Fraud Risks

Question 1

Any action taken by management, the board, and other parties to manage risk and increase the likelihood that established objectives and goals will be achieved.

Answer 1

Control

Question 2

The attitude and actions of the board and management regarding the importance of control within the organization.

Answer 2

Control environment

Question 3

Any illegal act characterized by deceit, concealment, or violation of trust. These acts are not dependent upon the threat of violence or physical force.

Answer 3

Fraud

Question 4

Which three factors are consistently present when people commit fraud?

Answer 4

1. Pressure or incentive
2. Opportunity
3. Rationalization

Question 5

Any relationship that is, or appears to be, not in the best interest of the organization.

Answer 5

Conflict of interest

Question 6

The use of power, money, or favors by people in positions of authority or contacts in their network for illegitimate private gain.

Answer 6

Corruption

Question 7

The combination of processes and structures implemented by the board to inform, direct, manage, and monitor the activities of the organization toward the achievement of its objectives.

Answer 7

Gonervance

Question 8

An inquisitive attitude, free of bias or assumptions about the inherent honesty of management and employees.

Answer 8

Professional skepticism

Question 9

Adherence to policies, plans, procedures, laws, regulations, contracts, or other requirements.

Answer 9

Compliance

Question 10

An observation that in many real-life sets of numerical data, the leading digit is likely to be small. Also known as the Newcom-Benford law, the law of anomalous numbers, or the first-digit law.

Answer 10

Benford’s Law

Question 11

Theft of a material amount of an organization’s assets.

Answer 11

Misappropriation of assets

Question 12

The application of auditing skills to gather evidence that may be used in a court of law for a criminal or civil matter.

Answer 12

Forensic auditing

Question 13

A term used to refer to indicators of fraud; indicate both inadequacy of fraud controls in place and the possibility that fraud has already occurred.

Answer 13

Red flags

Question 14

Inflating sales figures by forcing more products through a distribution channel than the channel can actually sell.

Answer 14

Channel loading

Question 15

The probability fraud will occur and the potential severity or consequences to the organization when it does.

Answer 15

Fraud risk

Question 16

An individual who reports fraud and abuse.

Answer 16

Whistleblower

Question 17

The offering, giving, receiving, or soliciting of anything of value to influence an outcome.

Answer 17

Bribery

Question 18

Stealing cash from an organization before it is recorded on the organization’s books / records.

Answer 18

Skimming

Question 19

When a person causes an organization to issue a payment for fictitious goods or services, inflated invoices, or invoices for personal purchases.

Answer 19

Disbursement fraud

Question 20

When an employee is paid for fictitious or inflated expenses.

Answer 20

Expense reimbursement fraud

Question 21

When a person causes an organization to issue a payment by making false claims for compensation.

Answer 21

Payroll fraud

Question 22

Misrepresenting the organization’s financial statements, often by overstating assets or revenue or understating liabilities or expenses.

Answer 22

Financial statement fraud

Question 23

Providing false information, usually to those outside the organization.

Answer 23

Information misrepresentation

Question 24

An act to divert a potentially profitable transaction to an employee or outsider; the use of funds by a debtor in defiance of the authorized terms of the lender.

Answer 24

Diversion

Question 25

Where one party receives some benefit not obtainable in a normal arm’s-length transaction.

Answer 25

Related-party activity

Question 26

Transaction in which two or more unrelated and unaffiliated parties agree to do business, acting independently and in their self-interest.

Answer 26

Arm’s-length transaction

Question 27

Intentional reporting of false information on a tax return to reduce taxes owed.

Answer 27

Tax evasion