Which type of check tampering scheme is usually the most difficult to defend against?

Question

Question 1

Which type of check tampering scheme is usually the most difficult to defend against?

Concealed check

Authorized maker

Forged endorsement

Altered payee

Question 2

Check tampering includes both fraudulently preparing a company check for one’s own benefit and intercepting a company check that is intended for a third party and converting it for one’s own benefit.

True

False

Question 3

Which of the following procedures can help prevent and detect the theft and conversion of outgoing company checks?

Train employees to look for dual endorsements on canceled checks

Chart the date of mailing for every outgoing check

Track changes made to vendor records

All of the above

Question 4

Check tampering schemes involving checks made payable to “cash” are extremely difficult to resolve, as there is no way to tell who converted the check

True

False

Question 5

Methods used to conceal check tampering schemes include all of the following except:

Forced reconciliation

Check kiting

Falsifying the disbursements journal

Re-altering the canceled checks

Question 6

To prevent and detect forged maker schemes, an organization should:

Separate the duties of check preparation and check signing

Rotate authorized check signers

Maintain a usage log for the signature stamp

All of the above

Question 7

Concealing a check tampering scheme generally means hiding both the identity of the perpetrator and the fact that the fraud ever occurred

True

False

Question 8

To prevent altered payee schemes, the person who prepares the check should also review the check after it has been signed

True

False

Question 9

In which of the following schemes does the fraudster intercept and convert a company check made payable to a third party?

Forged maker scheme

Altered payee scheme

Authorized maker scheme

Concealed check scheme

Question 10

Which of the following choices is not a category of check tampering?

Forged maker schemes

Altered payee schemes

Unauthorized endorsement schemes

Concealed check schemes

Question 11

Which of the following computer audit tests can be used to detect forged maker schemes?

Extract manual checks and summarize by vendor and issuer

Extract checks that are out of sequence

Extract all checks payable to “cash” and summarize by issuer for reasonableness

All of the above

Question 12

Producing a counterfeit check using the company’s logo and bank account number is one type of concealed check scheme

True

False

Question 13

Which of the following is not a type of altered payee scheme?

Using erasable ink

Forged maker

Leaving the payee designation blank

“Tacking” on

Question 14

According to the 2012 Report to the Nations on Occupational Fraud and Abuse, check tampering has the lowest median loss of all fraudulent disbursement frauds

True

False

Question 15

Mary Duncan is an internal auditor for the Western Realty Group. Recently, she ran a program that extracted checks that were out of the normal sequence. She found that four or five checks were written every month that fit this category. Based on the information given, which of the following schemes is likely occurring?

Personal purchases scheme

Multiple reimbursement scheme

Shell company scheme

Forged maker scheme

Question 16

Salaried ghost employees are generally easier to create and more difficult to conceal than hourly ghost employees

True

False

Question 17

Which of the following is not necessary for a ghost employee scheme to succeed?

A paycheck must be issued to the ghost

Timekeeping and wage rate information must be collected

The perpetrator must have access to a bank account in the ghost employee’s name

The ghost must be added to the payroll

Question 18

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children’s school, was also a thief. As one of two people allowed to sign checks on the organization’s bank accounts, she learned early on that she could forge the second person’s signature without anyone becoming suspicious. What red flags were present that indicated that something wasn’t appropriate?

There were a lot of missing files that the auditors couldn’t locate during their annual audit

Robinson would not release any financial information when requested and gave excuses for why it wasn’t available

Robinson would not take vacation leave.

All of the above

Question 19

Vicky Rogers works in the accounts payable department at HDU, Inc. When checks are returned to the company for incorrect vendor addresses, she is supposed to research them, correct them, and then forward them to the proper address. Instead, Rogers decided to convert some of the
returned checks for her own use. Based on the information provided, what type of check tampering scheme is this likely to be?

Concealed check

Forged maker

Forged endorsement

Authorized maker

Question 20

In one of the case studies in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time Phillips began writing checks to himself that had nothing to do with payroll. How was the fraud discovered?

A vendor received a check in error and reported it to the operations manager

The receiver received a call from the bank asking him to verify a check

The operations manager found a check made payable to Phillips while searching Phillips’ desk for some accounting records

The president received a bank statement containing canceled checks that had been written to Phillips

Question 21

The most common method of misappropriating funds from the payroll is:

Using a ghost employee

Overstating commissions

Theft of payroll deductions

Overpayment of wages

Question 22

Melanie Diggers is an internal auditor for Atlantic Equipment Rental and Sales. While performing a routine review of one of the company’s bank accounts, she noticed an unusual “adjusting entry” to the account on the general ledger. She also found that several checks that had cleared the bank in the last few months were absent from the stack of canceled checks. She requested copies of these checks from the bank and discovered that they were all made payable to the company’s controller who has check signing authority on the account. The controller is also responsible for performing the bank reconciliation and recording month-end journal entries. Which of the following schemes do these signs most likely indicate?

Forged maker scheme

False voids scheme

Authorized maker scheme

Concealed check scheme

Question 23

In one of the case studies in the textbook, Melissa Robinson, who worked as an executive secretary for a worldwide charitable organization and was active in her children’s school, was also a thief. As one of two people allowed to sign checks on the organization’s bank accounts, she learned early on that she could forge the second person’s signature without anyone becoming suspicious. How was Robinson punished? She resigned, and a civil suit was filed to recover the
loss.

She was found guilty and ordered to make restitution to the organization and its insurance company

She was allowed to resign and agreed to pay the money back

Charges were dismissed with prejudice when the evidence was thrown out on a technicality

Question 24

Which of the following procedures will not help prevent ghost employee schemes?

