Economic Crime Investigation
Midterm Exam
Course Introduction
Economic Crime Investigation explores the methods, techniques, and legal frameworks used to detect, investigate, and prevent financial crimes such as fraud, embezzlement, money laundering, bribery, and corruption. The course examines the roles of regulatory agencies, law enforcement, and forensic accounting in uncovering illicit financial activities within corporations and public institutions. Students learn to apply investigative strategies, analyze digital and financial evidence, understand the motivations and schemes behind economic crimes, and consider ethical and global issues affecting economic crime investigations in various industries.
Recommended Textbook Fraud Examination 3rd Edition by W. Steve Albrecht
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18 Chapters
929 Verified Questions
929 Flashcards
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Page 2
Chapter 1: The Nature of Fraud
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Sample Questions
Q1) Which of the following is NOT considered fraud?
A) A man armed with a weapon that demands that you hand over your wallet.
B) Recklessly prepared financial statements that are incorrect and used by investors.
C) Tricking your friend to do your laundry for $20 and then not paying the money.
D) Setting up a phantom vendor to impersonate a real vendor.
Answer: A
Q2) Which of the following is not an example of a fraud-fighting career?
A) Working for the criminal investigation division of the IRS.
B) Serving as an expert witness.
C) Maintaining the security of public records.
D) Defending an organization being sued in a civil case.
Answer: C
Q3) Which one of the following is not a characteristic of a criminal proceeding?
A) Offense against society
B) More guilty than not guilty
C) Jury of 12 individuals
D) Only one claim may be heard at a time
Answer: B
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3
Chapter 2: Why People Commit Fraud
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Sample Questions
Q1) An employee who has the responsibilities of both writing checks and making bank deposits would have _______.
A) Financial pressure
B) Perceived opportunity
C) Rationalization
Answer: B
Q2) Who do criminologists compare fraudsters to in relation to repeat offenses and why?
A) Rapist. They repeat their crimes because they are not severely punished.
B) Shoplifters. They steal goods frequently and in small quantities until they are confronted.
C) Bank Robbers. They steal a lot of money from wealthy sources.
D) Bank Tellers. They have access to a large amount of resources and they are perceived to be trustworthy people.
Answer: A
Q3) Which of the following is not a true statement?
A) Almost every fraud involves rationalization.
B) All frauds involve financial or vice-related pressures.
C) Perceived opportunity diminishes when fraud perpetrators are prosecuted.
Answer: B
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Chapter 3: Fighting Fraud: An Overview
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Sample Questions
Q1) Which of the following is not part of a good corporate fraud policy?
A) Insisting top management model appropriate behavior
B) Establishing a threshold for which frauds will be prosecuted
C) Creating a positive work environment
D) Hiring the right kind of employees
Answer: B
Q2) Auditors detect most frauds.
A)True
B)False
Answer: False
Q3) An example of kickback fraud is:
A) Fraud perpetrated by an employee and the vendor
B) Fraud perpetrated by two or more employees
C) Fraud that conceals cash shortages by transferring funds
D) None of the above
Answer: A
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Chapter 4: Preventing Fraud
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Sample Questions
Q1) True or false: The majority of frauds committed against companies involve collusion.
A)True
B)False
Q2) Fraud is prevented and reduced by:
A) Creating a culture of honesty, openness, and assistance
B) Terminating employees without prosecution
C) Eliminating opportunities to commit fraud
D) Both A and C
Q3) Developing and promoting a company code of conduct is one aspect of which area of a fraud-savvy organization?
A) Integrity and risk controls
B) Education and training
C) Tone at the top
D) Conducting Proactive auditing
Q4) Having a manager watch over employee's shoulders is a good example of:
A) Discouraging collusion
B) Monitoring employees
C) Creating an expectation of punishment
D) None of the above
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Chapter 5: Recognizing the Symptoms of Fraud
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Sample Questions
Q1) ___________ are often in the worst position to detect fraud.
A) Auditors
B) Co-workers
C) Managers
D) Company accountants
E) Friends
Q2) An auditor noticed that Company B had an increase in sales and a large decrease in inventory and A/R balances. This may be which type of a fraud symptom?
A) Accounting anomaly
B) Internal control weakness
C) Analytical anomaly
D) Unusual behavior
Q3) Which of the following is an analytical anomaly that could be related to fraud?
A) Journal entries that lack documentation
B) Late charges that are incurred on Accounts Payable
C) Increased scrap
D) The fraud perpetrator increases his smoking habit
Q4) People who can delay gratification rarely embezzle.
A)True
B)False
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Chapter 6: Data-Driven Fraud Detection
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Q1) Which of the following is NOT a red flag for fraud committed by purchasing employees to purchase goods for personal use?
A) Invoices without valid purchase order
B) Employee and vendor telephone numbers are the same
C) Invoices exceeding purchase order dollar amount ranked by dollar difference
D) Purchase orders with zero dollar amounts by buyer
Q2) Which of the following addresses is not a cross-correlation?
