Chapter Test 4 For Forensic Accounting & Fraud Examination, 1 E Mary-jo Kranacher Isbn-10; 047043774x Wiley 2010

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FRAUD BOOK  CHAPTER 4 TEST BANK QUESTIONS By: Maureen Francis Mascha Ph!D! CPA TRUE"FA#SE #O $% 1. “Accidental” Accidental” fraudsters fraudsters are usually poor poor members of minority groups. groups. F 2. “Predator” “Predator” fraudsters usually go from town town to town, town, without settling down down  or  or establishing roots. F #O $& 3. ollusion re!uires re!uires more more than one person to o"erride the system of internal internal controls. # $. ollusion is almost almost impossible impossible to detect because because the persons charged with pro"iding internal control are part of the fraud.  # #O $' %. &'( was enacted to prosecute prosecute organi)ations organi)ations suspected of sponsoring sponsoring fraudulent acts. # *. “(rgani)ations” “(rgani)ations” refers to unions, unions, the ma+a, as well as corporations. corporations.  # #O $4 N()e: The *((+ )rea)s ,(--(.in/ )he 0(ney an1 )racin/ )he 0(ney as a syn(ny0 (n 2a/e 35 )his is in c(n)ras) )( (*6ec)i7e $4: e82-ainin/ )he 1i9erence *e).een )he ).( c(nce2)s! . “Follow “Following ing the money” money” is easier easier than than “tracing “tracing the money”. money”. F -. an/ secrec secrecy y laws ma/e ma/e it di0cult di0cult to “follow “follow the the money”. money”.  # #O $ . Financial statement statement fraud fraud is comple comple because because it often often in"ol"es collusion.  # 1.Financial 1.Financial statement fraud fre!uently in"ol"es manipulating multiple accounts.  # #O $; 11.omple fraud often mies legitimate business transactions with illegal transactions.# 12.omple fraud rarely in"ol"es collusion. F #O $< 1 13.(rgani)ed crime rarely sponsors terrorist acti"ities within the 45.  # 1$.(rgani)ed crime acti"ities di6er from terrorist acti"ities in that terrorists eist to bring direct harm to the 45.  # #O $3 1%.7igh net worth indi"iduals are li/ely to use pri"ate ban/s.  # 1*.'n"estment ban/s pro"ide most of the ban/ing ser"ices to high net worth indi"iduals in the 45. F #O $ 1.#a a"oidance in"ol"es hiding receipts from the '&5. F 1-.#a e"asion in"ol"es careful study of the ta law so as to minimi)e payment of taes legally. F #O $%= 1.“hurning” in"ol"es the sale and purchase of securities for the sole purpose of earning a commission. # 2.“Par/ing” in"ol"es hiding ownership interest so as to a"oid reporting re!uirements. # 21.“Pyramiding” in"ol"es the fre!uent sale and purchase of securities for the sole purpose of generating a commission. F MU#TIP#E CHOICE #O $%: 22.5igns than an indi"idual is a predator fraudster include8 a! Re2ea) (9enses b. #a/es ad"antage of sudden opportunity c. Fre!uent 9ob turno"er caused by boredom d. All of the abo"e 23.#he di6erence between a predator fraudster and an accidental one is8 a. #he accidental fraudster does not see/ opportunity, the predator does b. #he predator fraudster is a repeat o6ender: the accidental fraudster is not c. #he accidental fraudster is in need of funds: the predator fraudster is not 1! B()h >a? an1 >*? 2$.#he characteristics of a predator fraudster are8 a. Poorly educated b. ;i"orced c. a? an1 >*? 2.Pre"enting collusion is8 a. 5ometimes possible, although "ery di0cult *! I02(ssi*-e c. (nly possible with e6ecti"e internal controls d. oth “a” and “c” 2-.ollusion can occur8 a. (nly at high le"els in the organi)ation b. At low le"els in the organi)ation if a high le"el employee is in"ol"ed c! A) a-- -e7e-s (, )he (r/ani@a)i(n d. (nly at middle le"els of the organi)ation 2.>hich of the following is an eample of collusion8 a! A su2er7is(r 2u)s his 0ea- e82ense (n a su*(r1ina)es e82ense acc(un) s( )he su2er7is(r can a22r(7e i) b. A manager appro"es a price o"erride after pleas from the salesperson c. A "ice?president o"errides a subordinate@s denial of epense reimbursement d. All of the abo"e #O$' 3.