Accounting information systems, 12e (romney / steinbart). Chapter 5 Computer Fraud. )hich of the follo"ing best describes lapping a) Applying cash receipts to a different customer+s account in an attempt to conceal previous thefts of cash receipts b) Inflating bank balances by transferring money among different bank accounts c) Increasing e,penses to conceal that an asset "as stolen!) allo"ing computer operators full
Accounting information systems, 12e (romney / steinbart). Chapter 5 Computer Fraud. )hich of the follo"ing best describes lapping a) Applying cash receipts to a different customer+s account in an attempt to conceal previous thefts of cash receipts b) Inflating bank balances by transferring money among different bank accounts c) Increasing e,penses to conceal that an asset "as stolen!) allo"ing computer operators full
Accounting information systems, 12e (romney / steinbart). Chapter 5 Computer Fraud. )hich of the follo"ing best describes lapping a) Applying cash receipts to a different customer+s account in an attempt to conceal previous thefts of cash receipts b) Inflating bank balances by transferring money among different bank accounts c) Increasing e,penses to conceal that an asset "as stolen!) allo"ing computer operators full
Accounting Information Systems, 12e (Romney/Steinbart)
Chapter 5 Computer Fraud
1) Perhaps the most striking fact about natural disasters in relation to AIS controls is that A) many companies in one location can be seriously affected at one time by a disaster. B) losses are absolutely unpreventable. C) there are a large number of maor disasters every year. !) disaster planning has largely been ignored in the literature. Ans"er# A Page $ef# 1%1 &bective# 'earning &bective 1 !ifficulty # (asy AACSB# Analytic %) )hich of the follo"ing best describes lapping* A) Applying cash receipts to a different customer+s account in an attempt to conceal previous thefts of cash receipts. B) Inflating bank balances by transferring money among different bank accounts. C) Increasing e,penses to conceal that an asset "as stolen. !) Stealing small amounts of cash- many times over a period of time. Ans"er# A Page $ef# 1%. &bective# 'earning &bective / !ifficulty # 0oderate AACSB# $eflective 1hinking /) )hich of the follo"ing is the greatest risk to information systems and causes the greatest dollar losses* A) human errors and omissions B) physical threats such as natural disasters C) dishonest employees !) fraud and embe22lement Ans"er# A Page $ef# 1%% &bective# 'earning &bective 1 !ifficulty # (asy AACSB# Analytic 3) All of the follo"ing could lead to computer fraud except A) allo"ing computer operators full access to the computer room. B) releasing data to unauthori2ed users. C) allo"ing computer users to test soft"are upgrades. !) storing backup tapes in a location "here they can be 4uickly accessed. Ans"er# A Page $ef# 1/151/3 &bective# 'earning &bective 3 !ifficulty # (asy AACSB# Analytic 1 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 9) )hich of the follo"ing is not an e,ample of the fraud triangle characteristic concerned "ith easing a fraudster+s conscience* A) $evenge against the company B) Sense of entitlement as compensation for receiving a lo"er than average raise C) Intent to repay :borro"ed: funds in the future !) Belief that the company "on+t suffer because an insurance company "ill reimburse losses Ans"er# A Page $ef# 1/7 &bective# 'earning &bective / !ifficulty # 0oderate AACSB# $eflective 1hinking ;) 0ost fraud perpetrators are insiders because A) insiders are more dishonest than outsiders. B) insiders kno" more about the system and its "eaknesses than outsiders. C) outsiders are more likely to get caught than insiders. !) insiders have more need for money than outsiders. Ans"er# B Page $ef# 1%; &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic <) 0ost frauds are detected by A) e,ternal auditors. B) internal auditors. C) accident. !) hotline tip. Ans"er# ! Page $ef# 1/9 &bective# 'earning &bective 9 !ifficulty # (asy AACSB# Analytic % Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all .) Amy "ants to open a floral shop in a do"nto"n business district. She doesn+t have funds enough to purchase inventory and pay si, months rent up front. Amy approaches a good friend- Coleen- to discuss the possibility