1.

Misappropriation of assets means obtaining something of value or avoiding an obligation by

deception. *a. True b. False 2. The most common method of detecting occupational fraud is by
internal auditors. a. True *b. False 3. The second most common method of detecting
occupational fraud is by accident. *a. True b. False 4. Discovering fraud is like using a metal
detector at a city dump to find some rare coins. *a. True b. False 5. Fraudsters and embezzlers
may be the nicest people in the world. *a. True b. False 6. A pressing financial obligation is an
example of an opportunity for an employee to embezzle funds. a. True *b. False 7. A large
amount of cash on hand presents an opportunity for an employee to embezzle funds. *a. True b.
False 8. Theft is similar to embezzlement. a. True *b. False 9. Account receivables are the
favorite target of fraudsters. a. True *b. False 10. Skimming is an "off-book" technique to
remove cash before a company records the receipts. *a. True b. False 11. Gross profit analysis
can help find both skimming and money laundering. *a. True b. False 12. Embezzlement is the
fraudulent appropriation of money or property lawfully in one's possession to be used personally
by that person. *a. True b. False 13. Most cases go to trial, and pre-trial activities can be a
significant opportunity for a forensic accountant. a. True *b. False 14. Lapping is building up
balances in bank accounts based upon floating checks drawn against similar accounts in other
banks. a. True *b. False 15. A Kessler study found that 42% of employees were fundamentally
dishonest. a. True *b. False 16. Catch skimming by comparing receipts with deposits and
surprise cash counts. *a. True b. False 17. Vouching the reconciling items on a cut-off bank
statement can help find lapping and kiting. *a. True b. False 18. A cut-off bank statement is a
normal bank statement except that it covers a shorter time period. *a. True b. False 19. Kiting
involves recording of payment on a customer's account some time after the receipt of the
payment. a. True *b. False 20. Lapping is sometimes called "robbing Peter to pay Paul." *a. True
b. False 21. Fictitious receivables involve covering a fictitious sale with a fictitious receivable,
which may be eventually written off. *a. True b. False 22. To catch fictitious disbursements,
compare the returned checks to the checkbook ledger. *a. True b. False 23. There is no data-
mining software that may be used to help find kickbacks from vendors. a. True *b. False 24. The
1999 Treadway Commission study said that misstated asset valuation accounted for almost 75%
of the cases for fraudulent financial statements. a. True *b. False 25. Using direct deposit can
help to eliminate ghost employees. *a. True b. False 26. Pump and dump refers to a person
purchasing land and then increasing the price of the land before selling it to his or her company.
a. True *b. False 27. Banks and other financial institutions are the main defense against
cybersmear. a. True *b. False 28. A huge bid-rigging scheme was uncovered in the rare coin
industry. a. True *b. False 29. Joseph Wells believes that the most powerful audit technique is
strong internal controls. a. True *b. False 30. In the 2002 Wells Report, strong internal controls
were ranked number 1 in being most effective for preventing fraud. *a. True b. False 31.
Canceled checks should be sent directly from the bank to the business owner. *a. True b. False
32. Background checks of new employees is the best way to prevent fraud. a. True *b. False 33.
Adding up the accounts receivable subsidiary does not help to find fraud. a. True *b. False 34.
Matching payroll with addresses helps to find multiple persons at the same address. *a. True b.
False 35. Not-for-profit entities do not face incentives and pressures to achieve a given level of
financial performance. a. True *b. False 36. Bankruptcy of governmental units is common. a.
True *b. False 37. Chapter 11 bankruptcy is for municipalities. a. True *b. False 38. Orange
County, California was the largest municipality in U.S. history to declare bankruptcy. *a. True b.
False 39. A negative trend for a municipality would be a declining surplus over time. *a. True b.
False 40. If the ratio Cash and Investments divided by Current Liabilities is increasing over time,
this trend would be a negative sign for a municipality. a. True *b. False 41. If the ratio
Unreserved Fund Balance divided by Gross Expenditures is decreasing over time, this trend is a
negative sign for a municipality. *a. True b. False 42. If Long Term Debt divided by Population
is decreasing over time, this sign would be a negative trend. a. True *b. False 43. Using the fraud
hypothesis testing approach, a forensic accountant attempts to detect fraud by formulating and
testing null hypotheses. *a. True b. False 44. A walkthrough is a form of risk assessment of a
business' significant processes and is required by the PCAOB. *a. True b. False 45. Rotation of
duties can help prevent skimming schemes. *a. True b. False 46. Segregation of duties helps
prevent cash larceny. *a. True b. False 47. Missing cash may mean shoplifting by employees. a.
