Testbank for Fraud Examination, 7th Edition by W. Steve Albrecht.
PART I: INTRODUCTION TO FRAUD
Chapter 1: The Nature of Fraud (Q1–25)
Q1. One way that criminal law differs from civil law is that it:
A) Provides remedies for violations of private rights
B) Must yield a unanimous verdict
C) Can have a jury of fewer than 12 persons
D) Allows for various claims in one action
Answer: B
Rationale: Criminal trials must result in a unanimous verdict, whereas civil juries
may have as few as six jurors and need not be unanimous. Criminal law deals with
offenses against society; civil law addresses private rights .
Q2. Which of the following is NOT a common element of a Ponzi scheme?
A) Gaining others' confidence
B) Promising abnormally high returns
C) Investing collected money
,D) Using part of the investment principal to pay previous investors
Answer: C
Rationale: In Ponzi schemes, fraudsters rarely invest collected money. Instead,
they use new investor funds to pay returns to earlier investors, creating the
illusion of legitimate profits .
Q3. Which statement about Title 26, U.S. Code Section 7201 is FALSE?
A) Not reporting bribe income may be grounds for tax evasion charges
B) A tax filing excluding fraud income may be considered a false return
C) Bribes may be lawfully deducted as business expenses
D) Failure to report fraud income may be prosecuted as tax evasion
Answer: C
Rationale: Bribes cannot be deducted as legitimate business expenses. The IRS
prohibits deductions for illegal bribes, kickbacks, or other payments that violate
federal or state law .
,Q4. Which of the following is NOT a characteristic of a criminal proceeding?
A) Criminal proceedings deal with offenses against society
B) Consequences include restitution and damage payments
C) Proceedings involve a jury of 12 individuals
D) Only one claim may be heard at a time
Answer: B
Rationale: In criminal proceedings, consequences are jail and/or fines. Restitution
and damage payments are civil remedies. Criminal law punishes offenses against
society .
Q5. Management fraud is often referred to as:
A) Stockholder fraud
B) Financial statement fraud
C) Employee fraud
D) Investment fraud
Answer: B
, Rationale: Management fraud most commonly involves top management's
deceptive manipulation of financial statements, making "financial statement
fraud" the appropriate synonym .
Q6. What is required to prove fraud, as opposed to error?
A) Negligence
B) Intent
C) Preponderance of evidence
D) Confession from perpetrator
Answer: B
Rationale: Unlike error, fraud requires intent to deceive or gain advantage. Intent
distinguishes fraud from honest mistakes or negligence .
Q7. Which is the most common type of occupational fraud?
A) Management fraud
B) Mail fraud
C) Investment fraud
D) Employee embezzlement
PART I: INTRODUCTION TO FRAUD
Chapter 1: The Nature of Fraud (Q1–25)
Q1. One way that criminal law differs from civil law is that it:
A) Provides remedies for violations of private rights
B) Must yield a unanimous verdict
C) Can have a jury of fewer than 12 persons
D) Allows for various claims in one action
Answer: B
Rationale: Criminal trials must result in a unanimous verdict, whereas civil juries
may have as few as six jurors and need not be unanimous. Criminal law deals with
offenses against society; civil law addresses private rights .
Q2. Which of the following is NOT a common element of a Ponzi scheme?
A) Gaining others' confidence
B) Promising abnormally high returns
C) Investing collected money
,D) Using part of the investment principal to pay previous investors
Answer: C
Rationale: In Ponzi schemes, fraudsters rarely invest collected money. Instead,
they use new investor funds to pay returns to earlier investors, creating the
illusion of legitimate profits .
Q3. Which statement about Title 26, U.S. Code Section 7201 is FALSE?
A) Not reporting bribe income may be grounds for tax evasion charges
B) A tax filing excluding fraud income may be considered a false return
C) Bribes may be lawfully deducted as business expenses
D) Failure to report fraud income may be prosecuted as tax evasion
Answer: C
Rationale: Bribes cannot be deducted as legitimate business expenses. The IRS
prohibits deductions for illegal bribes, kickbacks, or other payments that violate
federal or state law .
,Q4. Which of the following is NOT a characteristic of a criminal proceeding?
A) Criminal proceedings deal with offenses against society
B) Consequences include restitution and damage payments
C) Proceedings involve a jury of 12 individuals
D) Only one claim may be heard at a time
Answer: B
Rationale: In criminal proceedings, consequences are jail and/or fines. Restitution
and damage payments are civil remedies. Criminal law punishes offenses against
society .
Q5. Management fraud is often referred to as:
A) Stockholder fraud
B) Financial statement fraud
C) Employee fraud
D) Investment fraud
Answer: B
, Rationale: Management fraud most commonly involves top management's
deceptive manipulation of financial statements, making "financial statement
fraud" the appropriate synonym .
Q6. What is required to prove fraud, as opposed to error?
A) Negligence
B) Intent
C) Preponderance of evidence
D) Confession from perpetrator
Answer: B
Rationale: Unlike error, fraud requires intent to deceive or gain advantage. Intent
distinguishes fraud from honest mistakes or negligence .
Q7. Which is the most common type of occupational fraud?
A) Management fraud
B) Mail fraud
C) Investment fraud
D) Employee embezzlement
