Exam Questions Cash Disbursement Schemes Chapter 5

CHAPTER 5

1. In a ____________________, the perpetrator uses false documentation—such as an invoice, purchase order, or credit card bill—to cause his employer to issue payment for some fraudulent purpose.

A. False documentation scheme

B. Billing scheme

C. Skimming scheme

D. Corruption scheme

2. Billing schemes generally fall into one of three categories: shell company schemes, nonaccomplice vendor schemes, and _______________.

A. Personal purchases schemes

B. Check writing schemes

C. Skimming schemes

D. False documentation schemes

3. One basic fraud detection approach is to run a computer query that compares ________________________ to the ___________________ in the accounts payable system.

A. Names of vendors; shell company invoices

B. Invoices; purchase orders

C. Employees’ home addresses; addresses of vendors

D. Employee names; payment authorizers

4. Those with the authority to approve purchases would be among the most likely to engage in ___________ since they have fewer hurdles to overcome than other employees.

A. Personal purchases schemes

B. Skimming schemes

C. False documentation schemes

D. Billing schemes

5. A primary purpose of _________________ is to prevent any one person from having too much control over a particular business function.

A. Separating duties

B. Conducting criminal history checks of employees

C. Oversight and supervision

D. Antifraud training

6. Many times, shell companies schemes involve the purchase of services rather than goods such as “consulting services.” Why is this?

A. Because services have no fixed market price, it is harder to compare value.

B. Because services are often authorized by organizational management, no one questions them.

C. Because services are not tangible, it is more difficult to confirm or deny their receipt.

D. Because services are non-durable, it is more difficult to capitalize them.

7. A subcategory of shell company schemes in which actual goods or services are sold to the victim company are known as pass through-schemes because:

A. The perpetrator has to devise a way to add value to actual goods and services before they pass through to the victim company.

B. The perpetrator has to pass through customs to place stolen funds in offshore bank accounts.

C. The perpetrator has to pass through several layers of internal controls to make the fraud work.

D. The perpetrator purchases actual goods and services which simply pass through a shell company to the victim company at inflated prices.

8. One of the best ways to prevent and detect shell company schemes is to maintain and regularly update a list of:

A. Known shell companies in order to compare names of vendors with it.

B. Approved vendors that should be verified by someone independent of the purchasing function.

C. Offshore banks whose routing numbers can be compared to vendor bank accounts (using the endorsements on cashed checks).

D. Purchases by employees that have no purchasing authority (because no one suspects them).

9. One common red flag useful in detecting fraudulent invoices is.

A. The often poor printing/formatting quality used

B. A lack of detail

C. A disproportionate cost relative to the services rendered

D. An unanticipated/inexplicable vendor discount

10. Sally was a secretary/assistant bookkeeper at a local non-profit food pantry. Part of her duties included opening mail, processing invoices, and authorizing payments. She used her position to intentionally pay some bills twice, then requested that recipients return one of the checks which she then intercepted and subsequently deposited into her own bank account. Sally’s scheme is known as a:

A. Double-bill and intercept scheme

B. Pay-and-return scheme

C. Pass-through scheme

D. Forged maker scheme

11. Prevention of nonaccomplice vendor invoicing schemes is largely dependent on:

A. Purchasing functional controls

B. Hiring honest employees

C. The competence of internal auditors

D. Regular ethics training

12. Dr. Rudding was superintendent of a charter school. Because of his responsibilities, the school issued a credit card to him to use when making certain kinds of purchases (such as travel expenses while on school business). Over time, Dr. Rudding perceived that no one on his board was reviewing the credit card statements, nor was he questioned by anyone in the business department, so he began using the card to fill up his own car, buy coffee on the way to work, and take his wife out to fine dining restaurants. The kind of fraud that Dr. Rudding committed is known as a:

A. Pay-and-return scheme.

B. Pass-through scheme.

C. Shell company scheme.

D. Personal purchasing scheme.

13. The most important step in preventing credit card fraud is ____________________:

A. Conducting thorough review of each credit card statement.

B. Requiring users to obtain a purchase order prior to using the card.

C. Spot checking receipts for appropriateness.

D. Implementing a policy that prohibits users from making personal purchases with company cards.

14. There are five principal methods use to commit check tampering. Which of the following is NOT one of the five?

A. Forged maker schemes

B. Forged endorsement schemes

C. Shell company schemes.

D. Authorized maker schemes.

15. Jed is an accounts payable clerk for a mid-sized office supply company. Although he has access to check stock, he is not a signer. One day he decided to “borrow” some company money to cover some past-due personal bills by forging his boss’s signature on a company check. One of Jed’s biggest challenges will likely be:

A. Facing prosecution if he gets caught.

B. Concealing the forged check from the company.

C. Producing a reasonable facsimile of his boss’s signature.

D. Whether to make the check payable to himself or his wife (using her maiden name).

16. A key to preventing check forgeries is to maintain a strict stet of procedures for the handling of outgoing checks, which include safeguarding blank check stock, establishing rules for custody of checks that have a been prepared but not signed, and _______________________:

A. Separating the duties of check preparation and check signing.

B. Using a signature stamp or mechanical signer.

C. Making checks payable to “Cash”

D. Requiring check signers to reconcile the bank statement

17. A scheme whereby an employee intercepts a company check intended for a third party and converts the check by signing the third party’s name on the endorsement line is known as a ________________ fraud.

