ACCT 50 CHAPTER 9 TO 12 ...100% QUESTIONS AND ANSWERS

1. Borrowing a company asset for personal use without permission, even if it is returned unharmed, is a form of non-cash asset misappropriation. a. True b. False 2. Which of the following is not a red flag in a fraudulent shipment scheme? a. An increase in bad debt expense b. An unexplained decrease in the scrap account c. Unusually high levels of reorders for inventory items d. Shipments with missing sales documents 3. Manually altering entries in an organization’s books in order to conceal fraud is called: a. Padding the books b. Forced reconciliation c. Shrinkage d. Fictitious reconstruction 4. To prevent fraudulent shipments of merchandise, organizations should: a. Match every receiving slip to an approved purchase order. b. Match every outgoing shipment to a sales order. c. Make sure that all increases to perpetual inventory records are supported by proper source documents. d. All of the above 5. Which of the following methods can be used to conceal inventory shrinkage on a company’s books? a. Creating fictitious sales and receivables b. Writing off inventory as obsolete c. Physical padding d. All of the above 6. An employee causes his organization to purchase merchandise that it does not need. This is an example of what type of scheme? a. Purchasing and receiving scheme b. False billing scheme c. Unconcealed larceny scheme d. Asset requisition scheme 7. An unexplained increase in uncollectible accounts receivable may be a warning sign of a non-cash asset misappropriation scheme involving false shipments of inventory. a. True b. False 8. Of the following, which is the best method for detecting the theft of inventory? a. Have the warehouse manager personally oversee bi-monthly inventory counts. b. Have someone from purchasing conduct inventory counts every quarter. c. Have a designated person in customer service follow-up with customers who have complained about short shipments. d. Match vendor addresses against employee addresses. 9. To deter inventory theft schemes, organizations should install security cameras in the warehouses without the employees’ knowledge. a. True b. False 10. Which of the following procedures would be least helpful in preventing larceny of non-cash assets? a. Segregating the duties of sales and accounts payable b. Installing surveillance cameras in the warehouse and on sales floors c. Creating access logs to track employees that enter restricted areas d. Employing security guards at the entrance of the warehouse 11. The unaccounted-for reduction in the company’s inventory that results from theft is called: a. Physical defalcation b. Spoilage c. Shrinkage d. Misappropriation of intangible assets 12. Unexplained increases in inventory shrinkage can be a red flag that signals which type of fraud scheme? a. Fictitious refunds b. Inventory larceny c. Sales skimming d. All of the above 13. Which of the following computer audit tests can be used to detect purchasing and receiving schemes? a. Identifying dormant customer accounts for the past six months that show a sale in the last two months of the year b. Calculating the ratio of the largest sale to the next largest sale by customer c. Extracting all inventory coded as obsolete and possessing reorder points within the inventory system d. All of the above 14. Which of the following computer audit tests can be used to detect an inventory misappropriation scheme? a. Identifying inventory receipts in the receiving system that do not agree to the receipts per the accounts payable system b. Identifying inventory shipments delivered to an address that is not designated as a business address c. Identifying inventory with a negative quantity balance d. All of the above 15. Running a computer program that identifies shipping documents with no associated sales order can detect which of the following non-asset cash misappropriation schemes? a. False shipments b. Purchasing and receiving schemes c. Unconcealed inventory larceny d. Asset requisition schemes 16. Which of the following is not a method used to conceal false shipments of inventory? a. Creating false sales orders b. Falsely increasing the perpetual inventory c. Writing off the inventory as scrap d. Physical padding 17. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, non-cash schemes occur more frequently than cash schemes. a. True b. False 18. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, cash schemes have a higher median loss than non-cash schemes. a. True b. False 19. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the theft of which type of non-cash asset was the least common but caused the highest median loss? a. Equipment b. Proprietary information c. Securities d. Inventory 20. Andy Kaplan is a foreman for JCP Enterprises, a regional construction company. He recently ordered some plumbing supplies from the company warehouse for an office building project he is overseeing. When the supplies arrived at the job site, however, he loaded them in his truck and took them home to use in remodeling his master bathroom. What kind of inventory theft scheme did Andy commit? a. False shipments b. Unconcealed larceny c. Asset requisition d. Misappropriation of intangible assets 21. Nicolette Garrison works part-time at an independent record store. Whenever her friend, Jacob Barker, comes into the store during one of her shifts, he picks up a CD and brings it to the register where Nicolette is stationed. After ringing a “no sale” transaction on the cash register, Nicolette pretends to swipe Jacob’s credit card for payment. She puts the CD in a bag and gives it to Jacob, who walks out without actually paying for the merchandise. What kind of scheme is being committed? a. Fake sale b. False refund c. Sales skimming d. Cash larceny 22. Ben Rogers works as a cashier for Tillis Sporting Goods. One