, SOLUTION MANUAL FOR Fraud Examination 7th Edition Albrecht
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, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Solution and Answer Guide
ALBRECHT, FRAUD EXAMINATION, 7E, ©2025, 9780357721759; CHAPTER 1: THE NATURE OF
FRAUD
CONTENTS
Discussion Questions.................................................................................................................3
True/False .................................................................................................................................... 7
Multiple Choice............................................................................................................................9
Short Cases ............................................................................................................................... 13
Case 1 ..................................................................................................................................... 13
Case 2 ..................................................................................................................................... 14
Case 3 ..................................................................................................................................... 15
Case 4 ..................................................................................................................................... 15
Case 5 ..................................................................................................................................... 15
Case 6 ..................................................................................................................................... 16
Case 7 ..................................................................................................................................... 16
Case 8 ..................................................................................................................................... 17
Case 9 ..................................................................................................................................... 17
Case 10 ................................................................................................................................... 18
Case 11 ................................................................................................................................... 18
Case 12 ................................................................................................................................... 19
Case 13 ................................................................................................................................... 19
Case 14 ................................................................................................................................... 19
Case 15 ................................................................................................................................... 20
Case 16 ................................................................................................................................... 20
Case 17 ................................................................................................................................... 20
Case Studies..............................................................................................................................21
Case Study 1 ........................................................................................................................... 21
Case Study 2: Sweepstakes—legitimate or deceptive? .......................................................... 23
Case Study 3: Trading after Hours .......................................................................................... 24
Case Study 4 ........................................................................................................................... 25
Debate ..................................................................................................................................... 26
Answers to Stop and Think Questions: .................................................................................. 26
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Internet Assignment..................................................................................................................27
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
DISCUSSION QUESTIONS
1. What is fraud?
Answer: Fraud always involves deception, confidence, and trickery. The following is one of the
most common definitions of fraud:
a. “Fraud is a generic term, and embraces all the multifarious means that human ingenuity can
devise, which are resorted to by one individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down as a general proposition in
defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is
cheated. The only boundaries defining it are those which limit human knavery.”
Fraud is deception that includes the following elements:
1. A representation
2. About a material point
3. That is false
4. Intentionally or recklessly so
5. That is believed
6. And acted upon by the victim
7. To the victim’s damage
2. How does fraud affect individuals, consumers, and organizations?
Answer: Fraud affects individuals, consumers, and organizations in various ways. Fraud usually
lowers organizations’ net income dollar for dollar. To recover these costs, consumers and
individuals must pay more for goods and services. For example, health care fraud and insurance
fraud increase premiums that individuals must pay. The cost of fraud eventually reaches every
part of the economy, including individuals, consumers, and organizations.
The 2008 study by The Association of Certified Fraud Examiners estimates that U.S.
organizations lose roughly 7 percent of their annual revenues to fraud. Applied to the U.S. gross
domestic product (GDP), this 7 percent figure translates to approximately $994 billion in fraud
losses.
3. List and describe the five different types of frauds.
Answer:
a. Employee embezzlement: In this type of fraud, employees deceive their employers by
taking company assets. Embezzlement can be either direct or indirect.
b. Management fraud: Distinguished from other types of fraud both by the nature of the
perpetrators and by the method of deception. In its most common form, management fraud is
deception perpetrated by top management’s manipulation of financial statements. The victims
of management fraud are typically stockholders, lenders, and others who rely on financial
statement information.
c. Investment scams or consumer scams: A type of fraud that is perpetrated when fraudulent
and usually worthless investments are sold to unsuspecting investors.
d. Vendor fraud: Perpetrated by vendors; comes in two main varieties: fraud perpetrated by
vendors acting alone, and fraud perpetrated through collusion between buyers and vendors.
Vendor fraud usually results in an overcharge for purchased goods, the shipment of inferior
goods, or the nonshipment of goods even though payment was made.
e. Customer fraud: Usually involves customers not paying for goods purchased, getting
something for nothing, or deceiving organizations into giving them something they should not
have.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 3
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
4. What is the difference between civil and criminal law?
Answer:
a. Criminal law is the branch of law that deals with offenses of a public nature. Criminal laws
generally deal with offenses against society as a whole. Violators of criminal laws are
prosecuted either federally or by a state for violating a statute that prohibits some type of
activity.
b. Civil law is the body of law that provides remedies for violations of private rights. Civil law
deals with rights and duties between individuals. The purpose of a civil lawsuit is to provide
compensation for harm done to an individual. Unlike criminal cases, where juries consist of
12 jurors, juries in civil cases may have as few as six jurors, and the verdict of the jury need
not be unanimous. Additionally, judges often hear civil cases instead of juries. In civil
lawsuits, plaintiffs must only prove their case by the “preponderance of the evidence.” In
other words, there need be only slightly more evidence supporting the plaintiff than
supporting the defendant.