A. False purchase requisition

B. Pay-and-return

C. Intercept and conversion

D. Forged endorsement

18. One of the most common breakdowns of internal controls in forged endorsement fraud is:

A. “Rubber stamp”/inattentive supervisors that sign checks without proper scrutiny.

B. Making checks payable to “cash.”

C. Failing to secure blank check stock under lock and key.

D. Returning the signed check to the employee that prepared it.

19. When organization bank statements are reconciled, double endorsements on checks should always raise suspicions, particularly when the second signer is ______________.

A. An employee of the organization

B. A relative of a vendor company key employee

C. A signature stamp or an automated signature

D. A ghost employee

20. James Dunham was the CEO at a small non-profit ministry dependent on donor contributions that sent medical doctors and supplies to Haiti. The name of the non-profit was “Limye Medical Missions” (Limye means light in Haitian Creole). Eventually, the board received a tip from an employee that James had been stealing money from the organization. The investigation revealed that the way James did this was to direct his office staff to place the mail unopened on his desk each day. When James returned from lunch, he entered his office and locked his door and sorted the mail. He placed contributions into two stacks. One stack contained only checks that were made payable to Limye Medical Missions. These were deposited in the ministry’s bank account. The other stack contained checks made payable simply to, “Limye.” To these checks, James simply added the words “and Friends, Inc” on the payee line. The latter were then deposited by James into a shell company bank account called Limye and Friends. The type of check tampering scheme used by James is known as a ___________ scheme:

A. Fraudulent payee

B. Tacking on

C. Payments diversion

D. Forged endorsement

21. Most successful altered payee schemes occur when the person who prepares checks also has:

A. Access to those checks after they have been signed.

B. A knowledge of offsetting debits and credits.

C. A perceived pressure and a perceived opportunity.

D. An unusually close relationship with one or more company vendors.

22. In almost all successful altered payee schemes, the perpetrator was able to prepare checks and __________________.

A. Approve invoices for payment

B. Forge the maker’s signature reasonably well

C. Cash them at a local bank without any suspicions

D. Reconcile the bank statement

23. The most basic way an employee accomplishes an authorized maker scheme is to:

A. Have authority to approve purchases as well as maintain the general ledger.

B. Forge the signature of an authorized signer.

C. Override controls designed to prevent fraud.

D. Appear to be a model employee.

24. Which of the following represents the three main categories of payroll fraud?

A. Ghost employee schemes, falsified hours and salaries schemes, commission schemes.

B. Forged maker schemes, forged endorsement schemes, and personal expense schemes.

C. The act, concealment and conversion

D. Check tampering, erasable ink, and intercepted check schemes

25. For a ghost employee scheme to work, four things must happen: (1) the ghost must be added to the payroll, (2) timekeeping and wage rate information must be collected and submitted for processing, (3) a paycheck must be issued to the ghost, and (4):

A. The check must be delivered to the perpetrator or accomplice.

B. Income tax withholding must be filed in the name of the ghost.

C. An accomplice of the fraudster must cash the check.

D. At least three after-hours specter sitings on company property must have been independently reported in the previous pay period

26. Regardless of how hiring of new employees is handled within a business, it is ___________________ that are in the best position to put ghosts on the payroll.

A. The CEO and CFO

B. The person or persons with authority to add new employees

C. Perpetrators of occupational fraud

D. Supervisors

27. There are four methods by which employees typically abuse the expense reimbursement process. Which of the following is NOT one of these?

A. Mischaracterized expense reimbursements

B. Multiple reimbursements

C. Extravagant expense reimbursements (e.g., flying first class instead of coach)

D. Overstated expense reimbursement

28. In preventing and detecting overstated expense reimbursement schemes, it is particularly important that the organization require:

A. Employees to submit itineraries or travel agency receipts

B. Employees to report their expenses accurately

C. Copies of credit card statements

D. Original receipts for all expense reimbursements

29. There are a number of red flags that may indicate an employee is seeking reimbursement for fictitious travel and entertainment expenses. One of the most common is the employee who claims items—particularly high dollar items—were paid for _________:

A. Without obtaining a receipt

B. In cash

C. Purportedly for business but are actually personal

D. With another employee’s P-card

30. An organization’s accounting system should be set up to _________________ that are coded as travel and entertainment expense.

A. Flag duplicate payment amounts

B. Require original credit card statements in lieu of receipts for expenses

C. Run an automatic Benford analysis on all expenses (especially on 0’s and 5’s)

D. Closely scrutinize expenses

31. Fraudulent cash register disbursement schemes differ from cash register skimming and larceny in that when the money is taken from the cash register:

A. It is always a collusive act involving an employee and an accomplice.

B. It is recorded on the register tape.

C. It results in a credit to inventory because the merchandise was not actually returned.

D. It leaves the victim company’s books in balance.

32. There are two methods that perpetrators who commit fraudulent register disbursements use to impede detection. These are:

A. Model employee and rarely takes vacations.

B. Steal inventory equal to the disbursement and adjusting the perpetual inventory records.

C. Small disbursements and destruction of records.

D. Post a credit to perpetual inventory records and take part in the physical count.

33. The best way for organizations to prevent fraudulent register disbursements is to always maintain ___________________________:

E. A policy permitting cashiers to have access to the register control key.

F. Appropriate separation of duties.

G. Hidden camera surveillance of all cash register areas.

H. Cashier authority for reversing their own transactions (but no one else’s).