Www.eidebailly.com Association of Government Accountants Northern Utah Chapter Lealan Miller, CGFM, CPA May 2014 Fraud Awareness

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  • www.eidebailly.com Association of Government Accountants Northern Utah Chapter Lealan Miller, CGFM, CPA May 2014 Fraud Awareness
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  • www.eidebailly.com The Fraud Triangle Motive Rationalization Perceived Opportunity
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  • www.eidebailly.com 3 Factors effective in fraud prevention and detection FactorPreventionDetection Internal controls11 Management review24 Internal audit33 External audit46 Tips/complaints52 Accident65
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  • www.eidebailly.com Question 1 1. Assessing whether financial statement fraud has occurred includes determining the intent of the parties responsible for the contents of the financial statements. a) True b) False
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  • www.eidebailly.com Question 2 2. Which of the following might be a red flag of a concealed liabilities and expenses scheme? a) Gross margin significantly lower than industry average b) An unusual increase in the number of days' purchases in accounts payable c) An unusual change in the relationship between fixed assets and depreciation d) Significant reductions in accounts payable while competitors are stretching out payments to vendors
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  • www.eidebailly.com Question 3 3. Which of the following is NOT a required element of an audit conducted in accordance with AU section 316, Consideration of Fraud in a Financial Statement Audit? a) Professional skepticism b) Knowledge of the company's business c) Use of a fraud risk factor checklist d) Brainstorming session
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  • www.eidebailly.com Question 4 4. Which of the following steps would be most helpful in determining whether reported revenue includes fictitious sales? a) Analyzing credits to accounts receivable recorded during the subsequent period b) Examining vendor complaints c) Consulting with sales management about the validity of the sales d) Performing a search for unrecorded liabilities
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  • www.eidebailly.com Question 5 5. During the annual audit of Carp Pharmaceuticals Inc.'s financial statements, Edward Lasher, the company's auditor, came across some fishy findings. The company's accounts receivable were higher than expected, and, upon further investigation, Lasher discovered that the company recorded several unusually large sales at the end of the fiscal year, all with extended payment terms and generous return policies. Since the company has been experiencing some serious financial challenges, Lasher is suspicious of these transactions. Based on these findings, which of the following types of financial statement fraud schemes might be occurring? a) Expense omission b) Channel stuffing c) Unrecorded warranties d) Factoring fraud
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  • www.eidebailly.com Question 6 6. Which of the following audit procedures would be most helpful in detecting contingent liabilities that have been fraudulently omitted from the company's financial statements? a) Computing the number of days' purchases in accounts payable b) Reviewing the bank cutoff statement c) Examining correspondence with and invoices from attorneys d) Observing the inventory count
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  • www.eidebailly.com Question 7 7. An unusual relationship between sales and which of the following can provide an indicator of a fictitious revenues scheme? a) Cost of goods sold b) Sales returns c) Shipping expense d) All of the above
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  • www.eidebailly.com Question 8 8. Lorinda Dawson is the external auditor for Nealson Industries, a public manufacturing company. As she performs the preliminary analytical procedures, she finds that the quick ratio, which has typically remained fairly consistent, increased from 1.3 to 3.7 during the previous year. Based on this information, what type of financial statement fraud scheme might be occurring? a) Inflated inventory b) Capitalized expenses c) Fictitious accounts receivable d) Overstated fixed assets
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  • www.eidebailly.com Question 9 9. An unusual growth in the number of days' sales in accounts receivable can be a red flag for which of the following financial statement fraud schemes? a) Improper asset valuation b) Timing differences c) Fictitious revenues d) All of the above
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  • www.eidebailly.com Question 10 10. DB Enterprise Inc. has been struggling for the last few years and is in danger of defaulting on several loan covenants. The company's CEO, Nathaniel Silver, is facing significant pressure from the board of directors to turn the company around. To improve the company's financial appearance, Silver undertakes a scheme to capitalize some of the company's operating expenses. Which of the following procedures would likely be most helpful in bringing this scheme to light? a) Obtaining a bank confirmation b) Analyzing depreciation and amortization expenses c) Computing the collection ratio d) Performing a search for unrecorded liabilities