&'(8 a! A11resses )he i--e/a- ac)i7i)ies in (r/ani@a)i(ns )ha) 0i8 *()h -e/i)i0a)e an1 i--e/a- ac)i7i)ies b. Addresses only organi)ations formed to sponsor terror groups c. Addresses ci"il as well as criminal issues d. All of the abo"e 31.&'(8 a. 5peci+cally targets money laundering b. #argets organi)ations that reinitiate illicit funds into the +nancial system c. #argets organi)ations that focus on the placement of illicit funds in the money laundering process 1! A-- (, )he a*(7e '&! 4nder &'(, which of the following is an illegal acti"ity8 3 a. Purchasin/ a *an+ )( 1e2(si) /a0*-in/ recei2)s /enera)e1 ,r(0 i--e/a- *e))in/ 2ar-(rs b. 'n"esting in a ban/ that pro"ides ser"ices to foreign nationals c. Purchasing a ban/ formerly used to reinitiate money into the +nancial system from a ban/ruptcy trustee d. All of the abo"e 33.>hich of the following would be in "iolation of &'(8 a. 'n"esting in a ban/ with ties to foreign nationals *! In7es)in/ in a 1ry c-eanin/ *usiness use1 )( 2-ace ,un1s 1eri7e1 ,r(0 2r(s)i)u)i(n c. 'n"esting in a ban/ that caters to cash?only businesses d. All of the abo"e #O$4 3$.a? an1 >*? 3%.>hich of the following is an eample of money laundering8 a. Purchasing gold from gambling winnings in as Begas b. ;epositing cash receipts from the sale of drugs in a cash safe deposit bo c! De2(si)in/ cash recei2)s ,r(0 2r(s)i)u)i(n ac)i7i)ies in a S.iss *an+ acc(un) d. All of the abo"e 3*.“Following the money”8 a. &e!uires /nowledge of e"ery place the money has been b. 's often di0cult to do gi"en the use of foreign ban/s for layering c. (ften re!uires access to foreign ban/ accounts 1! A-- (, )he a*(7e 3.#he con"ersion of illegal funds to assets is which step in the money laundering process8 a. ayering b. Placement c! Reini)ia)i(n d. =one of the abo"e 3-.#ransferring funds obtained illegally from a safe deposit bo in the 45 to a safe deposit bo in anada is an eample of8 a. &einiating b. ayering c. Placement 1! N(ne (, )he a*(7e reas(n: P-ace0en) 0us) in)r(1uce ,un1s )( )he nancia- sys)e05 2-acin/ ,un1s in a sa,e 1e2(si) *(8 1(es n() 1( )his! 3.#he transfer of funds obtained illegally from a 45 ban/ to another 45 ban/ is an eample of8 a. &einiating *! #ayerin/ c. Placement $ d. =one of the abo"e $.#he biggest ad"antage in"estigators ha"e when tracing the Cow of illegal funds is8 a. hich of the following methods is used to ma/e detection of persons responsible for money laundering more di0cult8 a. #he use of electronic ban/ transfers *! The use (, cashiers chec+s c. #he use of commercial chec/s d. All of the abo"e $2.>hat is the di6erence between mail and wire fraud8 a. hich of the following is an eample of +nancial statement fraud8 a. #he sales manager records as a sale shipments of goods on Danuary 1, 2E1, the day after year?end b. #he +nancial controller capitali)es a large amount of epenses that should ha"e been included on the income statement c. #he ( insists that current year bonuses be deferred to the net +scal year for payment 1! B()h >a? an1 >*? $*.>hich of the following is =(# an eample of +nancial statement fraud8 a. #he sales manager records as a sale a large shipment of +nished goods on Danuary 1, 2E1, the day after year?end in order to earn a large bonus % b. #he +nancial controller increases monies in the reser"e account in order to meet analysts@ epectations regarding earnings c! The CEO insis)s )ha) )he 2ay0en) ,(r curren) year accrue1 *(nuses *e 1e,erre1 )( )he ne8) sca- year d. #he treasurer transfer money from one ban/ account to another in order to mas/ a shortage $.Financial statement fraudsters often8 a. 5tart as accidental fraudsters and progress to predator fraudsters b. &ely on collusion to mas/ the fraud c. Fre!uently go from company to company committing the same type of fraud 1! A-- (, )he a*(7e $-.