Preview (5 of 16 pages)

Chapter 13 Fraud Risk Assessment Review Questions 13-1 What are four factors that influence the level of fraud risk faced by an organization? Answer: Four factors that influence the level of fraud risk faced by an organization are (1) the nature of the business, (2) its operating environment, (3) the effectiveness of its internal controls, and (4) the ethics and values of the company and the people within it. 13-2 What is the difference between preventive controls and detective controls? Answer: Preventive controls are designed to stop an undesirable event from occurring, whereas detective controls are designed to identify an undesirable event that has already occurred. 13-3 What is the objective of a fraud risk assessment? Answer: The objective of a fraud risk assessment is to help management recognize the factors that make the organization most vulnerable to fraud so that management can address those factors to reduce the exposure. 13-4 What can an effective fraud risk assessment help management to accomplish? Answer: An effective fraud risk assessment can help management to accomplish the following: (1) improve communication and awareness throughout the organization about fraud; (2) identify what activities are the most vulnerable to fraud; (3) know who puts the organization at the greatest risk for fraud; (4) develop plans to mitigate fraud; (5) develop techniques to determine whether fraud has occurred in high-risk areas; (6) assess internal controls; and (6) comply with regulations and professional standards. 13-5 What characteristics constitute a good fraud risk assessment? Answer: The following are characteristics of a good fraud risk assessment: (1) it involves a collaborative effort of management and auditors; (2) it is sponsored by a competent and respected individual; (3) those leading and conducting the work are independent, objective, and open-minded; have a good working knowledge of the business; and engender the trust of management and employees; (4) it includes the perceptions of people at all levels of the organization; (5) it is kept alive and relevant. 13-6 What are three considerations for developing an effective fraud risk assessment? Answer: One consideration for developing an effective fraud risk assessment is presenting it in a manner to which people can relate. Another consideration is tailoring the approach and execution to the individual organization. Finally, the fraud risk assessment should be kept simple to ensure ease of execution. 13-7 What can management do to prepare a company for a fraud risk assessment? Answer: In order to prepare a company for a fraud risk assessment, management can build a fraud risk assessment team, consisting of individuals with diverse knowledge, skills, and perspectives, to lead and conduct the assessment. Also, management can determine the best techniques to use in performing the assessment and obtain the sponsor’s agreement on the work to be performed. Finally, management can openly promote the fraud risk assessment process to encourage employee participation. 13-8 What steps are involved in conducting a fraud risk assessment using the sample framework discussed in the chapter? Answer: The steps involved in conducting a fraud risk assessment using the sample framework discussed in the chapter are as follows: 1. Identify potential inherent fraud risks. 2. Assess the likelihood of occurrence of the identified fraud risks. 3. Assess the significance to the organization of the fraud risks. 4. Evaluate which people and departments are most likely to commit fraud and identify the methods they are likely to use. 5. Identify and map existing preventive and detective controls to the relevant fraud risks. 6. Evaluate whether the identified controls are operating effectively and efficiently. 7. Identify and evaluate residual fraud risks resulting from ineffective or nonexistent controls. 13-9 Describe four approaches for responding to an organization’s residual fraud risks. Answer: In responding to an organization’s residual fraud risks, management can choose to avoid, transfer, mitigate, or assume each risk. Management may decide to avoid a risk by eliminating an asset or exiting an activity if the control measures required to protect the organization against an identified threat are too expensive. To transfer some or all of a risk, management may purchase fidelity insurance or a fidelity bond. Management can mitigate a risk by implementing appropriate countermeasures such as prevention and detection controls. If management determines that the probability of occurrence and impact of loss are low, management may choose to accept a risk. Finally, for certain risks, management may elect a combination of these approaches. 13-10 What are four important considerations to keep in mind when reporting the fraud risk assessment results? Answer: In reporting the fraud risk assessment results, the fraud risk assessment team should stick to the facts, focus on the most important points, identify actions that are clear and measurable, and present information in an easy-to-understand manner. 13-11 What actions can management take to make the most impact with the fraud risk assessment? Answer: In order to make the most impact with the fraud risk assessment, management can use the results in its ongoing anti-fraud efforts. By using the results to begin a dialog across the company that promotes awareness, education, and action planning, management can reduce fraud risk. Also, by using the results to identify high-risk areas, management can better focus its anti-fraud efforts. Management must ensure that the fraud risk assessment stays current and relevant, and that someone in the organization is assigned ownership of the process. 