accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure of Business
ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on the subject areapractical
application. Depending on the subject area, these exams can vary significantly in format. Common types of business exams
include:Multiple Choice Questions (MCQs): These are frequently used to assess students‘ understanding of business terminology,
theories, and
Solution and Answer Guide
FRAUD EXAMINATION 7 TH EDITION COPYRIGHT 2025 BY W. STEVE ALBRECHT, CHAD
O. ALBRECHT, CONAN C. ALBRECHT, MARK F. ZIMBELMAN
CHAPTER 1: T HE NATURE OF FRAUD
CONTENTS
Discussion Questions ................................................. 2
True/False ........................................................... 6
Multiple Choice ...................................................... 9
Short Cases ......................................................... 14
Case 1 ............................................................ 14
Case 2 ............................................................ 15
Case 3 ............................................................ 15
Case 4 ............................................................ 16
Case 5 ............................................................ 16
Case 6 ............................................................ 17
Case 7 ............................................................ 17
Case 8 ............................................................ 18
Case 9 ............................................................ 18
Case 10 ........................................................... 19
Case 11 ........................................................... 19
Case 12 ........................................................... 20
Case 13 ........................................................... 20
Case 14 ........................................................... 21
Case 15 ........................................................... 21
Case 16 ........................................................... 21
Case 17 ........................................................... 22
Case Studies ........................................................ 22
Case Study 1 ...................................................... 22
Case Study 2: Sweepstakes—legitimate or deceptive? ................ 25
Case Study 3: Trading after Hours ................................. 26
Case Study 4 ...................................................... 27
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
, Debate ............................................................ 28
Answers to Stop and Think Questions: ................................ 29
Internet Assignment ................................................. 30
ACCOUNTING, FINANCE, MARKETING, MANAGEMENT, ECONOMICS, ENTREPRENEURSHIP, AND INTERNATIONAL BUSINESS.1.2. STRUCTURE OF BUSINESS EXAMSBUSINESS EXAMS ARE
OFTEN A MIX OF THEORETICAL KNOWLEDGE AND PRACTICAL APPLICATION. DEPENDING ON THE SUBJECT AREAEXAMS INCLUDE:MULTIPLE CHOICE QUESTIONS (MCQS): THESE
ARE FREQUENTLY USED TO ASSESS STUDENTS’ UNDERSTANDING OF BUSINESS TERMINOLOGY, THEORIES, AND PRINCIPLES.CASE STUDIES: A STAPLE OF BUSINESS EXAMS,
CASE STUDIES PRESENT STUDENTS WITH REAL-WORLD BUSINESS SCENARIOS AND ASK THEM TO APPLY THEIR KNOWLEDGE TO SOLVE COMPLEX PROBLEMS. CASE STUDIES
EVALUATE STUDENTS' ABILITY TO THINK CRITICALLY AND MAKE STRATEGIC DECISIONS.ESSAY/SHORT ANSWER QUESTIONS: THESE TYPES OF QUESTIONS TEST THE
STUDENT’S ABILITY TO EXPLAIN AND ANALYZE BUSINESS CONCEPTS IN A DETAILED AND COHERENT MANNER.1.3. SKILLS TESTED IN BUSINESS EXAMSCRITICAL THINKING
AND PROBLEM-SOLVING: BUSINESS EXAMS OFTEN INCLUDE CASE STUDIES THAT
DISCUSSION QUESTIONS
1. What is fraud?
Answer: Fraud always involves deception, confidence, and trickery. The
following is one of the most common definitions of fraud:
a. ―Fraud is a generic term, and embraces all the multifarious means
that human ingenuity can devise, which are resorted to by one
individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down as
a general proposition in defining fraud, as it includes surprise,
trickery, cunning and unfair ways by which another is cheated. The
only boundaries defining it are those which limit human knavery.‖
Fraud is deception that includes the following elements:
1. A representation
2. About a material point
3. That is false
4. Intentionally or recklessly so
5. That is believed
6. And acted upon by the victim
7. To the victim‘s damage
2. How does fraud affect individuals, consumers, and organizations?
Answer: Fraud affects individuals, consumers, and organizations in
various ways. Fraud usually lowers organizations‘ net income dollar for
dollar. To recover these costs, consumers and individuals must pay more
for goods and services. For example, health care fraud and insurance
fraud increase premiums that individuals must pay. The cost of fraud
eventually reaches every part of the economy, including individuals,
consumers, and organizations.
The 2008 study by The Association of Certified Fraud Examiners
estimates that U.S. organizations lose roughly 7 percent of their
annual revenues to fraud. Applied to the U.S. gross domestic product
(GDP), this 7 percent figure translates to approximately $994 billion
in fraud losses.