5. For each of the following, indicate whether it is a characteristic of a civil or a criminal case:
a. Jury may consist of fewer than 12 jurors.
b. Verdict must be unanimous.
c. Multiple claims may be joined in one action.
d. Proven “beyond a reasonable doubt.”
e. Purpose is to right a public wrong.
f. Purpose is to obtain remedy.
g. Consequences of jail and/or fines.
h. Juries may have a less than unanimous verdict.
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. Why was Charles Ponzi so successful with his fraud scheme?
Answer: Charles Ponzi was successful for several reasons. First, Charles Ponzi built confidence
in his scheme by giving early investors a return on their initial investments. Second, Charles
Ponzi presented his coupon scheme in a way that was easy for investors to understand. Although
the coupon scheme never made any real profits, investors believed that it had. Third, Ponzi was
extremely talented at manipulating victims’ emotions. Ponzi was able to capitalize on individuals’
greed. When people began to see their friends and family members receive dividends from
investments, they too wanted in on the investment scam.
7. What are some of the different types of fraud-fighting careers?
Answer: As the number of frauds and the amounts of fraud losses increase, so do the
opportunities for successful careers in fraud prevention and detection. In Chapter 1, we have
listed five areas in fraud fighting that will be rewarding and have high demand in the future. They
include the following:
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 4
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
a. Government: This includes FBI, postal inspectors, Criminal Investigation Division of the IRS,
U.S. marshals, inspectors general of various governmental agencies, state investigators, and
law enforcement officials.
b. CPA firms, forensic accounting firms, litigation support firms, and law firms: These
individuals will conduct investigations, support firms in litigation, do bankruptcy-related fraud
work, serve as expert witnesses, consult in fraud prevention and detection, and provide other
fee-based work.
c. Corporations: Individuals who work for corporations will prevent, detect, and investigate
fraud within a company. This category includes internal auditors, corporate security officers,
and in-house legal counsels.
d. Lawyers: Lawyers will defend or prosecute organizations in civil and criminal cases.
e. Consulting: University professors, hospital management, technology corporations, and the
like. People who work in these areas will consult, serve as expert witnesses, extract evidence
from computers and servers, investigate public records, and serve on grand or trial juries.
8. How do employee fraud and management fraud differ?
Answer: When employee fraud takes place, employees deceive their employers by taking
company assets. Management fraud is distinguished from employee fraud and other types of
fraud in that top management typically commits it to deceive financial statement users. Employee
fraud is usually committed against an organization, whereas management fraud is perpetrated on
behalf of an organization.
9. Do you think the demand for careers in fraud prevention and detection is increasing or
decreasing? Why?
Answer: As the numbers of frauds committed and the total dollar amounts lost from fraud
increase, the demand for careers to prevent and detect such fraud will increase. In fact, a few
years ago, Fortune magazine identified forensic accounting or fraud examination as one of the
fastest growing and most financially rewarding careers. The American Institute of Certified Public
Accountants recently touted forensic accounting/fraud examination as one of the six fastest
growing and most profitable opportunities for accountants.
10. Why are accurate fraud statistics hard to find?
Answer: First, it is impossible to know what percentage of fraud perpetrators are actually caught.
Are there perfect frauds that are never discovered, or are all frauds eventually exposed? Second,
many frauds that are discovered are handled quietly within the victim organizations and are never
made public. In many cases, companies merely hide frauds due to public relations concerns and
terminate or transfer perpetrators quietly.
11. Describe the relationship between fraud, net income, profit margin, and the revenue required to
make up for fraud losses.
Answer: Losses incurred from fraud reduce a firm’s income on a dollar-for-dollar basis, reducing
net income by $1 for every dollar that is lost to fraud. To make up for the damage fraud does to
net income, a company has to have much more revenue come in. For example, if a company has
a profit margin of 10%, to make up for a $1,000,000 fraud, the company would have to have
additional revenue of $10,000,000.
