Chapter 14

Fraud Against Organizations

MULTIPLE CHOICE
1. Bribery involves offering, giving, receiving, or soliciting anything of value in order to influence a/an
a. Decision of government agents
b. Official act
c. Decision of employees
d. All of the above
ANS: D
D: Correct; all of the above are correct
2. Which of the following is not one of the four types of corruption?
a. Bribery
b. Larceny
c. Extortion
d. Illegal gratuities
ANS: B
B: Correct; the four types of corruption are conflict of interest, bribery, illegal gratuities, and extortion
3. Skimming is easier to detect than larceny because
a. Cash is stolen after it has been recorded in the companys accounting system
b. Cash is stolen before it has been recorded in the companys accounting system
c. Skimming involves fraudulent cash receipts
d. Skimming is not easier to detect than larceny
ANS: D
D: Correct; skimming is more difficult to detect than larceny
4. Which is not a type of fraudulent disbursement?
a. Expense reimbursement Scheme
b. Check tampering
c. Payroll Schemes
d. Larceny
ANS: D
D: Correct; larceny is disbursement.
5. Which of the following is one of the three main categories of occupational fraud and abuse?
a. Corruption
b. Bid-rigging
c. Check tampering
d. Lapping
ANS: A
A: Correct; the three main categories of occupational fraud and abuse are asset misappropriation,
corruption, and fraudulent statements
6. Which of the following fraud scheme will cause missing inventory?
a. False refunds
b. Check tampering

c. Expense schemes
d. Cash skimming
ANS: A
A: Correct
B: Incorrect, because checking tampering won't result in missing inventory. It has noting to do with
inventory. Only cash is involved.
C: Incorrect, same reason as B.
D: Incorrect, same reason as B.
7. A conflict of interest exists when
a. An employer knows of an employees interest in a business deal or negotiation
b. An employees interest in a transaction is undisclosed
c. Employees offer, give, receive or solicit anything of value in order to influence an official
act
d. Employees demand payments from vendors for deciding in the vendors favor
ANS: B
B: Correct
8. Which of the following is not a skimming scheme?
a. Misappropriate customer payments and write off the receivable as uncollectible
b. Intercept checks intended for a third party and convert the checks to cash for their own use
c. Understate sales and collections by recording false or larger-than-reality sales discounts
d. Collude with customers so that they either pay later than required or less than required
ANS: B
A: Incorrect; this is a skimming scheme
B: Correct
C: Incorrect; this is a skimming scheme
D: Incorrect; this is a skimming scheme
9. Asset misappropriation is defined as theft that is committed by
a. Offering, giving, receiving, or soliciting anything of value to influence an official act.
b. Demanding payment from a vendor in order to make or influence a decision in a vendors
favor.
c. Deceiving individuals into putting their money into a fake investment.
d. Stealing receipts, stealing assets on hand, or by committing any type of disbursement
fraud.
ANS: D
D: Correct
10. An employee who doesn't record customer sales and pockets the customer payments is perpetrating
which kind of fraud?
a. Larceny
b. Disbursement fraud
c. Skimming
d. Illegal gratuities
ANS: C
A: Incorrect; Larceny involves stealing money after it enters into a company's accounting system
B: Incorrect; Disbursement fraud uses false vendors, employees, and expenses to funnel money out of
the company.
C: Correct

D: Incorrect; Illegal gratuities involves schemes in which a person offers, gives, receives, or

solicits something of value for, or because of, an official act or business decision without the
knowledge or consent of the principal.
11. Which of the following statements regarding larceny is NOT true?
a. Larceny is easier to detect than skimming and is less common.
b. Larceny occurs when employees or others steal cash before the amounts have been
recorded in the accounting system.
c. Smaller occurrences of larceny are often written off as shorts or miscounts.
d. Perpetrators of larcenies must have direct access to inventory or other assets
ANS: B
A: Incorrect; this is a true statement
B: Correct; larceny occurs after transactions have been recorded in the accounting system
C: Incorrect; this is a true statement
D: Incorrect; this is a true statement
12. Which of the following frauds cannot be performed with collusion?
a. Stealing Receipts
b. Stealing Assets on Hand
c. Stealing Through Disbursements
d. All of the above can be performed with collusion
ANS: D
D: All of the above frauds can be performed with collusion
13. Bid-rigging is a form of a:
a. Conflict of interest
b. Bribery
c. Extortion
d. Illegal gratuity
ANS: B
B: Correct; bid-rigging is a common form of bribery
14. A recent study indicated that U.S. Organizations lose approximately ____ % of their annual revenues
to fraud.
a. 5
b. 10
c. 17
d. 25
ANS: A
A: Correct
15. Check tampering is a form of
a. Stealing receipts of cash
b. Stealing cash on hand
c. Committing disbursement fraud
d. Committing a corruption fraud
ANS: C
C: Correct-check tampering is a disbursement fraud

