Chapter 6 Corruption and the Human Factor Test Bank Docx

CHAPTER 6

1. In the ACFE Fraud Tree, corruption schemes are broken down into four classifications. Which of the following is NOT one of the four?

A. Bribery

B. Bid rigging

C. Economic extortion

D. Conflict of interest

2. Offering, giving, receiving, or soliciting anything of value to influence an official act is the definition of:

A. Bribery

B. Economic extortion

C. Bid rigging

D. Illegal gratuity

3. The key difference between bribery and commercial bribery is that in cases of commercial corruption:

A. Something of value is offered to influence to a government agent in order to influence a business decision

B. Something of value is offered to reward a transaction rather than influence it

C. Something of value is offered to influence a business decision rather than an official act of government

D. Something of value is offered to reward a government decision rather than to influence it

4. Conflicts of interest are essentially different from bribery, illegal gratuities, and economic extortion cases in that a conflict of interest occurs when an employee, manager, or executive, has ________________________________.

A. An undisclosed economic or personal interest in a transaction that adversely affects the organization.

B. A relative with less than two degrees of consanguinity serving on the organization’s board of directors.

C. Materially benefited from a business transaction whose profits should have gone to his/her organization.

D. An officer/director position on the board of another company with which the employing organization does business (e.g., purchasing insurance)

5. Bribery schemes generally fall into two broad categories:

A. Governmental acts and commercial decisions

B. Conflict of interest and self-dealing schemes

C. Kickbacks and bid-rigging schemes

D. Bribery and corruption schemes

6. In a kickback scheme, the funds come directly from:

A. The victim company

B. A nonaccomplice vendor

C. An accomplice vendor

D. Employees with purchasing authority

7. Internal auditors for Stuff You Need for Your House, Inc., uncovered what appears to be a kickback scheme amounting to some $30,000 in over-billing by a vendor in the previous 18 months. The company has contacted you to investigate the fraud in order to identify the perpetrator(s). All things being equal, which of the following employees is likely to be involved?

A. The purchasing manager

B. A ghost employee

C. The warehouse manager

D. The head of accounts receivable

8. Ted is Director of External Affairs for a large pharmaceutical company. Part of his responsibilities include coordinating the company’s national lobbying efforts in order to create more favorable business conditions for the operations of its six regional distribution centers. If Ted decides to create a slush fund with company money in order to provide bribes and gratuities for legislators and others, which way would he most likely use to generate the necessary money for the slush fund?

A. Use cash from falsified travel and entertainment expenses

B. Divert funds from nonaccomplice vendors engaged in overbilling schemes

C. Approve the formation of an offshore shell company through an entity such as Mossack Fonseca

D. Divert funds to lobbyists through invoices for “consulting fees,” “referral fees,” “commissions,” or the like

9. By regularly monitoring the prices paid for good and services as compared to market rates, which type of fraud is an organization trying to detect?

A. Gouging schemes

B. Kickback schemes

C. Commission schemes

D. Bribery schemes

10. Because any examination of a kickback scheme will likely necessitate a review of the corrupt vendor’s books, all contracts with supplies should contain a _____________ clause.

A. “right to independent counsel"

B. “right to terminate without cause”

C. “right to audit”

D. “right to be reimbursed for kickbacks”

11. _________________ is a process by which several bidders conspire together to split up contracts and ensure that each gets a certain amount of work.

A. Bid phishing

B. Bid pooling

C. Bid peaking

D. Bid conspiring

12. Payments to offshore bank accounts in cash or by wire; undocumented business entertainment expenses; unusual payments for commissions, loans, temporary employees and directors’ fees are red flags associated with possible:

A. Shell company schemes

B. Bid rigging

C. FCPA violations

D. Economic extortion

13. The UK Bribery Act parallels the FCPA in many aspects, however, one key difference is that the former provides no exception for ________________________.

A. Facilitating payments (for things such as obtaining permits)

B. UK citizens acting outside of the UK

C. Bribery of public officials

D. An unduly complex legal or banking structure

14. Illegal gratuities are similar to bribery schemes except there is not necessarily:

A. A code of ethics violation for most companies and government employees

B. Economic extortion

C. Intent to influence a particular business decision

D. A cash payment

15. Economic extortion is basically the flip side of a bribery scheme.

A. Instead of an illegal gratuity, the payment comes with an explicit or implied threat to harm the vendor unless they capitulate to demands.

B. Instead of a vendor offering a payment to an employee to influence a decision, the employee demands a payment from a vendor in order to make a decision in that vendor’s favor.

C. Instead of a private company, the payment comes with an explicit or implied threat to harm a government employee unless they capitulate to demands.