3. List and describe the five different types of frauds.
Answer:
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
, a. Employee embezzlement: In this type of fraud, employees deceive
their employers by taking company assets. Embezzlement can be either
direct or indirect.
b. Management fraud: Distinguished from other types of fraud both by
the nature of the perpetrators and by the method of deception. In
its most common form, management fraud is deception perpetrated by
top management‘s manipulation of financial statements. The victims
of management fraud are typically stockholders, lenders, and others
who rely on financial statement information.
c. Investment scams or consumer scams: A type of fraud that is
perpetrated when fraudulent and usually worthless investments are
sold to unsuspecting investors.
d. Vendor fraud: Perpetrated by vendors; comes in two main varieties:
fraud perpetrated by vendors acting alone, and fraud perpetrated
through collusion between buyers and vendors. Vendor fraud usually
results in an overcharge for purchased goods, the shipment of
inferior goods, or the nonshipment of goods even though payment was
made.
e. Customer fraud: Usually involves customers not paying for goods
purchased, getting something for nothing, or deceiving organizations
into giving them something they should not have.
accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure of
Business ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on the
subject area, theories, and principles.Case Studies: A staple of business exams, case studies present students with
real-world business scenarios business concepts in a detailed and coherent manner.1.3. Skills Tested in Business
ExamsCritical Thinking and Problem-Solving: Business exams often include case studies that
4. What is the difference between civil and criminal law?
Answer:
a. Criminal law is the branch of law that deals with offenses of a
public nature. Criminal laws generally deal with offenses against
society as a whole. Violators of criminal laws are prosecuted either
federally or by a state for violating a statute that prohibits some
type of activity.
b. Civil law is the body of law that provides remedies for violations
of private rights. Civil law deals with rights and duties between
individuals. The purpose of a civil lawsuit is to provide
compensation for harm done to an individual. Unlike criminal cases,
where juries consist of 12 jurors, juries in civil cases may have as
few as six jurors, and the verdict of the jury need not be
unanimous. Additionally, judges often hear civil cases instead of
juries. In civil lawsuits, plaintiffs must only prove their case by
the ―preponderance of the evidence.‖ In other words, there need be
only slightly more evidence supporting the plaintiff than supporting
the defendant.
5. For each of the following, indicate whether it is a characteristic of a
civil or a criminal case:
a. Jury may consist of fewer than 12 jurors.
b. Verdict must be unanimous.
c. Multiple claims may be joined in one action.
d. Proven ―beyond a reasonable doubt.‖
e. Purpose is to right a public wrong.
f. Purpose is to obtain remedy.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 3
website, in whole or in part.
, g. Consequences of jail and/or fines.
h. Juries may have a less than unanimous verdict.
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure
of Business ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on
the subject areastudents‘ understanding of business terminology, theories, and principles.Case Studies: A staple
of business exams, case studies present students with real-world business scenarios and ask them to apply their
knowledge to solve complex problems. Case studies evaluate students' ability to think critically and make
strategic decisions.Essay/Short Answer Questions: These types of questions test the student‘s ability to explain
and analyze
6. Why was Charles Ponzi so successful with his fraud scheme?
Answer: Charles Ponzi was successful for several reasons. First,
Charles Ponzi built confidence in his scheme by giving early investors
a return on their initial investments. Second, Charles Ponzi presented
his coupon scheme in a way that was easy for investors to understand.
Although the coupon scheme never made any real profits, investors
believed that it had. Third, Ponzi was extremely talented at
manipulating victims‘ emotions. Ponzi was able to capitalize on
individuals‘ greed. When people began to see their friends and family
members receive dividends from investments, they too wanted in on the
investment scam.
7. What are some of the different types of fraud-fighting careers?
Answer: As the number of frauds and the amounts of fraud losses
increase, so do the opportunities for successful careers in fraud
prevention and detection. In Chapter 1, we have listed five areas in
fraud fighting that will be rewarding and have high demand in the
future. They include the following:
a. Government: This includes FBI, postal inspectors, Criminal
Investigation Division of the IRS, U.S. marshals, inspectors general
of various governmental agencies, state investigators, and law
enforcement officials.
b. CPA firms, forensic accounting firms, litigation support firms, and
law firms: These individuals will conduct investigations, support
firms in litigation, do bankruptcy-related fraud work, serve as
expert witnesses, consult in fraud prevention and detection, and
provide other fee-based work.
c. Corporations: Individuals who work for corporations will prevent,
detect, and investigate fraud within a company. This category
includes internal auditors, corporate security officers, and in-
house legal counsels.
d. Lawyers: Lawyers will defend or prosecute organizations in civil and
criminal cases.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 4
website, in whole or in part.
ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on the subject areapractical
application. Depending on the subject area, these exams can vary significantly in format. Common types of business exams
include:Multiple Choice Questions (MCQs): These are frequently used to assess students‘ understanding of business terminology,
theories, and
Solution and Answer Guide
FRAUD EXAMINATION 7 TH EDITION COPYRIGHT 2025 BY W. STEVE ALBRECHT, CHAD
O. ALBRECHT, CONAN C. ALBRECHT, MARK F. ZIMBELMAN
CHAPTER 1: T HE NATURE OF FRAUD
CONTENTS
Discussion Questions ................................................. 2
True/False ........................................................... 6
Multiple Choice ...................................................... 9
Short Cases ......................................................... 14
Case 1 ............................................................ 14
Case 2 ............................................................ 15
Case 3 ............................................................ 15
Case 4 ............................................................ 16
Case 5 ............................................................ 16
Case 6 ............................................................ 17
Case 7 ............................................................ 17
Case 8 ............................................................ 18
Case 9 ............................................................ 18
Case 10 ........................................................... 19
Case 11 ........................................................... 19
Case 12 ........................................................... 20
Case 13 ........................................................... 20
Case 14 ........................................................... 21
Case 15 ........................................................... 21
Case 16 ........................................................... 21
Case 17 ........................................................... 22
Case Studies ........................................................ 22
Case Study 1 ...................................................... 22
Case Study 2: Sweepstakes—legitimate or deceptive? ................ 25
Case Study 3: Trading after Hours ................................. 26
Case Study 4 ...................................................... 27
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 1
website, in whole or in part.
, Debate ............................................................ 28
Answers to Stop and Think Questions: ................................ 29
Internet Assignment ................................................. 30
ACCOUNTING, FINANCE, MARKETING, MANAGEMENT, ECONOMICS, ENTREPRENEURSHIP, AND INTERNATIONAL BUSINESS.1.2. STRUCTURE OF BUSINESS EXAMSBUSINESS EXAMS ARE
OFTEN A MIX OF THEORETICAL KNOWLEDGE AND PRACTICAL APPLICATION. DEPENDING ON THE SUBJECT AREAEXAMS INCLUDE:MULTIPLE CHOICE QUESTIONS (MCQS): THESE
ARE FREQUENTLY USED TO ASSESS STUDENTS’ UNDERSTANDING OF BUSINESS TERMINOLOGY, THEORIES, AND PRINCIPLES.CASE STUDIES: A STAPLE OF BUSINESS EXAMS,
CASE STUDIES PRESENT STUDENTS WITH REAL-WORLD BUSINESS SCENARIOS AND ASK THEM TO APPLY THEIR KNOWLEDGE TO SOLVE COMPLEX PROBLEMS. CASE STUDIES
EVALUATE STUDENTS' ABILITY TO THINK CRITICALLY AND MAKE STRATEGIC DECISIONS.ESSAY/SHORT ANSWER QUESTIONS: THESE TYPES OF QUESTIONS TEST THE
STUDENT’S ABILITY TO EXPLAIN AND ANALYZE BUSINESS CONCEPTS IN A DETAILED AND COHERENT MANNER.1.3. SKILLS TESTED IN BUSINESS EXAMSCRITICAL THINKING
AND PROBLEM-SOLVING: BUSINESS EXAMS OFTEN INCLUDE CASE STUDIES THAT
DISCUSSION QUESTIONS
1. What is fraud?
Answer: Fraud always involves deception, confidence, and trickery. The
following is one of the most common definitions of fraud:
a. ―Fraud is a generic term, and embraces all the multifarious means
that human ingenuity can devise, which are resorted to by one
individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down as
a general proposition in defining fraud, as it includes surprise,
trickery, cunning and unfair ways by which another is cheated. The
only boundaries defining it are those which limit human knavery.‖
Fraud is deception that includes the following elements:
1. A representation
2. About a material point
3. That is false
4. Intentionally or recklessly so
5. That is believed
6. And acted upon by the victim
7. To the victim‘s damage
2. How does fraud affect individuals, consumers, and organizations?
Answer: Fraud affects individuals, consumers, and organizations in
various ways. Fraud usually lowers organizations‘ net income dollar for
dollar. To recover these costs, consumers and individuals must pay more
for goods and services. For example, health care fraud and insurance
fraud increase premiums that individuals must pay. The cost of fraud
eventually reaches every part of the economy, including individuals,
consumers, and organizations.
The 2008 study by The Association of Certified Fraud Examiners
estimates that U.S. organizations lose roughly 7 percent of their
annual revenues to fraud. Applied to the U.S. gross domestic product
(GDP), this 7 percent figure translates to approximately $994 billion
in fraud losses.
3. List and describe the five different types of frauds.
Answer:
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 2
website, in whole or in part.