16. When an employee demands payment from a vendor in order to conduct business with the vendor, he
or she is committing a ________.
a. Bribery scheme
b. Conflict of interest scheme
c. Economic extortion scheme
d. Illegal gratuity scheme
ANS: C
A: Bribes go the opposite direction
B: Conflict of interest would be if the employee had family that was the vendor
D: This is not a tip or gratuity
17. Lapping is:
a. Stealing one customer's payment and then crediting that customer's account with a
subsequent customers payment.
b. Stealing cash from an organization prior to the organization's accounting system recording
the cash receipt.
c. Helping a vendor illegally obtain a contract that should have involved competitive bidding.
d. None of the above.
ANS: A
A: Correct.
B: Incorrect. Stealing cash from an organization prior to the organization's accounting system
recording the cash receipt is a skimming scheme.
C: Incorrect. Helping a vendor illegally obtain a contract that was supposed to involve competitive
bidding is a bid-rigging scheme.
D: Incorrect.
18. Theft of cash through fraudulent disbursements includes which of the following?
a. Check tampering
b. Register-disbursement schemes
c. Billing Schemes
d. All of the above
ANS: D
19. Frauds against organizations are most likely to be perpetrated by:
a. Customers
b. Vendors
c. Employees
d. Management
ANS: C
A: Although customers may commit fraud against organizations, employee fraud is much more
common.
B: Although vendors may commit fraud against organizations, employee fraud is much more common.
C: Employees are most likely to commit fraud against the organization.
D: Management does not usually commit fraud against the organization, typically they commit fraud
on behalf of the organization.
20. The following are all types of corruption except:
a. Extortion
b. Conflicts of interest
c. Lapping
d. Bribery

ANS: C
A: Extortion is type of corruption. It is the flip side of bribery. For example, when employees
demand payments from vendors for deciding in the vendors' favor.
B: Conflict of interest is one of corruption. Conflicts of interest usually involve self-dealing by
employees with other companies. This is included as corruption because the employee's interest in the
transaction is undisclosed.
C: Lapping is a form of skimming
D: Bribery is the most common type of corruption. It involves offering, giving, receiving or soliciting
anything of value to influence an official act or decision.
21. What are the four types of corruption?
a. Bribery, conflicts of interest, extortion, and illegal gratuities
b. Bribery, larceny, extortion, and conflicts of interest
c. Skimming, larceny, extortion, and conflicts of interest
d. Conflicts of interest, check tampering, skimming, and illegal gratuities
ANS: A
A: Correct
22. Skimming exhibits which of the following fraudulent characteristics:
a. Intentionally taking an organization's cash without the organization's consent
b. Removing cash prior to its entry into the accounting system
c. Stealing a payment and then crediting that account with a subsequent customers payment
d. Submission of a false or altered invoice that causes an employer to willingly issue a check
ANS: B
A: Intentionally taking an organization's cash without its consent is larceny.
C: Stealing a payment and then crediting that account with the subsequent customer's payment is
lapping.
D: This is a billing scheme - skimming deals directly with the cash coming in.
23. Corruption involves which of the following schemes:
a. Bribery
b. Conflicts of interest
c. Economic extortion
d. Illegal gratuities
e. All of the above
ANS: E
E: Correct; all of the above are corruption schemes
24. According to the text, which of the following is the least costly of all disbursement schemes?
a. Check tampering schemes
b. Personal expense schemes
c. Billing schemes
d. Payroll schemes
ANS: B
A: Incorrect; the median loss is $120,000
B: Correct; the median loss is $26,000
C: Incorrect; the median loss is $130,000
D: Incorrect; the median loss is $50,000
25. The highest percent of asset misappropriation occurs through:

a.
b.
c.
d.

