(TCO 1) In the case of Adelphia, John Rigas and his sons are alleged to have stolen over $1 billion from

Question 1.1. (TCO 1) In the case of Adelphia, John Rigas and his sons are alleged to have stolen over $1 billion from the company, including (Points : 5)
receiving over a million dollars a month in secret cash payments.
building a private golf course worth $13 million.
borrowing $2.3 billion from banks with Adelphia as the guarantor but not recording the debt on Adelphia’s books.
All of the above


Question 2.2. (TCO 1) A criminal defense strategy used by Bernard Ebbers to unsuccessfully avoid criminal prosecution was referred to in Chapter 1 as the (Points : 5)
A. the Willful Blindness Defense by Bernard Ebbers.
B. the Aw Shucks Defense by the prosecutor in the Bernard Ebbers case.
C. the Chutzpah Defense by Bernard Ebbers.
B and C


Question 3.3. (TCO 1) When he was convicted, Bernard Ebbers tried to use the Chutzpah Defense when he claimed he had no expert knowledge of accounting and no idea fraud was being committed. The prosecutor called it the (Points : 5)
“I was too dumb to know” defense.
“Aw Shucks” defense.
“head in the sand” defense.
“I am in over my head” defense.


Question 4.4. (TCOs 1 and 2) When President George W. Bush announced his Ten-Point Plan to Improve Corporate Responsibility and Protect America’s Shareholders, he stated it was based on the three principles of auditor independence, management accountability, and (Points : 5)
the creation of Sarbanes-Oxley.
the ability for shareholders to directly fire senior executives.
information accuracy and accessibility.
the implementation of FASB 99.


Question 5.5. (TCOs 2 and 3) Check tampering is an example of (Points : 5)
internal company fraud.
fraudulent reporting of an expense account.
external company fraud.
misrepresentation of a company’s financial statements.


Question 6.6. (TCOs 1 and 2) When a fraudster says to herself that “I was only borrowing the money; I will pay it back someday” or “This is not much money, the company is rich and won’t miss it,” that person is engaging in a form of (Points : 5)
rationalization.
deconstruction.
illumination.
cover.


Question 7.7. (TCOs 2, 3, and 5) The Fraud Triangle is comprised of which three elements? (Points : 5)
Financial pressure, rationalization, and weak internal controls
Rationalization, financial pressure, and opportunity
Rationalization, financial pressure, and greed
Financial pressure, opportunity, and greed


Question 8.8. (TCOs 2 and 3) Corporate governance is best described as (Points : 5)
a very strong senior management that consistently micromanages employees to ensure they do the right thing.
a strong and effective board of directors.
a well-written set of compliance policies and procedures.
a system of checks and balances between management and all other connected parties with the aim of producing effective, efficient, and law-abiding corporations.


Question 9.9. (TCO 4) SAS 99 includes a requirement to document the discussions among the personnel involved in the susceptibility of the company’s financial statements to material misstatements, which could result in fraud. Who promulgated SAS 99, and what does it stand for? (Points : 5)
The American Institute of Certified Public Accounts, Statement on Auditing Standards 99
The Public Company Accounting Oversight Board, Statement on Auditing Standards 99
The American Institute of Certified Public Accounts, Standards for Assessing Accountings 99
The Public Company Accounting Oversight Board, Standards for Assessing Accountants 99


Question 10.10. (TCOs 5 and 6) In Chapter 5 we discussed risk management techniques and covered two leading methods. They are (Points : 5)
the control effective method and the cost-benefit analysis method.
the cost-benefit analysis method and the corporate governance review method.
the Control Effectiveness method and the Employment Code of Conduct Review method.
the Control Effectiveness method and the Residual Risk and Risk Appetite method.


Question 11.11. (TCOs 5, 6, and 7) Fraud risk assessment is best described as (Points : 5)
a compliance review and audit.
a review of corporate governance controls.
a process of identifying risks of fraud based on the organization’s particular characteristics.
catching fraudsters, punishing them, and seeking restitution.


Question 12.12. (TCOs 7 and 8) When a company establishes a hotline, a number of basic rules apply, including which of the following? (Points : 5)
The hotline number must be readily accessible.
It must be available in every country where the company operates.
It must be available 24 hours a day, 7 days a week from any telephone that the employee may want to call from.
All of the above


Question 13.13. (TCOs 2 and 8) The Fraud Diamond is a variation of the Fraud Triangle and includes the fourth element of (Points : 5)
capability.
greed.
accomplices.
avarice.


Question 14.14. (TCOs 2 and 4) Corruption schemes usually involve which of the following? (Points : 5)
Bid rigging
Conflicts of interest
Kickbacks
All of the above


Question 15.15. (TCO 4) The use of professional skepticism is a key tenet that auditors must adhere to and is required of (Points : 5)
SAS 99.
Sarbanes-Oxley.
The Securities and Exchange Commission.
The Association of Certified Fraud Examiners.


Question 16.16. (TCO 5) The Association of Certified Fraud Examiners (ACFE) includes the concept of collaboration between objective, independent fraud specialists and people within the organization who have extensive knowledge about its operations as part of its (Points : 5)
checklist to Meaningful Fraud Prevention Control.
Certification for Financial Statement Veracity.
ACFE Fraud Prevention Check-Up.
audit review, prevention, and certification procedures.