12. Why does it usually require trust for someone to be able to commit a fraud?
Answer: Since confidence is typically needed for fraud to occur, people who are not trusted will
not be in a position to commit a fraud.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 5
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
13. In what ways is the Ponzi scam similar to other frauds?
Answer: While answers may vary, the following is one possible answer: The case of Charles
Ponzi involved deception, greed on behalf of the investors and the perpetrator and confidence in
the perpetrator. These are traits that are common in many different cases of fraud.
14. In your own words describe a CFE.
Answer: The Association of Certified Fraud Examiners (ACFE) provides the opportunity for
individuals to become a Certified Fraud Examiner or “CFE”. CFEs are considered to be leaders in
the anti-fraud community and have recognition as such throughout the world. They represent the
highest standards held by the ACFE and possess expertise in all aspects of the antifraud
profession. The CFE designation is acknowledged globally and preferred by many employers.
The ACFE states that becoming a CFE immediately sets an individual apart from others and
launches that person to the top of the profession.
15. In your own words describe the purpose of the ACFE.
Answer: Although answers may vary, the following is one possible answer: When an individual
becomes a CFE, he or she automatically becomes a member of the ACFE. The ACFE is the
world’s largest anti-fraud organization and the premier provider of anti-fraud training and
education. Together with more than 70,000 members throughout the world, the ACFE works
toward the reduction of fraud and corruption around the globe.
16. A romance scam is usually perpetrated using a computer with the perpetrator pretending to be in
love with the victim and finding ways to get them to send the perpetrator money. Romance scams
can also be perpetrated in person, but most are done online. The romance scam explained at the
beginning of the chapter with the perpetrator acting through the SilverSingles website is a typical
romance scam.
TRUE/FALSE
1. All frauds that are detected by organizations are made public.
Answer: False. In many cases, companies merely hide the frauds to avoid public relations issues
and quietly terminate or transfer perpetrators rather than make them public.
2. Perpetrators use trickery, confidence, and deception to commit fraud.
Answer: True
3. One of the most common responses to fraud is disbelief by those around the fraud.
Answer: True
4. Manufacturing companies with a profit margin of 10 percent must usually generate about 10 times
as much revenue as the dollar amount of the fraud in order to restore net income to its pre-fraud
level.
Answer: True
5. Fraud involves using physical force to take something from someone.
Answer: False. Using physical force to take something from someone is robbery. Fraud involves
deceit or trickery, not force.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 6
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
6. Identity theft is an example of employee embezzlement.
Answer: False. Identity theft is stealing someone's personal information so the thief can pretend
to be that person.
7. When perpetrators are criminally convicted of fraud, they often serve jail sentences and/or pay
fines.
Answer: True
8. Management fraud is deception perpetrated by an organization’s top management.
Answer: True
9. A Ponzi scheme is considered to be a type of investment scam.
Answer: True
10. Most people agree that fraud-related careers will be in demand in the future.
Answer: True
11. In civil cases, fraud experts are rarely used as expert witnesses.
Answer: False. In civil cases, fraud experts often serve as expert witnesses.
12. Many companies try to hide their losses from fraud rather than make them public.
Answer: True
13. The only group/business that must report employee embezzlement is the federal government.
Answer: False. Banks are required to report their frauds to the government because of their
FDIC Insurance.
14. Advances in technology have had no effect either on the size or frequency of fraud or on the
detection or investigation of fraud.
Answer: False. Technology has tended to increase the size and frequency of frauds committed.
15. Fraud losses generally reduce a firm’s income on a dollar-for-dollar basis.
Answer: True
16. The single most critical element for a fraud to be successful is opportunity.
Answer: False. Confidence is the single most critical element for a fraud to be successful.
17. Fraud perpetrators are often those who are least suspected and most trusted.
Answer: True
18. Unintentional errors in financial statements are a form of fraud.
Answer: False. Unintentional errors in the financial statements are not considered fraud. There
must always be "intent" for something to be fraud.
19. Occupational fraud is fraud committed on behalf of an organization.
Answer: False. Occupational fraud is usually committed against an organization.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 7
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
20. Companies that commit financial statement fraud are often experiencing net losses or have
profits that are significantly lower than expectations.
Answer: True
21. Indirect fraud occurs when a company’s assets go directly into the perpetrator’s pockets without
the involvement of third parties.
Answer: False. Direct fraud does not involve third parties; indirect fraud involves a third party.