Larceny
Skimming
Asset borrowing
Fraudulent disbursements

ANS: D
D: Fraudulent disbursements are usually the easiest asset misappropriation frauds to perpetrate and the
most difficult to detect
26. Which of the following is representative of a conflict of interest?
a. The owner of the company is aware of an employee's relationship with a vendor
b. The owner of the company is unaware of the employee's relationship with a vendor
c. When the employee accepts kickbacks from a vendor
d. When the employee makes fraudulent disbursements to him or herself though a fictitious
vendor
ANS: B
A: No matter how advantageous to the employee, if the employer is aware, it isn't a conflict of interest
B: This is the most basic type of conflict of interest
C: Though this is fraud, it is not a conflict of interest problem
D: Again, this is fraud, but not a conflict of interest
27. Removal of cash from a victim organization prior to its entry in an accounting system would be
considered:
a. Extortion
b. Disbursement Fraud
c. Skimming
d. Larceny
e. Check tampering
ANS: C
C: Correct
28. All of the following are possible ways to commit fraud by using a payroll scheme except:
a. Overstating expenses that will be reimbursed
b. Falsify hours worked
c. Creating ghost employees
d. Commission scheme
ANS: A
A: Correct - This is an expense scheme
B: Incorrect - This is a payroll scheme
C: Incorrect - This is a payroll scheme
D: Incorrect - This is a payroll scheme
29. Fraudulent financial reporting and misappropriation of assets differ in that fraudulent financial
reporting is committed by:
a. Management, to deceive financial statement users while misappropriation of assets is
committed against an entity, most often by employees.
b. Employees, to deceive financial statement users while misappropriation of assets is
committed against an entity, most often by management.
c. Both A & B
d. None of the above
ANS: A

A: Correct
30. Asset Misappropriations occur in which way
a. Stealing receipts
b. Stealing Assets on hand
c. Stealing through disbursements
d. All of the above
ANS: D
A: A Asset misappropriations occurs in this way.
B: B Asset misappropriations occurs in this way.
C: C Asset misappropriations occurs in this way.
D: Correct
31. What is skimming?
a. Removal of cash from a victim organization before entry into an accounting system
b. Very similar to bribery
c. Submission of a false or altered invoice that causes an employer to willingly issue a check
d. None of the above
ANS: A
A: Correct
32. True of False: Bribery schemes usually benefit the employee who accepts the vendor bribe, but the
company rarely suffers economic loss?
a. True
b. False
ANS: B
B: When an employee accepts a bribe, it puts the vendor in control of the transaction. The vendor
obviously wouldn't pay a bribe unless the vendor could recover its investment, and it will probably
increase prices, sell unnecessary goods, or create fake invoices, all of which defraud the company of
money.
33. Tyco's former CEO sold his house to Tyco with a price three times fair market value. What type of
fraud it this?
a. Economic extortion and illegal gratuities
b. Conflicts of interest
c. Cash skimming
d. Bribery
ANS: B
A: Incorrect, because economic extortion and illegal gratuities mean that corrupt employees demand
payments from vendors for deciding in the vendors' favor.
B: Correct
C: Incorrect, because cash skimming takes money from the sale of goods or services but does not
record the sale.
D: Incorrect, because bribery involves offering, giving, receiving, or soliciting anything of value in
order to influence an official act.
34. Which of the following disbursement fraud schemes occurs most frequently?
a. Billing schemes.
b. Check tampering.
c. Payroll schemes.
d. Expense reimbursement schemes.

ANS: A
A: This accounts for roughly 28% of total disbursement fraud cases.
B: This accounts for roughly 17% of total cases.
C: This accounts for roughly 13% of total cases.
D: This accounts for roughly 19% of total cases.
35. Claiming personal travel as a business expense, altering a receipt to reflect a higher amount than was
actually paid, or submitting fictitious receipts is an example of a:
a. Billing scheme
b. Check tampering
c. Register-disbursement scheme
d. None of the above
ANS: D
A: A billing scheme requires submission of a false or altered invoice that causes an employer to
willingly issue a check.
B: Check tampering involves either preparing fraudulent checks or intercepting checks and converting
the funds.
C: Register-disbursement schemes involve false refunds or voids.
D: None of the above. This is an example of an expense reimbursement scheme.
36. The most basic skimming schemes occurs when:
a. Fraudulent checks are prepared for personal use
b. Money taken from the cash register is disguised as a false return
c. Money is taken from the sale of goods or services but not recorded as a sale
d. None of the above
ANS: C
A: This is check tampering
B: This is a register disbursement scheme
37. Thefts of inventory are divided into which of the following two groups:
a. Corruption and bribery
b. Expense scheme and skimming
c. Economic extortion and illegal gratuities
d. Larceny and misuse
ANS: D
A: Because they do not involve inventory
B: Because do not involve inventory
C: Because they involve cash
38. According to the text, skimming is a subset of which type of asset misappropriation?
a. Theft of cash
b. Theft of inventory
c. Theft of receipts
d. Disbursement fraud
ANS: A
A: This includes three subsets: larceny, skimming, and fraudulent disbursement.
B: This has two subsets: larceny and misuse.
C: This is not one of the types of asset misappropriations as described by Wells taxonomy
D: This is a subset of theft of cash.

