Forensic Accounting Final Exam [2024-
2025 Study] 100% Correct
What are the different types of corruption schemes? *Ans* 1. Bribery
2. Kickback Schemes
3. Economic Extortion
4. Conflicts of interest
Bribery *Ans* the practice of offering something of value (usually money) in order to
influence an action or decision
Illegal Gratuities *Ans* Similar to bribery, except that there is no intent to influence a
particular business decision, but rather to reward someone for making a favorable decision.
What is meant by a conflict of interest? *Ans* an undisclosed economic or personal interest in
a transaction that adversely affects the company
Slush Fund *Ans* a non-company account from which illegal funds are transferred into
What is defined as "something of value?" *Ans* anything valuable enough to a person that
may be used to influence decisions
,How can conflicts of interest be prevented and detected? *Ans* - Company ethics policy that
addresses problems and illegalities with conflicts of interest
- policy requiring employees to complete an annual financial disclosure statement
- establish reporting hotline
- Periodically run comparisons between vendor and employee addresses and phone numbers
What is a kickback scheme? *Ans* Involves submission of false invoices for goods or
services and collusion between employees and vendors
How is a kickback scheme committed? *Ans* - Diverting business to specific vendors
- over billing by overstating cost or reflect fictitious sales in order to share profits with other
parties
What type of abuses may occur at the pre-solicitation stage of the bidding process?
*Ans* 1.Need Recognition scheme- Employee of purchasing company is paid to convince his
company that a particular project is necessary
- high requirements for inventory levels
- writing off large numbers of surplus for scrap
2. Specification scheme- specifications of contract are tailored to strengths of a particular
supplier
-using "pre-qualification" procedures to eliminate competition
- writing off vague specifications
, - bid splitting
Why is it problematic for an organization to set standards that are too high? *Ans* - might
cause employees to fail or to lie because they are not capable of meeting high standards set
How does the "perception of detection" impact fraud deterrence? *Ans* by implying that
employees are less likely to commit fraud because of the fear of being caught by internal controls
What is the difference between fraud prevention and fraud deterrence? *Ans* Fraud
deterrence- concept that employees will modify their behavior when they are aware of the
negative sanctions they may incur if they commit fraud
Fraud prevention- identification and the removal of the factors that are judged to enable fraud
Why might senior management overstate or understate business performance? *Ans* - they
believe that the current earnings are low compared to market expectations
- in order to meet requirements set by loan covenants, so the company doesn't have to pay
penalties
What are some of the ways in which financial statement fraud is committed? *Ans* -
recognizing revenue in the wrong accounting period
- recognize fictitious revenues by recording sales that never occurred
- improperly value their fixed assets or inventories in order to overstate or understate profits
2025 Study] 100% Correct
What are the different types of corruption schemes? *Ans* 1. Bribery
2. Kickback Schemes
3. Economic Extortion
4. Conflicts of interest
Bribery *Ans* the practice of offering something of value (usually money) in order to
influence an action or decision
Illegal Gratuities *Ans* Similar to bribery, except that there is no intent to influence a
particular business decision, but rather to reward someone for making a favorable decision.
What is meant by a conflict of interest? *Ans* an undisclosed economic or personal interest in
a transaction that adversely affects the company
Slush Fund *Ans* a non-company account from which illegal funds are transferred into
What is defined as "something of value?" *Ans* anything valuable enough to a person that
may be used to influence decisions
,How can conflicts of interest be prevented and detected? *Ans* - Company ethics policy that
addresses problems and illegalities with conflicts of interest
- policy requiring employees to complete an annual financial disclosure statement
- establish reporting hotline
- Periodically run comparisons between vendor and employee addresses and phone numbers
What is a kickback scheme? *Ans* Involves submission of false invoices for goods or
services and collusion between employees and vendors
How is a kickback scheme committed? *Ans* - Diverting business to specific vendors
- over billing by overstating cost or reflect fictitious sales in order to share profits with other
parties
What type of abuses may occur at the pre-solicitation stage of the bidding process?
*Ans* 1.Need Recognition scheme- Employee of purchasing company is paid to convince his
company that a particular project is necessary
- high requirements for inventory levels
- writing off large numbers of surplus for scrap
2. Specification scheme- specifications of contract are tailored to strengths of a particular
supplier
-using "pre-qualification" procedures to eliminate competition
- writing off vague specifications
, - bid splitting
Why is it problematic for an organization to set standards that are too high? *Ans* - might
cause employees to fail or to lie because they are not capable of meeting high standards set
How does the "perception of detection" impact fraud deterrence? *Ans* by implying that
employees are less likely to commit fraud because of the fear of being caught by internal controls
What is the difference between fraud prevention and fraud deterrence? *Ans* Fraud
deterrence- concept that employees will modify their behavior when they are aware of the
negative sanctions they may incur if they commit fraud
Fraud prevention- identification and the removal of the factors that are judged to enable fraud
Why might senior management overstate or understate business performance? *Ans* - they
believe that the current earnings are low compared to market expectations
- in order to meet requirements set by loan covenants, so the company doesn't have to pay
penalties
What are some of the ways in which financial statement fraud is committed? *Ans* -
recognizing revenue in the wrong accounting period
- recognize fictitious revenues by recording sales that never occurred
- improperly value their fixed assets or inventories in order to overstate or understate profits
