Forensic Accounting and Fraud Examination 2nd Edition Test Bank William Hopwood

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Forensic Accounting and Fraud Examination 2nd Edition Test Bank William Hopwood

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12
1. According to the U.S. Department of Justice, what percentage of bankruptcy cases involve fraud?

A. 5%

B. 10%

C. 25%

D. 50%

2. Which of the following is not a commonly committed fraud during bankruptcy proceedings?

A. Conceals property from the bankruptcy proceedings.

B. Gives, offers, receives, or attempts to obtain money, property, reward or advantage for acting or forbearing to act in a bankruptcy case.

C. Withholds documents related to the debtors property or financial affairs from the standing trustee or other officer of the court.

D. All of the above are commonly committed frauds.

3. What is a typical penalty for committing a bankruptcy fraud crime?

A. 5 years in prison; $250,000 fine or both.

B. 10 years in prison; $250,000 fine or both.

C. 5 years in prison; $500,000 fine or both.

D. 10 years in prison; $500,000 fine or both.

4. Which act or law created severe criminal penalties for fraud in a bankruptcy proceeding?

A. IRC revision of 1986

B. SEC ruling of 2001

C. U.S. Supreme Court Rulings of 2003

D. Section 802 of the Sarbanes-Oxley Act of 2002

5. What is a concealment of assets fraud?

A. It is when a business physically hides assets from investigators during an inventory of assets.

B. It is when debtors move large amounts of cash or other assets out of the business in anticipation of filing for bankruptcy.

C. It is when creditors move large amounts of cash or other assets out of the business in anticipation of filing for bankruptcy.

D. It is the selling of assets in order to increase cash reserves during a bankruptcy filing.

6. Secretly transferring (or selling below market value) assets to others, perhaps to family or friends, in order to keep them out of the bankruptcy estate and maintain control over them is referred to as:

A. Concealment of assets fraud

B. Multiple filing scheme

C. Fraudulent conveyances

D. Bust-outs

7. Multiple-filing schemes are when:

A. An individual takes on multiple identities in multiple states, acquires debt under those identities and then files bankruptcy under all of them.

B. An individual takes on debt from multiple states and then files bankruptcy in each state under their own name.

C. Multiple individuals take on the same debt and then file bankruptcy under each persons name for the same debt

D. Multiple individuals take on multiple names in several states and acquire debt under all those names, then file bankruptcy in one state attempting to flood the courts with cases and confuse the court system.

8. How many different chapters for bankruptcy are there?

A. 2

B. 4

C. 6

D. 11

9. Which chapter applies to both individuals and businesses, and is designed to completely liquidate the debtors assets and discharge the debtors liabilities?

A. Chapter 7

B. Chapter 9

C. Chapter 11

D. Chapter 13

10. Which chapter applies to farmers and those in fishing business?

A. Chapter 7

B. Chapter 9

C. Chapter 12

D. Chapter 15

11. Which two chapters are most frequently used by individuals?

A. Chapters 7 and 9

B. Chapters 13 and 15

C. Chapters 11 and 13

D. Chapters 7 and 13

12. Who administers bankruptcy proceedings?

A. Lawyers

B. U.S. District Courts

C. Department of Justice

D. U.S. Attorneys Office

13. If there is fraud suspected in the bankruptcy proceedings, who is the case turned over to?

A. U.S. District Court

B. Department of Justice

C. U.S. Attorneys Office

D. Securities and Exchange Commission

14. In cases where creditors force involuntary bankruptcy, what is a factor that may deem it to be an abusive filing?

A. If they attempt to file for more than the actual debit that is owed.

B. If the debtor actually has the ability to repay.

C. If there is only one creditor.

D. All of the above

15. Why would a forensic accountant want to investigate prior W-2s during a bankruptcy or divorce fraud investigation?

A. It may show investment income from investments not previously disclosed.

B. It may show the purchase of assets through a business that has been written off for depreciation.

C. It could show contributions to Keogh plans.

D. It could show contributions to 401K, 403(b) and other deferred compensation plans.

16. Why would a forensic accountant want to investigate all vendors listed for a business during a bankruptcy investigation?