of Coleen investing funds and becoming a %9= partner in the business. After a lengthy discussion Coleen agrees to invest. (ight months later- Coleen and Amy have a falling out. In order for Coleen to sue Amy for fraud- all the follo"ing must be true except A) Amy told Coleen she had "orked at a floral shop for several years- "hen in fact she did not have any prior e,perience in floral retail. B) Coleen+s decision to invest "as primarily based on Amy+s assertion that she had prior floral retail e,perience. C) Coleen+s %9= share of the business is "orth substantially less than her initial investment. !) Before Coleen invested- Amy prepared a detailed business plan and sales forecasts- and provided Coleen "ith copies. Ans"er# ! Page $ef# 1%/ &bective# 'earning &bective % !ifficulty # 0oderate AACSB# $eflective 1hinking >) Perpetrators of theft of company assets typically e,hibit all the follo"ing characteristics except that they A) attempt to return or pay back stolen amounts soon after the initial theft- but find they are unable to make full restitution. B) use trickery or lies to gain the confidence and trust of others at the organi2ation they defraud. C) become bolder and more greedy the longer the theft remains undetected. !) begin to rely on stolen amounts as part of their income. Ans"er# A Page $ef# 1%351%9 &bective# 'earning &bective % !ifficulty # (asy AACSB# Analytic 17) :Cooking the books: is typically accomplished by all the follo"ing except A) inflating accounts payable. B) accelerating recognition of revenue. C) delaying recording of e,penses. !) overstating inventory. Ans"er# A Page $ef# 1%9 &bective# 'earning &bective % !ifficulty # 0oderate AACSB# Analytic / Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 11) SAS ?o. >> re4uires that auditors A) plan audits based on an analysis of fraud risk. B) detect all material fraud. C) alert the Securities and (,change Commission of any fraud detected. !) take all of the above actions. Ans"er# A Page $ef# 1%9 &bective# 'earning &bective % !ifficulty # !ifficult AACSB# Analytic 1%) )hich of the follo"ing is not a management characteristic that increases pressure to commit fraudulent financial reporting* A) Close relationship "ith the current audit engagement partner and manager B) Pay for performance incentives based on short5term performance measures C) 8igh management and employee turnover !) 8ighly optimistic earnings proections Ans"er# A Page $ef# 1%. &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic 1/) Intentional or reckless conduct that results in materially misleading financial statements is called A) financial fraud. B) misstatement fraud. C) fraudulent financial reporting. !) audit failure fraud. Ans"er# C Page $ef# 1%9 &bective# 'earning &bective % !ifficulty # (asy AACSB# Analytic 13) $esearchers have compared the psychological and demographic characteristics of "hite5collar criminals- violent criminals- and the general public. 1hey found that A) fe" differences e,ist bet"een "hite5collar criminals and the general public. B) "hite5collar criminals eventually become violent criminals. C) most "hite5collar criminals invest their illegal income rather than spend it. !) most "hite5collar criminals are older and not technologically proficient. Ans"er# A Page $ef# 1%; &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic 3 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 19) )hich of the follo"ing is an opportunity that could contribute to employee fraud* A) an employee+s spouse loses their ob B) an employee suddenly ac4uires lots of credit cards C) an employee is upset that he "as passed over for a promotion !) close association "ith suppliers or customers Ans"er# ! Page $ef# 1%> &bective# 'earning &bective / !ifficulty # 0oderate AACSB# Analytic 1;) )hich of the follo"ing is a financial pressure that could cause an employee to commit fraud* A) a feeling of not being appreciated B) failing to receive a deserved promotion C) believing that their pay is too lo" relative to others around them !) having a spouse inured in a car accident and in the hospital for several "eeks Ans"er# ! Page $ef# 1%< &bective# 'earning &bective / !ifficulty # 0oderate AACSB# Analytic 1<) &pportunity to commit fraud is comprised of three stages. 