Invest Flashcards
Which of the following functions does a Benford’s Law analysis help to achieve?
A. Measuring the relationship between items on financial statements by expressing accounts as percentages
B. Extracting usable information from unstructured text data
C. Identifying fictitious numbers
D. Identifying duplicate payments
Identifying fictitious numbers
The goal of a Benford’s Law analysis is to identify fictitious numbers. Benford’s Law provides that the distribution of the digits in multi-digit natural numbers is not random; instead, it follows a predictable pattern. That is, Benford’s Law maintains that certain digits show up more than others do when dealing with natural numbers. A “1” appears as the first non-zero digit roughly 30 percent of the time; “2” is the leading digit almost 18 percent of the time; and “9” leads off only 4.6 percent of the time. Moreover, “0” is most likely to be the second digit, appearing 12 percent of the time.
Many fraudsters fail to consider the Benford’s Law pattern when creating false documentation or transactions to cover their tracks. Consequently, testing data sets for the occurrence or non-occurrence of the predictable digit distribution can help identify included numbers that are not legitimate
Generally, the rules of admissibility for digital evidence are stricter than such rules for tangible evidence.
A. True
B. False
False
Although digital evidence is different from—and more volatile than—tangible evidence, the rules regarding the admissibility of digital evidence in court are really no different from the rules regarding the admissibility of any other type of evidence.
To protect privacy interests, courts generally find that audit clauses within business partner contracts are void, and most jurisdictions have laws that prohibit businesses from making threats to terminate a business relationship over a contracting party’s refusal to turn over nonpublic information.
A. True
B. False
False
There are several ways to obtain nonpublic information. An organization may demand that a supplier, vendor, or agent turn over relevant documents as a condition of continued business. Taking this action is legal, in appropriate circumstances. Of course, management and counsel should be consulted before such demands are made, particularly if the other party has a contractual relationship with the demanding organization.
An audit clause allows parties to a contract the right to access another party’s books. Often, audit clauses are too narrow to provide useful information. However, if properly constructed, an audit clause can be a powerful method by which on-book information can be obtained.
If a fraud examiner working in the United States needs information on registration and disciplinary information regarding firms and individuals in the U.S. futures industry, he should contact the Financial Industry Regulatory Authority (FINRA).
A. True
B. False
False
The National Futures Association (NFA) is an industry-wide, self-regulatory organization authorized by the U.S. Commodity Exchange Act; it operates under the supervision of the Commodity Futures Trading Commission (CFTC). The NFA oversees the commodities markets, and it is a one-stop information source for all types of registration and disciplinary information regarding firms and individuals in the futures industry. This information includes registration status and employment history; disciplinary actions filed by the NFA, the CFTC, and the commodity exchanges; and customer complaints filed under the CFTC’s Reparations Program.
A Uniform Commercial Code (UCC) filings search can help identify:
A. A list of companies that an individual is an officer or registered agent of
B. Personal property that an individual or business has financed
C. Real estate ownership information
D. All of the above
Personal property that an individual or business has financed
A search of Uniform Commercial Code (UCC) filings can help fraud examiners identify personal property that an individual or business has financed. These filings identify:
•Name of the debtor or joint debtors
•Current address of the debtors
•Name of the financial lender
•Type of collateral pledged as security
•Date of filing and continuations
When a fraud examiner prepares a memorandum reflecting the information furnished by a confidential source, how should the fraud examiner identify the source?
A. The fraud examiner should use symbols to denote the source’s identity.
B. The fraud examiner should not write confidential source information in a memorandum.
C. The fraud examiner should identify the source by the source’s full name.
D. The fraud examiner should identify the source using the source’s initials.
The fraud examiner should use symbols to denote the source’s identity.
It is recommended that all contact with informants and sources be reported on a memorandum, although the confidential source or informant’s identity should not be included in the report. Instead of including the source or informant’s identity, the fraud examiner should use symbols to denote the source’s identity. It is further recommended that sources be preceded with an “S,” followed by a unique identifier (i.e., source #1 would be “S-1”; source #2 would be “S-2”). The symbols for informants would then be “I-1” and “I-2.”