A. To ensure that they are not owed any money by the debtor.

B. To ensure that they are actually real vendors and not just fronts for hiding assets.

C. To see if they want to recover any assets such as inventory that the business may have on hand prior to bankruptcy disposition.

D. All of the above

17. When dealing with the issue of asset concealment in divorce cases, the forensic accountant must keep in mind that:

A. one or both parties will always be trying to conceal assets from the other party.

B. lawyers from either party may be employing the forensic accountant in order to drain marital assets.

C. assets may be accidentally concealed as some individuals are not good at financial record keeping.

D. All of the above

18. For divorce cases, why might the level of scrutiny be considerably less that in bankruptcy cases?

A. Divorce attorneys dont always have the financial expertise that many bankruptcy attorneys have.

B. In bankruptcy cases there tend to be creditors with experience in asset concealment, and who are in possession of information-rich credit applications from debtors.

C. In bankruptcy cases there is more of a tendency for fraudulent conveyances and the hiding of assets to take place immediately prior to the filing.

D. All of the above

19. Who causes the largest amount of identity theft in the United States?

A. Organized Crime

B. Gangs

C. Individuals on the internet

D. Corporations

20. What is a problem with the free annual credit report web site?

A. Free reports are typically 12-18 months old.

B. Free reports only give you the credit rating, not if someone has used your identity to get credit.

C. The web site requires you to subscribe to an annual subscription to a financial magazine.

D. The web site has many impostors with similar names that actually take consumer information and steal their identities.

21. How does truncation of identity numbers work?

A. Machines encode account numbers when transmitting them over the internet.

B. Machines can only print the last 5 digits of an account number on anything that is printed for mailing.

C. Clerks and telephone operators are only allowed to verify identity by the last five letters of a persons name.

D. Older machines that do manual imprinting of credit card numbers must be modified to only copy the last five digits of the account numbers.

22. What are financial institutions required to do for consumers when they are filing negative information against them?

A. Nothing

B. Provide them an opportunity to rebut the negative information prior to its submission.

C. Ask for their concurrence prior to submitting the report.

D. Notify them within 30 days of negative information submitted with items that includes things like late, missed, or partial payments.

23. The Congressional act that created stiffer penalties for identity theft, and even harsher penalties for terrorist related identity theft, was called:

A. The Identity Terrorism Protection Act

B. Identity Terrorism Penalty Enhancement Act

C. United States Identity Penalty Enhancement Act

D. Identity Theft Penalty Enhancement Act

24. What are some methods that identity thieves may use to get information?

A. Picking information out of dumpsters

B. Looking over the shoulder of someone while they fill out applications

C. Stealing mail

D. All of the above

25. What is typically one of the first signs that an individuals identity has been stolen?

A. Unauthorized change in address

B. Bill collectors begin calling for accounts the individual is not aware of.

C. Incorrect information appearing on credit reports.

D. Unauthorized charges appear on statements.

26. Why is trying to catch identity thieves in the act not generally helpful?

A. They lie so well that you cannot know their true identity.

B. Only amateur identity thieves are sloppy enough to get caught in the act.

C. Immediate arrests dont normally take place unless a law-enforcement officer happens to be at the scene of the crime.

D. All of the above

27. What is a controlled delivery?

A. When individuals control when their personal information is delivered to creditors.

B. When law enforcement catches thieves doing something like receiving mail or withdrawing banks funds using a stolen identity.

C. When individuals control when their mail is delivered to their mailboxes to prevent mail theft.

D. The act of delivering controlled amounts of personal information to thieves that think its legitimate.

28. Which other crimes typically coexist with identity theft?

A. Check fraud

B. Mortgage fraud

C. Insurance fraud

D. All of the above

29. Which agency develops and controls www.consumer.gov/idtheft?

A. Federal Trade Commission

B. Food and Drug Administration

C. National Highway Transportation Safety Administration

D. All of the above

30. How can individuals repair their credit if it has been stolen by thieves?

A. Hire an attorney

B. Contact their local representative to the U.S. Congress

C. Hire one of many private agencies that specialize in identity theft repair

D. All of the above

31. Over 90% of bankruptcy cases involve fraud.

True False

32. The typical penalty for committing a bankruptcy fraud crimes has a maximum of 5 years in prison or a maximum fine of $250,000, or both, per offense.

