Chapter

Chapter
06
Multiple Choice
1. Which of the following statements is NOT true?
a. Accounting errors are usually spread evenly throughout a data set.
b. Traditional auditing methods are more suited to finding errors than fraud.
c. Accounting anomalies indicate fraud has occurred or is occurring.
d. Fraud investigation involves determining who committed the fraud, the schemes used, and how much money or
assets were taken.
ANSWER: c
RATIONALE: a. Incorrect. Accounting anomalies are primarily caused by control weaknesses; they
are not intentional.
b. Incorrect. Accounting anomalies are primarily caused by control weaknesses; they
c. Correct. Accounting anomalies are primarily caused by control weaknesses; they are
not intentional.
d. Incorrect. Accounting anomalies are primarily caused by control weaknesses; they
POINTS: 1
QUESTION TYPE: Multiple Choice
HAS VARIABLES: False
LEARNING OBJECTIVES: FRAU.ALBR.19.6.1
DATE CREATED: 3/16/2018 9:27 AM
DATE MODIFIED: 3/20/2018 8:25 AM
Copyright Cengage Learning. Powered by Cognero. Page 1

Chapter 06
2. A ______ is a financial statement that reflects account balances at a specific point in time like a snapshot.
a. periodic statement
b. position statement
c. change statement
d. static statement
ANSWER: b
RATIONALE: a. Incorrect. A position statement shows an organization’s account balances at a
specific point in time.
b. Correct. A position statement shows an organization’s account balances at a specific
point in time.
c. Incorrect. A position statement shows an organization’s account balances at a
d. Incorrect. A position statement shows an organization’s account balances at a
POINTS: 1

Chapter 06
3. The proactive method of fraud detection is a six-step process. Which of the following is the correct process
sequence?
a. Identify possible frauds that could exist; catalog possible fraud symptoms; understand the business; use
technology to gather data about symptoms; automotive detection procedures; analyze results; and investigate
symptoms
b. Catalog possible fraud symptoms; understand the business; identify possible frauds that could exist; analyze
results; use technology to gather data about symptoms; and investigate symptoms
c. Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; investigate
symptoms; use technology to gather data about symptoms; and analyze results
d. Understand the business; identify possible frauds that could exist; catalog possible fraud symptoms; use
technology to gather data about symptoms; analyze results; and investigate symptoms
ANSWER: d
RATIONALE: a. Incorrect. The steps in the data-driven process are (1) understand the business, (2)
identify the potential schemes, (3) determine the symptoms of the schemes, (4) search
for symptoms, (5) analyze the search results, and (6) investigate.
b. Incorrect. The steps in the data-driven process are (1) understand the business, (2)
c. Incorrect. The steps in the data-driven process are (1) understand the business, (2)
d. Correct. The steps in the data-driven process are (1) understand the business, (2)
POINTS: 1

Chapter 06
4. _____ has been adopted by most major accounting firms and is a powerful platform for data analysis.
a. ACL Audit Analytics
b. CaseWare’s IDEA
c. Microsoft Office + Active Data
d. SAS
ANSWER: b
RATIONALE: a. Correct. ACL Audit Analytics is one of the most widely used analysis platforms.
b. Correct. ACL Audit Analytics is one of the most widely used analysis platforms.
c. Incorrect. ACL Audit Analytics is one of the most widely used analysis platforms.
d. Incorrect. ACL Audit Analytics is one of the most widely used analysis platforms.
POINTS: 1
5. Which of the following is true of most accounting errors?
a. They are primarily caused by lack of training.
b. They represent intentional sabotage of controls.
c. They are problems caused by failures in systems, procedures, and policies.
d. They represent fraud.
ANSWER: c
RATIONALE: a. Incorrect. Accounting errors are primarily caused by control weaknesses; rather than
intentional mistakes. They are simply problems in the system caused by failures in
systems, procedures, or policies.
b. Incorrect. Accounting errors are primarily caused by control weaknesses; rather than
c. Correct. Accounting errors are primarily caused by control weaknesses; rather than
d. Incorrect. Accounting errors are primarily caused by control weaknesses; rather than
POINTS: 1