, a. Employee embezzlement: In this type of fraud, employees deceive
their employers by taking company assets. Embezzlement can be either
direct or indirect.
b. Management fraud: Distinguished from other types of fraud both by
the nature of the perpetrators and by the method of deception. In
its most common form, management fraud is deception perpetrated by
top management‘s manipulation of financial statements. The victims
of management fraud are typically stockholders, lenders, and others
who rely on financial statement information.
c. Investment scams or consumer scams: A type of fraud that is
perpetrated when fraudulent and usually worthless investments are
sold to unsuspecting investors.
d. Vendor fraud: Perpetrated by vendors; comes in two main varieties:
fraud perpetrated by vendors acting alone, and fraud perpetrated
through collusion between buyers and vendors. Vendor fraud usually
results in an overcharge for purchased goods, the shipment of
inferior goods, or the nonshipment of goods even though payment was
made.
e. Customer fraud: Usually involves customers not paying for goods
purchased, getting something for nothing, or deceiving organizations
into giving them something they should not have.
accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure of
Business ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on the
subject area, theories, and principles.Case Studies: A staple of business exams, case studies present students with
real-world business scenarios business concepts in a detailed and coherent manner.1.3. Skills Tested in Business
ExamsCritical Thinking and Problem-Solving: Business exams often include case studies that
4. What is the difference between civil and criminal law?
Answer:
a. Criminal law is the branch of law that deals with offenses of a
public nature. Criminal laws generally deal with offenses against
society as a whole. Violators of criminal laws are prosecuted either
federally or by a state for violating a statute that prohibits some
type of activity.
b. Civil law is the body of law that provides remedies for violations
of private rights. Civil law deals with rights and duties between
individuals. The purpose of a civil lawsuit is to provide
compensation for harm done to an individual. Unlike criminal cases,
where juries consist of 12 jurors, juries in civil cases may have as
few as six jurors, and the verdict of the jury need not be
unanimous. Additionally, judges often hear civil cases instead of
juries. In civil lawsuits, plaintiffs must only prove their case by
the ―preponderance of the evidence.‖ In other words, there need be
only slightly more evidence supporting the plaintiff than supporting
the defendant.
5. For each of the following, indicate whether it is a characteristic of a
civil or a criminal case:
a. Jury may consist of fewer than 12 jurors.
b. Verdict must be unanimous.
c. Multiple claims may be joined in one action.
d. Proven ―beyond a reasonable doubt.‖
e. Purpose is to right a public wrong.
f. Purpose is to obtain remedy.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 3
website, in whole or in part.
, g. Consequences of jail and/or fines.
h. Juries may have a less than unanimous verdict.
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
accounting, finance, marketing, management, economics, entrepreneurship, and international business.1.2. Structure
of Business ExamsBusiness exams are often a mix of theoretical knowledge and practical application. Depending on
the subject areastudents‘ understanding of business terminology, theories, and principles.Case Studies: A staple
of business exams, case studies present students with real-world business scenarios and ask them to apply their
knowledge to solve complex problems. Case studies evaluate students' ability to think critically and make
strategic decisions.Essay/Short Answer Questions: These types of questions test the student‘s ability to explain
and analyze
6. Why was Charles Ponzi so successful with his fraud scheme?
Answer: Charles Ponzi was successful for several reasons. First,
Charles Ponzi built confidence in his scheme by giving early investors
a return on their initial investments. Second, Charles Ponzi presented
his coupon scheme in a way that was easy for investors to understand.
Although the coupon scheme never made any real profits, investors
believed that it had. Third, Ponzi was extremely talented at
manipulating victims‘ emotions. Ponzi was able to capitalize on
individuals‘ greed. When people began to see their friends and family
members receive dividends from investments, they too wanted in on the
investment scam.
7. What are some of the different types of fraud-fighting careers?
Answer: As the number of frauds and the amounts of fraud losses
increase, so do the opportunities for successful careers in fraud
prevention and detection. In Chapter 1, we have listed five areas in
fraud fighting that will be rewarding and have high demand in the
future. They include the following:
a. Government: This includes FBI, postal inspectors, Criminal
Investigation Division of the IRS, U.S. marshals, inspectors general
of various governmental agencies, state investigators, and law
enforcement officials.
b. CPA firms, forensic accounting firms, litigation support firms, and
law firms: These individuals will conduct investigations, support
firms in litigation, do bankruptcy-related fraud work, serve as
expert witnesses, consult in fraud prevention and detection, and
provide other fee-based work.
c. Corporations: Individuals who work for corporations will prevent,
detect, and investigate fraud within a company. This category
includes internal auditors, corporate security officers, and in-
house legal counsels.
d. Lawyers: Lawyers will defend or prosecute organizations in civil and
criminal cases.
© 2025 Cengage. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible 4
website, in whole or in part.