True False

33. Fraudulent conveyances typically involved unqualified persons offering fee-based financial advice, credit counseling, and bankruptcy-filing services.

True False

34. Chapter 13 bankruptcy is less desirable for the debtor, since it requires debt repayment from the debtors future income.

True False

35. In bankruptcy or divorce, the involved partys recent federal tax returns should be carefully examined with respect to Investment interest expense deductions. Such deductions suggest the existence of a margin-based brokerage account.

True False

36. Due to its complexity, the forensic accountant cannot perform a complete cash flow analysis for the individual or entity under investigation.

True False

37. Divorce fraud is very similar to bankruptcy fraud in that in both divorce and in bankruptcy a court may divide up the assets of some estate.

True False

38. The largest part of identity theft is caused by individuals on the internet stealing information.

True False

39. The Fair and Accurate Credit Transaction Act of 2003 replaced the Federal Fair Credit Reporting Act by adding laws directed towards helping consumers protect themselves against identity theft.

True False

40. Consumers are entitled to obtain free credit reports each year from the 3 largest U.S. credit card bureaus.

True False

41. Section 802 of the Sarbanes-Oxley Act of 2002 creates severe criminal penalties applicable to bankruptcy proceedings. What are they?

42. How does the concealment of assets fraud occur in bankruptcy?

43. List at least three chapters of bankruptcy and describe who that chapter is applicable to.

44. Explain how involuntary bankruptcy can occur and give an example of how it can be abused.

45. What are five things that a forensic accountant can look for in a tax return that will lead to the discovery of hidden assets?

46. How are loan applications helpful in the asset discovery process?

47. What is identity theft, how big is the problem and who is largely responsible for it?

48. What did the Fair and Accurate Credit Transaction Act of 2003 (FACTA) accomplish?

49. The Internet False Identification Prevention Act of 2000 made it illegal to do what and what is the penalty for doing it?

50. Describe the phishing process.

12 Key

1. According to the U.S. Department of Justice, what percentage of bankruptcy cases involve fraud?

A. 5%

B. 10%

C. 25%

D. 50%

Difficulty: Easy
Hopwood Chapter 12 #1

2. Which of the following is not a commonly committed fraud during bankruptcy proceedings?

A. Conceals property from the bankruptcy proceedings.

B. Gives, offers, receives, or attempts to obtain money, property, reward or advantage for acting or forbearing to act in a bankruptcy case.

C. Withholds documents related to the debtors property or financial affairs from the standing trustee or other officer of the court.

D. All of the above are commonly committed frauds.

Difficulty: Moderate
Hopwood Chapter 12 #2

3. What is a typical penalty for committing a bankruptcy fraud crime?

A. 5 years in prison; $250,000 fine or both.

B. 10 years in prison; $250,000 fine or both.

C. 5 years in prison; $500,000 fine or both.

D. 10 years in prison; $500,000 fine or both.

Difficulty: Moderate
Hopwood Chapter 12 #3

4. Which act or law created severe criminal penalties for fraud in a bankruptcy proceeding?

A. IRC revision of 1986

B. SEC ruling of 2001

C. U.S. Supreme Court Rulings of 2003

D. Section 802 of the Sarbanes-Oxley Act of 2002

Difficulty: Moderate
Hopwood Chapter 12 #4

5. What is a concealment of assets fraud?

A. It is when a business physically hides assets from investigators during an inventory of assets.

B. It is when debtors move large amounts of cash or other assets out of the business in anticipation of filing for bankruptcy.

C. It is when creditors move large amounts of cash or other assets out of the business in anticipation of filing for bankruptcy.

D. It is the selling of assets in order to increase cash reserves during a bankruptcy filing.

Difficulty: Hard
Hopwood Chapter 12 #5

6. Secretly transferring (or selling below market value) assets to others, perhaps to family or friends, in order to keep them out of the bankruptcy estate and maintain control over them is referred to as:

A. Concealment of assets fraud

B. Multiple filing scheme

C. Fraudulent conveyances

D. Bust-outs

Difficulty: Moderate
Hopwood Chapter 12 #6

7. Multiple-filing schemes are when:

A. An individual takes on multiple identities in multiple states, acquires debt under those identities and then files bankruptcy under all of them.

