Principles of fraud examination 4th edition wells test bank

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Chapter 6 – Payroll Schemes 1. A _______________ is an individual on the payroll who does not actually work for the organization. a. Falsified employee b. Phantom employee c. Ghost employee d. Shell employee 2. Which of the following is not a type of payroll scheme? a. Ghost employee scheme b. False deduction scheme c. Falsified hours and salary scheme d. Commission scheme 3. Marsha Wood added her one-year-old niece, Jackie, to the payroll at JNC Company and began issuing paychecks in Jackie’s name, even though Jackie did not work for the organization. Marsha’s niece is not considered a ghost employee because she is a real individual rather than a fictitious person. a. True b. False 4. Which of the following is not necessary for a ghost employee scheme to succeed? a. Timekeeping and wage rate information must be collected. b. The ghost must be added to the payroll. c. The perpetrator must have access to a bank account in the ghost employee’s name. d. A paycheck must be issued to the ghost.

5. To safeguard against ghost employee schemes, the person in charge of entering new employees in the payroll system should also distribute the paychecks so that he or she can look for payments to unauthorized employees. a. True b. False 6. If a fraudster fails to remove a terminated employee from the payroll and collects the former employee’s fraudulent paychecks, he or she is committing a: a. Payroll larceny scheme b. Falsified hours and salary scheme c. Forged endorsement scheme d. Ghost employee scheme 7. Salaried ghost employees are generally easier to create and more difficult to conceal than hourly ghost employees a. True b. False

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8. Which of the following analyses can be used to identify ghost employee schemes? a. Identifying employees who have no withholding taxes taken out b. Comparing actual payroll expenses to budgeted expenses c. Comparing employees who have the same Social Security number, bank account, or physical address d. All of the above 9. Which of the following procedures will not help prevent ghost employee schemes? a. The personnel records are maintained separately from the payroll and timekeeping functions. b. The personnel department conducts background and reference checks on all prospective employees before hiring them. c. The person responsible for hiring new employees also supervises the payroll function. d. The personnel department verifies all changes to the payroll.

10. The most common method of misappropriating funds from the payroll is: a. Overpayment of wages b. Using a ghost employee c. Overstating commissions d. Theft of payroll deductions 11. Which of the following is not a method typically used by an employee to fraudulently inflate his or her hours in a manual timekeeping system? a. Collusion b. “Lazy manager” method c. Forging the supervisor’s signature d. Manipulating the pay grade 12. If an employee generates a much higher percentage of uncollected sales than his coworkers, what type of scheme might he be committing? a. Sales skimming b. Commission scheme c. Multiple reimbursement scheme d. Shell company scheme 13. Which of the following controls will help prevent and detect falsified hours and salary schemes? a. The duties of payroll preparation, authorization, and distribution are segregated. b. Sick leave and vacation time are monitored for excesses by the payroll department. c. Supervisors return authorized timecards to the employees for review before they are sent to the payroll department. d. All of the above 14. Which of the following computer audit tests can be used to detect ghost employee schemes?

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a. Extract users who can write checks and also add new employees in the payroll and timecard system. b. Extract all employees without a social security number. c. Compare employees reported per timecard system to the payroll system. d. All of the above 15. Which of the following can be used to test for commission schemes? a. Extract manual checks and summarize by salesperson and amount. b. Compare hours reported per timecard system to payroll system. c. Extract customer sale balances that exceed the customer credit limit. d. None of the above 16. Comparing actual payroll expenses to budget projections can help identify falsified hours and salary schemes. a. True b. False 17. Comparing salaried employees’ gross pay from one pay period to the next is one way of testing for payroll fraud. a. True b. False 18. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the most common type of fraudulent disbursement schemes. a. True b. False 19. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the least costly type of fraudulent disbursement schemes. a. True b. False 20. Jim Stevens is a payroll manager for a mid-sized insurance company in the southeast.