Chapter 06
6. Which of the following is the most direct method of focusing on changes in the company's balance sheet and income
statement?
a. Calculating key ratios and comparing them from period to period
b. Comparing account balances in the statements from one period to the next
c. Performing a vertical analysis
d. Performing a horizontal analysis
ANSWER: d
RATIONALE: a. Incorrect. By examining ratios, it is possible to see whether resulting changes in
liquidity, efficiency, solvency, and profitability are as expected, but it is not the most
direct method of focusing on changes.
b. Incorrect. This method compares numbers in the statement from one period to the
next, but it is probably the least effective way to analyze changes.
c. Incorrect. Vertical analysis converts balance sheets and income statements to change
statements for industry and other comparison by converting financial statement numbers
to percentages.
d. Correct. With horizontal analysis, the changes in amounts from period to period are
converted to percentages.
POINTS: 1

Chapter 06
7. While using n-grams, a match percentage of ________ or ________ generally indicates very similar values.
a. 10 percent, smaller
b. 20 percent, greater
c. 5 percent, smaller
d. 40 percent, greater
ANSWER: b
RATIONALE: a. Incorrect. A match percentage of 20 percent or greater generally indicates very
similar values.
b. Correct. A match percentage of 20 percent or greater generally indicates very similar
values.
c. Incorrect. A match percentage of 20 percent or greater generally indicates very
similar values.
d. Incorrect. A match percentage of 20 percent or greater generally indicates very
similar values.
POINTS: 1

Chapter 06
8. For enhanced data analysis, which of the following is a good option for users who want a familiar interface and a less
expensive alternative to ACL and IDEA?
a. ActiveData
b. Pearl
c. DataSource
d. Excel
ANSWER: a
RATIONALE: a. Correct. ActiveData is a plug-in for Microsoft Office that provides enhanced data
analysis procedures. Since it is based in Excel and Access, it inherits the native
capabilities of Office.
b. Incorrect. ActiveData is a plug-in for Microsoft Office that provides enhanced data
c. Incorrect. ActiveData is a plug-in for Microsoft Office that provides enhanced data
d. Incorrect. ActiveData is a plug-in for Microsoft Office that provides enhanced data
POINTS: 1

Chapter 06
9. Which of the following proactive fraud detection methods use Benford's Law to detect fraud?
a. Vertical analysis
b. Digital analysis
c. Real-time analysis
d. Time trend analysis
ANSWER: b
RATIONALE: a. Incorrect. Digital analysis is the art of analyzing the digits that make up numbers like
invoice amounts, costs, etc. The distribution of digits actually follows Benford's Law,
which is the primary method of digital analysis in fraud investigations.
b. Correct. Digital analysis is the art of analyzing the digits that make up numbers like
c. Incorrect. Digital analysis is the art of analyzing the digits that make up numbers like
d. Incorrect. Digital analysis is the art of analyzing the digits that make up numbers like
POINTS: 1

Chapter 06
10. Which of the following is an analytical symptom of kickbacks?
a. Decreasing purchases from other vendors
b. Charging normal price for goods supplied
c. Providing better-quality goods
d. Smaller purchase quantities and more frequent orders
ANSWER: a
RATIONALE: a. Correct. Analytical symptoms of kickbacks include increasing prices, larger order
quantities, increasing purchases from the favored vendor, decreasing purchases from
other vendors, and decreasing quality.
b. Incorrect. Analytical symptoms of kickbacks include increasing prices, larger order
c. Incorrect. Analytical symptoms of kickbacks include increasing prices, larger order
d. Incorrect. Analytical symptoms of kickbacks include increasing prices, larger order
POINTS: 1

Chapter 06
11. What is the primary drawback of the data-driven approach?
a. It is more expensive and time intensive than the traditional approach.
b. It requires tips and other indicators to become glaring before the approach can be used.
c. It cannot highlight frauds while they are still small.
d. The investigator loses control of the fraud investigation process.
ANSWER: a
RATIONALE: a. Correct. The primary drawback to the data-driven approach is that it can be more
expensive and time intensive than the traditional approach.
b. Incorrect. Instead of waiting for tips or other indicators to become egregious enough
to show on their own, the data-driven approach can highlight frauds while they are
small.
c. Incorrect. Instead of waiting for tips or other indicators to become egregious enough
to show on their own, the data-driven approach can highlight frauds while they are
small.
d. Incorrect. The primary advantage of the data-driven approach is the investigator
takes charge of the fraud investigation process.
POINTS: 1

