Chapter 9 Evidence-Based Fraud Examinations Test Bank

CHAPTER 9

1. To complete a fraud examination, the fraud examiner or forensic accountant needs to answer the essential questions of ____________________ with ________________.

A. Opportunity, motive, and rationalization; conviction

B. Money, ideology, coercion, and ego/entitlement (MICE); clarity

C. Who, what, when, where, and why; evidence

D. Which specific fraud laws were violated; authority

2. You have been hired by the prosecution to provide expert testimony in a fraud case you helped investigate. As you provide answers to key questions around the fraud examination, your testimony will be more convincing to the judge and jury if you:

A. Can articulate a clear opinion about the guilt of the perpetrator(s).

B. Have woven the answers into a coherent storyline grounded in the evidence.

C. Ground your answers in the elements of the fraud triangle, particularly with respect to motive.

D. Omit any reference to evidentiary shortcomings in your testimony.

3. Fraud professionals need to understand that no one is better at generating alternative theories of a case than _____________________.

A. A certified fraud examiner

B. Sophisticated perpetrators with a deep knowledge of accounting

C. Judges that legislate from the bench

D. Opposing attorneys

4. An excellent tool to analyze evidence and develop a compelling storyline is the _______________________.

A. Hypothesis-Evidence Matrix

B. The Fraud Triangle

C. A correlation coefficient of .95 or greater for each variable associated with the fraud

D. Use of software tools such SAS or IDEA geared toward fraud analysis

5. _______________ is defined as the totality of circumstances that would lead a reasonable, professionally trained, and prudent individual to believe that a fraud has occurred, is occurring, or is about to occur.

A. Premonition

B. Prevarication

C. Probable cause

D. Predication

6. Typically, a few _______________ are not in themselves sufficient as a basis for a fraud examination.

A. Red flags

B. Instances of missing cash or other assets

C. Tips with some corroborating evidence

D. Falsified financial reports

7. Auditors and accountants often direct their fraud prevention and deterrence efforts toward using internal controls to minimize _______________ because fraud is highly improbable without it.

A. Perceived pressure

B. Opportunity

C. Competing hypotheses

D. Coercion and entitlement

8. The difference between a mistake and fraud is ____________. If the fraud examiner or forensic accountant cannot prove it, a civil or criminal conviction for fraud most likely cannot be sustained.

A. Perceived pressure

B. Rationalization

C. Intent

D. Ego/entitlement

9. The main benefit of using the elements of fraud in an investigation is that in virtually every fraud or financial crime, ____________________.

A. It eliminates the need to develop a compelling storyline grounded in the evidence

B. Fraudsters use them in attempt to outwit fraud examiners

C. Courts are required to consider the findings admissible

D. The evidence of each element can be developed

10. In fraud cases, evidence of ______________ in particular, provides some of the best circumstantial evidence that the act and conversion (benefits) were intentional.

A. Concealment

B. Motive, intent, concatenate, and elude (MICE)

C. A bribe

D. Rationalization

11. There is a debate in the profession about whether tracing money to a perpetrator’s bank account is sufficient evidence of conversion, or whether the fraud examiner or forensic accountant needs to show how the ill-begotten money was used. Legal precedent indicates that tracing the money into the hands of the perpetrator or his or her bank account is____________________.

A. Insufficient

B. Sufficient

C. More powerful than showing how the perpetrator benefited from it

D. Only useful to the extent that you can show how the money was used

12. Things such as the timing of key transactions, altered documents, concealed documents, destroyed evidence, missing documents, false statements, patterns of suspicious activity, and breaks in patterns of expected activity are examples of ___________________ that may indicate the act, concealment, or conversion in fraud.

A. Predication

B. Direct evidence

C. Circumstantial evidence

D. MICE

13. ___________________ is defined as anything perceivable by the five senses, any proof, such as testimony of witnesses, records, documents, facts, data, and tangible objects, legally presented at trial to prove a contention and to induce a belief in the minds of the jury.

A. Predication

B. Perceptibility

C. The Federal Rules of Evidence

D. Evidence

14. Generally, evidence is admitted at trial provided that: it is relevant to the issue at hand, any probative effect outweighs any prejudicial effect, and the evidence is ________.

A. Direct (rather than circumstantial)

B. Trustworthy

C. Compelling

D. Reasonably conclusive

15. Three types of evidence may be offered at trial: testimony, real, and ____________.

A. Demonstrative

B. Compelling

C. Reliable/trustworthy

D. Non-prejudicial

16. Most fraud and forensic accounting cases are proved with ___________ evidence.

A. Demonstrative

B. Direct

C. Documentary

D. Circumstantial

17. To be admitted at trial, evidence must be shown to have unique identifiers (preferable), or that the chain of evidence has been followed. This process is known as:

A. Verisimilitude certification

B. Authentication

C. Chain of custody audit

D. Invigilation

18. You are a fraud examiner investigating a case involving a large amount of physical evidence (e.g., emails, journal entries, checks, etc.). In addition to having a system for gathering, documenting, organizing, retaining, and retrieving the evidence, you also need to review it for relevance, reliability, and ______________.