22. In vendor fraud, customers don’t pay for goods purchased.
Answer: False: Customer fraud involves a customer who does not pay for goods or services.
Vendor fraud involves a vendor who provides inferior goods, overcharges, or pays bribes to get
favored treatment.
23. A negative outcome in a civil lawsuit usually results in jail time for the perpetrator.
Answer: False. Only criminal lawsuits result in jail time for the perpetrator. Negative outcomes in
civil lawsuits result in restitution and damage payments.
24. When fraud is committed, criminal prosecution usually proceeds before civil litigation.
Answer: True
25. A fraud may be perpetrated through an unintentional mistake.
Answer: False. One of the seven elements of a fraud is that the deception must be intentional.
26. It is most often people who are not trusted who commit fraud.
Answer: False. Fraud perpetrators come in all kinds and varieties, but always have to be trusted.
If they did not have the trust of their victims, they would not have been put in a position where
they could commit a fraud.
27. Management fraud is when managers intentionally deceive their employees about the potential of
raises, vacations, and other perks.
Answer: False: Management fraud most often means the deceptive manipulation of a company’s
financial statements.
28. Despite intense measures meant to impede it, fraud appears to be one of the fastest-growing
crimes in the United States.
Answer: True
29. The ACFE is a nonprofit organization dedicated to the prevention and dedication of fraud
throughout the world.
Answer: True
30. There is no difference between a certified fraud examiner (CFE) and a certified public accountant
(CPA).
Answer: False. A certified fraud examiner (CFE) is considered to be a leader in the anti-fraud
community. A CFE focuses on the prevention and detection of fraud. A certified public
accountant, on the other hand, focuses on all aspects of accounting.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 8
website, in whole or in part.
Important Notes
The file includes the complete test bank, organized chapter by chapter.
A sample of selected pages has been provided for preview.
All available appendices and Excel files (if included in the original resources) are
provided.
We continuously update our files to ensure you receive the latest and most accurate
editions.
New editions are added regularly – stay connected for updates!
✅ Why Buy From Us?
📚 Complete & organized chapter-by-chapter – no missing content, no guessing.
⚡ Instant digital delivery – get your file the moment you pay, no waiting.
📅 Always up to date – we track new editions so you always get the latest version.
💬 Friendly support – real humans ready to help, anytime you need us.
🔒 Safe & secure – thousands of satisfied students trust us every semester.
🛡️Our Guarantees
💰 Money-Back Guarantee: Not satisfied? We offer a full refund – no questions asked.
🔄 Wrong File? No Problem: Contact us and we will replace it immediately with the
correct version, free of charge.
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Contact Email:
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Solution and Answer Guide
ALBRECHT, FRAUD EXAMINATION, 7E, ©2025, 9780357721759; CHAPTER 1: THE NATURE OF
FRAUD
CONTENTS
Discussion Questions.................................................................................................................3
True/False .................................................................................................................................... 7
Multiple Choice............................................................................................................................9
Short Cases ............................................................................................................................... 13
Case 1 ..................................................................................................................................... 13
Case 2 ..................................................................................................................................... 14
Case 3 ..................................................................................................................................... 15
Case 4 ..................................................................................................................................... 15
Case 5 ..................................................................................................................................... 15
Case 6 ..................................................................................................................................... 16
Case 7 ..................................................................................................................................... 16
Case 8 ..................................................................................................................................... 17
Case 9 ..................................................................................................................................... 17
Case 10 ................................................................................................................................... 18
Case 11 ................................................................................................................................... 18
Case 12 ................................................................................................................................... 19
Case 13 ................................................................................................................................... 19
Case 14 ................................................................................................................................... 19
Case 15 ................................................................................................................................... 20
Case 16 ................................................................................................................................... 20
Case 17 ................................................................................................................................... 20
Case Studies..............................................................................................................................21
Case Study 1 ........................................................................................................................... 21
Case Study 2: Sweepstakes—legitimate or deceptive? .......................................................... 23
Case Study 3: Trading after Hours .......................................................................................... 24
Case Study 4 ........................................................................................................................... 25
Debate ..................................................................................................................................... 26
Answers to Stop and Think Questions: .................................................................................. 26
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Internet Assignment..................................................................................................................27
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
DISCUSSION QUESTIONS
1. What is fraud?
Answer: Fraud always involves deception, confidence, and trickery. The following is one of the
most common definitions of fraud:
a. “Fraud is a generic term, and embraces all the multifarious means that human ingenuity can
devise, which are resorted to by one individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down as a general proposition in
defining fraud, as it includes surprise, trickery, cunning and unfair ways by which another is
cheated. The only boundaries defining it are those which limit human knavery.”