In interview situations, a(n)\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is any social-psychological barrier that impedes the flow of relevant information by making the respondent unwilling or unable to provide information to the interviewer. A. Inhibitor B. Facilitator C. Repressor D. Antecedent
Inhibitor
To be an effective interviewer, one must understand that certain matters inhibit communication, while others facilitate it. It is the interviewer’s task to minimize inhibitors and maximize facilitators. An inhibitor is any social-psychological barrier that impedes the flow of relevant information by making the respondent unable or unwilling to provide the information to the interviewer.
Which of the following is the LEAST appropriate participant on a team assembled to investigate fraud? A. Security personnel B. Suspect's supervisor C. Legal counsel D. Auditors
Suspect’s supervisor
Fraud examinations usually require a cooperative effort among different areas of expertise; therefore, if members of management decide to investigate suspicions of fraud, they must determine who should lead and be involved in the investigation.
Typically, participants on a fraud investigation team should not include individuals with vested personal or corporate interest in the matter or individuals with a close personal or professional relationship with the subject or the complainant. Thus, in most situations, the suspect’s supervisor should not be included on a fraud investigation team.
Which of the following situations would the U.S. Privacy Act of 1974 regulate?
A. A financial institution gathering credit data on consumers and businesses
B. A federal agency distributing the medical and employment history of various individuals
C. A private individual collecting and maintaining information about other individuals
D. A consumer reporting agency selling information to a background researcher
A federal agency distributing the medical and employment history of various individuals
The U.S. Privacy Act of 1974 establishes a code of information practices that regulates the collection, maintenance, consumption, and distribution of personally identifiable information that is maintained by federal agencies. It restricts information about individuals, both employees and nonemployees, and it applies to governmental agencies and government contractors running a system of records on behalf of the government. The Privacy Act prohibits an agency from disclosing such information without the written consent of the subject individual.
Under the Act, an agency may maintain records about a person containing information that is relevant and necessary to accomplish a purpose of the agency. This information may include a person’s education, finances, medical history, criminal history, employment history, and identifying information (fingerprint, voiceprint, or photograph).
Bill wants to search the Internet for articles about money laundering using a search engine. Which of the following search strings will yield the best results? A. inanchor:"money laundering" B. site:"money laundering" C. intitle:"money laundering" D. filetype:“money laundering”
intitle:”money laundering”
Users can employ advanced search operators (or Boolean operators) to gain more control over the search results. Advanced search operators are query words or symbols used in search engine queries to instruct search engines to perform special actions when executing a search. They help search engines better understand exactly what the user is looking for, and they improve a search and return relevant links faster.
The intitle:term search operator restricts results to those containing all the search terms specified in the title. So, entering [intitle: money laundering] in a search engine will return only documents that contain the words money and laundering in the title. Since Bill is searching specifically for articles on money laundering, this would be his best choice.
Placing quotation marks around a phrase will indicate to the search engine that it is to search only for pages that have the exact phrase. Thus, performing a search for “money laundering” will yield pages containing that exact phrase. In Bill’s case, this search would also yield good results.
The site:URL search operator will return pages in which the URL contains any specified keyword(s).
In some search engines, using the inanchor:term search operator returns pages that contain the specified terms in the link anchors of Web pages.
In some search engines, the filetype: search operator will return items of a particular file type that match the keyword.
Which of the following is NOT considered good practice when selecting the participants on a team assembled to investigate fraud?
A. Select team members who can bring both conventional and untraditional knowledge to the investigation.
B. Select team members who are likely to have compatible personalities.
C. Select team members who have demonstrated restraint and a sense of discretion.
D. Select team members who possess a vested personal or corporate interest in the matter.
Select team members who possess a vested personal or corporate interest in the matter.
The following are considered good practice when selecting the participants on a team assembled to investigate fraud:
•Consider the team’s size.
•Check for conflicts of interest between internal and external team members.
•Ensure that there are no reporting issues (e.g., team members feel pressure to report all details of the investigation to their direct manager, even though their manager does not have a need to know). Reporting issues can be prevented by establishing confidentiality rules in the beginning of the investigation.
•Select team members who fit the investigation’s demands and objectives.
•Recruit team members with the skills needed to conduct the investigation.
•Recognize the unique knowledge, experience, and skills that each team member can contribute.
•Contemplate the ways that each potential member will fit into the team.
•Select people who will work well with other team members.
Which of the following would be an example of a narrative question that an attorney might ask an expert witness during direct examination in an adversarial system?