Chapter 06
12. Kickbacks from vendors to buyers might generate which one of the following symptoms?
a. Buyer not relating well to other buyers and vendors
b. Decreasing purchases from favored vendor
c. Increasing purchases from other vendors
d. Decreasing prices and increasing quality
ANSWER: a
RATIONALE: a. Correct. Kickback symptoms might include increasing purchases from favored
vendor, decreasing purchases from other vendors, decreasing quality, increasing prices,
and the buyer not relating well to other buyers and vendors.
b. Incorrect. Kickback symptoms might include increasing purchases from favored
c. Incorrect. Kickback symptoms might include increasing purchases from favored
d. Incorrect. Kickback symptoms might include increasing purchases from favored
POINTS: 1

Chapter 06
13. According to Benford's Law, the first digit of random data sets will most often begin with which number?
a. 7
b. 1
c. 3
d. 4
ANSWER: b
RATIONALE: a. Incorrect. According to Benford's Law, the first digit of random data sets will begin
with a 1 more often than with a 2, a 2 more often than with a 3, and so on.
b. Correct. According to Benford's Law, the first digit of random data sets will begin
c. Incorrect. According to Benford's Law, the first digit of random data sets will begin
d. Incorrect. According to Benford's Law, the first digit of random data sets will begin
POINTS: 1

Chapter 06
14. From the select balance sheet items below, calculate the quick ratio.
Item Amount Item Amount
Cash $20,000Accounts payable $11,000
Notes receivable 15,000Wages payable 5,000
Stock 5,000Retained earnings 20,000
Inventory 6,000Notes payable 8,000
a. 0.83
b. 1.25
c. 1.63
d. 1.08
ANSWER: b
RATIONALE: a. Incorrect. (Cash + Accounts Receivable) ÷ Current Liabilities = (Cash + Accounts
Receivable) ÷ (Accounts Payable + Wages Payable) = ($20,000 + $0) ÷ ($11,000 +
$5,000) = $20,000 ÷ $16,000 = 1.25
b. Correct. (Cash + Accounts Receivable) ÷ Current Liabilities = (Cash + Accounts
$5,000) = $20,000 ÷ $16,000 = 1.25
c. Incorrect. (Cash + Accounts Receivable) ÷ Current Liabilities = (Cash + Accounts
$5,000) = $20,000 ÷ $16,000 = 1.25
d. Incorrect. (Cash + Accounts Receivable) ÷ Current Liabilities = (Cash + Accounts
$5,000) = $20,000 ÷ $16,000 = 1.25
POINTS: 1

Chapter 06
15. Which of the following is similar to ACL and is ACL's primary competitor?
a. Picalo
b. IDEA
c. Microsoft Office + ActiveData
d. Z-score
ANSWER: b
RATIONALE: a. Incorrect. CaseWare's IDEA is ACL’s primary competitor.
b. Correct. CaseWare's IDEA is ACL’s primary competitor.
c. Incorrect. CaseWare's IDEA is ACL’s primary competitor.
d. Incorrect. CaseWare's IDEA is ACL’s primary competitor.
POINTS: 1
16. Digital analysis is:
a. the art of analyzing the digits that make up number sets like invoice amounts, reported hours, and costs.
b. a technique which calculates the average probability for each grouping of data.
c. the searching for expected relationships between numbers.
d. the use of numeric values for decision making.
ANSWER: a
RATIONALE: a. Correct. The art of analyzing the digits that make up number sets is called digital
analysis.
b. Incorrect. The art of analyzing the digits that make up number sets is called digital
analysis.
c. Incorrect. Benford's Law helps auditors search for unexpected relationships, not
expected relationships.
d. Incorrect. The art of analyzing the digits that make up number sets is called digital
analysis.
POINTS: 1