Fraud is deception that includes the following elements:
1. A representation
2. About a material point
3. That is false
4. Intentionally or recklessly so
5. That is believed
6. And acted upon by the victim
7. To the victim’s damage
2. How does fraud affect individuals, consumers, and organizations?
Answer: Fraud affects individuals, consumers, and organizations in various ways. Fraud usually
lowers organizations’ net income dollar for dollar. To recover these costs, consumers and
individuals must pay more for goods and services. For example, health care fraud and insurance
fraud increase premiums that individuals must pay. The cost of fraud eventually reaches every
part of the economy, including individuals, consumers, and organizations.
The 2008 study by The Association of Certified Fraud Examiners estimates that U.S.
organizations lose roughly 7 percent of their annual revenues to fraud. Applied to the U.S. gross
domestic product (GDP), this 7 percent figure translates to approximately $994 billion in fraud
losses.
3. List and describe the five different types of frauds.
Answer:
a. Employee embezzlement: In this type of fraud, employees deceive their employers by
taking company assets. Embezzlement can be either direct or indirect.
b. Management fraud: Distinguished from other types of fraud both by the nature of the
perpetrators and by the method of deception. In its most common form, management fraud is
deception perpetrated by top management’s manipulation of financial statements. The victims
of management fraud are typically stockholders, lenders, and others who rely on financial
statement information.
c. Investment scams or consumer scams: A type of fraud that is perpetrated when fraudulent
and usually worthless investments are sold to unsuspecting investors.
d. Vendor fraud: Perpetrated by vendors; comes in two main varieties: fraud perpetrated by
vendors acting alone, and fraud perpetrated through collusion between buyers and vendors.
Vendor fraud usually results in an overcharge for purchased goods, the shipment of inferior
goods, or the nonshipment of goods even though payment was made.
e. Customer fraud: Usually involves customers not paying for goods purchased, getting
something for nothing, or deceiving organizations into giving them something they should not
have.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 3
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
4. What is the difference between civil and criminal law?
Answer:
a. Criminal law is the branch of law that deals with offenses of a public nature. Criminal laws
generally deal with offenses against society as a whole. Violators of criminal laws are
prosecuted either federally or by a state for violating a statute that prohibits some type of
activity.
b. Civil law is the body of law that provides remedies for violations of private rights. Civil law
deals with rights and duties between individuals. The purpose of a civil lawsuit is to provide
compensation for harm done to an individual. Unlike criminal cases, where juries consist of
12 jurors, juries in civil cases may have as few as six jurors, and the verdict of the jury need
not be unanimous. Additionally, judges often hear civil cases instead of juries. In civil
lawsuits, plaintiffs must only prove their case by the “preponderance of the evidence.” In
other words, there need be only slightly more evidence supporting the plaintiff than
supporting the defendant.
5. For each of the following, indicate whether it is a characteristic of a civil or a criminal case:
a. Jury may consist of fewer than 12 jurors.
b. Verdict must be unanimous.
c. Multiple claims may be joined in one action.
d. Proven “beyond a reasonable doubt.”
e. Purpose is to right a public wrong.
f. Purpose is to obtain remedy.
g. Consequences of jail and/or fines.
h. Juries may have a less than unanimous verdict.
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. Why was Charles Ponzi so successful with his fraud scheme?
Answer: Charles Ponzi was successful for several reasons. First, Charles Ponzi built confidence
in his scheme by giving early investors a return on their initial investments. Second, Charles
Ponzi presented his coupon scheme in a way that was easy for investors to understand. Although
the coupon scheme never made any real profits, investors believed that it had. Third, Ponzi was
extremely talented at manipulating victims’ emotions. Ponzi was able to capitalize on individuals’
greed. When people began to see their friends and family members receive dividends from
investments, they too wanted in on the investment scam.