A. “Weren’t there three inaccuracies on the financial statement?”
B. “At what point did you begin to suspect that the subject was lying?”
C. “Could you please describe the steps you took during your examination?”
D. “You couldn’t find any direct evidence implicating the suspect, could you?”
“Could you please describe the steps you took during your examination?”
Direct examination is the initial questioning of a witness by the party that called the witness (in adversarial jurisdictions) or the judge (in inquisitorial jurisdictions). Most of the time, direct examination is a nonconfrontational questioning aimed at exposing the facts and issues of the case. During direct examination in adversarial systems, expert witnesses present their findings in various ways, such as narrative questions, hypotheticals, specialized materials, and special exhibits.
CalaCala Foods, a private meat processing company in the United States, hired Able, a private investigator, to investigate allegations of internal fraud. During the investigation, Able questions Baker, a suspect in the alleged fraud, at Baker’s home. During the interview, Baker seeks to invoke his right to counsel. Able legally MUST:
A. Discontinue questioning and terminate the interview
B. Discontinue questioning until Baker contacts his attorney
C. Give Baker a Miranda warning before proceeding any further
D. None of the above
None of the above
As with other U.S. constitutional rights, the Sixth Amendment does not apply if there is no state action. Thus, in most cases, a private employer can interview an employee without the presence of the employee’s attorney. An individual always has the right to consult an attorney, but there is typically no legal obligation to consult the employee’s lawyer prior to the interview or allow the employee’s lawyer to be present during an interview.
In addition, Miranda warnings are only required when the suspect is in custody and is being questioned by public authorities.
The following are factors to consider in determining whether to advise a suspect that he may seek counsel: the degree of evidence of the employee’s culpability, whether the evidence is such that one would draw a conclusion concerning a violation of the law, the likelihood of criminal prosecution if the results of the investigation are disclosed, the existence of a conflict of interest between the employee and the company, and the state ethical codes.
In U.S. criminal trials, the reading of the indictment or information in open court where the defendant pleads to the charges is called: A. The arraignment B. The pleadings C. The pretrial hearing D. Discovery
The arraignment
What is the purpose of post-judgment discovery in a civil case?
A. To identify assets that can be used to satisfy a judgment
B. To help the judge decide the sentence of the defendant
C. To help the judge identify the amount of the monetary award
D. None of the above
To identify assets that can be used to satisfy a judgment
In many instances, particularly in fraud litigation, a judgment might go uncollected because the defendant has already spent, hidden, or otherwise disposed of the assets. In such circumstances, a plaintiff may conduct post-judgment discovery, including a deposition of the defendant, in an attempt to determine the amount and location of the debtor’s assets to satisfy a judgment.
The Internal Revenue Service may file a civil action against U.S. taxpayers accused of tax fraud, but it must refer criminal prosecutions to the Department of Justice.
A. True
B. False
True
In the United States, individuals with tax deficiencies may be subject to either civil or criminal penalties. The Internal Revenue Service (IRS) pursues civil violations, and it refers criminal tax cases to the Department of Justice (DOJ) for prosecution.
White, a Certified Fraud Examiner, believes that Blue, a fraud suspect, is guilty of embezzlement. White shares his theory with his supervisor. Blue later turns out to be innocent. Blue can sue and probably recover from White on a theory of defamation.
A. True
B. False
False
Defamation is an unprivileged publication of a false statement about a person that causes harm to that person’s reputation. To recover for defamation, the plaintiff must prove all of the following elements:
•The defendant made an untrue statement of fact.
•The statement was communicated (published) to third parties.
•The statement was made on an unprivileged occasion.
•The statement damaged the subject’s reputation.
For a statement to qualify as defamatory, the occasion in which the statement is made must be an unprivileged one. If the statement is made on a privileged occasion, then no liability can attach to the speaker. Basically, the law recognizes that there are some circumstances in which the need to share information is so important that people will be allowed to make mistakes from time to time without having to worry about being sued for defamation. Statements that are made in these circumstances are said to be privileged.
An attorney’s client can waive any protection the U.S. attorney-client privilege provides over confidential attorney-client communications if the client discloses the privileged information to unrelated third parties who have no need to know the information.
