Divider
Divider

What's Your Fraud IQ?

How well do you know the signs of employee embezzlement? Do you know what to do when you suspect an employee is stealing? Take this quiz to gauge your knowledge.

September 2009
by Andi McNeal/Journal of Accountancy

Placing a sizable amount of trust in staff members is part of the cost of doing business. Trusting workers with access to information, products, vendors and funds is necessary to run an effective and efficient operation. But some employees — when faced with sufficient pressure, a perceived opportunity, and the ability to rationalize a criminal act — will take advantage of that trust and defraud their employers.

How well do you know the signs and symptoms of employee embezzlement? Do you know what to do when you suspect an employee is stealing? Take this quiz to gauge your knowledge of the red flags and investigative methods for internal fraud.

1. Which of the following fraud schemes generally does not leave an audit trail and, consequently, is among the hardest to detect?

a. Sales skimming

b. False billing

c. Check tampering

d. Inventory theft


2. The employee hotline for Aspiring Inc. received an anonymous call alleging that several employees are receiving kickbacks from a local vendor. Management has decided to launch a formal investigation into the allegations. Who should be primarily responsible for directing the fraud examination?

a. The head of the company’s security department

b. The partner of the company’s external audit firm

c. The company’s legal counsel

d. The company’s human resources manager

3. Charlotte Grey, CPA, is conducting the annual audit of XYZ Corp.’s financial statements. While performing the yearend inventory procedures, she notices that several inventory items are regularly purchased at prices above the industry standard. These same items are also frequently purchased well before the typical reorder point and are, therefore, consistently overstocked. She notes that XYZ has recently changed vendors for these items, and she can’t locate the new vendor on the company’s approved vendor list. Which of the following fraud schemes might these findings indicate is occurring?

a. Inventory theft

b. Asset overvaluation

c. Bribery

d. Lapping

This article has been excerpted from the Journal of Accountancy. View the full article here.