Financial Crime Investigation
Study Guide Questions
Course Introduction
Financial Crime Investigation explores the methods and tools used to detect, prevent, and investigate financial crimes such as fraud, money laundering, embezzlement, bribery, and corruption. The course provides a comprehensive overview of the legal frameworks, regulatory requirements, and international standards governing financial crime. Students are introduced to investigative techniques including forensic accounting, data analysis, due diligence, and the use of technology in uncovering illicit financial activities. Real-world case studies, ethical considerations, and the role of financial institutions and enforcement agencies are examined to equip students with practical skills necessary to combat financial crime in various professional contexts.
Recommended Textbook Fraud Examination 5th Edition by W. Steve Albrecht
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Chapter 1: The Nature of Fraud
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Q1) Which individual listed is most likely to commit financial statement fraud in order to benefit an organization?
A)an executive
B)an internal auditor
C)a floor manager (line supervisor)
D)the company Treasurer
Answer: A
Q2) Which of the following frauds is usually the most expensive?
A)Vendor fraud
B)Customer fraud
C)Occupational fraud
D)Financial statement fraud
Answer: D
Q3) Which of the following is NOT an element of a Ponzi scheme?
A)Gaining other's confidence.
B)Promising abnormally high returns.
C)Collected money is invested.
D)Investment principle is partially used to make payments to previous investors.
Answer: C
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Page 3
Chapter 2: Who Commits Fraud and Why
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Q1) Which of the following is an example of a vice pressure?
A)expensive extramarital relationship(s).
B)an extravagant life-style.
C)needing to appear successful.
D)being offered a bribe.
Answer: A
Q2) Which is following observations is TRUE?
A)Research shows that only people with a criminal mind set commit fraud.
B)Fraud perpetrators usually can be distinguished from others on the basis of psychological characteristics.
C)Most fraud perpetrators have profiles that are similar to those of other people.
D)When fraud does occur, the most common initial reaction by those involved in the fraud is confession.
Answer: C
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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Q1) Which of the following questions should be answered when considering fraud risk and fraud prevention?
A)which types of fraud are the easiest and least costly to prevent
B)which employees are in the best position to commit fraud
C)which symptoms of a fraud act are most likely to be spotted
D)all types of possible fraud that can be committed
Answer: B
Q2) Which level in the ethical maturity model can be summarized as "willingness to pay the price for ethics?"
A)Ethical positioning
B)Ethical courage
C)Personal ethical understanding
D)Application of ethics to business situations
Answer: B
Q3) Which of the following is an example of a whistle-blowing system?
A)Bulletin board service
B)Supervisor intervention
C)Removing middle management layer
D)Fraud reporting hotline
Answer: D
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Chapter 4: Preventing Fraud
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Q1) Which of the following questions should be avoided during a job interview?
A)Can you tell me your birth date?
B)If the opportunities in your previous assignment were good, why did you leave it?
C)Can you relate an instance in which you resolved a conflict with a co-worker?
D)What motivates you at work?
Q2) Which of the following indicates proactive fraud auditing?
A)creating an awareness among employees that their actions can be reviewed at any time
B)establishing controls to discourage collusion between employees
C)creating an expectation of punishment for a fraud act.
D)establishing a system of segregation of duties throughout the organization
Q3) Approximately ____ of all frauds are committed by individual acting alone.The remaining ____ involves collusion and often involve the ____ thefts.
A)63%, 37%, smallest
B)71%, 29%, largest
C)47%, 53%, smallest
D)18%, 82%, largest
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Chapter 5: Recognizing the Symptoms of Fraud
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Q1) Which term refers to people who commit a fraud or other crime and do not feel guilt or stress?
A)Altruists
B)Utilitarians
C)Psychopaths
D)Agnostics
Q2) Transactions happening at odd times or places;being performed by people who would not normally participate;or including odd procedures are typically associated with which type of fraud symptom?
A)Accounting anomaly
B)Internal control weakness
C)Analytical anomaly
D)Unusual behavior
Q3) Increased scrap,excessive purchases,physical abnormalities,etc.are all examples of:
A)accounting anomalies.
B)external control weaknesses.
C)analytical anomalies.
D)unusual behavior.
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Chapter 6: Data-Driven Fraud Detection
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Q1) Which of the following is true for accounting anomalies?
A)They are primarily caused by lack of training.
B)They represent intentional sabotage of controls.
C)They are problems caused by failures in systems, procedures, and policies.
D)They represent fraud.
Q2) While methods like high-low slope,average slope,handshaking,and Box-Jenkins exist,one of the most popular techniques for summarizing the slope of a graph is _______ .
A)summarization
B)stratification
C)statistical regression.