Question 17.17. (TCO 5) We discussed enterprise risk management (ERM) in Chapter 5. According to our lecture and the text, a good ERM program will (Points : 5)
identify and make transparent the exposure to risks that affect the company’s ability to achieve its objectives.
enable the company to determine its appetite for certain risks and whether the current set of controls are effective at keeping the risk within its appetite.
enable the company to appropriately address risk and enact measures to control, transfer, or mitigate risks.
All of the above


Question 18.18. (TCOs 4 and 5) Companies transfer risk by (Points : 5)
engaging the Association of Certified Fraud Examiners.
filing their financial statements with the Securities and Exchange Commission.
purchasing insurance.
using external auditors to review their financial statements.


Question 19.19. (TCOs 3 and 6) In his statement on June 10, 2009, Treasury Secretary Timothy Geithner proposed five principles that he intended to better align compensation practices with the interests of shareholders. Two of those included (Points : 5)
a. compensation plans that properly measured and rewarded performance.
B. capping executive pay at $1 million per year, including bonuses and deferred compensation.
C. re-examining golden parachutes and supplemental retirement packages to align executives’ interests with the shareholders of the company.
A and C


Question 20.20. (TCOs 5 and 6) Insurance will _____ risk. (Points : 5)
avoid
accept
transfer
control


Question 21.21. (TCO 6) Financial statement fraud usually involves all of the following, except (Points : 5)
intense pressure on senior management to meet certain financial or other goals.
separation of duties.
no whistle-blowers.
aggressive accounting practices.


Question 22.22. (TCOs 6 and 7) Which of the following is not considered an asset misappropriation fraud? (Points : 5)
Skimming
Overstating inventory
Expense reimbursement fraud
Payroll schemes


Question 23.23. (TCOs 6 and 7) Which of the following is considered a bribe if given to influence a business decision? (Points : 5)
Sexual favors
An expenses-paid trip
An expensive gift
All of the above


Question 24.24. (TCO 7) When Bernard Madoff perpetuated his fraudulent scheme which cost investors between $20 and $65 million in losses through his company Bernard L. Maddoff Investment Services, the scheme was a classic example of a (Points : 5)
bust-out scam.
Ponzi scheme.
reshipping scam.
fraudulent credit card number scam.


Question 25.25. (TCOs 7 and 8) In order for a company to implement a robust and effective fraud prevention program, it must (Points : 5)
make sure the program is aligned with the company’s internal audit function.
hire the Association of Certified Fraud Examiners.
hire external auditors only from one of the “big four” accounting firms.
comply with every requirement of Sarbanes-Oxley’s rules.


Question 26.26. (TCOs 7 and 8) In Chapter 11 it was recommended that a financial integrity unit be established within a company to (Points : 5)
underscore the importance of the financial integrity concept.
let employees know that there is an “enforcement unit” on watch.
comply with Sarbanes-Oxley’s Section 404 requirements.
keep a watch on executive and senior management pursuant to the requirements of Sarbanes-Oxley’s Section 404 requirements.


Question 27.27. (TCO 8) Aligning a company’s internal audit function with the company’s fraud prevention program will ensure (Points : 5)
a robust and effective fraud prevention program.
the company complies with Sarbanes-Oxley.
a strong corporate governance structure.
that risk is adequately transferred.


Question 28.28. (TCO 8) In Chapter 13 of our text, we learned that background checks are an effective tool to reduce potential fraud. We also learned that it is not necessary for a company to be Fort Knox. This means (Points : 5)
not all companies handle cash, and accordingly, not all companies need to conduct a credit or financial history background check on potential hires.
companies should refrain from conducting background checks unless absolutely necessary.
companies should design their background checks based on their specific risks, the responsibilities of the person to be hired, and the need to comply with the law or regulations.
companies that have a high amount of employee turnover should refrain from conducting background checks in order to avoid spending exorbitant amounts of money on unnecessary checks.


Question 29.29. (TCO 8) Recovery of defrauded assets by a company is important because (Points : 5)
recovery sends a strong message that fraud is not tolerated and every effort will be made to recover stolen assets.
Sarbanes-Oxley requires a company to go after fraudsters and recover their ill-gotten gains.
SAS 99 requires a company to prosecute fraudsters and recover their ill-gotten gains.
not doing so would make the company an accomplice to the crime.


Question 30.30. (TCO 8) Which of the following discusses the importance of whistle-blowers and hotlines to identify, prevent, or remedy fraudulent activity? (Points : 5)
Sarbanes-Oxley
The Dodd-Frank Act
The Federal Sentencing Guidelines
All of the above
1. (TCOs 2, 3, and 9) Explain briefly the Short Memory Syndrome. (Points : 10)



Question 2. 2. (TCOs 6, 7, and 8) In TCO 8 we learned about establishing whistle-blower hotlines under the Dodd-Frank Act and some “hotline basics.” Describe a basic rule applicable to an effective whistle-blower hotline. (Points : 10)



Question 3. 3. (TCOs 4 and 5) Enterprise risk management (“ERM”) is a hot topic across all industries. Boards and senior management rely on ERM to help them understand and manage important risks. Briefly explain ERM and its three foundational steps. (Points : 10)





1. (TCOs 5 and 6) In Week 5 we discussed in detail the red flags of financial statement fraud. In the Manager’s Guide to the Sarbanes-Oxley Act, author Scott Green listed five red flags of financial statement fraud. Name these red flags and discuss each. (Points : 40)



Question 2. 2. (TCOs 2, 3, and 8) In the 1987 Report of the National Commission on Fraudulent Financial Reporting (the Treadway Commission Report), the Commission studied the financial reporting system in the United States to identify causal factors that can lead to fraudulent financial reporting and steps to reduce its incidence. Briefly outline and discuss the key recommendations of the Treadway Commission. (Points : 40)