AUD 1205-FRAUD EXAMIANTIONS: CONCEPTS AND CASES

MIDTERM EXAMINATION ANSWER KEY

1. What is the most common type of occupational fraud?
a. Financial statement fraud
b. Corruption
c. Asset misappropriation
d. Cybercrime
2. What is the primary motive for most cases of occupational fraud?
a. Revenge
b. Financial gain
c. Curiosity
3. Peer pressure Which of the following is not considered a red flag for occupational fraud?
a. Frequent reconciliation of financial records
b. Employee financial difficulties
c. Lack of oversight and controls
d. High employee turnover
4. What is the "fraud triangle" composed of?
a. Opportunity, greed, and rationalization
b. Pressure, motive, and intent
c. Motive, opportunity, and capability
d. Greed, desperation, and secrecy
5. Which department in an organization is typically responsible for implementing internal controls to prevent fraud?
a. Human Resources
b. Marketing
c. Information Technology
d. Finance.
6. What is the primary purpose of a whistleblower hotline in an organization?
a. To report workplace disputes
b. To provide employees with career advice
c. To report unethical behavior or fraud anonymously
d. To facilitate team communication.
7. Which type of occupational fraud involves altering financial records to make a company's financial performance
appear better than it actually is?
a. Asset misappropriation
b. Financial statement fraud
c. Corruption
d. Cybercrime
8. What is the term for the act of an employee diverting company funds into their personal account?
a. Embezzlement
b. Money laundering
c. Bribery
d. Insider trading.
9. Which of the following is an example of a preventive control to deter occupational fraud?
a. Employee background checks
b. Employee surveillance
c. Internal audits
d. Whistleblower hotlines.
10. What is the primary purpose of segregation of duties in internal controls?
a. To prevent employees from working together
b. To ensure that employees perform their tasks independently
c. To encourage collaboration among employees
d. To minimize employee turnover.
11. Which type of occupational fraud often involves kickbacks and bribery?
a. Asset misappropriation
b. Financial statement fraud
 c. Corruption
d. Cybercrime.
12. In which phase of the fraud triangle does an employee rationalize their fraudulent actions?
a. Motive
b. Opportunity
c. Capability
d. None of the above.
13. Which of the following is NOT a common method of asset misappropriation?
a. Check tampering
b. Ghost employees
c. Fictitious sales
d. Insider trading.
14. What is the term for the process of concealing the origins of illegally obtained money?
a. Money laundering
b. Check tampering
c. Embezzlement
d. Insider trading.
15. What is the term for a fraudulent scheme where an employee creates a fake vendor and submits invoices for
payment to that vendor?
a. Ghost employees
b. Vendor collusion
c. Fictitious sales
d. Kickbacks.
16. Which industry is particularly susceptible to cybercrime-related occupational fraud?
a. Healthcare
b. Manufacturing
c. Agriculture
d. Hospitality
17. What is the primary goal of forensic accounting in investigating occupational fraud?
a. Preventing fraud
b. Prosecuting fraudsters
c. Identifying opportunities for more fraud
d. Balancing financial records.
18. What is the term for a form of fraud where an employee uses their position to benefit from information not yet
made available to the public?
a. Insider trading
b. Money laundering
c. Check tampering
d. Embezzlement.
19. Which of the following is a common method of preventing occupational fraud related to financial statements?
a. Whistleblower hotlines
b. Employee background checks
c. External audits
d. Segregation of duties.
20. What is the primary purpose of an anti-fraud policy in an organization?
a. To encourage employees to engage in fraudulent activities
b. To provide guidance on ethical behavior
c. To eliminate all opportunities for fraud
d. To punish employees for any suspicion of fraud.
21. What is fraud prevention primarily focused on?
a. Detecting fraud after it occurs
b. Reducing the risk of fraud before it occurs
c. Punishing individuals involved in fraud
d. Ignoring the possibility of fraud
22. Which of the following is NOT a common type of fraud prevention control?
 a. Internal audits
b. Segregation of duties
c. Encouraging whistleblowing
d. Fingerprint scanning.
23. What is the principle behind the "segregation of duties" control in fraud prevention?
a. Concentrate all responsibilities in one department
b. Spread tasks among multiple employees to prevent any one person from having too much control
c. Assign all duties to the CEO
d. Limit access to company resources
24. Which of the following is a common red flag for potential fraud?
a. Transparency in financial reporting
b. Excessive employee training
c. Unusual or unexplained financial discrepancies
d. Frequent internal meetings
25. What is the purpose of a whistleblower program in fraud prevention?
a. To encourage employees to participate in fraudulent activities
b. To protect employees who report suspected fraud
c. To punish employees who report fraud
d. To discourage employees from reporting fraud
26. What is a common method of fraud prevention in online transactions?
a. Using weak passwords
b. Implementing multi-factor authentication (MFA)
