Fraud Flashcards
1
Q
A person’s social status plays no role in their ability to commit white-collar crime.
A
False
What is loosely called “class” or “social status” does have an effect on crimes. For example, one defendant used their position as chair of a local bank board to set up loans for their ailing wood chip company. The loans would never have been approved without the chair’s influence, and the chair never reported them in the proxy statement to the bank’s shareholders.
2
Q
The purpose of corporate governance is to:
A
Encourage the efficient use of resources and require accountability for the stewardship of those resources.
3
Q
The existence of many specialized departments within a company generally increases the overall risk of fraud within the organization.
True / False
A
True
4
Q
Who is responsible for developing a strategy to assess and manage fraud risks that aligns with the organization’s risk and appetite and strategic plans?
A
The board of directors.
Specifically, the board of directors must recognize the true and specific risks of fraud to the organization, as well as their potential impact, and respond by:
Setting an appropriate tone and realistic expectations of management to enforce an anti-fraud culture
Gaining sufficient knowledge of the organization’s activities and the environments in which it operates
Raising awareness of the risks of fraud throughout the organization
Developing a strategy to assess and manage fraud risks that aligns with the organization’s risk appetite and strategic plans
Overseeing the organization’s fraud risk management activities
Maintaining open communications with senior management and other personnel
5
Q
Legs of the Fraud Triangle.
A
- Perceived opportunity.
- perceived non-shareable financial need
- Rationalization
6
Q
COSO (Committee of Sponsoring Organizations) of Risk assessment involves the following principles?
A
- the organization sets sufficiently clear objectives to enable the identification and assessment of risks relating to the objectives
- The organization identifies risks to the achievement of its objectives across the entity and analyzes these risks as a basis for determining how the risks should be managed.
- The organization considers the potential for fraud in assessing risks to the achievement of objectives
- The organization identifies and assesses changes that could significantly impact the system of internal control.
7
Q
According to Diane Vaughan, an employee who is truly loyal to a company would never commit fraud on the company’s behalf.
True / False
A
False
8
Q
Which of the following parties is ultimately responsible for the prevention and detection of fraud within an organization?
A. Management
B. Board of directors
C. External auditors
D. Internal auditors
A
A. Management
- Designing, implementing, overseeing, and ensuring the effectiveness of the anti-fraud program
- Setting the organization’s ethical tone and reinforcing an anti-fraud culture
- Demonstrating that fraud will not be tolerated at any level
- Responding appropriately to instances of fraud
9
Q
G20 / OECD Principles of Corporate Governance (The principles) a publication by the Organization of Economic Cooperation and Development (OECD), covers six main areas, which are divided into chapters. The Principles:
A
- Request that government have in place an effective legal regulatory, and institutional framework to support good corporate governance practices.
- Call for a corporate governance framework that protects the exercise of shareholders’ rights and supports the equal treatment of all shareholders, including minority and foreign shareholders (Chapter II).
- Address the effect of institutional investors and other intermediaries in stock markets and the resulting corporate governance implications (Chapter III).
- Recognize the importance of the role of stakeholders in corporate governance (Chapter IV).
- Examine the importance of timely, accurate, and transparent disclosure mechanisms (Chapter V).
Address board structures, responsibilities, and procedures (Chapter VI).
10
Q
Who is responsible for holding the board of directors accountable for proper governance and oversight?
A
The shareholders
Shareholders are the owners of corporations: they are primarily concerned with maximizing the return on their investment.
- remaining informed on company operations and performance
- reading annual reports and other communications from management to the shareholders.
- attending shareholder meetings
- electing capable individuals to serve as board directors
- holding the board of directors accountable for proper governance and oversight.
- Appointing or ratifying the audit committee’s appointment of the organization’s independent auditors.
- Voting on other significant issues, such as specific changes relating to business operations, the company’s corporate governance framework, and the rights and responsibilities of the board of directors and executive managers.