Chapter 06
17. One of the disadvantages of Benford's Law in detecting fraud is:
a. potential suspects are more likely to know you are trying to detect fraud than if you didn’t use such detection
techniques.
b. users must be thoroughly trained in its complexities to implement and use.
c. that those cases with the lowest probabilities do not match Benford's Law and may need further investigation.
d. it only broadly identifies the possible existence of fraud; it fails to narrow possibilities to a manageable field of
promising leads.
ANSWER: d
RATIONALE: a. Incorrect. Benford's Law only broadly identifies the possible existence of fraud.
b. Incorrect. Benford's Law only broadly identifies the possible existence of fraud.
c. Incorrect. Benford's Law only broadly identifies the possible existence of fraud.
d. Correct. Benford's Law only broadly identifies the possible existence of fraud.
POINTS: 1
18. A red flag search to detect kickbacks would include:
a. invoices without valid purchase order.
b. employee and vendor telephone numbers are the same.
c. purchase orders with zero dollar amounts by buyer.
d. price increases greater than 20% for several consecutive years.
ANSWER: d
RATIONALE: a. Incorrect. This is a red flag search designed to detect employees committing
purchasing fraud.
b. Incorrect. This is a red flag search designed to detect employees committing
purchasing fraud.
c. Incorrect. This is a red flag search designed to detect employees committing
purchasing fraud.
d. Correct. Increasing prices is an analytical symptom of kickbacks.
POINTS: 1

Chapter 06
19. Which of the following is an extension of stratification?
a. Matosas matrix
b. A pivot table
c. Summarization
d. Soundex
ANSWER: c
RATIONALE: a. Incorrect. Instead of producing a number of subtables, summarization runs one or
more calculations on the subtables to produce a single record representing each
subtable.
b. Incorrect. Instead of producing a number of subtables, summarization runs one or
subtable.
c. Correct. Instead of producing a number of subtables, summarization runs one or more
calculations on the subtables to produce a single record representing each subtable.
d. Incorrect. Instead of producing a number of subtables, summarization runs one or
subtable.
POINTS: 1

Chapter 06
20. The red flag that is generally identified when employee and vendor telephone numbers are the same is:
a. dummy vendors.
b. employees purchasing goods for personal use.
c. billing more than once for the same purchase.
d. providing poor-quality goods.
ANSWER: c
RATIONALE: a. Correct. Many employees who set up dummy companies use their own phone
number as the company phone number.
b. Incorrect. Many employees who set up dummy companies use their own phone
c. Incorrect. Many employees who set up dummy companies use their own phone
d. Incorrect. Many employees who set up dummy companies use their own phone
POINTS: 1
21. Most software packages have functions for generating _____ about columns of data, which include statistical
summaries like control totals, mean, maximum, minimum, standard deviation, number of zero values, number of empty
records, and so on.
a. captions
b. histograms
c. headings
d. descriptives
ANSWER: d
RATIONALE: a. Incorrect. Descriptives are computer-generated statistical summaries about columns
of data.
b. Incorrect. Descriptives are computer-generated statistical summaries about columns
of data.
c. Incorrect. Descriptives are computer-generated statistical summaries about columns
of data.
d. Correct. Descriptives are computer-generated statistical summaries about columns of
data.
POINTS: 1

Chapter 06
22. Which of the following is least effective while searching for anomalies?
a. Comparing account balances in the statements from one period to the next.
b. Calculating key ratios and comparing them from one period to the next.
c. Performing horizontal analysis.
d. Performing vertical analysis.
ANSWER: a
RATIONALE: a. Correct. Assessing levels of change by comparing account balances is least effective
in identifying anomalies because financial statement numbers are often large and
difficult to compare.
b. Incorrect. Assessing levels of change by comparing account balances is least
effective in identifying anomalies because financial statement numbers are often large
and difficult to compare.
c. Incorrect. Assessing levels of change by comparing account balances is least
d. Incorrect. Assessing levels of change by comparing account balances is least
POINTS: 1

Chapter 06
23. According to Benford's Law, 5 will be the first digit of a random number set:
a. more often than 1.
b. less often than 4.
c. about the same as 6.
d. more often than 3.
ANSWER: b
RATIONALE: a. Incorrect. According to Benford's Law, the first digit of random data sets will begin
b. Correct. According to Benford's Law, the first digit of random data sets will begin
with a 1 more often than with a 2, a 2 more often than with a 3, and so on, so a 5 should
occur less often than a 4.
c. Incorrect. According to Benford's Law, the first digit of random data sets will begin
d. Incorrect. According to Benford's Law, the first digit of random data sets will begin
POINTS: 1
24. ____ is the splitting of complex data sets into case-specific tables.
a. Deviation
b. Stratification
c. Data mining
d. Soundex
ANSWER: b
RATIONALE: a. Incorrect. Stratification is the splitting of complex data sets into groupings.
b. Correct. Stratification is the splitting of complex data sets into groupings.
c. Incorrect. Stratification is the splitting of complex data sets into groupings.
d. Incorrect. Stratification is the splitting of complex data sets into groupings.
POINTS: 1