13-12 How can a fraud risk assessment inform and influence the audit process? Answer: The results of a fraud risk assessment can help auditors design programs and procedures in a way that enables the auditors to look for fraud in known areas of high risk. Discussion Issues 13-1 How is fraud risk influenced by a company’s internal controls? How is fraud risk influenced by a company’s ethics, values, and expectations? Answer: A good system of internal controls, with the right balance of preventive and detective controls, can greatly reduce an organization’s vulnerability to fraud by reducing the fraudster’s opportunity to commit fraud and by increasing the likelihood of detection of a fraud that is committed. Any gap in alignment between a company’s ethics, values, and expectations and those of the individuals that make up the organization can significantly increase an organization’s fraud risk. 13-2 Why is it important that management and auditors collaborate on a fraud risk assessment? Answer: By collaborating on a fraud risk assessment, management and auditors can increase the effectiveness of the assessment. Each party brings a unique perspective to the assessment. Management has intricate familiarity with the day-to-day business operations, responsibility for assessing business risks and implementing organizational controls, authority to adjust operations, influence over the organization’s culture and ethical atmosphere, and control over the organization’s resources. Auditors are trained in risk identification and assessment, and have expertise in evaluating internal controls, which is critical to the fraud risk assessment process. 13-3 What qualities and characteristics should be considered when choosing a sponsor for a fraud risk assessment? Answer: A sponsor for a fraud risk assessment should be senior enough in the organization to command the respect of the employees and to elicit full cooperation in the process. The sponsor must be someone who is committed to learning the truth about where the company’s fraud vulnerabilities are. In addition, he must be independent and open in his evaluation of the situation and response to the identified risks. 13-4 Green is an internal auditor and the lead on the company’s fraud risk assessment. In the past, he and Blue, an accounts receivable clerk, have had several heated disagreements over accounting procedures. What risk would Green be taking by having Blue perform the fraud risk assessment work related to the accounts receivable department’s activities? How might this risk be best addressed? Answer: Because Green and Blue have had some bad past experiences, by having Blue perform the work related to the accounts receivable department’s activities, Green risks allowing those bad experiences to affect his evaluation of the fraud risks related to that area of the business. To preclude this possibility, someone else should perform the fraud risk assessment work related to the activities of the accounts receivable department. 13-5 Who should be included on a fraud risk assessment team? Answer: The fraud risk assessment team should consist of individuals with diverse knowledge, skills, and perspectives. The team members can include accounting and finance personnel who are familiar with the financial reporting process and internal controls; nonfinancial business unit and operations personnel who have knowledge of day-to-day operations, customer and vendor interactions, and industry issues; risk management personnel who can ensure that the fraud risk assessment process integrates with the organization’s enterprise risk management program; the general counsel or other members of the legal department; members of any ethics and compliance functions within the organization; internal auditors; external consultants with fraud and risk experience; and any business leader with direct accountability for the effectiveness of the organization’s fraud risk management efforts. 13-6 What topics should be discussed in identifying fraud risks that could apply to the organization? Answer: The following topics should be discussed in identifying fraud risks that could apply to the organization: incentives, pressures, and opportunities to commit fraud; and risk of management’s override of controls. In addition, information should be gathered about the business itself, including its business processes, industry, and operating environment. 13-7 What risks related to each of the three primary categories of fraud should the fraud risk assessment team consider? Answer: Fraud risks can be classified according to the three major categories of fraud: fraudulent financial reporting, asset misappropriation, and corruption. The fraud risk assessment team should consider the following fraudulent financial reporting risks: inappropriately reported revenues, expenses, or both; inappropriately reflected balance sheet amounts, including reserves; inappropriately improved or masked disclosures; concealed misappropriation of assets; concealed unauthorized receipts, expenditures, or both; and concealed unauthorized acquisition, use, or disposition of assets. The team should also consider asset misappropriation risks, including the risks of misappropriation of tangible and intangible assets, and proprietary business opportunities. Potential corruption risks that the team should consider include payment of bribes or gratuities to companies, private individuals, or public officials; receipt of bribes, kickbacks, or gratuities; and aiding and abetting of fraud by outside parties such as customers or vendors. 