Fraud

1. Which of the following are considered to be the three prerequisites for fraud to occur?

Yes No
Motivation
Oppurtunity

2. Which of the following is a skimming fraud?

A A large amount is ‘skimmed’ off the top of a large sales invoice as a kickback to the purchaser

B Small amounts are diverted from a large number of transactions

C Invitation to pay a sum of money now in order to secure a large return in the future

D Submission of invoices which contain inflated amounts

3. ‘Teeming and lading’ is used to describe which of the following:

A Where money flows are so substantial that diversion of large sums can go unnoticed

B A fraud where purchase ledger payments are misdirected to overseas accounts

C A personal expenses fraud involving fictitious expense vouchers

D A fraud where receipts from customers are misappropriated

4. ‘Window dressing’ involves which of the following:

A Producing an overly detailed set of annual accounts in years when underlying results are poor

B Entering into transactions just before the year‐end that will improve the appearance of the accounts
but will be reversed out soon after

C Setting up bogus employees on the payroll system and paying their ‘salary’ into a specially created
bank account

D Misappropriation of business assets by managers

 5. Off balance sheet accounting refers to which of the following:

A A focus on income and expenditure rather to the detriment of asset and liability management

B Removal of business assets by employees for their own personal use

C Diversion of assets from the balance sheet to a personal bank account

D Deliberate exclusion of certain assets and liabilities from the published balance sheet

6. Consider the following two statements:

(1) A comprehensive system of control will eliminate all fraud and error.

(2) Employees working in departments other than Accounts have no responsibility for reporting fraud.

Which of these options is/are correct?

A (1) only

B (2) only

C Both

D Neither

7. If an external auditor in the process of considering the company’sfinancialstatement came

across an incident of fraud that took place in the year, he/she must:

A qualify the accounts regardless of the size of the fraud

B report to the shareholders by way of a note to the accounts, regardless of the size of the fraud

C qualify the accounts only if the fraud is material and not properly recorded in the accounts

D report to the shareholders by way of a note to the accounts, but only if the fraud is material

8. Which of the following behaviours is often associated with an employee possibly committing
fraud?

A Managers and staff having monthly meetings to discuss underperformance

B Employee frequently taking time off work for personal reasons

C A member of the Finance team frequently buying new expensive cars despite only earning a moderate
salary

D Member of HR team being keen to take part in discussion on staff remuneration

 9. Which of the following is NOT a control or procedure required by standard money laundering
legislation?

A Identification of large or unusual transactions

B Taking steps to ensure customers can be identified

C Reporting of all large or unusual transactions to the relevant authorities

D Creation of the role of Nominated Officer

10. Money laundering legislation only covers illegally obtained cash and other liquid assets, such as
short‐term investments and bonds.

Is this statement TRUE or FALSE?

A True

B False

11. Under typical money laundering legislation, the main offences recognised are: placement,
layering and integration.

Is this statement TRUE or FALSE?

A True

B False

12. Lack of control over which of the following activities can lead to the fraudulent activity of
teeming and lading?

A Non‐current asset register

B Budgetary system

C Inventory management

D Sales ledger and receipts

13. Leo has been offering investors in his company a 15% per annum return on their investment.In
order to fund this return, Leo has been using money raised from newer investors to pay the 15%
returns demanded by early investors.

What type of fraud is Leo committing?

A Manipulation of revenue recognition

B Advance fee fraud

C False billing fraud

D Ponzi scheme

14. BNG Co has recently discovered that it has been the victim of a false‐billing fraud. Which of the
following controls could BNG put in place to prevent this from occurring in the future?

A Segregation of duties within the accounts department

B Regular receivables ledger reconciliations

C Authorisation of payments by management

D Maintenance of a regular trial balance

15. The payroll function for an organization is often a high risk for fraud.”
Which of the following payment system weaknesses will make fraud more likely?
1 Inadequate time keeping arrangements
2 No independent personnel function
3 Poor wage distribution procedures
4 Wide management span of control

a) 1,3 and 4
b) 1,2 and 4
c) 2,3 and 4
d) 1,2 and 3

16. Which TWO of the following are prerequisites for fraud in circumstances where duties are not
segregated?
a) Motivation
b) Collusion
c) Collaboration
d) Dishonesty

17. Teeming and landing is a type of corporate fraud that involves which of the following?
a) Theft of cash or cheques
b) Incorrect descriptions of items

18. Bill is employed as accountant at Povey Co. he has not recorded any of the inventory returns to
Povey Co. from a customer.
Which of the following type of fraud has Bill committed by the above action?
a) Fictitious trading expenses
b) Inventory undervaluation
c) Understatement of sales
d) Theft of inventory

19. In a recent audit, it was discovered that Kynaston Co. deliberately overstated its inventory.
a) Reported profit will be higher than it should be
b) Capital will be understated
c) Payables will be undervalued

20. “Alan is an auditor who has discovered a suspected serious fraud at a client’s business.”
a) The shareholders
b) The police
c) The audit committee
d) The management

21. “Banks obtain a major source of funds from individuals opening up bank accounts”
Under present international regulation, when a company suspects that it has encountered a
transaction which involves money laundering. Which choice of action is it required to undertake?
True False
Inform the external auditors
Inform the appropriate regulatory authorities

22. “ABC Co. has accounting department with four staff. There is a high staff turnover so many staff
is new, with exception of Derek. Derek, an unqualified accountant, has been with the company
for five years. During that time, he has dedicated himself to his job and never even taken any
holidays. He is mainly responsible for maintaining receivables and also acts as the cashier.”

What features of ABC Co. increase the risk of fraud?

1) High staff turnover
2) Derek is unqualified
3) Derek has never taken holidays
4) Lack of segregation of duties
a) 1,2,3
b) 1,3,4
c) 1,2,3,4
d) 1 only

23. Which of the following mat indicate an increased risk of fraud in an organization?
1 High staff turnover
2 Disgruntled unhappy staff
3 Culture of non-compliance with policies and regulations
4 Authoritarian senior management

a) 2,3 and 4
b) 1,2 and 3
c) 1,2 and 4
d) 1,3 and 4

24. “The director of JOOS Co. suspects that Peter, their financial accountant is guilty of fraud”

Which of the following control strategies would reduce Peter’s motivation, but not necessarily his
opportunity to commit fraud?
a) Greater equity in pay and rewards
b) Authorization procedures for expense claims
c) Segregation of duties
d) Security checks

25. Which two of the following are examples of internal controls that could be introduced to
prevent fraud?
a) Segregation of duties
b) Corporate restructuring
c) Autocratic management style
d) Recruitment policies

26. Which of the following explains why a company’s financial profits may be under reported?
a) To convince a bank to provide a loan
b) To discourage fraud
c) To entice investors
d) To minimize tax liability

27. External auditor is responsible for identification and prevention of fraud. This statement is?
a) True
b) False