What is your fraud IQ? Think you can spot corruption in any of its many forms? Take this (deceptively) simple test to find out just how much you know.1. Which of the following assets are most often pilfered? a. Cash b. Accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying c. Inventory d. Intellectual property 2. Which of the following techniques are used to detect cash frauds? a. Bank reconciliations b. Review of cost trends c. Investigation of customer complaints d. All of the above 3. Corruption payments usually begin with cash and currency because they are less obvious. However, eventually, the payments will be made with gifts and favors. a. True b. False 4. The type of companies LEAST susceptible to financial statement fraud are: a. Startup companies b. Companies transitioning from fast growth to slower growth c. Companies dealing with a period of constant growth d. Companies struggling to maintain their market position 5. Which of the following audit steps would be used in searching for a ghost employee? a. Compare a listing of current and former employees to the payroll b. Determine if all employees have executed tax withholding forms c. Verify the existence of the reported Social Security number d. All of the above 6. In a bribery case, it is enough to prove that a thing of value was given. It is not necessary to prove that it was given with the intent to influence the receiver. a. True b. False 7. -- is the crediting of one account through the abstraction of money from another account. a. Skimming Skimming An electronic method of capturing a victim's personal information used by identity thieves. The skimmer is a small device that scans a credit card and stores the information contained in the magnetic strip. b. Lapping c. Rigging d. Padding 8. Jones is a buyer for Smith & Co. He buys exclusively from Brown despite the fact that other suppliers are better and cheaper. Jones has an undisclosed interest in Brown's business. This situation would be classified as-- a. Embezzlement embezzlement, wrongful use, for one's own selfish ends, of the property of another when that property has been legally entrusted to one. Such an act was not larceny at common law because larceny was committed only when property was acquired by a "felonious taking," i. b. Larceny larceny, in law, the unlawful taking and carrying away of the property of another, with intent to deprive the owner of its use or to appropriate it to the use of the perpetrator or of someone else. c. Conflict of interest d. Bribery 9. The criminologist responsible for the well-known hypothesis of the "fraud triangle" is: a. Immanuel Kant b. Marshall B. Clinard c. Donald R. Cressey d. Jeremy Bentham 10. If you wanted to compare the amount spent on various expenses relative to the total expense amount, which of the following techniques would you be most likely to employ? a. Horizontal analysis Horizontal analysis The process of dividing each expense item of a given year by the same expense item in the base year. It allows assessment of changes in the relative importance of expense items over time and the behavior of expense items as sales change. b. Vertical analysis c. Reasonableness tests d. None of the above ANSWERS 1. (a) Cash defalcations are the most common of all employee embezzlement schemes. However, since most companies keep relatively good control over cash, the schemes are frequent but rarely result in large losses. 2. (d) There are several basic accounting techniques that are used to detect cash frauds. They include bank reconciliations, cut-off cut-off Anesthesiology The point at which elongation of the carbon chain of the 1-alkanol family of anesthetics results in a precipitous drop in the anesthetic potential of these agents–eg, at > 12 carbons in length, there is little anesthetic activity, bank statements, surprise cash counts, investigation of customer complaints, journal entry review, and review of historical sales and cost trends. 3. (b) Gifts given with corrupt intent have included everything from a box of expensive cigars to a 50-acre horse farm. Gifts or other favors provide an easy and safe way to initiate a corrupt relationship: The parties can test each other without being too obvious. However, gifts are an impractical medium of exchange if the relationship flourishes. The parties then usually turn to currency 4. (c) Companies dealing with a period of constant growth are often more stable and under less pressure to achieve uncommon results; therefore, they are least susceptible to financial statement fraud. However, no company is totally immune from fraud. 5. (d) There are several common methods for detecting payroll fraud. Some of these methods include independent payroll distribution, analysis of payee The person who is to receive the stated amount of money on a check, bill, or note. payee n. the one named on a check or promissory note to receive payment. PAYEE. The person in whose favor a bill of exchange is made payable. addresses or accounts, duplicate Social Security numbers, overtime authorization and analysis of withholding taxes. 6. (b) In a bribery case, it is not enough to prove that a thing of value was given and received. One also has to prove that it was intended to influence the receiver. 7. (b) Lapping customer payments is one of the most common methods of concealing skimming, and may be particularly useful to employees who skim receivables. Lapping is the crediting of one account through the abstraction of money from another account. 8. (c) The elements of conflict of interest include (1) an agent taking an interest in a transaction, (2) that is actually or potentially adverse to the principal, (3) without full and timely disclosure to the principal. 9. (c) The "fraud triangle" is the most widely known and accepted theory explaining why employees defraud To make a Misrepresentation of an existing material fact, knowing it to be false or making it recklessly without regard to whether it is true or false, intending for someone to rely on the misrepresentation and under circumstances in which such person does rely on it to his or their employers. Developed in the 1950s by criminologist Donald R. Cressey, the hypothesis states that three factors must be present in order for a person to commit fraud: (1) a non-sharable financial need or pressure, (2) a perceived opportunity and (3) a rationalization to justify the crime. 10. (b) Vertical analysis is a technique for analyzing the relationships between the items on an income statement, balance sheet or statement of cash flow by expressing components as percentages. This analysis can be used to display the percentage of a specific account to a more generally related account (i.e., miscellaneous expenses to total expenses or cost of goods sold Cost of goods sold The total cost of buying raw materials, and paying for all the factors that go into producing finished goods. cost of goods sold to net sales Net Sales The amount a seller receives from the buyer after costs associated with the sale are deducted. Notes: This amount is calculated by subtracting the following items from gross sales: merchandise returned for credit, allowances for damaged or missing goods, freight ) within one period. Joseph T. Wells, CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , CFE CFE Conventional Forces in Europe (treaty) CFE Cash Flow to Equity (finance/accounting) CFE Comisión Federal de Electricidad (México) CFE Certified Fraud Examiner , is founder and chair of the Association of Certified Fraud Examiners Established in 1988 the Association of Certified Fraud Examiners is the professional organization that governs professional fraud examiners. Its activities include producing fraud information, tools and training. and a contributing editor A contributing editor is a magazine job title that varies in responsibilities. Most often, a contributing editor is a freelancer who has proven ability and readership draw. to the Journal of Accountancy. His e-mail address See Internet address. e-mail address - electronic mail address is jwells@acfe.com. The 2006 Report to the Nation on Occupational Fraud and Abuse is available at www.acfe.com/fraud/report.asp. |
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