B. An individual takes on debt from multiple states and then files bankruptcy in each state under their own name.

C. Multiple individuals take on the same debt and then file bankruptcy under each persons name for the same debt

D. Multiple individuals take on multiple names in several states and acquire debt under all those names, then file bankruptcy in one state attempting to flood the courts with cases and confuse the court system.

Difficulty: Moderate
Hopwood Chapter 12 #7

8. How many different chapters for bankruptcy are there?

A. 2

B. 4

C. 6

D. 11

Difficulty: Easy
Hopwood Chapter 12 #8

9. Which chapter applies to both individuals and businesses, and is designed to completely liquidate the debtors assets and discharge the debtors liabilities?

A. Chapter 7

B. Chapter 9

C. Chapter 11

D. Chapter 13

Difficulty: Moderate
Hopwood Chapter 12 #9

10. Which chapter applies to farmers and those in fishing business?

A. Chapter 7

B. Chapter 9

C. Chapter 12

D. Chapter 15

Difficulty: Moderate
Hopwood Chapter 12 #10

11. Which two chapters are most frequently used by individuals?

A. Chapters 7 and 9

B. Chapters 13 and 15

C. Chapters 11 and 13

D. Chapters 7 and 13

Difficulty: Moderate
Hopwood Chapter 12 #11

12. Who administers bankruptcy proceedings?

A. Lawyers

B. U.S. District Courts

C. Department of Justice

D. U.S. Attorneys Office

Difficulty: Moderate
Hopwood Chapter 12 #12

13. If there is fraud suspected in the bankruptcy proceedings, who is the case turned over to?

A. U.S. District Court

B. Department of Justice

C. U.S. Attorneys Office

D. Securities and Exchange Commission

Difficulty: Moderate
Hopwood Chapter 12 #13

14. In cases where creditors force involuntary bankruptcy, what is a factor that may deem it to be an abusive filing?

A. If they attempt to file for more than the actual debit that is owed.

B. If the debtor actually has the ability to repay.

C. If there is only one creditor.

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #14

15. Why would a forensic accountant want to investigate prior W-2s during a bankruptcy or divorce fraud investigation?

A. It may show investment income from investments not previously disclosed.

B. It may show the purchase of assets through a business that has been written off for depreciation.

C. It could show contributions to Keogh plans.

D. It could show contributions to 401K, 403(b) and other deferred compensation plans.

Difficulty: Hard
Hopwood Chapter 12 #15

16. Why would a forensic accountant want to investigate all vendors listed for a business during a bankruptcy investigation?

A. To ensure that they are not owed any money by the debtor.

B. To ensure that they are actually real vendors and not just fronts for hiding assets.

C. To see if they want to recover any assets such as inventory that the business may have on hand prior to bankruptcy disposition.

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #16

17. When dealing with the issue of asset concealment in divorce cases, the forensic accountant must keep in mind that:

A. one or both parties will always be trying to conceal assets from the other party.

B. lawyers from either party may be employing the forensic accountant in order to drain marital assets.

C. assets may be accidentally concealed as some individuals are not good at financial record keeping.

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #17

18. For divorce cases, why might the level of scrutiny be considerably less that in bankruptcy cases?

A. Divorce attorneys dont always have the financial expertise that many bankruptcy attorneys have.

B. In bankruptcy cases there tend to be creditors with experience in asset concealment, and who are in possession of information-rich credit applications from debtors.

C. In bankruptcy cases there is more of a tendency for fraudulent conveyances and the hiding of assets to take place immediately prior to the filing.

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #18

19. Who causes the largest amount of identity theft in the United States?

A. Organized Crime

B. Gangs

C. Individuals on the internet

D. Corporations

Difficulty: Easy
Hopwood Chapter 12 #19

20. What is a problem with the free annual credit report web site?

A. Free reports are typically 12-18 months old.

B. Free reports only give you the credit rating, not if someone has used your identity to get credit.

C. The web site requires you to subscribe to an annual subscription to a financial magazine.

D. The web site has many impostors with similar names that actually take consumer information and steal their identities.

