1. Elmer Irey, a special agent of the IRS, developed a strategy to help indict Al Capone. *a.

True
b. False 2. In civil disputes, district attorneys may obtain tax records in order to indirectly
calculate income. *a. True b. False 3. A forensic accountant was used in the criminal trial of
former governor Edwin Edwards. *a. True b. False 4. IRS Agents may not use indirect methods
to determine unreported income. a. True *b. False 5. IRS Agents have unlimited discretion to use
an indirect method to determine unreported income. a. True *b. False 6. I.R.C. Section 7602(e)
prohibits financial status or economic reality techniques to determine the existence of unreported
income. a. True *b. False 7. An IRS Agent normally has to start with minimum income probes if
no Schedule C or F is attached to the tax return. *a. True b. False 8. The lifestyle of a person may
give clues to the possibility of unreported income or fraud. *a. True b. False 9. Fraud auditing is
like an iceberg, with many of the structural aspects beneath the water. a. True *b. False 10. A
forensic accountant must have interviewing skills. *a. True b. False 11. A forensic accountant is
more like a watchdog rather than a bloodhound. a. True *b. False 12. The KGB used financial
lifestyle probes and audits to capture a number of spies and moles. *a. True b. False 13. A lavish
residence is an example of a lifestyle change relevant to fraud detection. *a. True b. False 14. A
high living style may not be obtained by going into debt. a. True *b. False 15. An IRS revenue
agent may drive by a taxpayer's home without violating the statutory prohibition against financial
status audits. *a. True b. False 16. A Cash T is often used in the preliminary stages of a tax audit.
*a. True b. False 17. In a Cash T analysis, an agent lists all sources of income on the right
(credit) side of the Cash T. a. True *b. False 18. In a Cash T analysis, an agent lists all
applications of funds on the left (debit) side of the Cash T. a. True *b. False 19. A taxpayer has
the burden of proving the existence of a cash hoard. *a. True b. False 20. The theory of the Cash
T is that if a taxpayer's expenditures during a given year exceed reported income, and the source
of the funds for such expenditures is unexplained (e.g., taxpayer had no loans or nontaxable
sources of income), such excess amount represents unreported income. *a. True b. False 21. The
source and application of funds method (also referred to as the expenditure method) was
approved by the Supreme Court in 1942. *a. True b. False 22. The source and application of
funds method is a variation of the bank deposit method. a. True *b. False 23. IRS agents often
use the expenditure approach when a taxpayer is purchasing assets or investments, rather than
spending lavishly. a. True *b. False 24. Where the application of funds is greater than the
sources, a person is deemed to have an understatement of income. *a. True b. False 25. The net
worth method is a common direct balance sheet approach to estimating income. a. True *b. False
26. The net worth method has not been sanctioned by the U.S. Supreme Court. a. True *b. False
27. Under the net worth method, an agent deducts nondeductible living expenses from any
increase in net worth. a. True *b. False 28. While using the net worth method, an IRS agent must
determine beginning net worth with reasonable accuracy, track down all leads given by the
taxpayer to explain the source of the unreported income, and establish a reasonable source for the
omitted income. *a. True b. False 29. The bank deposit method attempts to reconstruct gross
taxable receipts rather than adjusted income. *a. True b. False 30. The bank deposit method is
appropriate when most of the income is deposited in banks and most of the expenses are paid by
check. *a. True b. False 31. Al Capone was caught by the IRS as a result of lifestyle factors. a.
True *b. False 32. The bank deposit method may be used even though a person deals only with
cash. a. True *b. False 33. Logging of exceptions would be an example of a proactive approach.
*a. True b. False 34. Investigating complaints would be an example of the reactive detection
technique. *a. True b. False 35. Intuition is an example of the proactive approach. a. True *b.
False 36. Reviewing variances is an example of the reactive detection technique. a. True *b.
False 37. Forensic accountants should use both proactive and reactive detection techniques. *a.
True b. False 38. Effective internal controls is an example of a reactive detection technique. a.
True *b. False 39. Suspicion is an example of the reactive detection approach. *a. True b. False
40. Intelligence gathering is an example of the reactive approach to fraud detection. a. True *b.
False 41. A lawful objective is not a necessary requirement of a valid contract. a. True *b. False
42. The intentional failure to perform a contract results in fraud. a. True *b. False 43. Bribes are
universal and the more damaging of the procurement fraud schemes. *a. True b. False 44. Payola
is a form of bribery. *a. True b. False 45. Bribery was a common practice at the German Siemens
company. *a. True b. False 46. Gifts of cash is the most sophisticated way to handle a bribery
scheme. a. True *b. False 47. Awarding the selection of a contract is an example of a later
influence of an official act. *a. True b. False 48. The purpose of the Foreign Corrupt Practices
Act was to combat corrupt business practices such as bribes and kickbacks. *a. True b. False 49.