>hich of the following is =(# an eample of +nancial statement fraud8 a. a? an1 >*? $.Financial statement fraud is comple because8 a. a? an1 >*? #O$3 * %$.'f you wanted to issue new stoc/, which type of ban/ would you use8 a. Pri"ate b. ommercial c. 5a"ings 1! n(ne (, )he a*(7e %%.(6 shore ban/s8 a. Are illegal to do business with if you are a 45 citi)en *! Are use1 *y US hi/h ne) .(r)h in1i7i1ua-s ,(r ,a7(ra*-e )a8 )rea)0en) c. (ften are subsidiaries of 45 ban/s d. All of the abo"e #O$ %*.#he di6erence between ta a"oidance and ta e"asion is that8 a. A"oidance is illegal: e"asion is not b. A"oidance is intentional: e"asion is accidental c! A7(i1ance is -e/a-5 e7asi(n is n() d. =one of the abo"e %.>hich of the following is an eample of “badges of fraud”8 a. A tapayer ignores the ad"ice of her ta preparer and tales a deduction from income because she belie"es she understands the ta code better than her ad"isor *! A )a82ayer r(u)ine-y (0i)s cash recei2)s c(--ec)e1 (n Sun1ay ,r(0 his )a8 re)urn c. A tapayer pro"ides false statements to his ta preparer d. All of the abo"e %-.'f a tapayer suddenly stops +ling his income ta returns, this is e"idence of8 a. Fraud *! An ar0a)i7e in1ica)(r c. Predication of fraud d. =one of the abo"e #O$%= %.>hich of the following is an eample of churning8 a. An in"estor who fre!uently trades for his account b. An ad"isor who rein"ests di"idend and interest payments regularly for a client c. An ad"isor who eecutes fre!uent trades to ta/e ad"antage of mar/et mo"ements 1! An a17is(r .h( e8ecu)es ,reGuen) )ra1es )( /enera)e inc(0e ,(r hi0se-,  *.>hich is an eample of a “front runner”8 a. A buc/et shop b. A cler/ who o"erhears good news about a company and trades on the information c! A c-er+ .h( *ec(0es a.are (, a -ar/e 2en1in/ )ra1e an1 )ra1es (n )he in,(r0a)i(n  d. All of the abo"e ESSA QUESTIONS: ;%! Descri*e )he s)a/es (, 0(ney -aun1erin/ an1 ,(r each s)a/e 2r(7i1e an e8a02-e! A8 't is important to reali)e that money laundering is a process. #he three phases of money laundering are8 placement, layering, and &einitiation. Placement means the deposit of the illegally obtained asset Hincluding currencyI into the +nancial system. For eample, illegal gambling proceeds are deposited into an o6?shore ban/ account. ayering is the process by which the asset is transferred through the +nancial system with the intention of ma/ing tracing di0cult and pro"iding the asset with the patina of legitimacy He.g. transfer of illegal gambling proceeds to an o6?shore ban/I. Finally, &einitiation is the +nal phase where the illicit asset is reintroduced into the +nancial system, such as a donation by the o6?shore ban/ to a charitable organi)ation, ma/ing the transaction appear legitimate. ;&! E82-ain )he 1i9erence *e).een 0ai- an1 .ire ,rau1! hich 1( y(u )hin+ 0i/h) *e easier )( 1e)ec)J hyJ A8 ire fraud, by contrast, deals with fraud perpetrated electronically? through the use of computers, cell phones, portable phones, email, etc. 4nli/e mail fraud, the perpetrator does not ha"e to engage the 45 Postal system: also, unli/e mail fraud, the fraud must be associated with interstate or foreign commerce for wire fraud to occur. ;'! E82-ain h(. )he Pa)ri() Ac) enhances RICO! A8 #he Patriot Act epands the de+nition of money laundering to include cyber crime: funds generated from foreign crime, including terrorism: the bul/ transfer of cash smuggling: and the use of funds generated from supporting terrorist organi)ations. #he main di6erence between &'( and the Patriot Act is that the latter increases penalties and allows for the forfeiture of assets more easily. Finally, the Patriot Act prohibits 45 ban/s from doing business with any shell ban/s: if caught doing so, not only are the funds sei)ed, but the o6ending ban/ is sub9ect to se"ere penalities, including +nes and incarceration, and sei)ure of its assets. - 