afternoon, he asked his sister Dawn to come into the store. When she arrived, Ben put three watches, two fishing reels, and four pairs of sunglasses in a sack and gave it to her. Dawn walked out of the store, sold two of the watches, and returned to the store later to return the other items for a refund. What type of asset misappropriation has been committed? a. Sales skimming b. Pay-and-return scheme c. False refund scheme d. Inventory larceny scheme 23. Ace Electronics is a company that sells computers, televisions, home entertainment centers, DVD players, and other electronic equipment. A downturn in the market has caused severe financial problems in the company. In order to fool the auditors as they begin their inventory count, several of Ace’s managers have begun stacking empty boxes in the warehouse to create the illusion of extra inventory. This scheme is known as: a. Forced reconciliation b. Physical padding c. Inventory shuffling d. Misappropriation of intangible assets 24. To supplement her income, Jeanne Lester decided to start her own bookkeeping business while still working as an office assistant at Howe & Lyon, a small CPA firm. Not having much start-up capital for her new business, she used her phone at work to contact clients and her work computer to print invoices and client letters. However, she ordered and paid for her own office supplies and used her own postage stamps to mail the invoices and letters. From the information given, has Jeanne misappropriated any of the firm’s assets? a. Yes b. No 25. In one of the cases in the textbook, Larry Gunter was a shipping clerk for a computer company that manufactured microprocessor chips. After learning that the chips were valuable, he stole three boxes and sold them to his girlfriend’s father. Since the scheme worked so well the first time, he continued stealing and selling the chips, even letting a co-worker in on the scheme. How was the theft discovered? a. A security guard found the chips in a routine check of his work cart. b. An inventory manager filling an order noticed that many of the chips were missing. c. The auditors found the shortage when they conducted the annual inventory count. d. His co-worker notified the loss prevention department in exchange for a cash award. 26. In one of the cases in the textbook, Larry Gunter was a shipping clerk for a computer company that manufactured microprocessor chips. After learning that the chips were valuable, he stole three boxes and sold them to his girlfriend’s father. Since the scheme worked so well the first time, he continued stealing and selling the chips, even letting a co-worker in on the scheme. How was Gunter punished? a. He was arrested, charged with grand theft and embezzlement, and sentenced to prison. b. He was indicted for receiving stolen property, placed on probation, and ordered to repay the company for the value of the stolen chips. c. The company fired him but agreed not to prosecute him if he repaid the money and did not go to the media. d. He wasn’t, because he found out about the investigation and skipped town on the day he was to be arrested. 27. In one of the cases in the textbook, Swainler’s Technology discovered that someone had stolen 1,400 hard drives from its computer warehouse. In order to collect on its theft insurance policy, the company had to show that the theft was an outside job. Before the insurance company paid Swainler’s claim, it hired an independent investigator, who ultimately found that the hard drives were stolen and sold by Swainler’s marketing manager, Frederic Boucher. How did the investigator identify Boucher’s involvement? a. Boucher’s ex-wife found out and contacted Swainler’s board of directors. b. A former employee of Swainler’s went to work for a competitor and told his manager about Boucher’s involvement. c. The investigator found telephone calls made by Boucher to a warehouse where some of the stolen drives had been traced. d. Investigators found a large cash deposit in Boucher’s bank account around the time that the drives went missing. 28. In one of the cases in the textbook, Swainler’s Technology discovered that someone had stolen 1,400 hard drives from its computer warehouse. In order to collect on its theft insurance policy, the company had to show that the theft was an outside job. Before the insurance company paid Swainler’s claim, it hired an independent investigator, who ultimately found that the hard drives were stolen and sold by Swainler’s marketing manager, Frederic Boucher. Which of the following control weaknesses were present in the company? a. Because the company was run primarily on trust, many transactions were conducted without any documentation or controls. b. The surveillance cameras on the loading dock didn’t work. c. Background checks were required only on senior executives and accounting personnel. d. All of the above Chapter 10 – Corruption 1. Which of the following is not a type of corruption scheme? a. Bribery b. Conflict of interest c. Illegal gratuities d. Concealed payments 2. is the offering, giving, receiving, or soliciting of something of value as a reward for a favorable decision. a. Business diversion b. Economic extortion c. Illegal gratuity d. Commercial bribery 3. The offering, giving, receiving, or soliciting of something of value for the purpose of influencing a business decision without the knowledge or consent of the principal is known as: a. Official bribery b. Commercial bribery c. Conflict of interest d. Illegal gratuity 4. Which of the following is a type of kickback scheme? a. Improper disclosure b. Overbilling c. Turnaround sale d. Extortion 5. A corruption scheme in which several bidders conspire to split contracts, thereby ensuring that each gets a certain amount of work, is known as: a. Bid pooling b. Bid rigging c. Bid division d. Bid diversion 6. To