11
Q
Which of the following principles of corporate governance pertains to the duty of internal parties to act in the best interest of the organization?
A
Responsibility.
12
Q
Monitoring
A
the evaluation and communication of internal control deficiencies in a timely manager to those parties responsible for taking corrective action is a principle rated to which component of the committee of sponsoring organizations of the COSO framework.
13
Q
Primary purpose of international Standard on Auditing (ISA) 240 is to:
A
Establish standards and provide guidance on the auditor’s responsibility to consider fraud in an audit of financial statements.
14
Q
Risks that are present before the effect of internal controls ______________
Risks that remain after the effect of these controls ___________.
A
Before - inherent risk
After - residual risk
15
Q
Transparency
A
in the context of corporate governance generally refers to the clarity, accuracy, completeness, and timeliness of the financial statements and other information provided by management to shareholders.
16
Q
The payment of bribes to procure business is considered a fraud risk pertaining to which category of fraud?
A
Corruption
17
Q
According to the 2020 Report to the Nations, which of the three major categories of occupational fraud is the most common?
A
Asset misappropriation
18
Q
Examples of fraudulent offenses include:
A
- Using company equipment (e.g., office supplies, company vehicles, mobile phones, computers) for personal reasons
- Stealing company assets (e.g., cash, receivables, inventory)
- Inflating reported hours worked
- Forging or altering checks and other documents
- Disclosing proprietary information to competitors
- Accepting bribes from or paying bribes to vendors or customers
- Engaging in transactions in which the employee has an undisclosed conflict of interest
- Destroying company records with malicious intent
Intentionally misstating financial statements
19
Q
A fraud examiner can reveal confidential client information when responding to a legal court order.
True / False
A
True
20
Q
According to criminologist Charles McCaghy, ____________ is the single most compelling factor behind deviance by organizations.
A
profit pressure
21
Q
Leo, a Certified Fraud Examiner (CFE), conducted a fraud examination at Blue Corp. Anna was a prime suspect in the disappearance of money, but Leo could not prove it. Later, Leo discovered Anna had been recently hired by Red Corp., another client of his. Under the ACFE Code of Professional Ethics, Leo must:
A
Not inform Red Corp.
Article VI says that “An ACFE Member shall not reveal any confidential information obtained during a professional engagement without proper authorization.”
22
Q
In response to a risk identified during a fraud risk assessment, management decides to purchase a bond to help protect the company against the associated risk of loss. This response is known as:
A
Transferring the risk.
23
Q
The primary purpose of International Standard on Auditing (ISA) 240 is to:
A
Establish standards and provide guidance on the auditor’s responsibility to consider fraud in an audit of financial statements.
24
Q
According to International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, if an external auditor discovers evidence of a potential fraud involving senior management, to which of the following parties should they immediately report their findings?
A
The audit committee.
If the Auditor has identified or suspects fraud involving management, the auditor shall communicate these matters to those charged with governance.
25
Principles of Corporate Governance
1. Accountability - org operates effectively and efficiently.
2. Transparency - clarity, accuracy, completeness, and timeliness
3. Fairness - all stockholders are treated equitably.
4. Responsibility
26
According to G20/OECD Principles of Corporate Governance (the Principles), companies should disclose all financial information to investors, regardless of the cost burden of the disclosure or the disclosure’s possible negative effects on the company’s competitive position.
True / False
False
“The corporate governance framework should ensure that timely and accurate disclosure is made on all material matters regarding the corporation, including the financial situation, performance, ownership, and governance of the company.” However, such disclosure requirements are not expected to place unreasonable administrative or cost burdens on enterprises.
27
Who is responsible for holding the board of directors accountable for proper governance and oversight?
The shareholders
Shareholders are the owners of corporations, they are primarily concerned with maximizing the return on their investment.