13-8 What risks should the fraud risk assessment team consider in addition to the specific risks related to each of the three primary categories of fraud? Answer: In addition to the specific risks related to each of the three primary categories of fraud, the fraud risk assessment team should consider risks related to regulatory and legal misconduct, reputation risk, and risk to information technology. 13-9 When might an organization choose to avoid a risk rather than assume, transfer, or mitigate it? Answer: Rather than assume, transfer, or mitigate a risk, management might choose to avoid it—by eliminating an asset or exiting an activity—if the control measures required to protect the organization against an identified threat are too expensive. Chapter 14 Conducting Investigations and Writing Reports Review Questions 14-1. What are some of the reasons a fraud examination should be commenced? Answer: A fraud examination may be undertaken to determine the source of and losses from an alleged fraud, and to gather evidence for a criminal prosecution or civil trial. Examinations may also be conducted to comply with federal statutes, to fulfill the professional duties of loyalty and reasonable care, to protect against allegations of wrongful termination, and to mitigate the company’s liability related to employee misconduct. 14-2. Who are some of the professionals that should be included on a typical fraud examination team? Answer: Professionals from a variety of fields can provide valuable assistance to the examination. A typical investigation team might include Certified Fraud Examiners, legal counsel, internal auditors, security personnel, IT and computer forensics experts, human resources personnel, a management representative, and outside consultants. 14-3. Under what circumstances might the fraud examination team include outside consultants? Answer: In some cases, particularly when the suspect employee is especially powerful or popular, it might be useful to employ outside specialists who are relatively immune to company politics or threats of reprisal. Such experts might also have greater experience and investigative contacts than insiders. In addition, some investigatory procedures, such as forensic document analysis, require a high level of proficiency and expertise and should therefore only be undertaken by professionals specifically trained in that field. 14-4. What is evidence? What types of things can be considered evidence? Answer: Evidence is anything perceivable by the five senses, and includes any proof, such as testimony of witnesses, records, documents, facts, data, or tangible objects, that is legally presented at trial to prove a contention and induce a belief in the minds of a jury. 14-5. What are some of examples of evidence gathering techniques that might be utilized in a fraud examination? Answer: Fraud examinations frequently employ a wide variety of investigative techniques to gather evidence. Some of these include interviewing witnesses, examining public sources of information, conducting covert and surveillance operations, using informants, “dumpster diving,” acquiring subpoenas and search warrants, and obtaining voluntary consent. 14-6. When handling documentary evidence, what types of precautions should a fraud examiner take? Answer: Original documents should be obtained where feasible. However, the originals should not be touched more than necessary, as they may later need to undergo forensic analysis. Therefore, the investigator should make working copies for review, and keep the originals segregated. Additionally, a good filing system for the documents is essential. Losing a key document may irreparably damage the case. So that it can be identified later, all documentary evidence received should be uniquely marked, either by initialing and dating the items or by making small tick marks or other nondescript identifiers on them. Other than these identifiers, the examiner should never write or make markings on the original documents. The investigator should also never add new folds to, staple, place paper clips on, crumple, or do anything else to documents that would affect or change them from their original condition. Finally, if fingerprint examinations are anticipated, gloves should be used to handle the documents. 14-7. What types of information can be obtained by examining internal documentation? Answer: An investigator can learn a great deal about an individual by examining routine in-house information on file at his or her place of employment. Internal sources can provide the framework necessary for continued investigation from other sources. For example, personnel files can provide full names, addresses, social security numbers, dates of employment, previous employers, and salary information. Phone, voicemail, and email records can provide information about communication between parties. Access codes and user identification codes can identify when employees entered buildings and logged onto and off of computer systems. Security videos provide evidence of employee location and activity. 