Chapter 06
25. Identify the true statement about detecting fraud using financial statement reports.
a. Performing horizontal analysis requires converting the income statement balances into percentages of gross
sales.
b. Vertical analysis is the most direct method of focusing on changes from period to period.
c. Before performing any data-driven analysis that targets fraud and corruption in financial statements, the
numbers in all three types of financial statements need to be converted to percentages.
d. Small frauds may not affect the summarized financial statements significantly enough to be detected.
ANSWER: d
RATIONALE: a. Incorrect. Horizontal analysis compares the numbers from period to period and does
not compare the changes within a given period.
b. Incorrect. Horizontal analysis, not vertical analysis, is the most direct method of
focusing on changes.
c. Incorrect. The cash flow statement is already a change statement. Only balance
sheets and income statements need to be converted.
d. Correct. Small frauds are detected through source documents or other symptoms,
because they are usually not large enough to significantly affect the financial statements.
POINTS: 1

Chapter 06
26. A mathematical algorithm that predicts the percentage of the time each digit will appear in a sequence of numbers is:
a. inductive fraud detection.
b. deductive fraud detection.
c. Benford's Law.
d. horizontal analysis.
ANSWER: c
RATIONALE: a. Incorrect. This is proactively searching for fraud by identifying anomalies or unusual
or unexpected patterns and relationships.
b. Incorrect. This is determining the types of frauds that can occur and then using query
techniques and other methods to determine if those frauds may actually exist.
c. Correct. Benford's Law accurately predicts for many kinds of financial data that the
first digits of each group of numbers in a set of random numbers will conform to the
predicted distribution pattern.
d. Incorrect. This is a tool that determines the percentage change in balance sheet and
income statement numbers from one period to the next.
POINTS: 1
27. Which of the following statements is true about ODBC?
a. It allows use of the powerful SQL language for searching and filtering data.
b. It is generally slower and less robust than text files.
c. IT departments are very comfortable in giving out ODBC connections.
d. It is an application-level setting rather than a system-wide setting.
ANSWER: a
RATIONALE: a. Correct. ODBC allows use of the powerful SQL language for searching and filtering.
b. Incorrect. ODBC can retrieve data in real time.
c. Incorrect. Many IT departments are not comfortable giving out ODBC connections
because of security and privacy issues.
d. Incorrect. ODBC is a system-wide setting rather than an application-level setting.
POINTS: 1

Chapter 06
28. Which of the following statements is true about the characteristics of real-time analysis?
a. With real-time analysis in place, there is no need for continual improvement and updating of indicators.
b. It is a distinct technique because it specifically analyzes each transaction for correctness rather than for fraud.
c. Effective real-time analysis allows real-time modification and deletion of less-effective indicators.
d. The most effective real-time analysis uses indicators that are hard-coded into the system.
ANSWER: c
RATIONALE: a. Incorrect. With real-time analysis, there is the need for continual improvement and
updating of indicators.
b. Incorrect. It is a distinct technique because it specifically analyzes each transaction
for fraud (rather than for accuracy or some other attribute).
c. Correct. Effective real-time analysis systems allow real-time modification of
indicators, deletion of less effective indicators, and addition of new indicators without
reprogramming of the greater system
d. Incorrect. If indicators are hard-coded into existing systems, they quickly become
outdated or circumvented.
POINTS: 1
29. Which approach converts financial statement numbers to percentages of total assets or total sales?
a. Horizontal analysis
b. Vertical analysis
c. Ratio analysis
d. Variance analysis
ANSWER: b
RATIONALE: a. Incorrect. In vertical analysis, all items are shown as a percentage of a key figure in
the statement—sales for the income statement and total assets for the balance sheet.
b. Correct. In vertical analysis, all items are shown as a percentage of a key figure in
c. Incorrect. In vertical analysis, all items are shown as a percentage of a key figure in
d. Incorrect. In vertical analysis, all items are shown as a percentage of a key figure in
POINTS: 1