True *b. False 48. Professor Joe Wells first coined the term white collar crime. a. True *b. False
49. Write-offs to bad debt can conceal inventory thefts and kickback schemes. *a. True b. False
50. Kiting is called "robbing Peter to pay Paul." a. True *b. False 51. Two windows in the drive
through lane at fast food restaurants have little fraud protection value. a. True *b. False 52. An
effective audit procedure for detecting fraud in the sales and collection cycle is to observe the
proper and appropriate segregation of duties. *a. True b. False 53. Gap analysis refers to the
difference between actual internal controls and the stated internal controls. *a. True b. False 54.
One of the most effective audit procedures for detecting fraud in the payroll cycle is to examine
the bank reconciliations. a. True *b. False 55. One of the most effective audit procedures for
detecting fraud in the warehousing cycle is to look for related party transactions. *a. True b.
False 56. Employees are the source of most tips on a hotline. *a. True b. False 57. Vendors are
the source of most tips on a hotline. a. True *b. False 58. The accounting department has, in
general, more fraud than any other division in a company. *a. True b. False 59. Females are more
likely to commit a fraud than a male. a. True *b. False 60. Internal audits are the best control
measure. a. True *b. False 61. There are several effective psychometric ways to measure
integrity. a. True *b. False 62. At least 15 percent of all bank check-related losses is from
counterfeit checks. *a. True b. False 63. There is automated signature verification technology
available to financial institutions to detect and prevent fraud. *a. True b. False 64. According to
2008 CFEs, the number one reason for fraud in an organization was lack of internal controls. *a.
True b. False 65. A perfectionist like Martha Stewart is considered a fraud red flag. *a. True b.
False 66. The U.S. Federal Reserve has a history of clean financial statements. a. True *b. False
67. A financial model may be used to develop planning concepts in a clients organization. *a.
True b. False 68. Which statement is false? a. Accountants are perhaps the most valuable
employee-fraud fighters. b. Fighting fraud calls for prevention as the first step and the preferred
tactic. c. Government entities are generally not targets for fraudsters. d. Often misappropriation
is accomplished by false or misleading records or documents. *e. None of the above. 69. The
most common method of detecting occupational fraud is: a. External auditors. b. Internal
auditors. c. Accident. *d. Tips. e. Some other method. 70. A company has a 22% profit margin
and has employee fraud of $220,000. Calculate the additional revenue needed to offset this lost
income. a. $540,000. b. $720,000. c. $820,000. *d. $1,000,000. e. Some other amount. 71. You
are told that a company has a 20% profit margin and the discovered fraud has caused $1,400,000
more needed revenue to cover the fraud. How much was stolen? a. $280,000. b. $560,000. c.
$1,400,000. *d. $7,000,000. e. Some other amount. 72. Which is an incorrect statement? a. Cash
flow analysis may indicate fraud and embezzlement. b. Cash is the favorite target of fraudsters.
c. Gross profit analysis may catch skimming and money laundering. *d. Theft is similar to
embezzlement. e. None of the above is incorrect. 73. Which technique is considered to be an
"off-book" fraud? a. Skimming. b. Unrecorded sales. c. Understated sales. d. Theft of incoming
checks. *e. All of the above. 74. Which scheme is considered to be skimming? a. Unrecorded
sales. b. Understated sales. c. Theft of incoming checks. d. Swapping checks for cash. *e. All of
the above. 75. Building up balances in bank accounts based upon floating checks drawn against
similar accounts in other banks is best called: a. Skimming. *b. Kiting. c. Money laundering. d.
Lapping. e. None of the above. 76. Skimming can be caught by: a. Gross profit analysis. b.
Comparing receipts with deposits. c. Surprise cash counts. d. Investigating customers'
complaints. *e. All of the above. 77. What is a red flag of kiting? a. Frequent deposits and checks
in the same amount. b. Large deposits on Fridays. c. Short time lag between deposits and
withdrawals. d. Only a and c. *e. Items a, b, and c. 78. What audit step would be most
appropriate for finding accounts receivables fraud? a. A bank reconciliation audit. b. Gross profit
analysis. *c. Reviewing customer complaints. d. Surprise cash counts. e. All of the above. 79. A
person on the payroll who does not work for that company is generally called: a. Lapping. *b.
Ghost employee. c. Missing employee. d. Kiting. e. None of the above. 80. A person finds land,
buys it, increases the price, and sells it to his company. What is this scheme? a. A ghost scheme.