14-8. What are three characteristics/objectives of a good investigation report? Answer: The way in which the information is presented at the end of an investigation can often make or break the case. Therefore, a good investigation report should 1) convey all evidence necessary for thorough and proper evaluation of the case, 2) add credibility to the investigation and corroborate earlier facts, and 3) accomplish the objectives of case. 14-9. What are five sections that should be included in a standard investigation report? What information is found in each of these sections? Answer: A standard report should include the following sections: •Summary. This section sets out the main points of the report in a few sentences and should include the subject, basis, findings, and outcome of the investigation. •Introduction/purpose. This section provides more detail on what the report is about and prepares the reader for what is to come, as well as explaining the purpose of the report along with any background information that may be required. •Body. This section identifies the employee(s) and other individuals implicated or involved in the matter and provides any background information that may have been obtained about the employee(s) or other parties. This section also details the methods used to investigate the matter. •Results. This section will range from a sentence or two to a narrative supplemented by spreadsheets or graphics, depending on the nature of the investigation and the information collected. •Follow-up/recommendations. This section identifies any investigation procedures that remain outstanding and outlines any recommendations related to procedures and controls. Discussion Issues 14-1. Who should be responsible for directing an internal fraud investigation? Why? Answer: Typically, the company’s legal counsel should be involved in and, in most cases, charged with “directing” an internal investigation, at least as far as the legal aspects are concerned. Investigations can raise countless legal questions, and if certain legal precautions are not taken, the case can be severely damaged. The investigation team must have legal counsel on hand to sort out these issues; otherwise, the company risks exposing itself to greater danger than the threat it is investigating. In addition, by having an attorney directing the investigation, the company may be able to protect the confidentiality of its investigation under the attorney-client privilege. 14-2. How can computers and technology help in investigating a fraud? What kinds of challenges can the involvement of technology present to a case? Answer: Just as computers are being used increasingly in the committal of fraud, investigators are making extensive use of technology in preventing, detecting, and investigating fraud. Because most frauds now involve the use of a computer in some capacity, IT professionals may need to be part of an investigation to safeguard data until it can be analyzed. Additionally, computer forensics professionals should be used to capture and analyze digital data. Electronic data can be easily altered; therefore, only trained professionals should be used to secure such data so that it can be analyzed more thoroughly without disturbing the original files. The Internet has been an enormous tool in the fraud examiner’s repertoire, as investigators now have a wealth of public records information at their fingertips. A number of resources and online search services are available to help investigators locate individuals, research financial information, identify business relationships and transactions, and uncover litigation history. Additionally, several software programs exist specifically to help investigators in organizing and managing evidence, and in reporting the results of their investigations. 14-3. Jim Block, CFE, is investigating Randy Smith for his role in a potential kickback scheme. Gathering evidence about Randy’s financial activity has been difficult. While on a stakeout at Randy’s home, Jim sees Randy’s wife take out the garbage and place it on the curb. Jim steals the trash bag, sorts through its contents, and discovers multiple bank statements that provide detail of some of Randy’s illicit financial transactions. Is Jim’s acquirement of the bank statements legal even though there was no search warrant? Answer: Yes. Jim’s use of “dumpster diving” to obtain evidence about Randy’s financial dealings is legal. The courts have upheld that investigators may sift through trash without a search warrant, provided that the trash has left the suspect’s possession. At that point, there is no longer the reasonable expectation of privacy, and thus it is fair game. 14-4. What are some considerations a fraud examiner should keep in mind when organizing documentary evidence? Which method of evidence organization is preferred? Answer: Keeping track of the amount of paper generated is one of the biggest problems in fraud investigations. Therefore, documents should be continuously reorganized and reevaluated as to importance and relevance to the case. Investigators should make a “key document” file for easy access to the most relevant documents and periodically review the key document file, moving the less important documents to back up files and keeping only the most relevant paper in the main file. A database of documents should be established early on in the case, and should include, at a minimum, the date of the document, the individual from whom the document was obtained, the date it was obtained, the subject to which the document pertains, and a brief description. Documents should be segregated and organized by either witness or transaction. Chronological organization is generally the least preferred method. 