal Environment
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Q1) If two or more people agree to commit a crime, with even the smallest amount of coordination, they have committed a:
A) Conspiracy.
B) Robbery.
C) Burglary.
D) Fraud.
Answer: A
Q2) Double Jeopardy is when:
A) You can be tried for the same crime in both Federal and State courts.
B) You cannot be tried in the same court for the same crime once the trial begins.
C) You cannot be tried for the same crime in the same court if the judge dismisses the case.
D) All of the above are true.
Answer: D
Q3) Who are District Attorneys and what is their function within the court system?
Answer: District Attorneys are also referred to as Prosecutors. They are the plaintiff in the cases and have sole discression as to charges being made against a defendant or not.
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4
Chapter 3: Fundamentals I: Accounting Information Systems
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Q1) Audit work is primarily concerned with cash reconciliation.
A)True
B)False
Answer: False
Q2) One traditional approach for designing an AIS is to divide the major operational activities into:
A) business units.
B) four transaction cycles.
C) audit groups.
D) all of the above.
Answer: B
Q3) How are internal control objectives and components different?
Answer: The objectives of internal control are concerned with the ensurance of compliance, integrity and reliability, and the components of internal control are the actual functional areas such as the control environment, risk assessment, control activities, information and communication, and monitoring.
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Chapter 4: Fundamentals II: The Auditing Environment
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Q1) An auditor may want to observe the physical count of inventory.
A)True
B)False
Q2) Which of the following is another auditing function?
A) Internal Auditing.
B) Operational Auditing.
C) Governmental Auditing.
D) All of the above.
Q3) In 2003, what board replaced the AICPA as the auditing standard-setter for companies that are publicly held?
A) SOX.
B) SEC.
C) FASB.
D) PCAOB.
Q4) What is an estimation of misstatement and comparison to tolerable misstatement?
Q5) The relationship of risks for a specific client may change:
A) Daily.
B) Monthly.
C) From year to year.
D) From audit to audit.
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Chapter 5: Fraud Prevention and Risk Management
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Q1) If your process has reached maturity, and has achieved lower costs, shorter development times, higher quality, and higher productivity, then it must have:
A) Process predictability.
B) Process control.
C) Process compliance.
D) Process effectiveness.
Q2) What does the standard ISO 27002 highlight?
A) Controls that are essential to essential due to legislation.
B) Controls That Exist in Common Practice for Accounting Standards.
C) Controls that exist to conform to GAAP.
D) All of the above.
Q3) What are the 3 ISMS security objectives?
A) Assess, modify, implement.
B) Integrate, evaluate, modify.
C) Confidentiality, integrity, availability.
D) Integrity, evaluation, implementation.
Q4) What is supposed to happen under information security incident management?
Q5) Describe the risk assessment three-step process.
Q6) What are some possible strategies for Risk Management/Treatment?
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Q7) Explain how the ISO promulgates standards in "families" and what that means.
Chapter 6: Fraud Detection
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Q1) In many cases fraud indicators lead to:
A) The need for additional auditors to be present for the audit.
B) Criminal or civil actions against the CEO or CFO of the Corporation.
C) The discovery of errors or unusual events that can reasonably be explained upon further examination.
D) .The discovery of loop holed in the IRS Tax Code that are left up to interpretation.
Q2) Fraud discovery departments are typically assigned to the HR Director. FALSE
A)True
B)False
Q3) Where are fraud discovery personnel assigned within an organization?
A) Within the customer service department.
B) Within the Human Resources department.
C) As their own department, operating independently.
D) Within any department that typically has the highest risk for fraud
Q4) Explain how fraud detection relates to enterprise risk management.
Q5) Describe the different ways in which fraud is detected.
Q6) Describe the three step process under SAS 99, Consideration of Fraud in a Financial Statement Audit.
Page 8
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Chapter 7: The Fraud Investigation and Engagement
Processes
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Q1) What are some other items that are acceptable to be billed as part of the investigation?
A) All of the below are acceptable.
B) Meals
C) Travel
D) Phone charges
Q2) Which of the following is a step in the fraud-theory approach?
A) Prove the hypotheses invalid.
B) Refine and amend the hypotheses.
C) Link the hypotheses to a GAAP.
D) None of the above are a step in the fraud-theory approach.
Q3) Which of the following is NOT a method to be used in a fraud investigation?
A) Covert surveillance of employees at home
B) Reviews of documents
C) Interviews with employees
D) Surreptitious surveillance of employees
Q4) An investigator should always remain a part of the investigation, even if it means they will have to commit an illegal act.
A)True
B)False
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Chapter 8: The Evidence Collection Process
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Q1) The "who" of a fraud scheme are:
A) The possible locations of the fraud.
B) The general functional area or position.
C) The conditions present to commit the fraud.
D) The mechanisms of the fraud.
Q2) Predication dictates that there must be a reasonable justification for each step in the evidence collection process.
A)True
B)False
Q3) Computer files are not considered document evidence because they do not exist physically.
A)True
B)False
Q4) The "how" of a fraud investigation are the conditions surrounding the fraud.