D. Instead of cash, “rewards” such as free international vacation may be used.

16. The majority of conflict of interest schemes fit into one of two categories:

A. Purchasing schemes and sales schemes

B. Bribery and illegal gratuities

C. Conflict of interest and economic extortion

D. Kickback and “pay it forward” schemes

17. The majority of conflict schemes are:

A. Not necessarily tied to an economic interest

B. Undisclosed

C. Purchasing schemes

D. Sales schemes

18. The majority of conflict schemes are ___________ schemes, and the most common of these is the _____________ scheme.

A. Billing; extortion

B. Undisclosed; purchasing

C. Purchasing; billing

D. Sales; gratuities

19. Not every false billing scheme is categorized as a conflict of interest. For a scheme to be classified as a conflict of interest:

A. The relationship with the vendor company has to be disclosed in advance unless the cost of goods are cheaper.

B. The employee (or a friend or relative of the employee) must have some ownership or employment interest in the vendor that submits the invoice.

C. The employer has an undisclosed conflict of interest in one or more a shell companies.

D. The fraudster’s intent is unlawful in a conflict of interest scheme, whereas in a false billing scheme, they are merely unethical.

20. Shell company schemes are classified as:

A. Economic extortion

B. Undisclosed relationship schemes

C. False billing schemes

D. Conflict of interest schemes

21. A short rule of thumb that can be used to distinguish between overbilling schemes that are classified as asset misappropriations and those that are conflicts of interest: if the bill originates from a ______________ in which the fraudster has an economic or personal interest, and if the fraudster’s interest in the company is undisclosed to the victim company, then the scheme is a conflict of interest.

A. Real company

B. Shell company

C. Offshore bank

D. Nonaccomplice vendor

22. A board member of a school voted in favor of the school doing a bond issue to acquire a multi-million-dollar piece of property for a future campus. It was later discovered that the board member’s wife had part-ownership in the property, a fact that the board member never disclosed to the school. What kind of fraud scheme did the board member perpetrate?

A. A conflict of interest scheme

B. A false billing scheme

C. A bid rigging scheme

D. A duty of care scheme

23. Bob was CFO for a chain of Lucky Clucky chicken franchises owned by Tim. By virtue of Bob’s position as CFO, he knew that Tim was planning to open another store in a particular location. Bob hurriedly created a shell company using his wife’s maiden name as the beneficial owner and then purchased the location. The shell company then resold the property to Tim’s company a few weeks later for a greasy little profit of $172,000. What kind of purchasing scheme did Bob commit?

A. A business diversion scheme.

B. None. It’s a free market.

C. A resource diversion scheme.

D. A turnaround sale

24. _______________ are violations of the rule that a fiduciary, agent, or employee must act in good faith, with _______________, in the best interest of the principal or employer.

A. Conflict of interest schemes; full disclosure

B. Purchasing schemes; clear intent

C. Shell company schemes; full transparency

D. Ethical lapses; proper duty of care

25. To detect conflicts of interest, organizations should concentrate on establishing ________________ to receive tips and complaints.

A. A whistle-blower protections policy

B. Robust internal controls

C. An anonymous reporting mechanism

D. A segregation of duties policy

26. In any antifraud effort, we must always keep in mind that _________________ will deter occupational fraud; we must attack the problem _________________.

A. Nothing can ultimately; from a psychological point of view

B. Fostering trust in employees; with a presumption of goodwill

C. No one factor; on several fronts

D. It is people who will ultimately; through anti-fraud training and internal controls

27. The deterrence of occupational fraud and abuse begins in the _______________.

A. Classroom

B. Implementation of sound internal controls

C. Hiring process

D. The employee’s mind

28. There are at least six positive steps that organizations can employ to increase the perception of detection: employee education, proactive fraud policies, a higher stance, increased use of analytical review, surprise audits where feasible, and _____________.

A. Anti-fraud messaging (such as posters) displayed throughout the organization

B. Adequate reporting programs

C. Foster a climate of trust

D. Prosecute offenders

29. Fraud reporting programs should emphasize at least six points: fraud, waste, and abuse occur at some level in nearly every organization; this problem cost jobs, raises, and profits; the organization actively encourages employees to come forward with information; there are no penalties for furnishing good-faith information; there is an exact method for reporting, such as a telephone number or address; and ________________.

A. Incentives offered for information leading to successful prosecution of fraudsters

B. Mandatory participation in regular anti-fraud training

C. A report of suspicious activity does not have to be made to the employee’s immediate supervisor

D. Adequate compensation (to deter wages in kind motivated frauds)

30. According to the ACFE’s Report to the Nations, _________________________(i.e., employees, vendors, customers, and anonymous individuals) are the most common means by which occupational fraud is detected.

A. Surprise audits of

B. Tips from various sources

C. Confessions by individuals

D. Red flags observed among