7. What are some of the different types of fraud-fighting careers?
Answer: As the number of frauds and the amounts of fraud losses increase, so do the
opportunities for successful careers in fraud prevention and detection. In Chapter 1, we have
listed five areas in fraud fighting that will be rewarding and have high demand in the future. They
include the following:
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 4
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
a. Government: This includes FBI, postal inspectors, Criminal Investigation Division of the IRS,
U.S. marshals, inspectors general of various governmental agencies, state investigators, and
law enforcement officials.
b. CPA firms, forensic accounting firms, litigation support firms, and law firms: These
individuals will conduct investigations, support firms in litigation, do bankruptcy-related fraud
work, serve as expert witnesses, consult in fraud prevention and detection, and provide other
fee-based work.
c. Corporations: Individuals who work for corporations will prevent, detect, and investigate
fraud within a company. This category includes internal auditors, corporate security officers,
and in-house legal counsels.
d. Lawyers: Lawyers will defend or prosecute organizations in civil and criminal cases.
e. Consulting: University professors, hospital management, technology corporations, and the
like. People who work in these areas will consult, serve as expert witnesses, extract evidence
from computers and servers, investigate public records, and serve on grand or trial juries.
8. How do employee fraud and management fraud differ?
Answer: When employee fraud takes place, employees deceive their employers by taking
company assets. Management fraud is distinguished from employee fraud and other types of
fraud in that top management typically commits it to deceive financial statement users. Employee
fraud is usually committed against an organization, whereas management fraud is perpetrated on
behalf of an organization.
9. Do you think the demand for careers in fraud prevention and detection is increasing or
decreasing? Why?
Answer: As the numbers of frauds committed and the total dollar amounts lost from fraud
increase, the demand for careers to prevent and detect such fraud will increase. In fact, a few
years ago, Fortune magazine identified forensic accounting or fraud examination as one of the
fastest growing and most financially rewarding careers. The American Institute of Certified Public
Accountants recently touted forensic accounting/fraud examination as one of the six fastest
growing and most profitable opportunities for accountants.
10. Why are accurate fraud statistics hard to find?
Answer: First, it is impossible to know what percentage of fraud perpetrators are actually caught.
Are there perfect frauds that are never discovered, or are all frauds eventually exposed? Second,
many frauds that are discovered are handled quietly within the victim organizations and are never
made public. In many cases, companies merely hide frauds due to public relations concerns and
terminate or transfer perpetrators quietly.
11. Describe the relationship between fraud, net income, profit margin, and the revenue required to
make up for fraud losses.
Answer: Losses incurred from fraud reduce a firm’s income on a dollar-for-dollar basis, reducing
net income by $1 for every dollar that is lost to fraud. To make up for the damage fraud does to
net income, a company has to have much more revenue come in. For example, if a company has
a profit margin of 10%, to make up for a $1,000,000 fraud, the company would have to have
additional revenue of $10,000,000.
12. Why does it usually require trust for someone to be able to commit a fraud?
Answer: Since confidence is typically needed for fraud to occur, people who are not trusted will
not be in a position to commit a fraud.
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website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
13. In what ways is the Ponzi scam similar to other frauds?
Answer: While answers may vary, the following is one possible answer: The case of Charles
Ponzi involved deception, greed on behalf of the investors and the perpetrator and confidence in
the perpetrator. These are traits that are common in many different cases of fraud.
14. In your own words describe a CFE.
Answer: The Association of Certified Fraud Examiners (ACFE) provides the opportunity for
individuals to become a Certified Fraud Examiner or “CFE”. CFEs are considered to be leaders in
the anti-fraud community and have recognition as such throughout the world. They represent the
highest standards held by the ACFE and possess expertise in all aspects of the antifraud
profession. The CFE designation is acknowledged globally and preferred by many employers.
The ACFE states that becoming a CFE immediately sets an individual apart from others and
launches that person to the top of the profession.
15. In your own words describe the purpose of the ACFE.
Answer: Although answers may vary, the following is one possible answer: When an individual
becomes a CFE, he or she automatically becomes a member of the ACFE. The ACFE is the
world’s largest anti-fraud organization and the premier provider of anti-fraud training and
education. Together with more than 70,000 members throughout the world, the ACFE works
toward the reduction of fraud and corruption around the globe.
16. A romance scam is usually perpetrated using a computer with the perpetrator pretending to be in
love with the victim and finding ways to get them to send the perpetrator money. Romance scams
can also be perpetrated in person, but most are done online. The romance scam explained at the
beginning of the chapter with the perpetrator acting through the SilverSingles website is a typical
romance scam.