Shareholders have a responsibility to be actively involved in the corporate governance process by:
Remaining informed on company operations and performance
Reading annual reports and other communications from management to the shareholders
Attending shareholder meetings
Electing capable individuals to serve as board directors
Holding the board of directors accountable for proper governance and oversight
Appointing or ratifying the audit committee's appointment of the organization’s independent auditors
Voting on other significant issues, such as specific changes relating to business operations, the company's corporate governance framework, and the rights and responsibilities of the board of directors and executive managers
28
Under the ACFE Code of Professional Ethics, fraud examiners are strictly prohibited from accepting assignments to uncover fraud in a company in which they have a major interest.
True / False
False
An ACFE Member shall not engage in any illegal or unethical conduct, or any activity which would constitute a conflict of interest that has not been properly disclosed to the appropriate parties." However, a fraud examiner does not have the same responsibilities as a chartered accountant (CA) or certified public accountant (CPA). For example, a CA or CPA generally would not be able to express an audit opinion on a company in which they held a major financial interest. In the case of the fraud examiner, they would be able to accept such an assignment under most conditions, since the goal of the fraud examiner is to gather facts regarding a potential fraud, not to express an opinion. The fraud examiner should, however, make appropriate disclosures regarding their ownership.
29
Justine, a Certified Fraud Examiner (CFE), was contacted regarding an engagement to investigate a complex insurance fraud case involving an organized crime ring. Justine had previously taken a self-study continuing professional education (CPE) course on insurance fraud schemes, but she had no other training or experience in such cases. However, she accepted the engagement and chose to conduct the work herself. Justine’s conduct would likely be a violation of the ACFE Code of Professional Ethics.
True / false
True
She doesn't have professional experience. So she doesn't qualify.
30
COSO Risk assessment principles
1. The organization sets sufficiently clear objectives to enable the identification and assessment of risks relating to the objectives.
2. The organization identifies risks to the achievement of its objectives across the entity and analyzes these risks as a basis for determining how the risks should be managed.
3. The organization considers the potential for fraud in assessing risks to the achievement of objectives.
4. The organization identifies and assess
31
The evaluation and communication of internal control deficiencies in a timely manner to those parties responsible for taking corrective action is a principle to which component of the committee of Sponsoring Organization of the Treadway commission's (COSO) internal control - Integrated Framework?
Monitoring
Monitoring is the process that assesses the effectiveness of a control system over time. This component of the Committee of Sponsoring Organizations of the Treadway Commission’s (COSO) Internal Control—Integrated Framework (the Framework) should include both ongoing evaluations and periodic, separate evaluations, the findings of which should be evaluated against predefined criteria.
32
An Organization's Whistleblower procedures should be made public so that individuals both inside and outside of the organization are aware of the appropriate channels for reporting misconduct.
True / False
True
It is important for management to establish and publicize the organization's whistleblower procedures so that individuals both inside and outside the organization are aware of the appropriate channels for reporting misconduct.
33
An entity’s corporate culture is most effectively assessed using a checklist of initiatives to make sure all the elements of a strong tone at the top are in place.
True / False
False
A strong corporate culture can most often be observe by its outcome, rather than by any individual component. Fostering a culture of ethics and compliance is more beneficial than simply implementing a checklist of initiatives.
34
Fraud Risk
The risk that an organization might be victimized by an individual who is able to combine the three elements of the Fraud triangle.
35
Theft of competitor trade secrets, anti-competitive practices, environmental violations, and trade and customs regulations in areas of import and export are l fraud risks pertaining to:
Regulatory and legal misconduct
Depending on the particular organization and the nature of its business, some or all of these risks might be applicable and should be considered in the fraud risk assessment process.
36
In response to a risk identified during a fraud risk assessment, management choose to accept the risk, rather than to implement any responsive measures. This approach is know as
Assuming the risk.
"accept the risk
37
Payment of bribes to procure business is considered a fraud risk pertaining to which category of fraud?