deter kickback schemes, an organization should implement which of following procedures? a. Separate the purchasing, authorization, and cash disbursements functions. b. Track purchase levels by vendor. c. Compare the prices paid for goods and services to market rates. d. All of the above 7. The key component to most kickback schemes is: a. Forged endorsements b. Counterfeit invoices c. Price inflation d. Stealing customer statements 8. Which of the following is a red flag indicating that an employee may be receiving kickbacks? a. The purchase of inferior-quality inventory or merchandise b. An unusually high volume of purchases from a particular vendor c. The payment of purchase amounts that are frequently above market rates d. All of the above 9. To facilitate a bribery scheme, a fraudster might divert company funds to a non-company account from which the illegal payments can be made. This account is called a: a. Slush fund b. Petty cash fund c. Bid pool d. None of the above 10. To safeguard against kickback schemes, which of the following procedures should an organization implement? a. Have an employee in the purchasing department review the organization’s payment patterns on a quarterly basis. b. Establish a written policy specifying that employees cannot accept more than $500 annually in gifts from customers or suppliers. c. Prohibit employees from engaging in any transaction on behalf of the organization when they have an undisclosed personal interest in the transaction. d. All of the above 11. Which of the following would likely not be a potential target for accepting bribes in a big-rigging scheme? a. A product assurance representative b. An accounts payable clerk c. A contracting official d. The engineer in charge of the project’s technical specifications 12. The typical bid-rigging scheme committed during the need recognition phase of the contract negotiation process involves defining a “need” that can be met only by a certain supplier or contractor. a. True b. False 13. Which of the following is a red flag that might indicate that a bid-rigging scheme is occurring? a. The contract price is unusually low. b. A high bid is followed by amendments that reduce the payments to the contractor. c. The losing bidders become sub-contractors on the project. d. Many more bidders responded to the request for proposals than expected. 14. If a government employee agrees to award a contract to a vendor in exchange for a promise of future employment, this is considered to be an illegal gratuity. a. True b. False 15. The primary approach for preventing conflicts of interest schemes is to develop and implement which of the following? a. A voucher system b. A company ethics policy c. A document retention program d. An anonymous reporting mechanism to receive tips and complaints 16. If an employee approves payment on an invoice that originates from a real company in which he or she has a hidden economic interest, this is considered to be a conflict of interest scheme. a. True b. False 17. Which of the following schemes can be detected by identifying vendor addresses that are not designated as a business address? a. Shell company schemes b. Kickback schemes c. Conflicts of interest d. All of the above 18. Extracting round-dollar payments and summarizing them by vendor can help detect both corruption and billing schemes. a. True b. False 19. Identifying trends in over-purchased and/or obsolete inventory over several periods is a proactive computer audit test that can be used to detect which of the following schemes? a. False purchases b. Corruption c. Overstated expenses d. None of the above 20. Matching the vendor master file to the employee master file is a proactive computer audit test that can be used to detect which type of fraud scheme(s)? a. Bribery b. Shell company c. Both bribery and shell company d. None of the above 21. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, schemes involving corruption were the least common of the three types of occupational fraud schemes. a. True b. False 22. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, the median loss due to corruption schemes was the highest of the three types of occupational fraud schemes. a. True b. False 23. According to the 2012 Report to the Nations on Occupational Fraud and Abuse, bribery schemes occurred more often than other types of corruption schemes. a. True b. False 24. Stanley Block works in the IT department at Towery, Inc. After finding out that the company is planning to purchase four more computers for the accounting department, Stanley bought four computers from a friend for $1,200. Then, using his brother’s name and address as vendor information, he resold the computers to Towery for $2,300. This type of scheme is known as a(n): a. Over-purchase sale b. Resource diversion sale c. Double-sided sale d. Turnaround sale 25. Johanna Pye is a hair stylist at Mamon Salon. The salon’s policy states that stylists receive 40 percent of the revenue they generate as their compensation. Johanna grew tired of sharing her income with the salon and decided she wanted to make more money. She continued seeing her existing clients at the salon, but when new clients called for an appointment, Johanna lied and told them the salon was completely booked for the next few months. She then offered to come to their homes and cut their hair for 10 percent less than what the clients would be charged at the salon. She did not report the house call appointments to the salon, and was therefore able to keep all the income she generated from these side clients. This is an example of what type of scheme? a. Shell company b. Resource diversion c. Business diversion d. Double dealing 26. Fred Weaver is the contracts manager for a city government. In order for anyone to do business with the municipality, he or she must pay Fred 10 percent