1he stage that often takes most time and effort "ould include A) stealing inventory from the "arehouse. B) selling stolen inventory to get cash. C) lapping accounts receivable. !) creating false ournal entries to overstate revenue. Ans"er# C Page $ef# 1%. &bective# 'earning &bective / !ifficulty # 0oderate AACSB# $eflective 1hinking 1.) In many cases of fraud- the @@@@@@@@ takes more time and effort than the @@@@@@@@. A) concealmentA theft B) theftA concealment C) conversionA theft !) conversionA concealment Ans"er# A Page $ef# 1%. &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic 9 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 1>) )hich of the follo"ing is the best "ay to hide theft of assets* A) Creating :cash: through the transfer of money bet"een banks B) Conversion of stolen assets into cash C) Stealing cash from customer A and then using customer B+s balance to pay customer A+s accounts receivable !) Charging the stolen asset to an e,pense account Ans"er# ! Page $ef# 1%. &bective# 'earning &bective / !ifficulty # 0oderate AACSB# $eflective 1hinking %7) In a @@@@@@@@ scheme- customer receipts are stolen and then subse4uent payments by other customers are misapplied to cover the theft of the original receipts. A) kiting B) laundering C) bogus e,pense !) lapping Ans"er# ! Page $ef# 1%. &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic %1) &ne fraudulent scheme covers up a theft by creating cash through the transfer of money bet"een banks. 1his is kno"n as A) lapping. B) misappropriation of assets. C) kiting. !) concealment. Ans"er# C Page $ef# 1%. &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic %%) )hich characteristic of the fraud triangle often stems from a lack of internal controls "ithin an organi2ation* A) pressure B) opportunity C) rationali2ation !) concealment Ans"er# B Page $ef# 1%> &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic ; Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all %/) )hich situation belo" makes it easy for someone to commit a fraud* A) placing e,cessive trust in key employees B) inade4uate staffing "ithin the organi2ation C) unclear company policies !) All of the above situations make it easy for someone to commit a fraud. Ans"er# ! Page $ef# 1%> &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic %3) )hat is the most prevalent opportunity "ithin most companies to commit fraud* A) lack of any internal controls B) failure to enforce the internal controls C) loopholes in the design of internal controls !) management+s failure to believe employees "ould commit fraud Ans"er# B Page $ef# 1%> &bective# 'earning &bective / !ifficulty # 0oderate AACSB# Analytic %9) )hich characteristic of the fraud triangle relates to e,cuses that perpetrators use to ustify their illegal behavior* A) pressure B) opportunity C) rationali2ation !) concealment Ans"er# C Page $ef# 1/7 &bective# 'earning &bective / !ifficulty # (asy AACSB# Analytic %;) 1he BS Custice !epartment defines computer fraud as A) any crime in "hich a computer is used. B) an illegal act in "hich kno"ledge of computer technology is essential. C) any act in "hich cash is stolen using a computer. !) an illegal act in "hich a computer is an integral part of the crime. Ans"er# B Page $ef# 1/7 &bective# 'earning &bective 3 !ifficulty # 0oderate AACSB# Analytic < Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all %<) 1he most efficient "ay to conceal asset misappropriation is to A) "rite5off a customer receivable as bad debt. B) alter monthly bank statements before reconciliation. C) alter monthly physical inventory counts to reconcile to perpetual inventory records. !) record phony payments to vendors. Ans"er# A Page $ef# 1%. &bective# 'earning &bective / !ifficulty # 0oderate AACSB# $eflective 1hinking %.) Computer fraud is often much more difficult to detect than other types of fraud because A) perpetrators usually only steal very small amounts of money at a time- thus re4uiring a long period of time to have elapsed before they+re discovered. B) massive fraud can be committed in only seconds- leaving little or no evidence. C) most perpetrators invest their illegal income rather than spend it- thus concealing key evidence. !) most computer criminals are older and are considered to be more cunning "hen committing such a fraud. Ans"er# B Page $ef# 1/7 &bective# 'earning &bective 3 !ifficulty # 0oderate AACSB# Analytic %>) )hy is computer fraud often more difficult to detect than other types of fraud* A) $arely is cash stolen in computer fraud. B) 1he fraud may leave little or no evidence it ever happened. C) Computers provide more opportunities for fraud. !) Computer fraud perpetrators are ust more clever than other types of criminals. Ans"er# B Page $ef# 1/7 &bective# 'earning &bective 3 !ifficulty # (asy AACSB# Analytic /7) )hy do many fraud cases go unreported and unprosecuted* A) 0aor fraud is a public relations nightmare. B) Draud is difficult- costly- and time5consuming to investigate and prosecute. C) 'a" enforcement and the courts are often so busy "ith violent crimes that little time is left for fraud cases. !) all of the above Ans"er# ! Page $ef# 1/1 &bective# 'earning &bective 3 !ifficulty # (asy AACSB# Analytic . Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all /1) 1he fraud that re4uires the least computer kno"ledge or skill involves A) altering or falsifying source data. B) unauthori2ed use of computers. C) tampering "ith or copying soft"are. !) forging documents like paychecks. Ans"er# A Page $ef# 1/1 &bective# 'earning &bective 3 !ifficulty # 0oderate AACSB# $eflective 1hinking /%) 1he simplest and most common "ay to commit a computer fraud is to A) alter computer input. B) alter computer output. C) modify the processing. !) corrupt the database. Ans"er# A Page $ef# 1/1 &bective# 'earning &bective 3 !ifficulty # (asy AACSB# Analytic //) !o"nloading a master list of customers and selling it to a competitor is an e,ample of A) data fraud. B) output theft. C) do"nload fraud. !) fraudulent financial reporting. Ans"er# A Page $ef# 1// &bective# 'earning &bective 3 !ifficulty # (asy AACSB# Analytic /3) )hich of the follo"ing "ill not reduce the likelihood of an occurrence of fraud* A) encryption of data and programs B) use of forensic accountants C) ade4uate insurance coverage !) re4uired vacations and rotation of duties Ans"er# C Page $ef# 1/351/9 &bective# 'earning &bective 9 !ifficulty # (asy AACSB# Analytic > Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all /9) )hich of the follo"ing is not an e,ample of one of the basic types of fraud* A) )hile straightening the store at the end of the day- a shoe store employee finds and keeps an e,pensive pair of sunglasses left by a customer. B) An e,ecutive devised and implemented a plan to accelerate revenue recognition on a long5term contract- "hich "ill allo" the company to forestall filing for bankruptcy. 1he e,ecutive does not o"n any stock- stock options or grants- and "ill not receive a bonus or perk because of the overstated revenue. C) A purchasing agent places a large order at higher5than5normal unit prices "ith a vendor that gave the agent tickets to several football games. !) A salesperson approves a large sales discount on an order from a company o"ned partially by the salesperson+s sister. Ans"er# A Page $ef# 1%351%9 &bective# 'earning &bective % !ifficulty # 0oderate AACSB# $eflective 1hinking /;) &n 0onday morning- Canet Pillsner- Chief Information &fficer at International Securities Corporation EISC)- got some bad ne"s. A tape used to store system data backups "as lost "hile it "as being transported to an offsite storage location. She called a meeting of her technical staff to discuss the implications of the loss. )hich of the follo"ing is most likely to relieve her concerns over the potential cost of the loss* A) 1he shipper has insurance that "ill reimburse ISC for the cost of the tape. B) ISC has a copy of the tape onsite- so a ne" copy for storage offsite can easily be prepared. C) 1he tape "as encrypted and pass"ord protected. !) ISC has a comprehensive disaster recovery plan. Ans"er# C Page $ef# 1/9 &bective# 'earning &bective 9 !ifficulty # (asy AACSB# $eflective 1hinking /<) A simple method for catching or preventing many types of employee fraud is to A) monitor all employee behavior using video cameras. B) re4uire all employees to take annual vacations. C) e,plain to employees that fraud is illegal and that it "ill be severely punished. !) monitor employee bank accounts and net "orth. Ans"er# B Page $ef# 1/3 &bective# 'earning &bective 9 !ifficulty # (asy AACSB# Analytic 17 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all /.) !escribe t"o kinds of fraud. Ans"er# 0isappropriation of assets- or theft- by a person or group for personal financial gain is usually committed by employees. Draudulent financial reporting is intentional or reckless conduct that results in materially misleading financial statements. Page $ef# 1%351%9 &bective# 'earning &bective % !ifficulty # (asy AACSB# Analytic />) )hat are the actions recommended by the 1read"ay Commission to reduce the possibility of fraudulent financial reporting* Ans"er# (stablish an organi2ational environment that contributes to the integrity of the financial reporting process. Identify and understand the factors that lead to fraudulent financial reporting. Assess the risk of fraudulent financial reporting "ithin the company. !esign and implement internal controls to provide reasonable assurance that the fraudulent financial reporting is prevented. Page $ef# 1%9 &bective# 'earning &bective 9 !ifficulty # 0oderate AACSB# Analytic 37) (,plain the impact of SAS ?o. >> on auditors+ responsibilities. Ans"er# SAS ?o. >>- effective !ecember %77%- re4uires that auditors e,plicitly consider fraud risks "hen planning and performing an audit. Auditors must understand types and characteristics of fraud. Audit teams must revie" clients+ financial statements for areas susceptible to fraud and communicate "ith each other during planning of the audit. Auditors must ask management and audit committee members about any past or current instances of fraud. Since many frauds involve revenue recognition- auditors must e,ercise special care and testing in e,amining revenue accounts. Audit procedures and testing must be tailored in response to fraud risk assessment. Auditors must evaluate the risk of management override of controls and any other indications of fraud occurrences. All audit procedures- testing and findings must be documented and communicated to management and the audit committee. Auditors must evaluate and recogni2e the impact of technology on fraud risks- as "ell as opportunities technology may provide to design fraud5auditing procedures. Page $ef# 1%951%; &bective# 'earning &bective % !ifficulty # 0oderate AACSB# Analytic 31) )hy is computer fraud on the rise* Ans"er# ?ot everyone agrees on "hat constitutes computer fraud and some people may commit computer fraud un"ittingly and not be a"are of it. 0any computer frauds go undetected. 1he belief that :it ust can+t happen to us.: 0ost net"orks have a lo" level of security. 0any Internet sites provide guidance on ho" to commit computer crimes. 'a" enforcement is unable to keep up "ith the number of computer frauds. 0ost frauds are not reported. 1he total dollar value of losses is difficult to calculate. Page $ef# 1/1 &bective# 'earning &bective 3 !ifficulty # 0oderate AACSB# $eflective 1hinking 11 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 3%) !escribe at least four "ays a company can make fraud less likely to occur. Ans"er# A company can decrease fraud by# good hiring and firing practicesA good management of unhappy employeesA training in fraud a"arenessA manage and track computer licensesA implement signed confidentiality agreementsA maintain visible securityA educate the "orkforce in ethics and the penalties for illegal acts. Page $ef# 1/351/9 &bective# 'earning &bective 9 !ifficulty # 0oderate AACSB# Analytic 3/) !escribe four "ays companies can reduce losses from fraud. Ans"er# 0aintain ade4uate insurance. Feep a current backup copy of all program and data files in a secure off5site location. !evelop a contingency plan for fraud occurrences and other disasters that might occur. Bse special soft"are designed to monitor system activity and help companies recover from frauds and malicious actions. Page $ef# 1/9 &bective# 'earning &bective 9 !ifficulty # (asy AACSB# Analytic 33) )hat are some of the distinguishing characteristics of fraud perpetrators* Ans"er# Some distinguishing characteristics of fraud perpetrators are# they tend to spend their illegal income to support their lifestyleA once they begin it becomes harder to stop and they become bolder as each incident happensA once they start to rely on the ill5gotten gains- they become more greedy and sometimes careless and overconfident. In the case of computer criminals- they are often young and have substantial computer kno"ledge. About t"o5thirds are men and likely to be an employee of the firm from "hich they steal. 