Corruption
38
Fraud risk assessment
a process aimed at proactively identifying and addressing an organization's vulnerabilities to internal and external fraud.
39
The fraud risk assessment process should be conducted covertly so that assessment team members can get an accurate picture of what actually occurs in the business.
False
Fraud risk assessment should not be conducted covertly.
40
Which of the following techniques for gathering information during a fraud risk assessment involves obtaining individuals’ responses through a formal electronic or paper questionnaire?
Surveys
Interviews, which can be an effective way to conduct candid one-on-one conversations with employees
Focus groups, which can enable the assessor to observe the interactions among a group of employees as they collectively discuss a question or issue
Surveys, which are electronic or paper questionnaires that can be either anonymous or directly attributable to the individual participants
Anonymous feedback mechanisms, which can include means for anonymous employee suggestions or responses to questions posed
41
In response to a risk identified during a fraud risk assessment, management decides to implement appropriate countermeasures, such as prevention and detection controls. This response is known as:
Mitigation risk
42
To ensure the independence of the team members, a fraud risk assessment must be conducted by a consultant or other external party.
False
Can be internal auditors.
43
A fraud risk assessment report should reflect the assessment team’s subjective perspective and opinions that were formed during the assessment engagement.
False
When reporting the results of the assessment, however, the team must report only the facts and keep all opinions and biases out of the report
44
Preventive anti-fraud controls include all of the following EXCEPT:
A. Separation of duties
B. Hiring policies and procedures
C. Fraud awareness training
D. Continuous audit techniques
D. Continuous audit techniques.
Preventive controls, which are intended to prevent fraud, include:
- Bringing awareness of the fraud risk management program to personnel throughout the organization
Performing background checks on employees (where permitted by law)
Hiring competent personnel and providing them with anti-fraud training
Conducting exit interviews
Implementing policies and procedures
Separating of duties
Implementing physical security measures
Implementing security measures to restrict electronic access to data
Ensuring proper alignment between an individual’s authority and level of responsibility
Reviewing third-party and related-party transactions
45
Detective anti-fraud controls include all of the following EXCEPT:
A. Physical inspections
B. Hiring policies and procedures
C. Proactive data analysis techniques
D. Hotline
B. Hiring policies and procedures
- Establishing and marketing the presence of a confidential reporting system, such as a whistleblower hotline
- Implementing proactive controls for the fraud detection process, such as independent reconciliations, reviews, physical inspections and counts, analysis, and audits
- Implementing proactive fraud detection procedures, such as data analysis and continuous auditing techniques
- Performing surprise audits
Hiring policies and procedures fall under the category of preventive controls, which are intended to prevent fraud before it occurs.
46
8 principles - International Organization for Standardization (ISO) 31000:2018 principles provide than an effective and efficient risk management program:
1. is integrated into all organizational activities
2. Structured and comprehensive
3. Is customized and proportionate to the organization's operations and objectives
4. Is inclusive and provides for appropriate and timely consideration of stakeholders' knowledge, views, and perceptions
5. is dynamic and responsive to change
6. Is based upon the best available information
7. Takes human and cultural factors into account
8. Facilitates continuous improvement.
47
5 components of the ERM framework:
1. Governance and Culture
2. Strategy and objective-setting
3. Performance
4. Review and revision.
5. Information, communication, and reporting.
The Committee of Sponsoring Organizations of the Treadway Commission's (COSO) Enterprise Risk Management - Integrating with Strategy and Performance is composed of a set of principles organized into 5 interrelated components and twenty supporting principles that are based on a holistic view of an organization's risk portfolio.