14-5. An investigator is looking for information about some vacant land that may be owned by a suspect in a fraud case. What source(s) of public records would be a good place to find this information? Answer: The investigator would find the information he is seeking in the public records of the county in which the land is located. The county should have on record a deed verifying the transfer of the property. Additionally, information about the land will be reflected in the county real property indexes. A search of the county real property records will reveal the residency and addresses of buyer and seller of the land, the purchase price of the property, and the title companies involved in the transaction. If the property was financed, the records will also list the mortgage company and amount originally financed. The investigator should also search the county property tax records, which contain information about the estimated value of the property listed for tax purposes, the identity of the owner of the vacant piece of land, and the name of the last person to pay taxes on the property. 14-6. When reporting the results of an investigation, why is it important that fraud examiners do not express opinions in their professional report? Answer: The fraud examiner’s job is to present the evidence in his report. Opinions regarding technical matters are permitted if the fraud examiner is qualified as an expert in the matter being considered. No opinions of any other kind should be included in the written report. In particular, opinions should not be voiced regarding the guilt or innocence of any person or party, as forming this type of opinion is the job of the judge and jury. Chapter 15 Interviewing Witnesses Review Questions 15-1 What are the five types of ¬interview questions? Answer: The five types of interview questions are introductory, informational, closing, assessment, and admission ¬seeking. 15-2 What four steps are involved in introductory questions? Answer: The steps involved in the introduction are provide the introduction, establish rapport, establish the interview theme, and observe reactions. 15-3 What topics should be ¬covered during informational questioning? Answer: Once the introductory questions are out of the way, the informational phase is used to gather the appropriate facts in a nonaccusatory way. Generally, the interviewer should begin with background questions, and then proceed logically to the facts that are ¬already known. 15-4 When should open questions be used? Answer: Open questions should be used during the informational phase of the interview. 15-5 When should closed ¬questions be used? Answer: Closed questions should be used principally during the closing of the interview in order to sum up facts learned during the informational phase. 15-6 When should leading ¬questions be used? Answer: Leading questions should generally be used during the ¬admission-seeking phase of the interview. 15-7 What are the purposes of closing questions? Answer: Closing questions have three purposes: to reconfirm the facts gathered, to obtain additional information, and to conclude the interview. 15-8 What is the purpose of assessment questions, and when are they asked? Answer: The purpose of assessment questions is to establish the credibility of the respondent. They are asked only when the interviewer has a reason to doubt the truthfulness of the interviewee. 15-9 What are some nonverbal clues to deception? Answer: Nonverbal clues to deception include the following: full-body motions, changes in anatomical physical responses, changes in the rate of illustrators, placing the hands over the mouth, increased use of ¬manipulators, fleeing positions, crossing the arms, inconsistent reactions to evidence, and fake smiles. 15-10 What are some of the verbal clues to deception? Answer: Verbal clues include to deception include the following: changes in speech patterns, repetition of the question, comments regarding the interview environment, displaying a selective memory, making excuses, increased use of oaths, excessive character testimony, answering with a question, overuse of respect, increasingly weaker denials, failure to deny wrongdoing, avoidance of emotive words, refusal to implicate other suspects, tolerant attitudes ¬toward wrongdoing, reluctance to terminate the interview, and feigned unconcern about the issue at hand. 15-11 What are the steps used in admission-seeking questions? Answer: The following steps are used in admission-seeking questions: Make a direct accusation of wrongdoing, observe the subject’s reaction, repeat the accusation, interrupt denials, ¬establish a rationalization for the wrongful conduct, diffuse ¬alibis, present an alternative question, obtain a benchmark ¬admission, obtain a verbal confession, and reduce the confession to a written statement. 15-12 What are the key elements of a signed statement? Answer: The key elements of a signed statement are state that the accused knew the conduct was wrong; include facts known only to the ¬accused; estimate the number of instances involved; establish a motive for the offense; state when the misconduct began and concluded; detail others involved; describe any physical ¬evidence; explain how the proceeds were used, along with the location of any assets accumulated; and give specifics for each offense. Discussion Issues 15-1 Why are all five types of interview questions not used in all interviews? Answer: Introductory, informational, and closing questions are used in all interviews. Most interviews are conducted with ordinary witnesses for the purpose of information gathering. Assessment and admission-seeking questions are used only in cases involving possible deception and for the purpose of confronting the suspect of a fraud. 