of the total amount of the contract. This type of corruption is known as: a. Bribery b. Economic extortion c. A conflict of interest d. Bid-rigging 27. Abe Wilson works as a city councilman in large city on the east coast. As part of his duties, he negotiated the purchase of some land in order to build a new water treatment plant for the city. The land was sold to the city by Jake Bryan for terms that were favorable to the city. After the sale was finalized, Bryan treated Abe and his wife to an all-expenses-paid Alaskan cruise. This type of fraud is known as: a. A conflict of interest b. Bribery c. An illegal gratuity d. Economic extortion 28. John Clark works as a land buyer for a city government. After negotiating the purchase of a parcel of land to be used for a new library, he asked the seller out for a coffee date, and she accepted. This situation is an example of an illegal gratuity. a. True b. False 29. Julius Smith is a purchasing agent for a Louisiana state agency. He has a project budgeted for $24,000 that he would like to hire RGS Consultants to handle. Unfortunately for Julius and RGS Consultants, the state has a requirement that all projects over $10,000 must be sent out for competitive bids. In order to avoid the bidding process, Julius breaks the project into three component projects worth $8,000 each. RGS Consultants is subsequently awarded the contracts for all three projects. What type of bid-rigging scheme is this? a. Bid pooling b. Underbidding c. Bid splitting d. Bid diversion 30. Donna Boyd is an internal auditor for GDP, Inc., an electronics manufacturer. While conducting a routine review of the company’s inventory costing, she discovers that the cost of one of the parts they use in manufacturing DVD players has been steadily increasing over the last six months and is now much higher than the general market price. Additionally, she notices that the company has been heavily favoring one specific supplier for that part. Based on these circumstances, what type of fraud scheme may be occurring at GDP? a. Kickbacks b. Conflict of interest c. Shell company d. Any of the above 31. In one of the case studies in the textbook, the General Services Administration (GSA), the federal government’s bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. How did the investigation get started? a. A whistleblower called the GSA’s hotline to report that inspectors in New Jersey were receiving bribes for certifying the furniture. b. A series of articles in a Washington, D.C., newspaper led to a congressional investigation. c. An audit conducted by the GSA found a high rate of return of modular furniture during a six-month period. d. A senator had his desk collapse when he threw his sub-committee’s budget on his desk after a hearing. 32. In one of the case studies in the textbook, the General Services Administration (GSA), the federal government’s bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. The investigators eventually focused on one particular regional inspector because: a. He vacationed in Europe with the vendor and charged the trip back to the government as a business related trip. b. He paid cash for a new home on the Jersey shore. c. He purchased eleven race horses. d. He had credit card charges of more than twice his annual salary during a six-month period. 33. In one of the case studies in the textbook, the General Services Administration (GSA), the federal government’s bookkeeping agency, purchased more than $200 million worth of defective and useless furniture from a New Jersey furniture manufacturer. After reviewing the books of the furniture manufacturer, it was clear that the company was paying off GSA inspectors. What happened to the furniture manufacturing company? a. It was charged with making false certifications and fined $2 million. b. It lost its contract with the GSA and went bankrupt. c. It was bought by another company. d. All of the above 34. In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. What triggered the investigation of Rita Mae King’s activities? a. Her supervisor found an invoice for a trip that she booked showing she received an employee discount from Spicewood Travel. b. An employee from Spicewood Travel called King’s office and left an urgent message for King to call them concerning a travel problem with a group she booked to the Cayman Islands. c. Another employee of her company found a business card that she had left in a fishbowl for a drawing showing that she was an employee of Spicewood Travel. d. Her former boyfriend called the loss prevention department’s hotline and informed them that she was receiving kickbacks from Spicewood Travel. 35. In one of the case studies in the textbook, Rita Mae King was a purchasing agent at an electronics and appliance chain. She frequently worked with travel vendors and managed to put Spicewood Travel on the top of the preferred vendor list. Upon investigation, the fraud examiners discovered that she ran her own travel agency out of her office at the store and received kickbacks from Spicewood Travel in return for having her company use them to book trips. Why didn’t the company pursue legal action against King? a. The company didn’t want the publicity so they quietly let her resign. b. The vice president of loss prevention recommended against criminal action because of King’s age and her husband’s ill health. c. There was not enough evidence to pursue a conviction. d. Spicewood Travel agreed to reimburse the company for overcharges if they wouldn’t pursue criminal action against King. Chapter 11 – Accounting Principles and Fraud 1. According to COSO’s study, Fraudulent Financial Reporting: , which of the following is the most likely to commit financial statement fraud? a. Organized criminals b. Mid-level employees c. The chief executive officer and/or chief financial officer