Chapter 14 Exam Questions Antifraud Ethics & Prevention

CHAPTER 14

1. Ethics has certain key elements. Which of the following is NOT one of the four described elements in the text?

A. Ethics involves questions requiring reflective choice and their consequences to the individual and others (decision problems).

B. Ethics is often a useful guide for determining a course of action that is technically correct but that might be otherwise considered imprudent or unlawful

C. Ethics is concerned with outcomes, the assigned impact associated with making a decision where the impact reflects the underlying values of individuals and organizations.

D. Ethics considers the rules and regulations that are in place to guide behavior as well as the consequences for breaking those rules and regulations.

2. Three ethical principles were discussed in the text: (1) The imperative principle, (2) the utilitarian principle, and (3) ____________________________.

A. The generalization principle

B. The situational principle

C. The societal principle

D. The moral norm principle

3. Professions are set apart by five characteristics. Which of the following is NOT one of the five characteristics listed in the text?

A. Standards of conduct for dealing with the public, other professionals, and clients

B. A specialized body of knowledge

C. Mandatory certification or licensure of professional practitioners

D. An organizational body devoted to the advancement of responsibilities for the profession

4. Certified Fraud Examiners (CFE), as designated by the Association of Certified Fraud Examiners (ACFE), have a code of ethics. Which of the following is NOT one of the eight elements of that code?

A. A Certified Fraud Examiner, in conducting examinations, will obtain evidence or other documentation to establish a reasonable basis for expressing opinions regarding the guilt or innocence of applicable persons or parties.

B. A Certified Fraud Examiner shall not engage in any illegal or unethical conduct, or any activity which would constitute a conflict of interest.

C. A Certified Fraud Examiner shall continually strive to increase the competence and effectiveness of professional services performed under his or her direction.

D. A Certified Fraud Examiner will comply with lawful orders of the courts, and will testify to matters truthfully and without bias or prejudice.

5. __________ is the foundation for fraud deterrence and prevention both by individuals within an organization and by the organization itself.

A. Training

B. Internal controls

C. The tone at the top

D. Ethics

6. Ethics at the organizational level starts with __________________.

A. Sound hiring practices

B. Corporate governance

C. Senior management

D. Training

7. The first step in developing an ethical culture is __________________________.

A. A code of ethics signed by all personnel

B. To conduct criminal background checks on key employees

C. To establish a thorough antifraud training program

D. A fraud-risk assessment using COSO standards

8. One of the most effective antifraud deterrents is a hotline to receive anonymous tips from employees, customers, suppliers, vendors, contractors and others. According to the 2016 ACFE Report to the Nations, tips and accidental discovery account for almost ___ of fraud detection.

A. 80%

B. 64%

C. 40%

D. 15%

9. Creating an antifraud environment also means minimizing opportunities for fraud. To accomplish this goal, companies need to establish and maintain a good internal control environment; _________________________; alert vendors and contracts to company policies; create tip hotlines; create expectations that fraudsters will get caught and will be punished; and proactively audit for fraud.

A. Select a competent external auditor

B. Conduct criminal background checks on key employees

C. Perform antifraud training on a regular basis

D. Monitor employee relationships for collusive potential

10. Best practices to deter fraud include ___________, surprise audits and reviews, open-door policies by upper-level management, and ___________ of internal controls.

A. Job rotation; periodic testing

B. Criminal background checks on key personnel; annual review

C. Antifraud training; widespread dissemination

D. A fraud risk management assessment; evaluating the effectiveness

11. The who, what, where, when, how, and why are questions fraud examiners and forensic professionals often investigate once fraud is discovered. Those same attributes need to be considered, proactively, ________________________.

A. At the commencement of each audit cycle

B. As companies develop their antifraud environment

C. When tips are reported or allegations of fraud are made

D. Before shareholders invest their money

12. According to longitudinal research by the Ethics & Compliance Initiative (ECI), the most common form of ethical misconduct is leadership _________________________.

A. Having failed to take fraud risk seriously within the organization

B. Having been observed lying to employees and external stakeholders

C. Saying one thing but doing another (i.e., contradiction between words and behavior)

D. Perpetrating financial statement fraud

13. According to longitudinal research by the Ethics & Compliance Initiative (ECI), misconduct drops substantially when organizations have ____________ in place. Yet, only one in five employees [surveyed] indicate that their company had such.

A. Strong cultures

B. Strong leaders

C. Strong antifraud training

D. Strong reporting mechanisms

14. The text provides a five-step approach to compliance, fraud prevention, deterrence, and detection. Which of the following is NOT one of those five steps?

A. Know the exposures (brainstorming, risk assessment, audit planning)

B. Translate exposure into likely symptoms

C. Treat every red flag seriously because most indicate some kind of fraud

D. Pursue symptoms to their logical conclusion and ground examination conclusions in the evidence (evidence-based decision-making)

15. A robust compliance program helps an organization to _____________ and improve ______________,

A. Satisfy PCAOB obligations; its bottom line

B. Understand its obligations; its performance

C. Manage operational risks; shareholder relationships

D. Proactively identify risks; ethical behavior

16. The expectation of good governance and compliance efforts requires the attention of the _______________________________, to ensure overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or not-for-profit) and regardless of relative size or industry.

A. Organization’s board of directors or equivalent oversight body

B. CEO and CFO

C. Internal and external auditors

D. Employees across all levels of the organization

17. Robust policies and processes are __________ efficiency and effectiveness.

A. Useful but not always essential to operational

B. Critical elements of compliance

C. Sometime inadvertent impediments to organizational

D. Required for compliance but may not necessarily improve operational

18. Generally, compliance issues need to be examined ______________________ the allegation.

A. At one level higher than the level of

B. In light of who makes

C. Relative to the likelihood of

D. That will validate or invalidate

19. With respect to organizational compliance, the text recommends being proactive, as well as following three best practices including communicating expectations, training employees in areas important for organizational compliance, and __________________________.