TRUE/FALSE
1. All frauds that are detected by organizations are made public.
Answer: False. In many cases, companies merely hide the frauds to avoid public relations issues
and quietly terminate or transfer perpetrators rather than make them public.
2. Perpetrators use trickery, confidence, and deception to commit fraud.
Answer: True
3. One of the most common responses to fraud is disbelief by those around the fraud.
Answer: True
4. Manufacturing companies with a profit margin of 10 percent must usually generate about 10 times
as much revenue as the dollar amount of the fraud in order to restore net income to its pre-fraud
level.
Answer: True
5. Fraud involves using physical force to take something from someone.
Answer: False. Using physical force to take something from someone is robbery. Fraud involves
deceit or trickery, not force.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 6
website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
6. Identity theft is an example of employee embezzlement.
Answer: False. Identity theft is stealing someone's personal information so the thief can pretend
to be that person.
7. When perpetrators are criminally convicted of fraud, they often serve jail sentences and/or pay
fines.
Answer: True
8. Management fraud is deception perpetrated by an organization’s top management.
Answer: True
9. A Ponzi scheme is considered to be a type of investment scam.
Answer: True
10. Most people agree that fraud-related careers will be in demand in the future.
Answer: True
11. In civil cases, fraud experts are rarely used as expert witnesses.
Answer: False. In civil cases, fraud experts often serve as expert witnesses.
12. Many companies try to hide their losses from fraud rather than make them public.
Answer: True
13. The only group/business that must report employee embezzlement is the federal government.
Answer: False. Banks are required to report their frauds to the government because of their
FDIC Insurance.
14. Advances in technology have had no effect either on the size or frequency of fraud or on the
detection or investigation of fraud.
Answer: False. Technology has tended to increase the size and frequency of frauds committed.
15. Fraud losses generally reduce a firm’s income on a dollar-for-dollar basis.
Answer: True
16. The single most critical element for a fraud to be successful is opportunity.
Answer: False. Confidence is the single most critical element for a fraud to be successful.
17. Fraud perpetrators are often those who are least suspected and most trusted.
Answer: True
18. Unintentional errors in financial statements are a form of fraud.
Answer: False. Unintentional errors in the financial statements are not considered fraud. There
must always be "intent" for something to be fraud.
19. Occupational fraud is fraud committed on behalf of an organization.
Answer: False. Occupational fraud is usually committed against an organization.
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website, in whole or in part.
, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
20. Companies that commit financial statement fraud are often experiencing net losses or have
profits that are significantly lower than expectations.
Answer: True
21. Indirect fraud occurs when a company’s assets go directly into the perpetrator’s pockets without
the involvement of third parties.
Answer: False. Direct fraud does not involve third parties; indirect fraud involves a third party.
22. In vendor fraud, customers don’t pay for goods purchased.
Answer: False: Customer fraud involves a customer who does not pay for goods or services.
Vendor fraud involves a vendor who provides inferior goods, overcharges, or pays bribes to get
favored treatment.
23. A negative outcome in a civil lawsuit usually results in jail time for the perpetrator.
Answer: False. Only criminal lawsuits result in jail time for the perpetrator. Negative outcomes in
civil lawsuits result in restitution and damage payments.
24. When fraud is committed, criminal prosecution usually proceeds before civil litigation.
Answer: True
25. A fraud may be perpetrated through an unintentional mistake.
Answer: False. One of the seven elements of a fraud is that the deception must be intentional.
26. It is most often people who are not trusted who commit fraud.
Answer: False. Fraud perpetrators come in all kinds and varieties, but always have to be trusted.
If they did not have the trust of their victims, they would not have been put in a position where
they could commit a fraud.
27. Management fraud is when managers intentionally deceive their employees about the potential of
raises, vacations, and other perks.
Answer: False: Management fraud most often means the deceptive manipulation of a company’s
financial statements.
28. Despite intense measures meant to impede it, fraud appears to be one of the fastest-growing
crimes in the United States.
Answer: True
29. The ACFE is a nonprofit organization dedicated to the prevention and dedication of fraud
throughout the world.
Answer: True
30. There is no difference between a certified fraud examiner (CFE) and a certified public accountant
(CPA).
Answer: False. A certified fraud examiner (CFE) is considered to be a leader in the anti-fraud
community. A CFE focuses on the prevention and detection of fraud. A certified public
accountant, on the other hand, focuses on all aspects of accounting.
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website, in whole or in part.