*b. flip. c. Land Ponzi scheme. d. Bid rigging. e. All of the above. 81. Joseph Wells believes that
the most powerful audit technique is: a. Strong internal controls. b. Surprise cash counts. c.
Confirming account receivables. *d. Diligent inquiry. e. None of the above. 82. Select the true
answer. To prevent fraud, the entity may choose to: a. Develop a written code of ethics. b. Use
background checks when hiring employees. c. Require an annual interview by internal auditors,
security, or others of suspicious employees. d. Prosecute discovered fraud, as an example to
other employees. *e. All of the above are true. 83. In a 2002 Wells Report, which was the most
effective in preventing fraud? *a. Strong internal controls. b. Background checks of new
employees. c. Regular fraud audit. d. Ethical training for employees. e. Some other techniques.
84. Which factor would not indicate a fraud warning sign for not-forprofit organizations? a.
Increase in amount owed to creditors. b. Deterioration of key ratio. *c. Expense accounts are
decreasing. d. Non-payment of insurance premiums. e. Regular deferral of capital expenditures.
85. Which factor would not indicate a fraud warning sign for not-forprofit organizations? a. No
separation of check writing and check signing. b. Qualification in the auditor's report. c.
Resignation of key staff member. d. Significant decline in turnover. *e. Employee morale is
high. 86. Which is a bankruptcy for municipalities? *a. Chapter 9. b. Chapter 11. c. Chapter XI.
d. Chapter 7. e. Both b and c. 87. Which would be considered a negative trend for a
municipality? a. Fixed Costs less Personal Services and Debt Services is decreasing over time. b.
Operating Surplus is increasing over time. *c. Unreserved Fund Balance divided by Gross
Expenditures ratio is decreasing over time. d. The ratio of Cash and Investments divided by
Current Liabilities is increasing over time. e. All of the above. 88. Which would be considered a
negative trend for a governmental unit? *a. Long-term Debt divided by Assets ratio is increasing.
b. General Revenues plus Transfers divided by Expenses ratio is increasing. c. Unrestricted Net
Assets divided by Expenses ratio is increasing. d. Change in Net Assets divided by Total Net
Assets ratio is increasing. e. All of the above. 89. Which would be considered a negative trend
for a governmental unit? a. Property taxes greater than 65% of the tax limit. b. Short-term
interest and current year-end service greater than 15% of total revenue. *c. Debt outstanding
greater than 90% of the debt limit. d. Unreserved fund balance percentages increasing over time.
e. None of the above is a negative trend. 90. Which of the following auditors is least interested in
the materiality concept? *a. Forensic auditor. b. Internal auditor. c. External auditor. d. GAO
auditor. e. All of the above. 91. Which statement is false? a. The quick ratio omits receivables
and amounts due from other funds and governments. *b. A large state government considers a
quick ratio of more than 50% as an indicator of potential fiscal stress. c. The greater the fund
balance as a percentage of revenue, the more likely the government will be able to overcome
problems caused by revenue shortfalls. d. The combined financial statement is the main focus of
the Comprehensive Annual Financial Report (CAFR). e. None of the above. 92. Forensic
accountants should compare travel and expense vouchers to employment records and tax records
in order to find: a. Kiting schemes. b. Lapping. c. Layering schemes. *d. Ghost employees. e. All
of the above. 93. You should trace bank transfers for the latter part of an audit period and the
early part of the subsequent period to determine whether: *a. The cash balances were overstated
because of kiting. b. The cash receipts journal was held open for a few days after the end of the
year. c. Any unusual payments to or receipts from related parties occurred. d. The last checks
recorded before the year-end were really mailed by year-end. e. None of the above. 94. What
audit procedures would not be highly effective for detecting fraud in the sales and collection
cycle? a. Ascertain appropriate segregation of duties. b. Review monthly bank reconciliations. c.
Verify accounts receivable balances. *d. Observe the actual distribution of payroll checks to
employees. e. None of the above. 95. What audit procedure would not be highly effective for
detecting fraud in the payroll cycle? *a. Verify accounts receivable balances by positive
confirmations. b. Observe the actual distribution of payroll checks to employees. c. Sample
personnel files and physically observe personnel. d. Observe the duties of employees being
performed. e. None of the above. 96. Cash fraud, inventory fraud, fixed asset fraud, payables and
disbursement fraud, and payroll fraud are all examples of: a. Financial reporting fraud. b.
Management fraud. *c. Misappropriation of assets. d. The fraud triangle. e. None of the above.