A. True
B. False
True
The U.S. attorney-client privilege is not absolute; it is subject to waiver. Because the attorney-client privilege does not protect communications disclosed to outside parties, the privilege will be waived if confidential communications are disclosed to a third party whose role has little to do with the client’s pursuit of legal representation.
Generally, waiver occurs when the client, who holds the privilege, voluntarily discloses (or consents to or encourages someone else disclosing) any significant part of the privileged communications. Although the client holds the privilege, the privilege can also be waived by the client’s attorney or a third party (someone who is neither the attorney nor the client).
A government employer in the United States is questioning one of its employees about a fraud. When asked if he committed the fraud, the employee refuses to answer the question, asserting his rights under the Fifth Amendment. Which of the following statements is MOST CORRECT?
A. The employer can fire the employee for refusing to cooperate.
B. The employer can use a threat of termination to force the employee to answer the question.
C. If the employer uses a threat of termination to coerce the employee to confess, the confession can be used against the employee at a criminal trial.
D. The employer cannot fire the employee for refusing to answer questions that might incriminate him.
The employer cannot fire the employee for refusing to answer questions that might incriminate him.
In the United States, constitutional protections generally only apply to public employees. This means that employees of federal, state, and local governments must be afforded protection under the Fifth Amendment.
Under the Fifth Amendment, a public employer cannot fire employees for refusing to answer questions that might incriminate them. The leading case on this issue is Garrity v. New Jersey, 385 U.S. 493 (1967). In Garrity, several New Jersey police officers were threatened with dismissal from their jobs if they refused to answer questions relating to a conspiracy to obstruct traffic laws. The officers, faced with termination, answered the questions and were subsequently prosecuted. The U.S. Supreme Court found that the statements had been improperly coerced, and were therefore not admissible at trial.
The Fifth Amendment only protects persons against compelled testimony. Thus, if an employee voluntarily confesses to a crime, he can be fired without violating his constitutional rights. The confession, however, must be truly voluntary; the employee cannot be coerced in any way to give self-incriminating evidence during an interview.
During an admission-seeking interview, Cynthia has just accused a suspect of committing a crime. The suspect begins to deny the accusation. The best practice would be for Cynthia to interrupt the suspect’s denial at this point.
A. True
B. False
True
Once the accused utters a denial in an admission-seeking interview, it becomes extremely difficult for him to change his response because doing so would be an admission that he lied. Therefore, the interviewer must prevent an outright denial, thereby making it easier for the subject to confess at a later time. An innocent person is unlikely to allow the interviewer to prevail in stopping the denial.
Cynthia should not allow the suspect to continue with his denial of the accusations. She can use several techniques to stop or interrupt the denial, including delays, repeated interruptions, and reasoning.
In interview situations, a(n)\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_ is an orderly, continuous account of an event or incident given by a respondent with minimal or no prompting. A. Unprompted script B. Free narrative C. Informational response D. None of the above
Free narrative
The free narrative is an orderly, continuous account of an event or incident, given with minimal or no prompting. It is used to get a quick synopsis of what is known about a matter. But when seeking to obtain a free narrative, be sure to designate specifically the occurrence that you wish to discuss.
Sometimes the respondent must be controlled to prevent unnecessary digression. Otherwise, avoid interrupting the respondent, and do not stop the narrative without good reason. The respondent will sometimes provide valuable clues when talking about things that are only partially related to the matter under inquiry
The proper method for developing latent fingerprints that have been absorbed into porous materials, such as paper, is to dust them with fingerprint powder.
A. True
B. False
False
Fraud examiners should never try to develop latent fingerprints that have been absorbed into paper or other porous materials by dusting with fingerprint powder or any other means. Such efforts will not only be unsuccessful, but they will prevent additional examinations. Instead, fraud examiners should preserve evidentiary documents that contain latent fingerprints by placing them into labeled protective containers, such as sealable, acid-free paper envelopes. Also, fraud examiners should label the item’s container with their initials, the current date, where the document was obtained, and an identifying exhibit number (if any).
Experts use various methods to examine fingerprints on porous surfaces, including iodine fuming and brushing or spraying silver nitrate solution or ninhydrin spray, which reacts with the body chemicals and other substances in the latent prints that have soaked into the absorbent surface. Some of these methods will permanently discolor a document.