D)arithmetic progression
Q3) An appropriate red flag search to detect kickbacks or other fraud being committed by vendors would include:
A)invoices without valid purchase order.
B)employee and vendor telephone numbers are the same.
C)purchase orders with zero dollar amounts by buyer.
D)price increases greater than 20% for several consecutive years.
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Chapter 7: Investigating Theft Acts
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Q1) Identify the first step in any electronic evidence collection process.
A)Seizure of the device
B)Automated search of the device
C)Clone the device
D)Do a manual reconnaissance
Q2) Undercover operations should be used only when:
A)large scale fraud is likely and other investigation methods fail.
B)controls are made so strict that opportunities to commit fraud are virtually impossible.
C)the investigation cannot be kept a secret.
D)there is a need to develop theories about what kind of fraud has occurred.
Q3) Characteristics of invigilation include which of the following?
A)A method of creating a loosely monitored environment to catch fraudulent activities.
B)It is an inexpensive method to monitor all employees during the investigation process.
C)It is most commonly used in such high-risk areas as expensive inventory.
D)A method of watching and recording physical facts, acts, and movements.
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Chapter 8: Investigating Concealment
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Q1) Which of the following is an alternative when original documents are too voluminous to permit careful examination?
A)A photocopy of the original document will suffice.
B)It will have to be excluded from usage as evidence.
C)A summary of its contents is acceptable.
D)There are no alternatives.The original has to be produced.
Q2) Which of the following observations is true about subpoenas?
A)Subpoenas are generally used only in criminal cases.
B)Subpoenas are orders issued by the Company Law Board to produce documents.
C)Failure to honor a subpoena is punishable by law.
D)Every subpoena must be signed by the plaintiff and the accused.
Q3) _______ are executed only by law enforcement officials and are generally used only in criminal cases.
A)Subpoenas
B)Voluntary consents
C)Search warrants
D)Interviews
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Chapter 9: Conversion Investigation Methods
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Q1) Identify the usual order of net worth calculations used to determine stolen funds.
A)Find net worth, find the net worth increase, find income, find the funds from unknown sources
B)Find net worth, find income, find the funds from known sources, find the net worth increase
C)Find income, find net worth, find the net worth increase, find the funds from unknown sources
D)Find net worth, find the net worth increase, find the funds from known sources, find income
Q2) Which federal agency maintains information on individuals who may be a threat to national security?
A)Department of Justice
B)Bureau of Prisons
C)Department of Defense
D)Secret Service
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11
Chapter 10: Inquiry Methods and Fraud Reports
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Q1) Which of the following involves the use of volume,pitch,and voice quality to convey meaning?
A)Chronemic communication
B)Paralinguistic communication
C)Kinetic communication
D)Proxemic communication
Q2) While reacting to crisis,an individual usually becomes withdrawn,uncooperative,or embarrassed in the ____ stage.
A)Denial
B)Anger
C)Rationalization
D)Depression
Q3) Many times the information sought in an interview is closely related to the respondent's inner conflicts and tensions.Which element of conversation will he helpful in releasing this?
A)Expression
B)Deduction
C)Rituals
D)Therapy
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Page 12
Chapter 11: Financial Statement Fraud
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Q1) Which of the following is a performance evaluation method that focuses on both financial and nonfinancial indicators of performance such as customer satisfaction?
A)360 degree survey
B)Critical incidents method
C)Balanced scorecard
D)Pareto chart
Q2) Which of the following is an example of a perceived opportunity that can lead to financial statement fraud?
A)Inability to compete with other companies
B)Independent audit and a strong board of directors
C)Thinking that fraud is good for the company
D)Inadequate internal controls
Q3) Which of the following is NOT one of the components of the fraud exposure rectangle?
A)Accounting system controls
B)Management and directors
C)Financial results and operating characteristics
D)Organization and its industry
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13
Chapter 12: Revenue- and Inventory-Related Financial
Statement Frauds
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Q1) Overstating ending inventory has the following effect on cost of goods sold and net income respectively.
A)COGS - overstated and NI - overstated
B)COGS - understated and NI - overstated
C)COGS - overstated and NI - understated
D)COGS - No effect and NI - understated
Q2) Overstating of sales in the income statement leads to:
A)decrease in inventory turnover ratio.
B)decrease in EPS.
C)increase in gross profit ratio.
D)decrease in accounts receivable ratio.
Q3) "Dex shuffling" refers to:
A)changing the publication dates on telephone directories to inflate revenue.
B)selling equipment at twice the marked price and offering huge discounts..
C)sales terms and arrangements made outside normal reporting channels.
D)improperly recognizing revenue and altering documents to hide the fraud.
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Chapter 13: Liability, asset, and Inadequate Disclosure
Frauds
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Q1) In case of deferred revenue liabilities,revenues should almost always be recorded as earned when:
A)the company receives an order for delivery of the product or the performance of a service.