A) 853 South 900 E, Plymouth, Massachusetts, 05683-4583
B) 853 S 900 E Plymouth, MA 05683
C) 853 So. 900 Ea. Plymouth, M.A. 05683
D) 853 South 900 E Plymouth, MA 05683
Q3) SRD does all of the following except:
A) Detect potential collusion between employees and vendors
B) Identify suspect relationships between employees and customers
C) Locate repeat risk management claims across a corporation
D) Identify suspect relationships between upper management and other employees
E) Find employees or clients who are "in cahoots" with lists of known criminals
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Chapter 7: Investigating Theft Acts
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Sample Questions
Q1) Invigilation is an effective way to remove which element of the fraud triangle?
A) Rationalization
B) Opportunity
C) Pressure
D) None of the above
Q2) The following are all types of surveillance except:
A) Stationary surveillance
B) Moving surveillance
C) Electronic surveillance
D) Wiretapping
E) All of the above are types of surveillance
Q3) Experts recommend that invigilation must continue for at least:
A) 7 days
B) 14 days
C) 21 days
D) Experts do not agree on the length that invigilation must continue
Q4) Surveillance is usually used to investigate
A) Theft acts
B) Concealment
C) Conversion
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Chapter 8: Investigating Concealment
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Sample Questions
Q1) Documents presented in court are often disputed. The following are questions that arise from disputed documents except:
A) Was the signature written before the rest of the document?
B) Is the signature genuine?
C) Was the writing disguised?
D) How old are the paper, printing and ink used?
E) All of the above are questions that arise from disputed documents
Q2) Methods for concealment investigation include all but which of the following?
A) Document examination
B) Honesty testing
C) Audits
D) Computer searches
Q3) Concealment is generally accomplished by manipulating any of the following documents except:
A) Bills of laden
B) Sales receipts
C) Titles
D) Insurance policies
E) All of the above can be manipulated to conceal a fraud
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Page 10
Chapter 9: Conversion Investigation Methods
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Sample Questions
Q1) Which of the following types of information do credit reporting agencies not maintain?
A) Information of current and former employers
B) Account information such as payment schedules, items purchased, and buying habits.
C) Marketing information such as customer breakdowns by age, sex, and income levels
D) Consumer information such as addresses and family members
E) Credit reporting agencies maintain all of the above information
Q2) Which of the following is a true disadvantage of using the net worth method?
A) the amounts are not readily accepted as evidence by courts
B) it rarely facilitates the obtaining of a confession
C) it is widely used by the DEA, FBI, and IRS
D) embezzlers typically spend their money on luxuries that are difficult to track
Q3) What are the three major credit reporting agencies?
A) Experian, Equifax, and TransUnion
B) Providian, Equifax, and TransUnion
C) Providian, FairIsaac, and Experian
D) TransUnion, FairIsaac, and Providian
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11
Chapter 10: Inquiry Methods and Fraud Reports
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Sample Questions
Q1) Each of the following is a clue that an interviewee is dishonest EXCEPT,
A) Upon repeated accusations, a dishonest person's denials become more vehement.
B) In order to add credibility to false statements, liars request that the interviewers obtain character testimony from other people.
C) Liars often refuse to implicate possible suspects-or, in other words, honest people are more willing to name others involved in misdeeds.
D) Dishonest people frequently cover their mouths with their hand or fingers during deception.
Q2) Which of the following is not an example of a verbal clue?
A) Changes in speech pattern
B) Selective memory
C) Oaths
D) Intolerance for dishonest conduct
Q3) Which of the following is not a reaction to crisis:
A) Denial.
B) Depression.
C) Acceptance.
D) Apathy.
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12
Chapter 11: Financial Statement Fraud
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Sample Questions
Q1) Which of the following is most likely a fraudulent cause for financial statement balances to deviate from an expected result?
A) Lost documents
B) Unexpected changes in economic conditions
C) Manipulation of expenses
D) Accounting errors
Q2) The termination of an auditor-auditee relationship can be caused by all but which of the following?
A) Failure of the client to pay
B) Auditor-auditee disagreement
C) Auditor's suspicion of fraud
D) State government mandate to break long term audit relationships
Q3) Which of the following balance sheet accounts is not often misstated when a company commits financial statement fraud?
A) Accounts payable
B) Inventory
C) Accumulated Depreciation
D) All of the above are accounts often misstated.
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13
Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Sample Questions
Q1) Smart fraudsters will avoid financial statement fraud involving the overstatement of ________ because of the compounding effect from period to period.
A) Revenue
B) Accounts receivable
C) Inventory
D) Fixed assets
Q2) According to a COSO-sponsored study, most companies committing financial statement fraud had all of the following characteristics except:
A) The companies were large
B) The companies had inactive audit committees
C) The companies had family members among directors or officers
D) all of the above
Q3) An example of a(n) __________ is a change in behavior to cope with the stress involved with committing fraud.