Chapter 06
30. Identify the formula used to calculate z-score.
a. (Mean − Value)/Standard Deviation
b. (Mean − Value)/(Mean + Value)
c. (Value − Mean)/Standard Deviation
d. (Value − Mean)/Median
ANSWER: c
RATIONALE: a. Incorrect. The z-score formula is (Value − Mean)/Standard Deviation.
b. Incorrect. The z-score formula is (Value − Mean)/Standard Deviation.
c. Correct. The z-score formula is (Value − Mean)/Standard Deviation.
d. Incorrect. The z-score formula is (Value − Mean)/Standard Deviation.
POINTS: 1
31. Benford's Law can help detect fraud by:
a. establishing weaknesses in the accounting control system.
b. identifying accounting anomalies.
c. focusing on unexplained changes.
d. identifying possible attempts by fraudsters to make stolen amounts look random.
ANSWER: d
RATIONALE: a. Incorrect. Benford's Law does not show weaknesses in the control system.
b. Incorrect. Benford's Law does not identify accounting anomalies.
c. Incorrect. Benford's Law does not focus on unexplained changes.
d. Correct. Benford's Law will reveal if someone tried to use every digit approximately
the same number of times.
POINTS: 1

Chapter 06
32. Horizontal analysis is performed when:
a. total assets are set at 100% and all other balances are shown as a percentage of total assets.
b. financial statement data are shown for two periods with the amount and percentage of change for each line
item.
c. there is a need to calculate and compare key ratios from period to period.
d. income statement amounts are shown as a percentage of total sales.
ANSWER: b
RATIONALE: a. Incorrect. Horizontal analysis converts balance sheets and income statements into
change statements.
b. Correct. Horizontal analysis converts balance sheets and income statements into
change statements.
c. Incorrect. Horizontal analysis converts balance sheets and income statements into
change statements.
d. Incorrect. Horizontal analysis converts balance sheets and income statements into
change statements.
POINTS: 1
33. One way to view the results of multiple indicators is to use a chart called a:
a. Soundex algorithm.
b. summarization chart.
c. Pareto chart.
d. Matosas matrix.
ANSWER: d
RATIONALE: a. Incorrect. The Matosas matrix is used to view the results of multiple indicators.
b. Incorrect. The Matosas matrix is used to view the results of multiple indicators.
c. Incorrect. The Matosas matrix is used to view the results of multiple indicators.
d. Correct. The Matosas matrix is used to view the results of multiple indicators.
POINTS: 1

Chapter 06
34. Benford's Law:
a. applies to numbers that have built-in limits.
b. is most effectively used with assigned numbers.
c. applies best to numbers that occur naturally.
d. uses ratios to detect fraud.
ANSWER: c
RATIONALE: a. Incorrect. Benford's Law applies to naturally occurring numbers, such as invoice
totals and product costs.
b. Incorrect. Benford's Law applies to naturally occurring numbers, such as invoice
c. Correct. Benford's Law applies to naturally occurring numbers, such as invoice totals
and product costs.
d. Incorrect. Benford's Law applies to naturally occurring numbers, such as invoice
POINTS: 1
35. While using financial statement analysis, which ratio will be most useful in assessing the company's operational
efficiency?
a. Current ratio
b. Quick ratio
c. Cost of goods sold percentage
d. Inventory turnover
ANSWER: d
RATIONALE: a. Incorrect. The inventory turnover is a measure of operational efficiency.
b. Incorrect. The inventory turnover is a measure of operational efficiency.
c. Incorrect. The inventory turnover is a measure of operational efficiency.
d. Correct. The inventory turnover is a measure of operational efficiency.
POINTS: 1