39. A conflict of interest is corruption that can be defined as:

a. Offering, giving, receiving or soliciting anything of value in order to influence an official
act
b. Corrupt employees demand payments from vendors for deciding in the vendors' favor
c. Corrupt employees are rewarded for making favorable decisions
d. The employee has an undisclosed economic or personal stake in a transaction that
adversely affects the company
ANS: D
D: Correct
40. The term Larceny means:
a. Intentionally taking an employer's cash or other assets without the consent and against the
will of the employer, before it has been recorded in the company's accounting system.
b. Creating ghost employees and overpaying wages
c. Intentionally taking an employer's cash or other assets without the consent and against the
will of the employer, after it has been recorded in the company's accounting system.
d. Both A and C are correct
ANS: C
C: Correct
41. Which of the following is the best example of theft of cash through skimming?
a. Preparing fraudulent checks
b. Understating sales by recording false or larger-than reality sales discounts
c. Setting up dummy companies
d. Stealing cash after it has already been recorded
ANS: B
B: Correct
42. When suppliers are engaged in bid-rigging, they vie for contracts in cutthroat environments, and
usually only gain an advantage over competitors through bribing an employee with inside influence.
a. True
b. False
ANS: A
A: Correct-Bid-rigging is when supplier/vendors bribe an inside employee to win a competitive
contract. The amount of the bribe depends on the influence the employee has in securing the contract
for the vendor.
43. Identify the statement that does NOT represent one of the four types of corruption.
a. Offering, giving, receiving, or soliciting anything of value in order to influence an official
act.
b. False documents cause the victim company to unknowingly make a fraudulent
disbursement.
c. Employees demand payments from vendors for deciding in the vendors' favor
d. An employee, manager, or executive has an undisclosed economic or personal interest in a
transaction that adversely affects the company.
e. Corrupt employees are rewarded for favorable decisions after deals are approved.
ANS: B
A: Describes bribery.
B: B describes a typical expense scheme. The four types of corruption include: bribery, conflicts of
interest, extortion, and illegal gratuities

C: Describes economic extortion

D: Describes conflict of interest.
E: Describes illegal gratuities
44. Which of the following is not a type of corruption?
a. Bribery
b. Extortion
c. Check tempering
d. Conflict of interest.
ANS: C
C: This is a form of asset misappropriation
46. Thefts of inventory and other assets can be broken into the subcategories of:
a. Larceny
b. Fraudulent disbursements
c. Misuse
d. Both A and C
ANS: D
D: Correct; both A and C are correct
47. Which of the following examples is NOT a billing scheme?
a. Mark purchases a new laptop computer for his brother-in-law with company funds.
b. Mark submits a receipt of his cab fare for reimbursement, which includes an extra $10.
c. Mark double pays a vendor for the purchase of inventory and then pockets the second
payment when it is returned.
d. All of the above are billing schemes
ANS: B
A: Incorrect; this is a billing scheme
B: Correct; this is an example of an expense reimbursement scheme
C: Incorrect; this is a billing scheme
D: Incorrect; this is a billing scheme
48. Which of the following is the BEST example of a register-disbursement scheme?
a. A perpetrator who processes transactions as if a customer were returning merchandise,
even though there is no actual return.
b. A perpetrator uses the expense register to falsely record expenses that are then paid out by
the A/P department.
c. A perpetrator physically prepares a check from the check register claiming it is a legitimate
expense when it is not.
d. A perpetrator slowly takes money from the register drawer after making regular sales
often showing that a discount was given to a customer on the receipt.
ANS: A
A: Correct; this is the best example of a register-disbursement scheme
B: Incorrect; this is an example of a billing scheme
C: Incorrect; this is an example of a check tampering scheme
D: Incorrect; this is an example of skimming
49. Which of the following is not an example of a billing scheme?
a. Submitting invoices to the victim organization for dummy companies
b. Altering a non-accomplice vendors statements
c. Making a claim for reimbursement of a fictitious or inflated business expenses

d. Making personal purchases with company funds

e. All of the above are examples of billing schemes
ANS: C
A: Incorrect; this is an example of a billing scheme
B: Incorrect; this is an example of a billing scheme
C: Correct; this is an example of an expense reimbursement scheme
D: Incorrect; this is an example of a billing scheme
E: Incorrect