A) Analytical symptom
B) Accounting symptom
C) Control symptom
D) Lifestyle symptom
E) None of the above
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Chapter 13: Liability, Asset, and Inadequate Disclosure
Frauds
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Q1) In dealing with capitalized costs, you might find deferred charges of interest on the balance sheet. What should you do?
A) Assume they are accurately capitalized
B) Suspect a fraud may have occurred but try to prove innocence
C) Look for ways the company could have accidentally deferred the charges
D) Deferred interest charges are perfectly normal on the balance sheet
Q2) Asset frauds are often easier to detect than liability or disclosure frauds because
A) Overstated assets are always included on the balance sheet while the other frauds are not.
B) Overstated assets have better document evidence than the other frauds.
C) Assets can be physically labeled by the employer.
D) Understated liabilities use a series of smaller entries while the asset frauds do not.
Q3) Which is not a symptom of liability fraud?
A) Decrease in warranty expense estimate
B) Accounts payable grow faster than cost of goods sold & inventory
C) Unusual increase in current ratio
D) Decrease in accruals & unearned revenue from prior periods
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Page 15
Chapter 14: Fraud Against Organizations
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Q1) According to the text, which of the following is the least costly of all disbursement schemes?
A) Check tampering schemes
B) Personal expense schemes
C) Billing schemes
D) Payroll schemes
Q2) The highest percent of asset misappropriation occurs through:
A) Larceny
B) Skimming
C) Asset borrowing
D) Fraudulent disbursements
Q3) Which of the following is not a skimming scheme?
A) Misappropriate customer payments and write off the receivable as "uncollectible'
B) Intercept checks intended for a third party and convert the checks to cash for their own use
C) Understate sales and collections by recording false or larger-than-reality sales discounts
D) Collude with customers so that they either pay later than required or less than required
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Page 16
Chapter 15: Consumer Fraud
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Sample Questions
Q1) Which of the following method involves using the Internet to steal information?
A) Shoulder surfing
B) Phishing
C) Skimming credit cards
D) Rummaging through a victim's trash
Q2) Which act provides exact procedures for correcting mistakes on credit reports?
A) Fair Credit Billing Act
B) Fair Debt Collection Practices Act
C) The Gramm-Leach-Bliley Act
D) Fair Credit Reporting Act
Q3) Multi-level Marketing Companies are illegal in the United States.
A)True
B)False
Q4) Which act provides fines and punishments for identity theft?
A) Identity Theft and Assumption Deterrance Act
B) Family Education Rights and Privacy Act of 1974
C) The Gramm-Leach-Bliley Act
D) Fair Credit Reporting Act
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Chapter 16: Bankruptcy, Divorce, and Tax Fraud
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Q1) When fraud examiners investigate a bankruptcy or divorce resulting from fraud where do they focus?
A) Activity shortly before the bankruptcy filing or divorce
B) Activity after the bankruptcy filing or divorce
C) Activity several years prior to the bankruptcy filing or divorce
D) Activity throughout the individual's entire life
Q2) "Bust-out" refers to:
A) A planned bankruptcy
B) Jailbreak planned by fraud perpetrators
C) Skipping out on bail
D) Fraud prevention program for convicted fraudsters
Q3) The Office of U.S. Trustee is responsible for all but which of the following functions?
A) Administering bankruptcy cases
B) Officiating in court on matters of interest to the debtor's estate and creditors
C) Overseeing and monitoring trustees
D) Reviewing employees and fee applications
E) The Office of U.S. Trustee is responsible for all of the above functions
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Chapter 17: Fraud in E-Commerce
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Q1) Defrauding people through e-business is generally __________________ in normal business settings.
A) Easier than
B) Harder than
C) The same as
Q2) Generally, the best way to prevent fraud in e-business settings is to focus on:
A) Reducing fraud opportunities
B) Buying and implementing virus software
C) Keeping software updated
D) Hiring security experts
Q3) Which of the following are pressures commonly found in e-business?
A) Dramatic growth, which creates cash flow needs
B) Expensive marketing of new products
C) Unproven business models
D) All of the above
Q4) Which of the following is not part of risk assessment in e-business?
A) Falsified identity
B) Integrity and ethical values
C) Spoofing
D) Sniffing
Page 19
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Chapter 18: Legal Follow-Up
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Sample Questions
Q1) Each of the following is a stage in the civil litigation process EXCEPT:
A) Investigation and Pleadings
B) Discovery
C) Grand Jury
D) Motion practice and negotiation
E) Trial and Appeal
Q2) Which of the following is true of a good expert witness in a deposition?
A) They are not defensive in their posture.
B) They do not need to be accompanied by a lawyer
C) They should be open and offer as much information as possible. After all, they are the expert
D) They should pause after each question and listen carefully
E) B and D
Q3) In a civil trial ________ is the term used to describe the stage of a trial where opposing parties seek rulings from the trial judge on a variety of questions.
A) Investigation and pleadings
B) Discovery
C) Motion practice and negotiations
D) Trial and appeal
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Page 20