c. Sharing account information freely
d. Avoiding encryption
27. Which of the following is an example of an external fraud prevention measure?
a. Employee background checks
b. Security cameras in the office
c. Encryption of sensitive data
d. Internal audits
28. What is the primary goal of risk assessment in fraud prevention?
a. To eliminate all risks
b. To identify and prioritize potential risks
c. To ignore risks and focus on profits
d. To blame employees for risks
29. Which of the following is a common technique used in fraud prevention training for employees?
a. Teaching employees how to commit fraud
b. Providing employees with access to sensitive financial information
c. Educating employees about the types of fraud and how to recognize them
d. Avoiding any mention of fraud
30. What does the "tone at the top" refer to in the context of fraud prevention?
a. The physical location of the executive offices
b. The attitude and behavior of senior management towards ethical conduct
c. The volume of emails sent by senior management
d. The color scheme of the company logo
31. What is the purpose of conducting due diligence in fraud prevention?
a. To trust individuals without verifying their background
b. To verify the legitimacy of individuals or entities before entering into a business relationship
c. To ignore potential red flags
d. To encourage risky business decisions
32. What is the term for the practice of creating fraudulent emails or websites to deceive individuals into revealing
personal or financial information?
a. Social engineering
b. Encryption
c. Phishing
d. Biometrics
33. What is the primary purpose of a fraud hotline in an organization?
a. To promote fraudulent activities
b. To provide employees with a way to report suspicions or concerns anonymously
c. To block all external calls
d. To facilitate unauthorized access to company data
34. What is the role of data encryption in fraud prevention?
a. To make data more vulnerable to unauthorized access
b. To protect sensitive data from being intercepted and read by unauthorized individuals
c. To publish sensitive data online
d. To share encryption keys with everyone
35. Which of the following is a common type of occupational fraud?
a. Sharing company secrets with competitors
b. Employee theft of company assets
c. Encouraging ethical behavior among employees
d. Fostering a culture of transparency
36. What is the primary goal of a code of conduct in fraud prevention?
a. To encourage unethical behavior
b. To provide clear guidance on expected behavior and ethical standards
c. To punish employees for minor infractions
d. To discourage employees from reporting fraud
37. What is the term for the process of verifying the identity of individuals accessing a system or facility?
a. Background checks
b. Authentication
c. Fraud detection
d. Whistleblowing
38. What is a common consequence of failing to implement effective fraud prevention measures?
a. Increased trust and confidence in the organization
b. Financial losses and damage to reputation
c. Promotion of ethical behavior among employees
d. Decreased need for internal audits
39. What is consumer fraud?
a. A legal way to make money
b. Deceptive practices aimed at tricking consumers
c. A government program to protect consumers
d. A type of advertising technique
40. Which of the following is NOT a common form of consumer fraud?
a. Identity theft
b. Pyramid schemes
c. Price matching
d. Phishing scams
41. What is identity theft?
a. A form of self-identity exploration
b. Stealing physical items from a store
c. Stealing someone's personal information for fraudulent purposes
d. Using someone else's identity to open a bank account
42. Which of the following is a red flag that may indicate a potential consumer fraud?
a. Transparent pricing and clear terms and conditions
b. A company with a long-standing positive reputation
c. Pressure to make an immediate decision or payment
d. Offering a money-back guarantee
43. Which of the following is a common tactic used by scammers in consumer fraud cases?
a. Providing clear contact information for customer support
b. Requesting payment in untraceable forms such as gift cards or cryptocurrency
c. Offering a money-back guarantee
d. Providing detailed information about their company and employees
44. What are the three elements of the Fraud Triangle?
a. Opportunity, Pressure, and Rationalization
b. Greed, Fear, and Rationalization
c. Motive, Opportunity, and Detection
d. Deception, Concealment, and Pressure
45. Which element of the Fraud Triangle refers to the perceived need for committing fraud?
a. Opportunity
b. Pressure
c. Rationalization
d. Greed
46. Which of the following is an example of an opportunity in the context of the Fraud Triangle?
a. Financial difficulties
b. Rationalizing unethical behavior
c. Weak internal controls
d. Personal greed
47. Rationalization in the Fraud Triangle involves:
a. Finding opportunities to commit fraud
b. Justifying fraudulent actions to oneself
c. Feeling pressure to commit fraud
d. Reporting fraud to authorities
48. What is the primary purpose of the Fraud Triangle concept?
a. To justify fraudulent behavior
b. To explain why fraud occurs
c. To encourage unethical actions
d. To promote financial success
49. Which element of the Fraud Triangle involves the ability to commit and conceal fraudulent acts?
a. Pressure
b. Rationalization
c. Opportunity
d. Greed
50. What is the role of internal controls in addressing the Fraud Triangle?
a. They increase pressure on employees.
b. They eliminate the need for rationalization.
c. They reduce the opportunity for fraud.
d. They encourage unethical behavior.