Experience has shown that certain conditions in an organization are symptoms of

possible management fraud. Which of the following conditions would not be considered
an indicator of possible fraud?
Managers regularly assuming subordinates' duties.
Managers dealing in matters outside their profit center's scope.
Managers not complying with corporate directives and
procedures.
Managers subject to formal performance reviews on a regular
basis.
Incorrect. This is a symptom of possible fraud.
Incorrect. This is a symptom of possible fraud.
Incorrect. This is a symptom of possible fraud.
Correct. This would be internal control strength.

A fraud was perpetrated in a moderate-size company when the accounting clerk was
delegated too much responsibility. During the year, the company switched suppliers of a
service to a new vendor. The accounting clerk continued to submit fraudulent invoices
from the old supplier. Because contracting for services and approval of supplier invoices
had been delegated to the clerk, it was possible for her to continue billings from the old
supplier and deposit the subsequent checks, which she was responsible to mail, into a
new account she opened in the name of the old supplier. The clerk was considered an
excellent employee and eventually was improperly given the added responsibility of
preparing the department budgets. This added responsibility allowed her to actually
budget for the amount of the fraudulent payments.

Analytical tests can be useful in detecting frauds. Which of the following analytical
procedures would most likely have signaled the existence of the fraud?

Current production with prior-period production

Current- and prior-period service expenses
Budget to actual service expense
Company cost of goods sold to industry cost of goods
sold
Incorrect. Comparison of production totals would not provide information
concerning suppliers or the amount of materials used.
Correct. Period-to-period analysis of expenses would have shown a sudden
increase in material costs.
Incorrect. At the time the fraud was uncovered, the amount taken was
included in the organization's budget.
Incorrect. The service may not have been part of cost of goods sold but, if so,
comparison to industry averages is not as likely to reveal the extra cost as is
comparison of company data period to period.