Difficulty: Moderate
Hopwood Chapter 12 #20

21. How does truncation of identity numbers work?

A. Machines encode account numbers when transmitting them over the internet.

B. Machines can only print the last 5 digits of an account number on anything that is printed for mailing.

C. Clerks and telephone operators are only allowed to verify identity by the last five letters of a persons name.

D. Older machines that do manual imprinting of credit card numbers must be modified to only copy the last five digits of the account numbers.

Difficulty: Moderate
Hopwood Chapter 12 #21

22. What are financial institutions required to do for consumers when they are filing negative information against them?

A. Nothing

B. Provide them an opportunity to rebut the negative information prior to its submission.

C. Ask for their concurrence prior to submitting the report.

D. Notify them within 30 days of negative information submitted with items that includes things like late, missed, or partial payments.

Difficulty: Easy
Hopwood Chapter 12 #22

23. The Congressional act that created stiffer penalties for identity theft, and even harsher penalties for terrorist related identity theft, was called:

A. The Identity Terrorism Protection Act

B. Identity Terrorism Penalty Enhancement Act

C. United States Identity Penalty Enhancement Act

D. Identity Theft Penalty Enhancement Act

Difficulty: Moderate
Hopwood Chapter 12 #23

24. What are some methods that identity thieves may use to get information?

A. Picking information out of dumpsters

B. Looking over the shoulder of someone while they fill out applications

C. Stealing mail

D. All of the above

Difficulty: Easy
Hopwood Chapter 12 #24

25. What is typically one of the first signs that an individuals identity has been stolen?

A. Unauthorized change in address

B. Bill collectors begin calling for accounts the individual is not aware of.

C. Incorrect information appearing on credit reports.

D. Unauthorized charges appear on statements.

Difficulty: Moderate
Hopwood Chapter 12 #25

26. Why is trying to catch identity thieves in the act not generally helpful?

A. They lie so well that you cannot know their true identity.

B. Only amateur identity thieves are sloppy enough to get caught in the act.

C. Immediate arrests dont normally take place unless a law-enforcement officer happens to be at the scene of the crime.

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #26

27. What is a controlled delivery?

A. When individuals control when their personal information is delivered to creditors.

B. When law enforcement catches thieves doing something like receiving mail or withdrawing banks funds using a stolen identity.

C. When individuals control when their mail is delivered to their mailboxes to prevent mail theft.

D. The act of delivering controlled amounts of personal information to thieves that think its legitimate.

Difficulty: Moderate
Hopwood Chapter 12 #27

28. Which other crimes typically coexist with identity theft?

A. Check fraud

B. Mortgage fraud

C. Insurance fraud

D. All of the above

Difficulty: Easy
Hopwood Chapter 12 #28

29. Which agency develops and controls www.consumer.gov/idtheft?

A. Federal Trade Commission

B. Food and Drug Administration

C. National Highway Transportation Safety Administration

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #29

30. How can individuals repair their credit if it has been stolen by thieves?

A. Hire an attorney

B. Contact their local representative to the U.S. Congress

C. Hire one of many private agencies that specialize in identity theft repair

D. All of the above

Difficulty: Moderate
Hopwood Chapter 12 #30

31. Over 90% of bankruptcy cases involve fraud.

FALSE

Difficulty: Easy
Hopwood Chapter 12 #31

32. The typical penalty for committing a bankruptcy fraud crimes has a maximum of 5 years in prison or a maximum fine of $250,000, or both, per offense.

TRUE

Difficulty: Moderate
Hopwood Chapter 12 #32

33. Fraudulent conveyances typically involved unqualified persons offering fee-based financial advice, credit counseling, and bankruptcy-filing services.

FALSE

Difficulty: Moderate
Hopwood Chapter 12 #33

34. Chapter 13 bankruptcy is less desirable for the debtor, since it requires debt repayment from the debtors future income.

TRUE

Difficulty: Moderate
Hopwood Chapter 12 #34

35. In bankruptcy or divorce, the involved partys recent federal tax returns should be carefully examined with respect to Investment interest expense deductions. Such deductions suggest the existence of a margin-based brokerage account.