Last year, his performance review was conducted late, so he received a retroactive pay increase. Because he was not authorized to access his own employee records, Stevens stole another employee’s password and logged into the payroll system. He manipulated his records to keep the retroactive pay increase in effect in future periods, effectively doubling his intended pay raise. What type of fraud is this? a. Larceny of wages b. Falsified hours and salary scheme c. Commission scheme d. Ghost employee scheme 21. Ellie Weaver works for the JAG Group as the customer service supervisor. When Joel Carter was hired into her department, she listed his start date as one month before he actually began work. Accordingly, the payroll department generated an extra paycheck for Carter, which Weaver intercepted and cashed at a liquor store. What type of fraud is this?

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a. Forged endorsement scheme b. Ghost employee scheme c. Altered payee scheme d. Falsified wages scheme 22. Jed Butler is an internal auditor for Billings Industries. Recently he ran a program that identified customer accounts which had previously been dormant for six months or more but had sales in the last two months of the year. What type of fraud would this test most likely reveal? a. Shell company scheme b. Pay-and-return scheme c. Commission scheme d. Personal purchases scheme 23. During a review of A+ Service’s payroll records, Judy Penney, an internal auditor, noticed that Bradley Banks has no deductions taken from his paychecks for withholding taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Penney most likely uncover? a. Ghost employee scheme b. Falsified salary scheme c. Fictitious vendor scheme d. None of the above 24. Orange Publishing hired Moe McDonnell, CFE, to investigate some large variances in the company’s labor costs. While looking through the payroll records for the shipping department, McDonnell noticed several employees who claimed extensive overtime during pay periods in which the company’s incoming and outgoing shipments were minimal. McDonnell pulled the timesheets for these pay periods and noticed that those belonging to the suspect employees had signatures that didn’t match the signatures on the other timesheets. What type of fraud might these findings indicate? a. Ghost employee scheme b. Commission scheme c. Falsified hours and salary scheme d. Overstated expenses scheme 25. Allison Duval, CFE, has been retained by National Mortgage Company to investigate some suspicious activity. As part of her examination, Duval compares the company’s payroll expenses to budgeted projections and to prior years’ totals. She also runs an exception report looking for any employees whose compensation has increased disproportionately over the prior year. She then compares the payroll files to the human resource files to test for differing salary rates. What type of scheme is Duval most likely looking for? a. Ghost employee scheme b. Payroll tampering scheme c. Commission scheme d. Falsified hours and salary scheme -4-

26. In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. How was his scheme detected? a. An exception report showed that Harkanell had claimed overtime hours for a period when there was no need to work overtime. b. The payroll department sent the timesheets for one pay period back to the supervisor for review when a suspicious number of hours had been indicated. c. An overtime audit was conducted revealing that Harkanell had worked an unusual number of hours compared to others in the department. d. The internal auditors received an anonymous tip.

27. In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. What red flag was present that should have made someone suspicious? a. He used erasable ink to record the hours on the timesheets. b. He showed up for work on a day he had off so he could personally turn in the timesheets. c. No one else in the department had overtime hours but Harkanell. d. All of the above 28. In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. How was the case resolved? a. He confessed to falsifying the overtime and was terminated. b. A civil suit was filed to recover the loss. c. He was convicted and sentenced to prison. d. None of the above 29. In one of the case studies in the textbook, Katie Jordon was the “All-American Girl Next Door” working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. What was her motivation for stealing? a. Her boyfriend, a professional motocross racer, was injured in a race. b. She was getting married and needed money for the wedding. c. She blew the engine in her car and didn’t have the money to replace it.

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d. She wanted to pay off her college loan early so she could save for a house.

30. In one of the case studies in the textbook, Katie Jordon was the “All-American Girl Next Door” working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. How was her scheme discovered? a. An employee tipped off the main office when she saw the timesheets listing an employee that she had never heard of. b. When Jordon’s boss made a routine visit to the office, he noticed that there was no sign of an assistant in the office. c. She was splitting the proceeds with her boyfriend, and he contacted the home office when she broke up with him. d. The auditors found it when they conducted a routine audit of all new acquisitions after being in business for one year.

31. In one of the case studies in the textbook, Katie Jordon was the “All-American Girl Next Door” working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. What happened to Jordon? a. The company terminated her employment but failed to press charges against her in order to keep things quiet. b. She was convicted but served no jail time. c. She skipped town and a warrant was issued for her arrest. d. She took out a loan for the amount stolen and paid the company back in lieu of the company pressing charges against her.

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