The personnel department verifies all changes to the payroll

The person responsible for hiring new employees also supervises the payroll function

The personnel records are maintained separately from the payroll and timekeeping functions

The personnel department conducts background and reference checks on all prospective employees before hiring them

Question 25

Kristen Diamond worked in the mailroom at B&R Industries. When attaching postage to the outgoing mail, she would search for payments being sent to a specific vendor, K. D. Sand. She intercepted these checks and carefully changed them to appear payable to K. Diamond. She then
endorsed the checks with her own name and deposited them into her personal bank
account. What type of scheme did Kristen commit?

Concealed check

Payables skimming

“Tacking on”

Forged endorsement

Question 26

Which of the following is not a type of payroll scheme?

Falsified hours and salary scheme

Commission scheme

False deduction scheme

Ghost employee scheme

Question 27

In one of the case studies in the textbook, Ernie Phillips was a CPA who had fallen on hard times both financially and personally. He eventually got a job as a controller for a friend who had just been named as the receiver for a financial services company. Within a short period of time
Phillips began writing checks to himself that had nothing to do with payroll. What happened to Phillips?

He pleaded guilty to fraud and grand theft and spent 24 months in prison

He paid the money back by mortgaging his home

He was charged criminally, and while out on bail, he fled with his family

He quit his job and moved to another state

Question 28

Orange Publishing hired Moe McDonnell, CFE, to investigate some large variances in the company’s labor costs. While looking through the payroll records for the shipping department, McDonnell noticed several employees who claimed extensive overtime during pay periods in which the company’s incoming and outgoing shipments were minimal. McDonnell pulled the
timesheets for these pay periods and noticed that those belonging to the suspect employees had signatures that didn’t match the signatures on the other timesheets. What type of fraud might these findings indicate?

Ghost employee scheme

Overstated expenses scheme

Falsified hours and salary scheme

Commission scheme

Question 29

Comparing salaried employees’ gross pay from one pay period to the next is one way of testing for payroll fraud

True

False

Question 30

In one of the case studies in the textbook, Katie Jordon was the “All-American Girl Next Door” working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in
Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. How was her scheme discovered?

An employee tipped off the main office when she saw the timesheets listing an employee that she had never heard of

When Jordon’s boss made a routine visit to the office, he noticed that there was no sign of an assistant in the office

The auditors found it when they conducted a routine audit of all new acquisitions after being in business for one year

She was splitting the proceeds with her boyfriend, and he contacted the home office when she broke up with him

Question 31

Ellie Weaver works for the JAG Group as the customer service supervisor. When Joel Carter was hired into her department, she listed his start date as one month before he actually began work. Accordingly, the payroll department generated an extra paycheck for Carter, which Weaver intercepted and cashed at a liquor store. What type of fraud is this?

Altered payee scheme

Forged endorsement scheme

Ghost employee scheme

Falsified wages scheme

Question 32

Which of the following controls will help prevent and detect falsified hours and salary schemes?

Sick leave and vacation time are monitored for excesses by the payroll department.

Supervisors return authorized timecards to the employees for review before they are sent to the payroll department

The duties of payroll preparation, authorization, and distribution are segregated

All of the above

Question 33

In one of the case studies in the textbook, Katie Jordon was the “All-American Girl Next Door” working her first job out of college. As an on-site manager for an apartment complex in Dallas, she did such a good job that when her employer purchased a huge apartment complex in Houston, she was asked to run it. All was well until a member of the maintenance crew resigned. She continued to keep him on the payroll and pocketed his wages. She later added a non-existent assistant once she saw how easy it was to add an employee without being questioned. However, her scheme eventually came to light, and her days of bonus pay were over. What was her motivation for stealing?

She wanted to pay off her college loan early so she could save for a house

She was getting married and needed money for the wedding

She blew the engine in her car and didn’t have the money to replace it

Her boyfriend, a professional motocross racer, was injured in a race

Question 34

According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the least costly type of fraudulent disbursement schemes

True

False

Question 35

If an employee generates a much higher percentage of uncollected sales than his coworkers, what type of scheme might he be committing?

Multiple reimbursement scheme

Shell company scheme

Sales skimming

Commission scheme

Question 36

According to the 2012 Report to the Nations on Occupational Fraud and Abuse, payroll frauds are the most common type of fraudulent disbursement schemes

True

False

Question 37

During a review of A+ Service’s payroll records, Judy Penney, an internal auditor, noticed that Bradley Banks has no deductions taken from his paychecks for withholding taxes or insurance. She then searched for Banks in the personnel records, but could not locate him. Based on this information, what type of scheme did Penney most likely uncover?

Ghost employee scheme

Falsified salary scheme

Fictitious vendor scheme

None of the above

Question 38

In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. How was his scheme detected?

An exception report showed that Harkanell had claimed overtime hours for a period when there was no need to work overtime

The payroll department sent the timesheets for one pay period back to the supervisor for review when a suspicious number of hours had been indicated

The internal auditors received an anonymous tip

An overtime audit was conducted revealing that Harkanell had worked an unusual number of hours compared to others in the department

Question 39

In one of the case studies in the textbook, Jerry Harkanell worked as an administrative assistant for a large San Antonio hospital, where his clerical duties included the submission of the payroll information for his unit. He found that he could add hours to the timesheets and receive extra pay. He continued to alter his timesheets until he was finally caught. What red flag was present that should have made someone suspicious?

He used erasable ink to record the hours on the timesheets

He showed up for work on a day he had off so he could personally turn in the timesheets

No one else in the department had overtime hours but Harkanell

All of the above

Question 40

Jed Butler is an internal auditor for Billings Industries. Recently he ran a program that identified customer accounts which had previously been dormant for six months or more but had sales in the last two months of the year. What type of fraud would this test most likely reveal?

Shell company scheme

Commission scheme

Personal purchases scheme

Pay-and-return scheme