Chapter 4: Preventing Fraud

Question 1

TF 1

Even with the right opportunity or significant pressure, most people would probably not steal or embezzle.

Answer 1

F

Question 2

TF 2

Studies show that a positive and honest work culture in a company does little to prevent fraud

Answer 2

F

Question 3

TF 3

An important factor in creating a culture of honest, openness, and assistance in the workplace is maintaining an employee assistance program

Answer 3

T

Question 4

TF 4

A good internal control system within a company can ensure the absence of fraud

Answer 4

F

Question 5

TF 5

When fraud is committed, the problem is often not a lack of controls, but the overriding of existing controls by management and others.

Answer 5

T

Question 6

TF 6

The two elements in creating a positive work environment are (1) having an open-door policy and (2) having positive personnel and operating procedures.

Answer 6

T

Question 7

TF 7

Not prosecuting fraud perpetrators is cost-effective both in the short run and the long run

Answer 7

F

Question 8

TF 8

Even a good system of internal controls will often not be completely effective because of fallibility of the people applying an enforcing the controls.

Answer 8

T

Question 9

TF 9

The increasingly complex nature of business helps to decrease the number of collusive frauds

Answer 9

F

Question 10

TF 10

Tips and complaints are the most common way fraud is detected

Answer 10

T

Question 11

TF 11

The major role of employee assistance programs is to help employees recover from the damaging psychological effects of fraud

Answer 11

F

Question 12

TF 12

Not all possible controls should be implemented; rather, one must assess a control’s cost and benefits before implementation

Answer 12

T

Question 13

TF 13

Creating an expectation of punishment causes firm morale to deteriorate and often results in lower productivity

Answer 13

F

Question 14

MC 1

People will often be dishonest if they are placed in an environment of:

a. Poor controls
b. High pressure
c. Low integrity
d. Loose accountability
e. All of the above

Answer 14

e. All of the above

Question 15

MC 2

Which of the following factos contribute to creating a corporate culture of honesty and openness?

a. Hiring honest people.
b. Performing criminal background checks
c. Not having an open-door policy.
d. Having a well-understood and respected code of ethics
e. both a and d
f. All of the above

Answer 15

e. both a and d

Question 16

MC 3

Which of the following personnel and operating policies contribute to high-fraud environments?

a. Management by crisis
b. Rigid Rules
c. High employee lifestyle expectations
d. Poor promotion opportunities
e. All of the above

Answer 16

e. All of the above

Question 17

MC 4

The single most effective tool in preventing and detecting fraud is usually:

a. Monitoring employees
b. Having a good system of internal controls
c. Having a well-written company code of ethics
d. Following strict hiring procedures

Answer 17

b. Having a good system of internal controls

Question 18

MC 5

A company’s control environment includes:

a. The tone that management establishes toward what is honest and acceptable behavior
b. Corporate hiring practices
c. Having an internal audit department
d. All of the above

Answer 18

d. All of the above

Question 19

MC 6

Which of the following factors generally results in a high-fraud environment?

a. Hiring honest people
b. Providing an EAP
c. Autocratic management
d. Both a and b

Answer 19

c. Autocratic management

Question 20

MC 7

Which of the following aspects of fraud usually results in the largest savings?

a. Fraud prevention
b. Fraud detection
c. Fraud investigation
d. It is impossible to tell

Answer 20

a. Fraud prevention

Question 21

MC 8

Which of the following is usually the most effective tool in preventing and detecting raud?

a. Discouraging collusion between employees and customers or vendors
b. Effective investigations of fraud symptoms
c. Having a good system of internal controls
d. Creating an expectation of punishment in the company

Answer 21

c. Having a good system of internal controls

Question 22

MC 9

Which of the following is the typical fraud model that describes most firms?

a. Fraud incident, assessing risk, investigation, reporting
b. Fraud incident, investigation, action, resolution
c. Assessing risk, fraud incident, investigation, resolution
d. Assessing risk, investigation, implementing a fraud program, reporting.

Answer 22

b. Fraud incident, investigation, action, resolution

Question 23

MC 10

The “tone at the top” is an important element in fighting fraud, which involves:

a. Doing a good job of integrity risk assessment
b. Having a positive organization where effective fraud teaching and training is conducted
c. Setting a proper example or modeling appropriate management behavior
d. Both b and c

Answer 23

c. Setting a proper example or modeling appropriate management behavior

Question 24

MC 11

Which of the following is not a recognized method of eliminating fraud opportunities?

a. Having good internal controls
b. Monitoring employees
c. Creating an expectation of punishment
d. Engendering employee goodwill by having lax rules

Answer 24

d. Engendering employee goodwill by having lax rules

Question 25

MC 12

Which of the following is not a reason identified by Deloitte why whistle-blowing systems fail?

a. Lack of anonymity
b. Pressure to comply
c. Culture
d. Lack of awareness

Answer 25

b. Pressure to comply

Question 26

MC 13

Alerting vendors and contractors to company policies often results in:

a. Loss of interest in the organization by vendors
b. Discovery of current frauds and the prevention of future frauds
c. Strained vendor/purchaser relationships
d. Heightened incidence of recurrent reverse vendor fraud

Answer 26

b. Discovery of current frauds and the prevention of future frauds