15-2 Why are introductory questions so important to an interview’s success? Answer: The introduction establishes the tone of the interview. If the witness feels comfortable, he or she is likely to provide information. If the witness feels threatened, this will inhibit fact-finding. Additionally, only when the person is relaxed can you observe nonthreatening behavior and calibrate the witness. 15-3 If during the informational phase of an interview, the witness becomes difficult, how should this be handled? Answer: There are three specific techniques that can be used. The first is not to react to hostility. The second technique is to attempt to disarm the witness by surprise. The third is to change tactics. 15-4 Why does the interviewer not use closed or leading questions during the information-gathering phase of the interview? Answer: Closed or leading questions inhibit the flow of information from the witness. An open question does not ¬restrict the subject’s response. The interviewer’s job is to allow the -witness to convey as much information as necessary about the topic at hand. 15-5 Why is establishing goodwill with the witness important during the closing phase of the interview? Answer: In the case of most witnesses, you may have additional questions at some future point. By establishing and maintaining goodwill, the witness will be more likely to cooperate in any subsequent inquiry. 15-6 What is the theory behind how assessment questions work? Answer: The whole notion is that honest people will answer questions one way and dishonest people will answer them differently. 15-7 What is the connection between calibrating a witness and the verbal and nonverbal clues to deception? Answer: In order to assess the verbal and nonverbal clues to deception, the interviewer must first observe the witness when the questioning is not threatening. 15-8 Why are admission-seeking questions asked in a specific order? Answer: The questions are designed to clear the innocent ¬person and encourage those culpable to confess. People ¬confess when they perceive that the benefits of confessing outweigh the disadvantages. 15-9 Why is the excuse clause used in preparing a signed statement? Answer: The confessor is usually more willing to sign a statement of responsibility if it includes information portraying him or her in a more favorable moral light. Chapter 16 Occupational Fraud and Abuse Review Questions 16-1 What is “abusive conduct”? Answer: Behaviors by employees of organizations that are counter to the entity’s goals. Examples include “gold-bricking,” excessive absenteeism, tardiness, theft, pilferage, and fraud. 16-2 Why is attempting to achieve perfection in the workplace not desirable? Answer: Standards regarding employee conduct should be reasonable. If they are not, employees may be forced to fail or lie in order to achieve unreasonable goals. 16-3 Why is it difficult or impossible to measure the actual level of occupational fraud and abuse within organizations? Answer: Not all occupational fraud is uncovered. For those frauds that are discovered, not all are reported. Furthermore, there is no organization or government agency that tracks comprehensive data for occupational fraud. 16-4 Why is greed an inadequate explanation as the motive for occupational fraud? Answer: Greed is a natural human trait. Many “greedy” ¬people do not lie, cheat, and steal to achieve their goals. 16-5 What is meant by “wages in kind”? Answer: If employees feel underpaid or mistreated, they may be tempted to right their perceived wrongs through fraud and abuse. 16-6 What is the difference between fraud prevention and fraud deterrence? Answer: Fraud prevention implies removing the root causes of fraudulent behavior. Fraud deterrence is the modification of behavior through the threat of negative sanctions. 16-7 What is the significance of the “perception of detection”? Answer: Employees who believe that their fraudulent conduct will be detected are less likely to commit it. 16-8 What are some of the factors that may help increase the perception of detection? Answer: Factors that may help increase the perception of detection include: employee education, proactive fraud policies, a higher stance for management and auditors, increased use of ¬analytical review, surprise audits, and adequate reporting programs. 16-9 Why are adequate reporting programs so important to fraud deterrence? Answer: Many employees who are aware of possible illegal conduct are fearful of being “dragged into” the investigation. An adequate reporting program provides anonymity to those who report fraudulent activity. This serves to encourage reporting and, therefore, increases the perception of detection. 