Foreign Corrupt Practices Act does not prohibit corrupt payments through intermediaries. a. True
*b. False 50. Globalization was a motor for bribes and kickbacks in Germany. *a. True b. False
51. A vendor that has only a post-office box address could be a red flag of a phantom vendor. *a.
True b. False 52. Lack of a standard invoice is a red flag of bribery and kickbacks. *a. True b.
False 53. An audit right clause may be used by a forensic accountant to prove some influences on
official acts. *a. True b. False 54. The duty to cooperate by an employee is not important for
detecting fraudsters. a. True *b. False 55. Which statement is false? a. A special agent of the IRS
developed a strategy to help indict Al Capone. *b. Probing missing income by pointing to
specific items of income that do not appear on a tax return is an indirect method of
reconstructing income. c. District attorneys may obtain tax returns. d. Tracing monies from a
dummy corporation to an individual is a direct method of reconstructing income. e. None of the
above is false. 56. Which statement is false? a. Al Capone was indicted on numerous counts of
income tax evasion, convicted, and sentenced to 11 years in prison. b. The IRS used financial
ledgers and bank statements to help convict Al Capone. *c. Former Governor Edwin Edwards
was able to use the cash hoard defense to avoid prison. d. IRS agents may use both direct and
indirect methods to reconstruct taxable income. e. None of the above is false. 57. Which would
not be a direct IRS method for reconstructing taxable income? a. Newspaper articles. b.
Checking deed records of real estate transactions. c. Discussions with third parties. d. Checking
public records. *e. All of the above are direct methods. 58. Which is not an indirect method of
reconstructing income of a taxpayer? a. Net worth. b. Bank deposit. c. Cash T. *d. Unreported
mark-up. e. None of the above. 59. Which is not a behavioral, covert aspect of fraud? a.
Attitudes. b. Cash Norms. *c. on hand. d. Values. e. All are behavioral aspects. 60. Which
statement is false? *a. Fraud auditing is like an iceberg because many of the structural aspects
are below water. b. The lifestyle of a person may give clues as to fraud possibilities. c. For
taxpayers who are self-employed, IRS agents may use indirect methods to find unreported
income. d. The IRS does not have unlimited discretion to use an indirect method. e. None of the
above. 61. Which statement is false? *a. The CIA used financial lifestyle probes and audits to
capture Aldrich Ames, a mole within the CIA. b. A vacation home is an example of a lifestyle
change relevant to fraud detection. c. A high living style may be obtained by going into debt. d.
A forensic accountant is more like a bloodhound than a watchdog. e. None of the above. 62.
Which statement is false? a. An indirect method may be used when a taxpayer has inadequate
books and records. b. An IRS agent may conduct a LEXIS search to determine if a person
purchased real estate during the year. c. An indirect method may be appropriate when there is a
significant increase in year-to-year net worth. d. A Cash T is an analysis of all of the cash
received by a person and all of the cash spent by a person over a period of time. *e. None of the
above is false. 63. Based upon the following facts, determine a person's preliminary
understatement of income: Schedule C receipts $280,000 Schedule C expenses 135,000 Personal
living expenses 65,000 a. An overstatement. *b. $80,000. c. $135,000. d. $280,000. e. None of
the above. 64. Which statement is false? a. The source and application of funds technique is a
variation of the net worth method that shows increases and decreases in a taxpayer's accounts at
the end of the year. b. Often the IRS agent will use the expenditure approach when a taxpayer is
spending income lavishly rather than purchasing assets or investments. c. The expenditure
approach is similar to the Cash T, except that the data used is the increases and decreases in the
taxpayer's accounts. *d. The source and application of funds method is a variation of the bank
deposit method. e. None of the above. 65. Which statement is true? *a. Beauty and barber shops
are cash intensive businesses. b. Where the application of funds is less than the source, a
taxpayer is deemed to have an understatement of income. c. Where the application of funds is
greater than the sources, a person is deemed to have an overstatement of income. d. The Cash T
is appropriate for persons where a substantial amount of income is deposited in banks and the
expenditures are proportionate to the income reported. e. None of the above is true. 66. Which
statement is false? a. The net worth method may be used when there is a year-to-year increase in
net worth and the taxpayer does not have adequate records to determine taxable income or when
fraud is strongly suspected. b. The net worth technique may be appropriate for any taxpayer
when two or more years are being audited and the agent determines that there have been
substantial changes in assets and liabilities from year to year. *c. Under the net worth method,
nondeductible expenditures are deducted to arrive at adjusted gross income. d. If a person's net
worth increase (as adjusted) exceeds the reported taxable income, there may be unreported
income (or a previous cash hoard or large gift). e. None of the above. 67. Which statement is
false? a. The net worth analysis may be used when searching for hidden income in drug
trafficking and insurance fraud situations. b. Whereas the focus of the net worth method is on the
year-end balances as well as other assets and liabilities, the bank deposit technique looks at the
funds deposited during the year. c. The bank deposit method attempts to reconstruct gross
taxable receipts rather than adjusted taxable income. d. The bank deposit method is appropriate
when most of the income is deposited in banks and most of the expenses are paid by checks. *e.