TRUE

Difficulty: Hard
Hopwood Chapter 12 #35

36. Due to its complexity, the forensic accountant cannot perform a complete cash flow analysis for the individual or entity under investigation.

FALSE

Difficulty: Moderate
Hopwood Chapter 12 #36

37. Divorce fraud is very similar to bankruptcy fraud in that in both divorce and in bankruptcy a court may divide up the assets of some estate.

TRUE

Difficulty: Easy
Hopwood Chapter 12 #37

38. The largest part of identity theft is caused by individuals on the internet stealing information.

FALSE

Difficulty: Easy
Hopwood Chapter 12 #38

39. The Fair and Accurate Credit Transaction Act of 2003 replaced the Federal Fair Credit Reporting Act by adding laws directed towards helping consumers protect themselves against identity theft.

FALSE

Difficulty: Hard
Hopwood Chapter 12 #39

40. Consumers are entitled to obtain free credit reports each year from the 3 largest U.S. credit card bureaus.

TRUE

Difficulty: Moderate
Hopwood Chapter 12 #40

41. Section 802 of the Sarbanes-Oxley Act of 2002 creates severe criminal penalties applicable to bankruptcy proceedings. What are they?

Whoever knowingly alters, destroys, mutilates, conceals, covers up, falsifies, or makes a false entry in any record, document, or tangible object with the intent to impede, obstruct, or influence the investigation or proper administration of any matter within the jurisdiction of any department or agency of the United States or any case filed under title 11, or in relation to or contemplation of any such matter or case, shall be fined under this title, imprisoned not more than 20 years, or both.

Difficulty: Moderate
Hopwood Chapter 12 #41

42. How does the concealment of assets fraud occur in bankruptcy?

This type of fraud frequently occurs on a large scale in business bankruptcies, where debtors may move large amounts of cash or other assets out of the business in anticipation of filing for bankruptcy. The goal of the debtor-fraudster is to prevent assets from being included in the bankruptcy proceeding and from being distributed to the creditors. Sometimes assets are concealed using fraudulent conveyances; that is, by secretly transferring (or selling below market value) to others, perhaps to family or friends, in order to keep them out of the bankruptcy estate and maintain control over them.

Difficulty: Moderate
Hopwood Chapter 12 #42

43. List at least three chapters of bankruptcy and describe who that chapter is applicable to.

Chapter 7. This chapter applies to both individuals and businesses, and is designed to completely liquidate the debtors assets and discharge the debtors liabilities as permitted by the bankruptcy code. Not all debts can be discharged in bankruptcy. Chapter 9. This chapter applies to municipalities. Chapter 11. This chapter applies to businesses (and sometimes wealthy individuals) and focuses on working out a creditor payment plans without liquidating the businesses. Chapter 12. This chapter applies to farmers and those in the fishing business. Chapter 13. This chapter applies to individuals whose means-tested income in too large to permit them to file under Chapter 7. The focus is on working out a payment plan to at least partially pay creditors. Some debts may be complete discharged. Chapter 15 This chapter applies to cross-border cases and certain other ancillary cases.

Difficulty: Moderate
Hopwood Chapter 12 #43

44. Explain how involuntary bankruptcy can occur and give an example of how it can be abused.

In certain cases, when there is sufficient debt and a sufficient number of creditors, any one creditor may force an individual or business into involuntary bankruptcy. However, petitions by creditors for involuntary bankruptcy may be dismissed if they are deemed abusive. Reasons for them being declared abusive include the debtors ability to pay.

Difficulty: Moderate
Hopwood Chapter 12 #44

45. What are five things that a forensic accountant can look for in a tax return that will lead to the discovery of hidden assets?