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  • www.eidebailly.com The Future of Fraud
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  • www.eidebailly.com Part 2 Question 1 1. The data analysis technique that involves testing whether, within a given data set, digits appear in certain positions in the numbers in the expected proportion is known as: a) Digit occurrence matching b) Benfords law analysis c) Correlation analysis d) One-to-One checking
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  • www.eidebailly.com Question 2 2. Lester Van Andel suspects that one of the purchasing agents at Clint Industries is funneling orderscomplete with inflated purchase pricesto small companies run by his family members in exchange for kickbacks. Van Andel knows that these vendors' business filings with the Secretary of State should contain enough information to help him confirm the companies' ownership and thus the conflict of interest. However, to access the filings with the Secretary of State, he will need to obtain a subpoena. a) True b) False
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  • www.eidebailly.com Question 3 3. In an interview situation, which of the following behaviors is often a sign of deception? a) Repeating each question b) Starting each answer with "honestly" or "to tell the truth" c) Answering each question with another question, such as "Why would I do something like that?" d) All of the above
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  • www.eidebailly.com Question 4 4. According to the ACFE's 2008 Report to the Nation on Occupational Fraud and Abuse, which of the following is the most common behavioral red flag exhibited by fraudsters? a) Divorce or family problems b) Unwillingness to share duties c) Living beyond their means d) Unusually close association with a vendor or customer
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  • www.eidebailly.com Question 5 5. If a desktop computer is believed to contain evidence of a fraud, what is the first step that should be taken in securing it for analysis? a) Turning it off using the shutdown process b) Unplugging it c) Sorting through the files to make a note of where on the hard disk the pertinent evidence is located d) Copying all files on the computer to a portable hard drive
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  • www.eidebailly.com Question 6 6. Sherry Elkins, an accounts payable clerk, has been embezzling money from her employer by manipulating the company's billing function. Which of the following data analysis techniques would be helpful in identifying fraudulent NP transactions? a) Identifying vendors with no contact name b) Identifying the least-used vendor accounts c) Identifying the most-used vendor accounts d) All of the above
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  • www.eidebailly.com Question 7 7. While reviewing sales invoices, Michelle Starle, CPA, comes across a document with some odd markings. Based on several other suspicious things she's noticed, her initial hunch is that it has been altered as part of a fraud scheme. What is the first thing she should do with the document? a) Circle the suspicious writing on it b) Fold it, put it in an envelope, and mail it to the police c) Make a copy of it and put the original in a folder d) Paperclip it to a legitimate invoice for comparison by her supervisor
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  • www.eidebailly.com Expense Report Busted!
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  • www.eidebailly.com Part 3 - Question 1 1. Which of the following fraud schemes generally does not leave an audit trail and, consequently, is among the hardest to detect? a) Sales skimming b) False billing c) Check tampering d) Inventory theft
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  • www.eidebailly.com Question 2 2. The employee hotline for Aspiring Inc. received an anonymous call alleging that several employees are receiving kickbacks from a local vendor. Management has decided to launch a formal investigation into the allegations. Who should be primarily responsible for directing the fraud examination? a) The head of the company's security department b) The partner of the company's external audit firm c) The company's legal counsel d) The company's human resources manager
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  • www.eidebailly.com Question 3 3. Charlotte Grey, CPA, is conducting the annual audit of XYZ Corp.'s financial statements. While performing the yearend inventory procedures, she notices that several inventory items are regularly purchased at prices above the industry standard. These same items are also frequently purchased well before the typical reorder point and are, therefore, consistently overstocked. She notes that XYZ has recently changed vendors for these items, and she can't locate the new vendor on the company's app