What’s Your Fraud IQ?

Take the quiz and find out.

May 2009
by Andi McNeal/Journal of Accountancy

As the economy struggles, businesses and individuals are hanging on to their money more tightly than ever. With fewer resources available and reserves dwindling, becoming a victim of fraud during a recession could prove financially disastrous. However, a little awareness can go a long way in protecting hard-earned assets from would-be fraudsters.

Use this quiz to see how your knowledge of fraud prevention, detection and investigation measures up.

  1. Under the concept of ____________, corporations can be held criminally responsible for the acts of their employees if those acts were done in the course and scope of their employment and for the apparent benefit of the corporation.

    1. Connected accountability
    2. Civil responsibility
    3. Imputed liability

  2. Larry Holt is the lead auditor for Modus Industries, a company that manufactures technological components. With the economic downturn, company management has been under increased pressure to meet earnings expectations, and the company is in danger of violating its loan covenants. Because of these factors, Larry is concerned that management may be fraudulently concealing liabilities and expenses to improve the company’s financial statements. He performs his preliminary analytical procedures with these factors in mind. Which of the following is a red flag that might reaffirm Larry’s suspicions?
    1. The company’s gross margin is significantly lower than industry average.
    2. The company has experienced an unusual increase in the number of days’ purchases in accounts payable.
    3. The financial statements reflect an unusual change in the relationship between fixed assets and depreciation.
    4. The company shows a significant reduction in accounts payable, even though its competitors are stretching out payments to vendors.

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