W-2 forms. These reveal 401K, 403(b) and other deferred compensation plans that may be marital assets. Income Distributions from deferred compensation plans. .Verify the disposition of any distributed funds. Form 6251 (tax preferences). This form lists various tax preference items, such as accelerated depreciation, that might be related to concealed assets. Interest and dividend income. Verify the disposition of any assets that generate interest or dividend income. Investment interest expense deductions. Such deductions suggest the existence of a margin-based brokerage account. Real estate tax deductions. Verify the disposition of the underlying properties. Interest expense deductions. Verify the proceeds of any loans. Casualty loss deductions. Such deductions may indicate the existence of proceeds from insurance claims. Verify the disposition of any such proceeds. Miscellaneous deductions. Such deductions may include safe deposit fees, which can point to hidden safe deposit boxes. Deductions for attorneys fees may point to a hidden estate plan. Form 1040, Schedule B, Lines 11 and 12. This is where the existence of foreign (off-shore) trusts is reported. Such trusts are often used to shield assets from others. Form 1040, Schedule C (profit and loss from a business). Look for contributions to Keogh plans. Form 1040, Schedule D (disposition of assets sales). Verify the disposition of the proceeds from assets sales. Schedule E. (income from rental properties, royalties, and estates and trusts, partnerships, and S corporations). Verify the dispositions of the underlying assets. Also, activity loss carryovers should be treated as an asset.

Difficulty: Hard
Hopwood Chapter 12 #45

46. How are loan applications helpful in the asset discovery process?

Through studying tax returns, bank statements, and other records, the forensic accountant can determine that the individual or entity under investigation has obtained one or more loans. The forensic accountant should seek copies of any loan applications. Loan applications are a very powerful source of information when it comes to uncovering concealed assets. First, its a federal crime to lie on the loan applications made to FDIC-insured financial institutions. Second, individuals tend to portray their financial condition is a favorable light when applying for loans. Therefore the forensic accountant should carefully study the lists of assets included on loan applications.

Difficulty: Moderate
Hopwood Chapter 12 #46

47. What is identity theft, how big is the problem and who is largely responsible for it?

The fastest growing crime in the United States, identity theft occurs when one person uses anothers personal identifying information, such as drivers license or social security number, to obtain goods and/or services in that persons name. The problem of identity theft has grown so large that its estimated annual cost to U.S. consumers and businesses is in the neighbor hood of $50 billion dollars, and the largest part of it is caused by organized-crime groups.

Difficulty: Easy
Hopwood Chapter 12 #47

48. What did the Fair and Accurate Credit Transaction Act of 2003 (FACTA) accomplish?

This act updated the Federal Fair Credit Reporting Act by adding laws directed towards helping consumers protect themselves against identity theft. As with many acts of Congress, many portions of the FACTA direct federal agencies such as the Federal Trade Commission to make regulations to implement the Act.

Difficulty: Moderate
Hopwood Chapter 12 #48

49. The Internet False Identification Prevention Act of 2000 made it illegal to do what and what is the penalty for doing it?

This act makes it illegal to sell counterfeit versions of certain official identification cards. This law clamped down on those who had previously sold such cards on the Internet as novelties. Still, the act did not stop many from selling such cards, especially those in other countries. The law also makes it illegal to sell electronic templates for making counterfeit identification cards. Theres a potential one-year prison sentence if one fake identification card is made from a given template, but the potential prison sentence increases to 20 years if the template is used to make 5 or more fake identification cards.

Difficulty: Moderate
Hopwood Chapter 12 #49

50. Describe the phishing process.

Phishing is a billion-dollar-a-year Internet scam in which fraudsters trick victims into supplying personal information. In one form of Phishing, the fraudster sends the victim an email message that says there is some kind of issue or problem associated with the victims credit-card account, bank account, or other type of account. The email message give the victim a web link to his or account and is told to login to deal with the issue. The link may appear genuine; for example, it might appear as www.wachovia.com (the web address for Wachovia Bank), but what the victim sees is only the anchor text The real link is hidden in the messages html code, and so clicking on the link takes the victim to a site controlled by the fraudster. At the point, the victim will be able to see the real web address in the web browsers address bar, but it will probably be cleverly designed to look very much like a legitimate address. For example, it might be something like www.service-wachovia.com, which is in a completely different than wachovia.com. Finally, the fraudster-controlled web site will be designed to look just like the real web site, thus further encouraging the victim to fill out a login form and give away personal data

Difficulty: Easy
Hopwood Chapter 12 #50

12 Summary

Category # of Questions
Difficulty: Easy 11
Difficulty: Hard 5
Difficulty: Moderate 34
Hopwood Chapter 12 50

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