48
Audit committee's responsibilities for fraud risk management:
1. Receiving regular reports on the status of reported or alleged fraud
2. Being aware of fraud risks that are common in the organization's industry
3. meeting regularly with key internal parties
4. Understanding how internal and external audit strategies address fraud risk.
5. Providing external auditors with evidence that the audit committee is dedicated to effective fraud risk management.
6. Engaging in open conversations with external auditors about any known or suspected fraud.
49
Theory of Differential Association
1) criminal behavior is learned
2) It is learned from other people in a process of communication
3) criminal behavior is acquired through participation with intimate personal groups
4) the learning process includes the shaping of motives, drives, rationalizations, and attitudes
5) The directions of motives are learned from the favorable or unfavorable interpretations of applicable laws
6) a person becomes a criminal because of an excess of conclusions in favorable to violation to the law over conclusions unfavorable to violation of the law
7) differential association may vary in frequency, duration, priority, and intensity
8) learning criminal behavior involves all the mechanisms of other learning,
9) learning differs from pure imitation
10) while criminal behavior is an expression of general needs and values, it is not explained by these needs and values.
50
Positive Reinforcement
Negative Reinforcement
Punishment
Positive reinforcement - Positive stimulus in exchange for the desired response.
Negative Reinforcement - Negative stimulus in exchange for the desired response.
- "I'll stop hassling you if you clean this room"
Punishment - negative stimulus when faced with an undesired behavior.
51
Differential reinforcement theory
people learn social behavior by operant conditioning -
Reinforced by positive and negative Reinforcement
Lessened by punishment (negative stimuli) and loss of reward (negative punishment).
52
Social control theory suggests that the less attached an individual is to social institutions and groups, the greater that individual's chances of violating the law are.
True / False
True
53
Research shows that a criminal's social status or class is the determinant aspect of white-collar crime.
True / False
False
Research shows that a criminal's position in a organization and their ability to organize the scheme have far more bearing on the crime than social status or class alone.
54
Edward Gross and other criminologists have asserted that organizations are inherently:
Criminogenic.
Prone to committing crime but they are not necessarily criminal.
55
Examples of rationalization
1. Management is dishonest so why shouldn't I be?
2. The company owes me.
3. No one will really get hurt by such a small amount of missing money.
56
10 organizational environment factors for fraud:
1. Placing too much trust in key employees
2. Lack of proper procedures for authorization of transcripts
3. Inadequate disclosures of personal investments and incomes
4. No separation of authorization of transactions from the custody of related assets
5. Lack of independent checks on performance
6. Inadequate attention to details
7. No separation of custody of assets from the accounting for those assets
8. No separation of duties between accounting functions
9. Lack of clear lines of authority and responsibility
10. Department that is not frequently reviewed by internal auditors
57
According to the ACFE’s 2020 Report to the Nations, what is the primary reason why organizations decline to prosecute white-collar crime cases?
They believe their internal discipline is sufficient.
58
Research has shown that many executives justify illegal behavior as simply common practice in the business world.
True / False
True
59
According to the 2020 Report to the Nations, the majority of occupational frauds are committed by ____________; median losses are highest in frauds committed by ___________.
Employees; Owners / Executives.
60
Which of the following is considered a white-collar crime?
A. A stockbroker profits from trades made based on insider knowledge about a company
B. A city official receives kickbacks for tailoring contract requirements to specific vendors
C. An accounting clerk steals incoming payments from customers and makes falsified journal entries to cover their tracks
D. All of the above
D. All of the above.
“White-collar crime violations are those violations of law to which penalties are attached that involve the use of a violator’s position of economic power, influence, or trust in the legitimate economic or political institutional order for the purpose of illegal gain, or to commit an illegal act for personal or organizational gain.”
61
The Committee of Sponsoring Organizations of the Treadway Commission (COSO) identified five interrelated components of internal control?
1. control environment
2. risk assessment
3. control activities
4 information and communication
5. Monitoring.
62
Three major categories of occupational fraud:
By order of most common:
1. Asset misappropriation - least costly $100,000 median
2. Corruption - $200,000 median
3. Financial Statement Fraud - $954,000 median loss.
63
Management can choose whether to use a ________________________ to express risk appetite.
quantitative measure or a qualitative one
64
According to the ACFE’s 2020 Report to the Nations, most white-collar crime cases are referred to law enforcement for prosecution.