A)True
B)False
Q5) The fraud scheme must answer the question "why" before charges can be filed. A)True
B)False
Q6) What is the fraud theory approach and provide an example of using it.
Page 10
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Chapter 9: Fraud Examination Evidence I: Physical,
Documentary, and Observational Evidence
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Q1) Financial statement fraud is always discovered through missing documents.
A)True
B)False
Q2) If documents are contested because one or more persons do not believe they are authentic, they are referred to as:
A) Forensic Evidence.
B) Questioned Documents.
C) Altered Documents.
D) Fraud trigger points.
Q3) Investigation methods used to detect financial statement fraud are similar to those used to audit financial statements.
A)True
B)False
Q4) Databases, court records and real estate records are all considered:
A) Sources of information for an investigation.
B) Worthless in an investigation.
C) Forensic data collections.
D) Areas of hiding for individuals who wish to commit fraud.
Page 11
Q5) List the four ways documentary evidence is obtained.
Q6) List at least four document indicators for fraud.
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Chapter 10: Fraud Examination Evidence II: Interview and Interrogation Methods
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Q1) Bringing a pre-written list of questions to an interview:
A) Will lead to tunnel vision and not allow for a good interview.
B) Should always be done, and a list of questions provided to the interviewee prior to the interview.
C) Will lead to a shorter, less time consuming interview.
D) Should be approved by the corporation paying for the investigation prior to the interview.
Q2) When seeking an admission to a fraud, the interviewer will often make a direct accusation if the interviewer is almost certain the subject has committed the offense.
A)True
B)False
Q3) Why would an interviewer use the mirroring technique?
A) To display friendliness to the interviewee and encourage them to open up.
B) To make a mockery of the interviewee and encourage them to make an excited utterance.
C) To keep the interviewee's attention on the interviewer and his questions.
D) To subliminally let the interviewee know who is in charge of the situation.
Q4) Describe the proper setting and room in which interviews are to be conducted
Q5) Discuss the benefits and detriments of recording an interview
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Chapter 11: Fraud Examination Evidence III: Forensic Science and Computer Forensics
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Q1) Why is a chain of custody important to maintain?
A) So that both the prosecution and defense can be assured that no one tampered with the evidence.
B) So that the defense is aware of what detectives have worked on the case.
C) To prove to the jury that the evidence came from the victim.
D) all of the above.
Q2) Which of the following do forensic scientists typically rely upon to solve crimes?
A) Physical evidence.
B) Witnesses.
C) Confessions.
D) All of the above.
Q3) Describe the chain of custody and the challenges it presents with computers.
Q4) Forensic Accountants have blanket authority to investigate crimes and do not need specific permission from a DA or judge to look into crimes.
A)True
B)False
Q5) What does computer forensics involve?
Q6) Who are criminalists and what do they do?
Page 14
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Chapter 12: The Fraud Report, Litigation, and the Recovery Process
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Q1) When preparing for a trail, the fraud investigator's report may be:
A) All that is needed for a solid case.
B) Just the beginning of evidence needed.
C) Resubmitted with a statement of guilt.
D) Suppressed during discovery.
Q2) The problem with the investigator making statements before an investigation is complete stems from the principle of:
A) Reverse Proof.
B) Benford's Law
C) Ratio Analysis of Financial Statements
D) Double Jeopardy
Q3) The fraud investigators report should be constructed for insurance claim purposes, not to withstand a court trial.
A)True
B)False
Q4) How does the IRS view unpaid payroll taxes as a result of embezzlement under the Trust Fund Recovery Penalty (TFRP)?
Q5) Outline the elements of a fraud investigation report and explain the purpose three of them.
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Chapter 13: Employee, Vendor, and Other Frauds Against the Organization
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Q1) What are some rationalizations for an employee being fraudulent?
Q2) What are some of the improper practices that are involved in payroll fraud?
Q3) Hiring a relative that is untrained and paying them at a higher rate is an example of:
A) Accounts receivable fraud.
B) Expenditure cycle fraud.
C) Payroll fraud.
D) Lapping of accounts receivables.
Q4) The most important element in detecting and catching employee fraud is:
A) audit trail
B) chain of custody.
C) authorization and approval.
D) physical security and monitoring.
Q5) Some employers are afraid to stop fraud they know about because the consequences of doing so may cost them even more money.
A)True
B)False
Q6) What are fraudulent credit approvals for accounts receivables and how can they be prevented?
Page 16
Q7) What are the three elements of the fraud triangle? Describe each.
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Chapter 14: Financial Statement Fraud
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Q1) What are some consequences to companies and their managers for financial statement fraud?
Q2) Any lack of independence between management, internal auditors, and external auditors undermines the basic structure that prevents financial statement fraud. What type of red flag does this represent?
A) Internal control process.
B) Management style.
C) Personnel practices and environment.
D) The government structure.
Q3) Who is financial statement fraud harmful to?
A) Investors.
B) Markets.
C) Society.
D) All of the above.
Q4) Describe some of the nature of financial statement fraud.