97. According to published research by PricewaterhouseCoopers, larger companies rather than
smaller companies tend to be: a. More likely to be perpetrators of corporate crime. *b. More
likely to be victims of economic crime. c. More likely to systematically discover fraud in their
organization. d. More likely to be victims of computer crime. e. None of the above. 98. Lapping
is defined as: a. Replacing new inventory with old. *b. Stealing a customer's payment and
concealing the theft by applying subsequent payments from other customers to the first
customer's account. c. Taking kickbacks. d. False credits, discounts, and write-offs. e. None of
the above. 99. Kickbacks commonly occur in all of the following except: a. Construction and
property management companies. b. Shipping department in which a customer pays an employee
to ship a higher quality of goods than ordered. c. Purchasing agent in charge of awarding
contracts. *d. Accounts receivable department records returns. e. None of the above. 100.
Accounts receivable fraud prevention controls include all of the following except: a. Placing a
credit limit on customer accounts to immediately flag when exceeded. b. Requiring supervisory
approval for all credit memos and writeoffs. c. Requiring supervisory approval before customers
are added to or deleted from the master file. *d. Requiring investment documents to be sent only
to upper management for safekeeping. e. None of the above. 101. Which of the following might
produce an investigative "lead" or "red flag"? a. Laboratory analysis of physical evidence. b.
Anonymous letter or e-mail about the crime. c. The suspicions of an internal auditor. d. Item
found on the Internet. *e. All of the above. 102. Which type of investigative technique works
best at accumulating evidence to build a legal case against a financial fraudster? a. Interviewing.
b. Surveillance. c. Informants. d. Invigilation. *e. All of the above. 103. The typical audit trail
connects what to what? *a. Source documents to cross-referenced documents. b. Transaction
documents to summary documents. c. Horizontal analysis to vertical analysis. d. Balances to
payables and receivables. e. Both b and c. 104. Which is not a journal entry fraud symptom? a.
Out-of-balance. b. Lacking supporting documents. c. Unexplained adjustments. d. Lost cash
register tapes. *e. None of the above. 105. Which is a unique factor for solving a white-collar
crime? *a. Tracing of assets. b. Availability of witnesses. c. Desires of victims. d. Financial
losses. e. Both c and d. 106. Which item would a forensic accountant go to first in order to
investigate the source of a suspicious transaction? a. Budget. b. Journal. c. Cash register receipts.
*d. Ledger. e. Either a or b. 107. Payroll and employee reimbursement fraud schemes include all
of the following except: a. Ghost employees. b. Embezzling withholding. c. Company credit card
fraud. *d. Unauthorized borrowing. e. None of the above. 108. Misappropriation of inventory
may be detected by one of the following: a. Analyzing the year-end bank reconciliation for
outstanding checks. *b. Calculating and analyzing the gross profit margin. c. Reconciling the
accounts receivable subsidiary ledger to the general ledger. d. Increasing the integration of
technology into the business process. e. None of the above. 109. ____________ requires keeping
detailed records before and after the ____________ period to determine the amount of fraud. a.
Tracing, entity. *b. Invigilation, invigilation. c. Genogram, genogram. d. Entity, entity. e.
Timeline, entity. 110. What information is not needed to perform a check spread? a. Date. b.
Payee. c. Check number. d. Amount. *e. All are needed. 111. A ____________ chart is a
pictorial display of personal relationships among related or unrelated parties. a. Link. b.
Invigilation. c. Entity. *d. Genogram. e. None of the above. 112. A fraud investigation should
not be commenced without proper ____________. a. Conviction. *b. Predication. c. Timing. d.
Motivation. e. Some other event. ' 113. Which group is the source of more tips on a hotline? a.
Vendors. *b. Employees. c. Customers. d. Competitors. e. Shareholders/owners. 114. Which
department or division in an organization probably has more fraud? a. Marketing. b. Operating.
c. Sales. *d. Accounting. e. Purchasing. 115. Which is the highest fraud industry? *a. Financial
services. b. Mining. c. Global manufacturing. d. Computer. e. Petroleum. 116. According to the
ACFE group, which is the best fraud control? a. Hotlines. b. Mandatory vacations. c. Job
rotation. *d. Internal audits. e. Rewards to employees. 117. Which group probably is not an
important element of a fraud risk program? a. Board of Directors. b. Audit Committee. c. Internal
Audit Department. d. Management. *e. None of the above. 118. According to 2008 CFEs, which
was the primary reason for fraud in an organization? a. Lack of management review. b. Override
of existing internal controls. *c. Lack of internal controls. d. Poor tone at the top. e. Lack of
competent oversight.