A. Pursuing symptoms to their logical conclusion and ground examination conclusions in the evidence (evidence-based decision-making)

B. Ensuring overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or not-for-profit) and regardless of relative size or industry

C. Making available a variety of reporting mechanisms, including anonymous tip hotlines

D. Knowing the exposures (brainstorming, risk assessment, audit planning)

20. Internal controls and fraud prevention efforts are not always _______________. In essence, the perceived benefits of prevention do not, or may not, exceed the costs of setting up robust prevention efforts. In some cases, while the cost of prevention is known, the benefits of prevention are much harder to quantify.

A. Effective at their intended purposes

B. Leadership’s most effective tools

C. Cost-effective

D. Welcomed by board and management as necessary

21. Anecdotally, fraud deterrence is centered on two ideas: (1) the fear of getting caught, and (2) _____________________.

A. The fear of getting punished

B. A way for people to report tips anonymously

C. Internal controls

D. Accountability

22. Deterrence efforts should include detection controls (e.g., supervisory reviews, surprise audits). Such efforts ________________________ would-be fraudsters are likely to get caught.

A. Prove

B. Create the perception that

C. Aren’t necessary in every size of organization, even though they suggest that

D. Encourage reporting by assuring tipsters that

23. One key aspect of effective deterrence is that the organization’s antifraud efforts need to be ________________.

A. Researched (in line with best practices)

B. Communicated

C. Critically evaluated by the board and management as to their effectiveness over time

D. Assessed by internal and external auditors

24. It’s the _____________ of those at the top that is more effective in encouraging personnel at all levels to act appropriately.

A. Conduct

B. Message

C. Authority

D. Accountability

25. The primary role of corporate governance is to ___________ investors, create long-term shareholder value, ensure investor confidence, and support strong and efficient capital markets.

A. Attract

B. Be a conduit for

C. Retain

D. Protect

26. The text list six mechanisms for effective corporate governance. Which of the following is NOT one of those six?

A. An organizational code of conduct supported by an embedded culture of honesty and ethical behavior

B. An independent and empowered board of directors

C. The offices of board president and CEO residing with the same individual

D. Effective legal and regulatory compliance and risk assessment

27. The _______________ fulfills its risk management responsibility by monitoring the organization’s effort to identify, prioritize, and respond to organizational risks.

A. Internal auditing department

B. Public relations team

C. External auditor

D. Audit committee

28. The words and actions of organizational leadership need to communicate the following: compliance is expected, fraud is not tolerated, fraudulent/unethical behavior is dealt with swiftly and decisively, and _________________________________.

A. Whistleblowers will not suffer retribution

B. Prosecution is to be expected

C. No one, including leadership, is above the law

D. Antifraud is everyone’s responsibility

29. Professional skepticism includes three key points: (1) A recognition that fraud, illegal acts, and unethical behavior may be present, (2) an attitude that includes a questioning mind and a critical assessment of audit evidence to carefully examine red flags, and (3) a commitment to _________________________________.

A. Striving to increase the competence and effectiveness of professional services performed under his or her direction.

B. Persuasive evidence (whether or not fraud or some other bad act is present)

C. Ensuring overall ethical behavior in the organization, regardless of the type of organization (public, private, government, or not-for-profit) and regardless of relative size or industry

D. Effective legal and regulatory compliance and risk assessment

30. One of the keys to fraud deterrence is to prevent, to the extent possible, applicants who have a demonstrated track record of ___________________ from becoming employees.

A. Less than satisfactory job performance

B. Related parties transactions

C. Improper conduct, unethical behavior, or prior frauds

D. Being uncooperative

31. In terms of closing down the fraud triangle role of _______________, accountants properly trained and motivated, are integral to effective compliance and antifraud efforts.

A. Concealment

B. Motive

C. Rationalization

D. Opportunity

32. An effective fraud risk management and compliance program is at the heart of fraud deterrence. According to the Fraud Risk Management Guide, such a program has ten key points of focus. Which of the following is NOT one of those ten keys?

A. The organization and its leadership must demonstrate a commitment to compliance and an antifraud program.

B. Disclosures of conflict-of-interest situations result in automated action. A conflict of interest involves “a situation in which a person is in a position to derive personal benefit from actions or decision made in their official capacity.”

C. Organizational leaders and stakeholders are asked to acknowledge and affirm their commitment to compliance and effective antifraud efforts by reading, understanding, complying, and signing documentation.

D. Compliance and fraud risk management evaluation improvement activities are designed to ensure high-quality programs.

33. Dr. Steve Albrecht references six types of anomalies that should be investigated at the earliest point of recognition: accounting anomalies, weak internal controls, analytical anomalies, lifestyle symptoms, _______________, and tips from potential informants.

A. Behavior symptoms

B. Related parties transactions

C. Prior convictions

D. Non-shareable financial pressures

34. Fraud prevention involves deploying tools and techniques designed to ensure that _________________ cannot occur.

A. False-positive red flags

B. Collusion

C. Corruption

D. A particular fraud

35. The fundamental internal controls are designed and implemented based on the separation of duties among ________ “employees.”

A. Accounting

B. All

C. Four

D. Independent

36. Process controls are consistent with the notion of deterrence, including the perception that fraud acts will be discovered. As noted in the fraud deterrence module, basic process controls include (1) accounting reconciliation, (2) independent reviews, approvals and sign-offs. (3) physical inspections/counts, (4) Analyses (expectations/relationships), and (5) _________________.

A. Signed code of conduct agreements (or ethics)

B. Pre-employment screening

C. Antifraud training

D. Audits (periodic and surprise)