16-10 What are the key elements of the Corporate Sentencing Guidelines? Answer: Corporations convicted of criminal offenses will be held liable for the illegal acts of their employees even if those in management had no knowledge of, or participation in, the acts. The liability can be limited if the company voluntarily discloses the illegal conduct and has taken specific steps to mitigate it. 16-11 What is ethics? Answer: Ethics is the branch of philosophy that focuses on the systematic study of reflective choice, of the standards of right and wrong by which a person is to be guided, and of the goods toward which it may ultimately be directed. Discussion Issues 16-1 Why do employees engage in abusive conduct against organizations? Answer: The principal reason that employees engage in abusive conduct is to express dissatisfaction with their employer or terms of employment. This dissatisfaction leads to abusive conduct as a retaliatory measure. 16-2 How are employees likely to react to unreasonably restrictive rules in the workplace? Answer: The more rules that an organization sets, the greater the likelihood that employees will run afoul of them, especially if the rules make little or no sense to them. In that case, employees will usually ignore the rules or make their own. 16-3 What are some of the ways an organization might improve measurement of the level of ¬occupational fraud and abuse? Answer: In order to measure the level of occupational fraud and abuse, the first step would entail detecting it. Methods for improving detection include instituting and enforcing internal control procedures and mechanisms for individuals to report, anonymously, instances related to fraud and abuse. In addition, an organization should keep good records of the company history as it pertains to fraud-related matters. This may provide some insight into the company’s risk of fraud as well as its areas of vulnerability. 16-4 Since everyone is greedy to some extent, why do only some individuals engage in fraudulent activity? Answer: Greed is only one factor in occupational fraud and abuse. Fraudulent activity, like any crime, depends on motive and opportunity. Although some individuals may have the motive, certain controls may be in place to diminish the opportunity. Alternately, if the opportunity is present, the¬ motive may not exist. 16-5 What actions might an ¬organization take to prevent “wages in kind”? Answer: Since wages in kind depends on the employees’ ¬perception that they are justified in committing fraud, the -employer must confront this judgment from a moral and legal perspective. Additionally, educating employees as to the repercussions involved may reduce the likelihood of such -occurrences. Good personnel policies are also important in preventing this type of fraud. These policies should include (1) adequate personnel screening procedures, (2) antifraud training, and (3) equitable employee compensation. 16-6 Why should fraud examiners seek to deter fraud rather than prevent it? Answer: Since we are unable to control the societal factors that motivate the fraudster, we can attempt only to modify the behavior of these individuals. This may be accomplished by imposing the threat of detection and the negative repercussions associated therewith. 16-7 How do internal controls impact the “perception of detection”? Answer: Internal controls, such as the segregation of duties, serve as a deterrent to fraud, because they increase the perception in the employee’s mind that her fraudulent activity will be discovered. Controls that are not in place, but are perceived to be, can have the same deterrent effect. However, internal controls alone are not sufficient to ¬effectively fight fraud. Employee education, proactive fraud policies, increased use of analytical review, surprise audits, and adequate reporting programs should all be utilized to ¬enhance the perception of detection. 16-8 What is the most essential ¬element of an adequate reporting program? Why? Answer: According to most professionals, hotlines provide the best source of information for fraud detection. In fact, many of the schemes reported through hotlines probably would not have been discovered by any other method. In ¬addition to providing anonymity for the employee reporting the fraud, hotlines assist organizations in complying with the federal Corporate Sentencing Guidelines and the -Sarbanes–Oxley Act. 16-9 What basic procedures should an organization follow in order to fulfill its due ¬diligence responsibility as it relates to the Corporate ¬Sentencing Guidelines? Answer: Proactively, a corporation should establish and ¬communicate policies, standards, and procedures regarding any criminal conduct by its employees in the course and scope of their employment. Furthermore, monitoring compliance and enforcement of those policies, standards, and procedures is also a necessary component. Criminal and civil sanctions against the organization may be reduced as a result of ¬appropriate preventative measures taken. 16-10 What is meant by “tone at the top”? Answer: According to the Treadway Commission, tone at the top is a determining factor for the ethical environment of an organization. It indicates that employees take their cues from the leadership of an enterprise. Tone at the top reflects more than just a formal ethics policy; it involves leading by ¬example. Solution Manual for Principles of Fraud Examination 9780470646298, 9781118922347 Joseph T. Wells

Document Details

Related Documents

person
Isabella Thomas View profile
Close

Send listing report

highlight_off

You already reported this listing

The report is private and won't be shared with the owner

rotate_right
Close
rotate_right
Close

Send Message

image
Close

My favorites

image
Close

Application Form

image
Notifications visibility rotate_right Clear all Close close
image
image
arrow_left
arrow_right