Able, a fraud examiner, is investigating a suspected embezzlement by one of XYZ Corporation’s employees. As part of the investigation, he is assembling a financial profile of the suspect. Among other things, he wants to see if the suspect has made any significant real estate purchases since the embezzlement scheme began. Information on real estate transactions such as deeds, grants, transfers, and mortgages is usually located:
A. With the jurisdiction’s commercial filing registrar
B. With the jurisdiction’s land registry office
C. With the jurisdiction’s organizational filing agency
D. With the local court clerk or judicial records agency
With the jurisdiction’s land registry office
Most jurisdictions have a land registry office that maintains various information on real property and its owner(s).
What is mutual legal assistance (MLA)?
A. A formal request by the courts of one country seeking judicial assistance from the courts of another country
B. A formal request by the government of a country seeking information from a defendant residing in another country
C. A letter whereby a criminal defendant requests that the government release exculpatory information
D. A process by which countries request and provide assistance in law enforcement matters
A process by which countries request and provide assistance in law enforcement matters
Mutual legal assistance (MLA) is a process by which countries request and provide assistance in law enforcement matters, such as gathering information, obtaining provisional remedies, and enforcing foreign orders and judgments. To obtain assistance from a foreign government, the government seeking assistance makes an MLA request. An MLA request is a written request to the government of a foreign country that is used to obtain assistance in law enforcement matters. Generally, MLA can be used to obtain assistance in matters such as conducting searches, gathering evidence, compelling sworn testimony and the production of documents, issuing search warrants, issuing subpoenas, serving process, exchanging affidavits, obtaining provisional remedies, and providing assistance in forfeiture proceedings.
To properly prepare an organization for a formal fraud investigation, all employees should be notified of the investigation’s existence and purpose.
A. True
B. False
False
It is not good practice to alert all of an organization’s employees that an investigation will be taking place, nor is it a good idea to explain the investigation’s purpose to those employees. However, it might be necessary to take some steps to prepare the subject organization for the formal investigation before it officially commences (and especially before starting the evidence-collection process).
Preparing an organization for an investigation involves such things as preparing the managers of the employees who will be involved in the investigation, notifying key decision makers that the investigation is about to begin, and notifying the organization’s in-house or outside counsel when the investigation is about to commence. Note that while it might be necessary to prepare the managers of the employees who will be involved in the investigation, those responsible should not do so by explaining the investigation’s purpose, why the investigation is happening, when it is happening, or who is involved.
All of the following are advantages to using data analysis software EXCEPT:
A. Fraud examiners can use data analysis software to ensure that an investigation is accurate and complete.
B. Fraud examiners can use data analysis software to centralize fraud investigations.
C. Fraud examiners can use data analysis software to produce accurate results from bad data.
D. Fraud examiners can use data analysis software to search for red flags of possible fraud.
Fraud examiners can use data analysis software to produce accurate results from bad data.
There are five significant advantages to using data analysis software. First, data analysis software allows the fraud examiner to centralize an investigation, relying less on others to gather data. Second, data analysis software allows the fraud examiner to ensure that an investigation is accurate and complete. Third, data analysis allows the fraud examiner to base predictions about the probability of a fraudulent situation on reliable statistical information. Fourth, data analysis allows the fraud examiner to search entire data files for red flags of possible fraud. Finally, data analysis can assist the fraud examiner in developing reference files for ongoing fraud detection and investigation work.
A \_\_\_\_\_\_\_\_\_\_\_\_\_\_ interview is one that has the potential to bring about strong emotional reactions in the respondent. A. Volatile B. Chronemic C. Evasive D. None of the above
A volatile interview is one that has the potential to bring about strong emotional reactions in the respondent. Typical volatile interviews involve close friends and relatives of a subject, co-conspirators, and similar individuals. The personality characteristics of those involved in the volatile interview vary. Some individuals are resentful of authority figures, such as fraud examiners and law enforcement officers, by nature. A target’s friends, relatives, and romantic interests often make for a difficult interview. They perceive that the fraud examiner is deliberately targeting someone close to them.
Which of the following is a category of informational interview questions? A. Closed B. Leading C. Open D. All of the above
All of the above
Once the proper format for the interview is set, the interviewer then turns to informational questions to gather unbiased factual information. Typically, the interviewer will ask three types of questions during the fact-gathering portion of an interview: open, closed, and leading.