A. Validity

B. Demonstrative value

C. Probative value

D. Authenticity

19. In essence, ____________ are where evidence intersects with the tools and techniques of the antifraud and forensic accounting profession.

A. Probative values

B. Red flags

C. Examinations

D. Daubert challenges

20. Analysis of cash flows, analysis of competing hypotheses, consideration of analytical and accounting anomalies, big data and data analytics, consideration of the fraud triangle, use of graphical tools for analysis and communication, internal controls, the control environment and opportunity, interviewing for information and admissions, analysis of nonaccounting and nonfinancial numbers and metrics, financial statement and ratio analysis, consideration of red flags, and analysis of related parties are all examples of:

A. Direct evidence.

B. Methods by which evidence can be assessed for validity and reliability.

C. Board and management responsibilities.

D. Forensic accounting and fraud examination tools/techniques.

21. ___________ evidence is the backbone of most financial forensic examinations.

A. Compelling

B. Demonstrative

C. Documentary

D. Circumstantial

22. _____________ is an examination technique that considers periods before, during, and after a suspected fraud has occurred.

A. Consideration of red flags

B. Invigilation

C. Earnings management

D. Defalcation

23. In a civil case, interviews are most often carried out in the form of ____________.

A. Depositions

B. Negotiations

C. Indictments

D. Covertly recorded conversations

24. You are conducting a fraud examination in which a confidential informant told you that the key suspect purchased a brand new luxury vehicle with cash that was embezzled. Which kind of report should you obtain to verify this?

A. Large Cash Purchase Report (LCPR)

B. Suspicious Activity Report (SAR)

C. Currency Transaction Report (CTR)

D. IRS Form 8300

25. The value of ________, to include “smoking gun” evidence of financial crimes, fraud, motivations for activity, and other information cannot be overstated.

A. Wiretaps

B. Email

C. Video surveillance

D. Confidential informants

26. True big data, data analytics, and data mining software doesn’t just change the presentation, but actually discovers _____________________ among the data.

A. Materiality

B. Fraud schemes

C. Previously unknown relationships

D. Patterns/breaks in patterns

27. According to ACFE research, ______________________ are the most common concealment methods for all three categories: asset misappropriation, corruption, and financial reporting fraud.

A. Creating fraudulent documents and altering physical documents

B. Creating fraudulent transactions in the accounting system

C. Creating fraudulent electronic documents or files

D. Creating fraudulent audit records

28. Accounting books and records that are found during the course of an examination to have been altered provide compelling evidence of ______________.

A. Concealment

B. Conversion

C. Concatenation

D. Collusion

29. You are a fraud examiner who is investigating a suspected embezzlement. As you comb through the general ledger looking for debit entries to offset credits to cash, which account of those listed below is the most commonly used in concealment in such cases?

A. Debits to equity

B. Debits to liabilities

C. Debits to expense accounts

D. Debits to revenues

30. The most common means for hiding real estate and business ownership is to __________________________________________.

A. Place the titles in an undisclosed safe deposit box

B. Make payments to insurance policies from unknown accounts

C. Pay down mortgages without running the payments through known bank accounts

D. Transfer those assets to another party over which the person holding the assets has some element of control

31. Using indirect methods to estimate assets controlled by an entity, or income to an entity, is referred to as ________________.

A. “financial ghosting”

B. “financial profiling”

C. “intrusion upon seclusion”

D. “conjectural accounting”

32. The primary challenge related to using financial profiling methods is the _________________________________________.

A. Amount of legwork involved in developing sources of information

B. Difficulty in dealing with offshore banks and foreign laws

C. Identification of shell company beneficial owners

D. Difficulty in accessing tax returns without a court order

33. The _________________ provides circumstantial evidence that amounts paid for assets and expenditures exceed income from known sources for a given period of time.

A. Bank records method

B. Invigilation method

C. Net worth method

D. Lifestyle analysis method

34. In preparing to rebut defenses to cash from unknown sources, the fraud examiner should develop an evidence trail, if possible, which suggests that defenses are not feasible. Four common defenses to unknown sources of cash include the assertion that the cash was: accumulated in prior periods, obtained by gift or inheritance, obtained from loan proceeds, or a result of:

A. Selling some other asset (such as a painting)

B. Foreign held investments

C. Frugality

D. Lottery or gambling winnings

35. The primary benefits of using public sources of data such as the local county courthouse, database searches, Internet searches, and other extra-organizational sources of data are that open sources of data provide evidence of conversion, and can be useful in ________________________.

A. Cases where the perpetrator deals mostly in cash

B. Expressing an opinion of guilt grounded in the evidence

C. Developing new leads

D. Investigating high profile suspects