Q5) Earnings management is:
A) Illegal as defined by SOX.
B) Illegal as defined by the IRS.
C) Illegal as defined by the SEc.
D) Legal, to a certain extent.
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Chapter 15: Fraud and Sox Compliance
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Q1) Explain some of the increased corporate responsibilities indicated in SOX.
Q2) Under SOX Title XI, what is the SEC empowered to do?
A) Use the assets of the corporation it is investigating to pay for the on-going investigation.
B) Lobby congress for specific laws to enable them to make gray areas they are investigating illegal for quicker conviction rates.
C) Petition federal courts for temporary injunctions to freeze pending "extraordinary payments" to certain individuals under investigation for possible violations of Federal securities law.
D) All of the above.
Q3) Title VIII--Corporate and Criminal Fraud Accountability sets forth penalties for senior managers and directors if they knowingly defraud shareholders of publicly traded companies; what is the prison term?
A) 5 years.
B) 10 years.
C) 15 years.
D) 25 years.
Q4) What does ISO 27002 focuses on?
Q5) What are some of the benefits of SOX according to President Bush?
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Chapter 16: Tax Fraud
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Q1) Sales and Use Taxes:
A) Are uniform across all states.
B) Are only applicable to luxury items.
C) Only apply to intrastate purchases.
D) Vary from state to state.
Q2) What is another name for property tax?
A) Use.
B) Excise.
C) Ad valorem.
D) Ed valorem.
Q3) According to IRC § 7201, any person who willfully attempts to evade or defeat any tax imposed by the Internal Revenue Code will be guilty of a felony.
A)True B)False
Q4) Roughly two thirds of the employees of the Criminal Investigations Division are special agents, elite tax financial investigators who are duly sworn law enforcement officers.
A)True B)False
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Chapter 17: Bankruptcy, Divorce, Identity Theft
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Q1) In cases where creditors force involuntary bankruptcy, what is a factor that may deem it to be an abusive filing?
A) If they attempt to file for more than the actual debit that is owed.
B) If the debtor actually has the ability to repay.
C) If there is only one creditor.
D) All of the above.
Q2) If there is fraud suspected in the bankruptcy proceedings, who is the case turned over to?
A) U.S. District Court.
B) Department of Justice.
C) U.S. Attorney's Office.
D) Securities and Exchange Commission.
Q3) The Congressional act that created stiffer penalties for identity theft, and even harsher penalties for terrorist related identity theft, was called:
A) The Identity Terrorism Protection Act.
B) Identity Terrorism Penalty Enhancement Act.
C) United States Identity Penalty Enhancement Act.
D) Identity Theft Penalty Enhancement Act.
Q4) How does the concealment of assets fraud occur in bankruptcy?
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Chapter 18: Organized Crime, Counterterrorism, and Anti-Money Laundering
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Q1) The La Cosa Nostra (LCN) has its roots in mid 9<sup>th</sup> century Sicily, and began about the time that Italy became a sovereign state.
A)True
B)False
Q2) How many Muslims currently live in Europe?
A) 10 million.
B) 20 million.
C) 30 million.
D) 40 million.
Q3) What is the goal of labor racketeering?
A) Control of labor health funds.
B) Control of labor pension funds.
C) Control of labor welfare funds.
D) All of the above.
Q4) Which of the following countries is not a member of the G8?
A) United States.
B) China.
C) Russia.
D) Japan.
Q5) What is the fundamental concept behind Islamic radicalism?
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Chapter 19: Business Valuation
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Q1) Which of the following is not a step in calculating the Guideline Publicly Traded Company Method?
A) Average the net realizable assets of the guideline companies.
B) Adjust the financial statements of the guideline companies to make them comparable to the subject company.
C) Compute various price-based financial ratios for the guidelines companies.
D) Select guideline companies.
Q2) What are the components of the Asset approach to valuation?
Q3) What are the three various synergistic possibilities? Describe each.
Q4) If a businesses assets are going to be valued with no synergistic possibility, then it is assumed:
A) That they are going to be broken into pieces and sold separately outside the business.
B) They are going to be sold as a group outside the business.
C) They are going to be sold at their salvage value.
D) They are going to be sold as a group inside of the businesses.
Q5) Name at least 7 assets that might need appraisal or valuation.
Q6) Explain what restrictions on transferability are and how they might effect business valuation.
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Chapter 20: Dispute Resolution Services
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Q1) What are the Labor Interest Arbitration methods? Describe them.
Q2) Contrast and compare mediation and arbitration.
Q3) Participants in the mediation process can rent a retired judge to help their process.
A)True
B)False
Q4) With the facilitative mediation style, the mediator express opinions with respect to the facts of the case and the reasonableness of the participants' negotiating positions.
A)True
B)False
Q5) How does on-line dispute resolution work and what are its benefits?
Q6) Arbitration clauses in contracts are generally unenforceable.
A)True
B)False
Q7) Arbitration involves a neutral third-party who helps those involved in a dispute to resolve their differences through structured negotiations.
A)True
B)False
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