Chapter 06
36. Which of the following ratios can be used to assess a company's solvency?
a. Current ratio
b. Return on assets
c. Times-interest-earned ratio
d. Inventory turnover
ANSWER: c
RATIONALE: a. Incorrect. The times-interest-earned ratio is a measure of a company's solvency.
b. Incorrect. The times-interest-earned ratio is a measure of a company's solvency.
c. Correct. The times-interest-earned ratio is a measure of a company's solvency.
d. Incorrect. The times-interest-earned ratio is a measure of a company's solvency.
POINTS: 1
37. What is the primary advantage of the data-driven approach?
a. The investigator makes hypotheses and tests to see if each one holds true.
b. It is less expensive and time intensive than the traditional approach.
c. The investigator takes charge of the fraud investigation process.
d. Data-driven fraud detection is proactive in nature.
ANSWER: c
RATIONALE: a. Incorrect. The primary advantage of the data-driven approach is the investigator
takes charge of the fraud investigation process instead of waiting for tips or other
indicators to become egregious enough to show on their own.
b. Incorrect. The primary advantage of the data-driven approach is the investigator
c. Correct. The primary advantage of the data-driven approach is the investigator takes
charge of the fraud investigation process instead of waiting for tips or other indicators to
become egregious enough to show on their own.
d. Incorrect. The primary advantage of the data-driven approach is the investigator
POINTS: 1

Chapter 06
38. While methods like high-low slope, average slope, handshaking, and Box-Jenkins exist, one of the most popular
techniques for summarizing the slope of a graph is:
a. summarization.
b. stratification.
c. statistical regression.
d. arithmetic progression.
ANSWER: c
RATIONALE: a. Incorrect. One of the most popular techniques for summarizing the slope of a graph is
statistical regression.
b. Incorrect. One of the most popular techniques for summarizing the slope of a graph is
c. Correct. One of the most popular techniques for summarizing the slope of a graph is
d. Incorrect. One of the most popular techniques for summarizing the slope of a graph is
POINTS: 1
39. Which statistical approach is one of the most powerful and yet simple methods for identifying outliers?
a. N-grams
b. Z-score
c. Time-trend analysis
d. Soundex algorithm
ANSWER: b
RATIONALE: a. Incorrect. The z-score quickly and reliably converts data to a standard scale and
distribution, regardless of the amounts and variances in the data.
b. Correct. The z-score quickly and reliably converts data to a standard scale and
c. Incorrect. The z-score quickly and reliably converts data to a standard scale and
d. Incorrect. The z-score quickly and reliably converts data to a standard scale and
POINTS: 1

Chapter 06
40. ______ are a two-dimensional view with cases in one dimension and the calculations in the other.
a. N-grams
b. Z-scores
c. Pivot tables
d. Soundex algorithms
ANSWER: c
RATIONALE: a. Incorrect. Two-dimensional views with cases in one dimension and the calculations in
the detail cells describes the pivot table.
b. Incorrect. Two-dimensional views with cases in one dimension and the calculations in
c. Correct. Two-dimensional views with cases in one dimension and the calculations in
d. Incorrect. Two-dimensional views with cases in one dimension and the calculations in
POINTS: 1

Chapter 06
41. One of the most common errors investigators make when analyzing time trends is:
a. incorrect data preparation.
b. focusing only on one variable, time (the x-axis if graphed).
c. not monitoring the time taken.
d. not standardizing for time.
ANSWER: d
RATIONALE: a. Incorrect. To correctly prepare data for time trend analysis, the time scale must be
standardized to some value of time, such as sales per day, hours worked per week, and
so forth.
b. Incorrect. To correctly prepare data for time trend analysis, the time scale must be
so forth.
c. Incorrect. To correctly prepare data for time trend analysis, the time scale must be
so forth.
d. Correct. To correctly prepare data for time trend analysis, the time scale must be
so forth.
POINTS: 1
42. Specific implementations of delimited text are called TSV. What does TSV stand for?
a. toxicity screening value
b. time segmented volume
c. tab separated values
d. tactical secure voice
ANSWER: c
RATIONALE: a. Incorrect. TSV stands for tab separated values.
b. Incorrect. TSV stands for tab separated values.
c. Correct. TSV stands for tab separated values.
d. Incorrect. TSV stands for tab separated values.
POINTS: 1