0any are unhappy or disgruntled "ith their employer because they feel unappreciated and underpaid. 0ost have no previous criminal record. Page $ef# 1%; &bective# 'earning &bective / !ifficulty # 0oderate AACSB# Analytic 1% Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 39) )hy do fraudulent acts often go unreported and are therefore not prosecuted* Ans"er# 0ost fraud cases go unreported and are not prosecuted for several reasons. 0any cases of computer fraud are as yet still undetected. As ne" technology and methods become available to organi2ations- prior undetected fraud may be revealed in the future. A second reason is that companies are reluctant to report computer fraud and illegal acts simply because of bad publicitya highly visible case can undermine consumer confidence in an organi2ation such as a financial institution. Also- the fact that a fraud has occurred may indeed encourage others to attempt to commit further acts against the organi2ation. It "ould seem that unreported fraud creates a false sense of security- as people think systems are more secure than they are in reality. Another reason for not reporting fraudulent acts is the fact that the court system and la" enforcement is busy "ith violent crimes and criminals in its system. 1here is little time left to go after a crime "here no physical harm is present. Also- the court system tends to treat teen hacking and cracking as :acts of childhood: rather than as serious crimesthis leads to many plea bargains "hen a computer fraud is brought to trial. Another reason is that a computer fraud case is difficult- costly- and time5consuming to investigate and prosecute. Before 1>.; no federal la" e,isted governing computer fraud. 'a" enforcement officials- la"yers- and udges generally lack the computer skills necessary to properly evaluate- investigate- and prosecute computer crimes. Sadly- "hen all is said and done a successful prosecution and conviction of computer fraud results in a very light sentence. All of these factors contribute to the underreporting and lack of prosecution of computer fraud crimes. ?ot everyone agrees on "hat constitutes computer fraud# G 0any net"orks have a lo" level of security G 0any Internet pages give instruction on ho" to carry out computer crimes G 'a" enforcement has difficulty keep up "ith the gro"ing number of computer frauds G 1he total dollar value of losses from computer fraud is difficult to estimate. Page $ef# 1/1 &bective# 'earning &bective 3 !ifficulty # 0oderate AACSB# Analytic 1/ Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all 3;) A teller at a savings and loan drive5through accepted a cash payment from customer H1 for an auto loan. 1he teller appeared to process the payment- but told the customer the printer "as ammed and she can+t print a receipt. 1he customer accepted the e,cuse and drove a"ay. 1he teller pocketed the cash and "rote do"n customer H1+s loan number and payment amount for future reconciling. A couple of days before customer H1+s monthly statement "as printed- the teller recorded a cash payment from customer H% as if it "ere made by customer H1. 1he teller pocketed the difference bet"een the t"o payments. 1he teller continued to steal and misapply customer payments for the ne,t t"o years "ithout detection. Identify the type of fraud scheme described. !escribe five controls you "ould implement to address the fraud risk- and label each control as preventive or detective. Ans"er# 1he fraud appears to be misappropriation of assets that is being concealed "ith a lapping scheme. Controls "ould include# 1. rotation of duties Eprimarily detective) %. mandatory vacations Eprimarily detective) /. surveillance "ith cameras Eprimarily detective) 3. staggered statement printing schedules- unkno"n to tellers Edetective) 9. se4uentially prenumbered- duplicate receipts Edetective) ;. segregation of duties bet"een cash handling and recording Epreventive) <. encourage customers to utili2e on5line banking for loan payments and to fre4uently check balances Edetective) Page $ef# 1/351/9 &bective# 'earning &bective 9 !ifficulty # 0oderate AACSB# $eflective 1hinking 13 Copyright 6 %71% Pearson (ducation- Inc. publishing as Prentice 8all