True
65
Criminal activities involving corporations stem primarily from the organization's subcultures and values, rather than from the attitudes and characteristics of the individuals carrying out the crimes.
True
66
To show appreciation for an employee's hard work, a manager exempts the individual from several undesirable administrative tasks. This is an example of positive reinforcement.
True / False
False
This is an example
67
If an external auditor discovers evidence of potential fraud, they are precluded from disclosing these findings to anyone in order to protect client confidentiality.
True / False
False
If auditor finds evidence, then the auditor shall communicate these matter on a timely basis to the appropriate level of management.
68
G20/OECD Principles of Corporate Governance (the Principles) is required to be implemented by all corporations in the jurisdictions that have officially adopted the Principles.
True / False
False
Just a guideline. Not necessary.
69
To reduce the probability of fraud in financial reports, the National Commission on Fraudulent Financial Reporting (the Treadway Commission) provided recommendations about which of the following parties involved in corporate governance?
The audit committee
70
What party is responsible for overseeing business operations by assessing the strategy and underlying purpose of management's decisions and actions?
The board of directors.
The directors represent the intermediaries between the corporation's owners and those executing its activities and they act as guardians of the organization's resources and assets.
71
As a strategy to control crime, __________ is designed to achieve conformity to he law by providing economic incentives for voluntary adherence to the law and using administrative effort to control violations before they occur.
Compliance
As a strategy to control crime, compliance is designed to achieve conformity to the law without having to detect, process, or penalize violators. Compliance systems provide economic incentives for voluntary compliance to the laws and use administrative efforts to control violations before they occur.
However, compliance strategies have been criticized by some criminologists. These experts believe that such strategies have little effect, as sanctions are imposed after the infraction occurs. Since economic penalties are common punishments for violators, these penalties are of little consequence in the case of large, wealthy corporations.
72
What should be covered in employee anti-fraud training:
- What fraud is, including examples of what behavior is acceptable and what is not
- How fraud hurts the organization
- How fraud hurts employees
- Common characteristics that lead individuals to commit fraud (i.e., pressure, opportunity, and ability to rationalize the act)
- How to identify fraud (i.e., specific examples of financial, transactional, behavioral, and other red flags to watch for)
- How to report fraud
- The punishment for dishonest acts, including examples of past transgressions and how they were handled
73
The two primary strategies to control corporate criminal behavior are:
Compliance and deterrence
Compliance - designed to achieve conformity to the law without having to detect, process, or penalize violators.
Deterrence is designed to detect law violations, determine who is responsible, and penalize offenders to deter future violations.
74
An external auditor discovers a significant deficiency in an organization’s internal controls that could result in a material misstatement of the organization’s financial statements. Which of the following is FALSE regarding the auditor’s communication about these findings?
A. The communication should be made in writing.
B. The communication should be provided to management and those charged with governance.
C. The communication should note that the purpose of the audit was to express an opinion on the effectiveness of the organization’s internal controls.
D. The communication should include a description of the deficiencies and an explanation of their potential effects.
C. is False.
1. A description of the deficiencies and an explanation of their potential effects
2. Sufficient information to enable those charged with governance and management to understand the context of the communication, including explanations that the purpose of the audit was for the auditor to express an opinion on the financial statements and that the audit included consideration of internal control relevant to the preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control.
75
Which of the following customer due diligence (CDD) procedures would be MOST APPROPRIATE for an organization to perform if it determines that a potential customer has little opportunity to commit fraud and therefore presents a minimal risk of engaging in illegal activity?
Identifying the customer
Organizations can determine the level of risk the customer presents—and thus the appropriate level of due diligence—by evaluating the specifics of the transaction and the initial information provided about the customer. If the organization later receives additional information that suggests the customer might be a higher risk, a higher level of customer due diligence (CDD) procedures should be performed at that time.