B)the company is reasonably sure that the product can be developed and delivered.
C)the service is performed or the product is shipped.
D)the company receives cash for the service to be performed or the product to be delivered.
Q2) With liability fraud,which of the following is most likely to occur?
A)Liabilities will be overstated
B)Balances in general that relate to this fraud will tend to be low
C)Items will be expensed rather than capitalized
D)Net income will be understated
Q3) You observe that a company's current ratio has increased significantly.This could indicate that:
A)contingent liabilities are not recorded.
B)accounts payable is understated.
C)expenses are inappropriately capitalized as assets.
D)fixed assets are overstated.
Page 15
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Chapter 14: Fraud Against Organizations
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Q1) An ice cream store cashier sells two-scoop ice cream cones to customers and enters the sales as single-scoop sales,while keeping the difference for himself.Which fraud is being committed here?
A)Larceny
B)Disbursement
C)Skimming
D)Illegal gratuities
Q2) Which of the following is NOT a possible way to commit fraud by using a payroll scheme?
A)overstating expenses.
B)falsifying hours worked.
C)creating ghost employees.
D)producing false worker compensation claim.
Q3) Which of the following is NOT an example of a commission-based payroll fraud?
A)Creating fictitious sales.
B)Manipulating the number of hours worked and the rate of pay.
C)Falsifying the value of sales made by altering prices listed on sales documents.
D)Overstating sales by claiming sales made by another employee or in another period.
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Page 16
Chapter 15: Consumer Fraud
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Q1) Once a fraudster has gained confidence that the identity theft is working,he or she often takes out a loan using the victim's identity.The most common type of fraudulent loan is for which of the following items?
A)foreign travel.
B)purchasing real estate.
C)education.
D)an automobile.
Q2) A Nigerian money offer email is a form of which of the following scams?
A)foreign advance-fee scam.
B)purchase of real estate scam.
C)clearing house scam.
D)multilevel marketing scam.
Q3) Identify the complaint database developed by the U.S.Federal Trade Commission.
A)Consumer Watch
B)Fraud Watchdog
C)Consumer Sentinel
D)Identity Theft Assistance
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Chapter 16: Bankruptcy, divorce, and Tax Fraud
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Q1) Which of the following is NOT listed as a duty of the trustee in a Chapter 7 bankruptcy?
A)Furnish information about the estate and its administration
B)Ensure that the debtor files the statement of intention to retain or surrender property
C)After confirmation of a plan, file such reports as are necessary or as the court orders
D)Oppose the discharge of the debtor when appropriate
Q2) The Bankruptcy Fraud section of the Bankruptcy Code,as it relates to criminal fraud,makes it a crime to do which of the following in executing or concealing a fraud scheme?
A)File a bankruptcy petition
B)File a document in a bankruptcy proceeding
C)Make a false or fraudulent representation, claim, or promise with respect to a bankruptcy proceeding
D)All of the above
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18
Chapter 17: E-Commerce Fraud
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Q1) What is biometrics?
A)A vital part of the security of any electronic system.
B)The use of unique features of the human body to create secure access controls.
C)The most important aspect of internal control in an organization.
D)An authorization that reassures users that transactions are valid.
Q2) What is the term for when a hacker calls a targeted user posing as technical support and asks the victim to divulge the account information so that immediate steps can be taken to prevent data loss from the account?
A)social engineering
B)spoofing
C)data theft
D)customer impersonation
Q3) Which of the following examples illustrates sniffing?
A)A fraudster impersonating a customer and buying equipment on the customer's account.
B)A fraudster viewing design data of a special project that is being transferred over a network.
C)A fraudster using another employee's passwords to access sensitive information.
D)An Internet site mimicking another site by using .org instead of .com.
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Page 19
Chapter 18: Legal Follow-Up
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Q1) What is the purpose of a preliminary hearing in the criminal litigation process?
A)To file motions to have the earlier verdict set aside.
B)To have a fraud investigator or another expert witness provide testimony in a trial.
C)To determine whether "probable cause" exists to charge the defendant with a crime.
D)To negotiate a settlement.
Q2) Federal courts handle:
A)civil cases that are above some dollar amount, usually $10,000.
B)nearly every type of case in the United States, including most fraud cases.
C)cases relating to the U.S.Constitution or federal laws only.
D)criminal cases that are below some dollar amount, usually $20,000.
Q3) Which of the following is a protection offered to defendants by the Fifth Amendment?
A)Protects against unreasonable searches.
B)Precludes a person from being tried twice for the same crime.
C)Grants the right to a speedy trial.
D)Allows the state to take a private party's property without just compensation.
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