Chapter 06
43. Which of the following is a true statement regarding the United States Social Security Administration (SSA)?
a. The SSA publishes a monthly list of newly issued Social Security numbers.
b. The SSA publishes a monthly list of Social Security numbers that are no longer in use.
c. The SSA database of valid numbers can be accessed by interested parties.
d. The SSA database can be used to create mailing lists.
ANSWER: b
RATIONALE: a. Incorrect. This would allow illegal activity.
b. Correct. The U.S. Social Security Administration (SSA) publishes a monthly list of
SSNs that are no longer in use—normally because of the death of their owners.
c. Incorrect. This would allow illegal activity.
d. Incorrect. The list is not accessible by the public and does not include addresses.
POINTS: 1
44. Which of the following statements regarding ODBC is NOT accurate?
a. ODBC stands for Open Database Communications.
b. ODBC is a standard method of querying data from corporate relational databases.
c. ODBC is a connector between the front-end analysis and the back-end corporate database.
d. ODBC is already included with most operating systems.
ANSWER: d
RATIONALE: a. Correct. ODBC stands for Open Database Connectivity.
b. Incorrect. ODBC stands for Open Database Connectivity.
c. Incorrect. ODBC stands for Open Database Connectivity.
d. Incorrect. ODBC stands for Open Database Connectivity.
POINTS: 1

Chapter 06
45. Which of the following financial statements can be used to answer the question, "Where did the cash come from to
pay dividends?"
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Trial balance
ANSWER: a
RATIONALE: a. Incorrect. The statement of cash flows shows the cash inflows and outflows during a
period.
b. Incorrect. The statement of cash flows shows the cash inflows and outflows during a
period.
c. Correct. The statement of cash flows shows the cash inflows and outflows during a
period.
d. Incorrect. The statement of cash flows shows the cash inflows and outflows during a
period.
POINTS: 1
46. Which of the following is the most important step in data analysis?
a. Gathering the right data in the right format in the right time period
b. Understanding the available data
c. Learning the basics of table structure and field types
d. Learning the basics of key relationships and query syntax
ANSWER: a
RATIONALE: a. Correct. The most important (and often most difficult) step in data analysis is
gathering the right data in the right format during the right time period.
b. Incorrect. The most important (and often most difficult) step in data analysis is
c. Incorrect. The most important (and often most difficult) step in data analysis is
d. Incorrect. The most important (and often most difficult) step in data analysis is
POINTS: 1

Chapter 06
47. In a Matosas matrix, there is a ___ for each indicator, and there may be as many as _____.
a. row; 50 rows
b. column; 10 columns
c. column; 100 columns
d. row; 1,000 rows
ANSWER: d
RATIONALE: a. Incorrect. A matrix in the real world might contain 50 or 100 indicator columns.
b. Incorrect. A matrix in the real world might contain 50 or 100 indicator columns.
c. Correct. A matrix in the real world might contain 50 or 100 indicator columns.
d. Incorrect. A matrix in the real world might contain 50 or 100 indicator columns.
POINTS: 1
48. Which of the following may result from a careful review of a Matosas matrix?
a. This action identifies indicators that have been circumvented.
b. This action identifies indicator information that has been incorrectly input.
c. This helps investigators improve the set of indicators utilized.
d. This helps investigators identify fraud perpetrators.
ANSWER: c
RATIONALE: a. Incorrect. Looking vertically at the Matosas matrix helps investigators continually
improve the set of indicators.
b. Incorrect. Looking vertically at the Matosas matrix helps investigators continually
c. Correct. Looking vertically at the Matosas matrix helps investigators continually
d. Incorrect. Looking vertically at the Matosas matrix helps investigators continually
POINTS: 1

Chapter 06
49. Which of the following is true?
a. Stratification is the splitting of data into case-specific tables.
b. Stratification is an extension of summarization.
c. Summarization provides detail for each grouping into tables.
d. Stratification is utilized to create a z-score across data sets.
ANSWER: a
RATIONALE: a. Correct. Stratification separates the data into tables for study.
b. Incorrect. Summarization is an extension of stratification.
c. Incorrect. Stratification separates the data into tables for study.
d. Incorrect. A z-score across data sets (tables) is basically useless.
POINTS: 1
50. Which of the following records data for each case in a graph and analyzes the slope?
a. summarization analysis
b. time trend analysis
c. fuzzy matching method
d. cross tables method
ANSWER: b
RATIONALE: a. Incorrect. The most basic technique for time trend analysis is easy: simply graph each
case.
b. Correct. The most basic technique for time trend analysis is easy: simply graph each
case.
c. Incorrect. The most basic technique for time trend analysis is easy: simply graph each
case.
d. Incorrect. The most basic technique for time trend analysis is easy: simply graph each
case.
POINTS: 1

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