76
In general, the lowest level of reference for making moral decisions is:
The law
77
A fraud risk assessment report should contain a detailed, comprehensive list of every assessment finding and all suggested responses so that management can address each issue within the company, no matter how small.
True / False
False
Less is often more when it comes to reporting the results of the fraud risk assessment. The team should take care not to turn the report into a tedious list of things that management will have to sort through and prioritize. Instead, the report should be presented in a way that focuses on what really matters, clearly highlighting those things that are most important and that will make the most impact on the organization’s fraud risk management efforts.
78
According to a study conducted by Dr. Steve Albrecht, occupational crime perpetrators who were interested primarily in "beating the system" committed larger frauds than those who believed their pay was not adequate.
True / False
"Beating the system" - lower in frequency but more money
| "inadequate pay" - higher in frequency but less money.
79
Which of the following is NOT an effective response for addressing the risk of material misstatement due to fraud during a financial statement audit?
A. Implementing auditing procedures on an unannounced basis
B. Engaging in consistent auditing procedures each year
C. Using differing sampling methods when collecting data for audit testing
D. Assigning specialists to assist regarding a particularly technical issue
B. Engaging in consistent auditing procedures each year
Although fraud is a broad legal concept, for the purposes of International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, the auditor is concerned with fraud that causes a material misstatement in the financial statements. Under this standard, the auditor shall determine overall responses to address the assessed risks of material misstatement due to fraud at the financial statement level. To do so, the auditor shall:
Assign and supervise personnel, taking account of the knowledge, skill, and ability of the individuals to be given significant engagement responsibilities and the auditor’s assessment of the risks of material misstatement due to fraud for the engagement; this might include assigning additional individuals with specialized skill and knowledge, such as forensic and IT specialists, or assigning more experienced individuals to the engagement.
Evaluate whether the selection and application of accounting policies by the entity, particularly those related to subjective measurements and complex transactions, might be indicative of fraudulent financial reporting resulting from management’s effort to manage earnings.
Incorporate an element of unpredictability in the selection of the nature, timing, and extent of audit procedures.
80
To protect against third-party fraud risks, organizations should perform the same level of due diligence on each potential customer before entering into a transaction with them.
True / False
False
Different levels of due diligence for each potential costumer.
Simplified CDD
Standard CDD
Enhanced CDD
81
Under The Institute of Internal Auditors’ (IIA) International Standards for the Professional Practice of Internal Auditing, an organization's internal audit function is required to hold primary responsibility for all internal fraud investigations.
False
Depends on the the organization.
Not required to hold primary responsibility for all internal fraud investigations.
82
Of the following parties, who is responsible for the oversight of the organization’s financial, accounting, and audit matters?
The audit committee
83
Which of the following statements regarding recommended vendor due diligence procedures is LEAST ACCURATE?
A. An organization should request that new vendors fill out a questionnaire about their background immediately after signing a contract with them.
B. An organization should include a clause in the contract requiring the vendor to report any instances of misconduct before entering into an agreement with them.
C. An organization should alert the vendor that they will be liable for any unethical conduct that occurs during the business arrangement before agreeing to do business with them.
D. An organization should ensure that vendors have their own ethics and compliance program before engaging in any transactions with them
A. An organization should request that new vendors fill out a questionnaire about their background immediately after signing a contract with them.
84
According to the International Organization of Supreme Audit Institutions’ (INTOSAI) standards for public-sector audits, the requirements for private-sector external auditors found in International Standard on Auditing (ISA) 240, The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, also apply to government auditors during audits of public-sector financial statements.
True / False
True
The requirements for the private sector can be applied to the government.
85
Of the following parties, who is responsible for developing a strategy to assess and manage fraud risks that aligns with the organization’s risk appetite and strategic plans?
The board of directors.
