Test Bank for Principles of Fraud Examination 4th

Edition Wells 1118922344 9781118922347

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Chapter 5–Check Tampering

1. Check tampering is unique from other fraudulent disbursement schemes because in a

check tampering scheme:
a. The perpetrator physically prepares the fraudulent check.
b. The perpetrator must have access to a signature stamp in order to conceal the
crime.
c. The perpetrator submits a phony document in order to generate the fraudulent
payment.
d. The perpetrator must endorse the check in order to cash or deposit it.

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.
a. True
b. False

3. To successfully carry out and conceal a check tampering scheme, the fraudster must
have:
a. Access to the check stock
b. Access to the bank statements
c. The ability to forge signatures or alter other information on the check
d. All of the above

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.
a. True
b. False

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

a. Forged maker schemes
b. Altered payee schemes

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 c. Unauthorized endorsement schemes
d. Concealed check schemes

6. The person who prepares and signs the check is known as the ______________ of the
check.
a. Author
b. Endorser
c. Payer
d. Maker

7. In which of the following schemes does the fraudster intercept and convert a
company check made payable to a third party?
a. Forged maker scheme
b. Authorized maker scheme
c. Altered payee scheme
d. Concealed check scheme

8. In a forged maker scheme, the perpetrator fraudulently affixes the signature of an

authorized maker to a check.
a. True
b. False

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

10. Which of the following is not an effective control mechanism to safeguard an

organization’s check stock?
a. Boxes of blank checks should be sealed with security tape.
b. Organizations should use check stock that is high-quality and distinctly marked.
c. The employee in charge of the check preparation function should
periodically verify the security of unused checks.
d. Voided checks should be promptly destroyed.

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

a. Separate the duties of check preparation and check signing.
b. Rotate authorized check signers.
c. Maintain a usage log for the signature stamp.
d. All of the above

12. Which of the following procedures can help prevent and detect the theft and
conversion of outgoing company checks?
a. Train employees to look for dual endorsements on canceled checks.
b. Chart the date of mailing for every outgoing check.
c. Track changes made to vendor records.
d. All of the above

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13. Which of the following is not a type of altered payee scheme?
a. “Tacking” on
b. Forged maker
c. Using erasable ink
d. Leaving the payee designation blank

14. To prevent altered payee schemes, the person who prepares the check should also
review the check after it has been signed.
a. True
b. False

15. Which of the following computer audit tests can be used to detect forged maker
schemes?
a. Extract checks that are out of sequence
b. Extract manual checks and summarize by vendor and issuer
c. Extract all checks payable to “cash” and summarize by issuer for reasonableness
d. All of the above

16. Which type of check tampering scheme is usually the most difficult to defend
against?
a. Authorized maker
b. Forged endorsement
c. Concealed check
d. Altered payee

17. Concealing a check tampering scheme generally means hiding both the identity of the
perpetrator and the fact that the fraud ever occurred.
a. True
b. False

18. Methods used to conceal check tampering schemes include all of the following
except:
a. Falsifying the disbursements journal
b. Forced reconciliation
c. Check kiting
d. Re-altering the canceled checks

19. Methods used to manipulate electronic payments include which of the following?
a. Abusing legitimate access to the employer’s payment system
b. Gaining access to the employer’s payment system through social engineering
c. Exploiting weaknesses in the employer’s internal control over its electronic
payment system
d. All of the above

20. According to the 2012 Report to the Nations on Occupational Fraud and Abuse,
check tampering is the most common fraudulent disbursement fraud.

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 a. True
b. False

21. 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.
a. True
b. False

22. Mavis Bosman works as an accounts receivable clerk at Brooks Publishing. She steals
an incoming check from a customer and cashes it at a grocery store by forging the
endorsement on the back of the check. This is an example of a check tampering
scheme.
a. True
b. False

23. 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?
a. Concealed check
b. Payables skimming
c. “Tacking on”
d. Forged endorsement

24. 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?
a. Forged maker
b. Forged endorsement
c. Concealed check
b. Authorized maker

25. 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?
a. Concealed check scheme
b. False voids scheme

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 c. Authorized maker scheme
d. Forged maker scheme

26. Billy Hodges was in charge of preparing checks for the Lightner Company. He
entered the payment information into the accounting system, and the completed
checks were sent back to him to review. He then forwarded the checks to his
supervisor for signing. In each batch of legitimate checks, Hodges would insert
checks made payable to himself. When his supervisor was busy, he would take the
stack of checks to him and ask him to sign them immediately in order to meet their
cycle time deadline. The supervisor would inattentively sign the checks, and then
Hodges would extract the checks he made payable to himself. This is an example of
what type of check tampering scheme?
a. Concealed check scheme
b. Forged endorsement scheme
c. Forged maker scheme
d. Altered payee scheme

27. 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?
a. Multiple reimbursement scheme
b. Shell company scheme
c. Personal purchases scheme
d. Forged maker scheme

28. 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 she finally caught?
a. A co-worker contacted the organization’s executive director when she found that
a company check had been written to the children’s school for Robinson’s
personal items.
b. New officers were elected, and they took the accounting books from her.
c. The auditors discovered her fraud during an annual audit of the books.
d. Robinson’s husband tipped off the audit committee after he became suspicious of
some of Robinson’s purchases.

29. 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?
a. Robinson would not take vacation leave.

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 b. There were a lot of missing files that the auditors couldn’t locate during their
annual audit.
c. Robinson would not release any financial information when requested and
gave excuses for why it wasn’t available.
d. All of the above

30. 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?
a. She was allowed to resign and agreed to pay the money back.
b. She resigned, and a civil suit was filed to recover the loss.
c. She was found guilty and ordered to make restitution to the organization and
its insurance company.
d. Charges were dismissed with prejudice when the evidence was thrown out on a
technicality.

31. 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. The president received a bank statement containing canceled checks that had been
written to Phillips.
b. The receiver received a call from the bank asking him to verify a check.
c. A vendor received a check in error and reported it to the operations manager.
d. The operations manager found a check made payable to Phillips while
searching Phillips’ desk for some accounting records.

32. 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. Control weaknesses that facilitated the commission of this
fraud include which of the following?
a. The bank statements were sent directly to Phillips.
b. Phillips had check signing authority.
c. There was no separation of duties between accounts payable and the treasury
department.
d. All of the above

33. 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.

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Within a short period of time Phillips began writing checks to himself that had
nothing to do with payroll. What happened to Phillips?
a. He quit his job and moved to another state.
b. He pleaded guilty to fraud and grand theft and spent 24 months in prison.
c. He paid the money back by mortgaging his home.
d. He was charged criminally, and while out on bail, he fled with his family.

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