All of the above are true. 68. In the process of using the net worth method, you find that income
of a person is $92,000 and overall expenses are $61,000. Calculated net worth is $611,000 and
computed net worth is $430,000. Any unexplained net worth income or (decrease) would be: a.
$31,000. *b. $150,000. c. $181,000. d. $212,000. e. Another answer is correct. 69. In computing
income under the net worth method, the following facts are found: Total assets Total liabilities
Nondeductible expenses Net worth at beginning of year $1,600,000 825,000 120,000 560,000
Adjusted gross income is: a. $170,000. b. $215,000. *c. $290,000. d. $335,000. e. None of the
above. 70. Which of the following is an example of a proactive approach to fraud detection? a.
Logging of exceptions. b. Intelligence gathering. c. Reviewing variances. d. Effective internal
controls. *e. All of the above. 71. Which of the following is an example of a reactive approach to
fraud detection? a. Effective internal controls. b. Intelligence gathering. c. Logging of
exceptions. *d. Suspicion. e. None of the above. 72. Which of the following is a public resource
that can be accessed by the Internet? a. Police and sheriff records of arrests. b. Wills. c. Drivers'
licenses. *d. All of the above. 73. In attempting to stop purchasing agent's kickbacks, which
would not be helpful in segregating duties? a. Vendor approvals. *b. Sales requisitions. c.
Purchase approval. d. Receiving. e. Payments. 74. Which would be the least effective procedure
for preventing procurement fraud? a. Confirming inventory. b. Creating an approved vendor list.
*c. Reviewing monthly bank reconciliations. d. Separating job responsibilities. e. Looking for
cliques. 75. Starting December 1, 2006, what must happen in the United States? a. All major
corporations must have a forensic audit every three years. *b. Companies must recognize,
declare, and produce e-documents whenever involved with civil litigation. c. CEOs must certify
their corporate tax return. d. Auditors must take control of the confirmation process. e. Auditors
are required to carry out specific forensic procedures. 76. Which would not be a way to detect an
individual engaging in procurement fraud? a. Using audit rights. b. Involving duty to cooperate.
c. Doing the parking lot test. d. Observing cliques. *e. None of the above. 77. Which is not one
of the six requirements for a valid contract? a. Entered into freely. b. Offer and acceptance. c.
Lawful objective. d. Something of value exchanged. *e. Must be notarized. 78. Which would not
be a procurement fraud scheme? *a. Lapping. b. Phantom vendors. c. Defective pricing. d.
Conflict of interest. e. Defective delivery. 79. Which would not be a procurement fraud scheme?
a. Split purchases. b. Duplicate invoices. c. Product substitution. *d. Washing checks. e.
Unnecessary purchases. 80. Which would not be a procurement fraud scheme? a. Cost
mischarging. b. Inflating invoice. *c. Kiting. d. Split purchases. e. False claims. 81. Which would
be a red flag of phantom vendors? a. Unfamiliar vendor. b. Vendor's name consists of initials. c.
Vendor has post office box address. d. Rapidly increasing purchases from one vendor. *e. All of
the above. 82. Which probably would not help prevent procurement fraud through phantom
vendors? a. Doing a parking-lot test. *b. Reviewing cliques within the sales department. c.
Having an anonymous hot-line. d. Having an approved vendors list. e. All of the above would
help prevent procurement fraud. '