Financial Investigations & Data Analysis Flashcards

Which of the following best describes 'data mining' in the context of fraud investigations?

Answer: Using algorithms to discover patterns, anomalies, and relationships in large datasets

Data mining uses statistical algorithms and machine learning to identify patterns, correlations, and anomalies in large volumes of financial data.

A fraud examiner reviews journal entries posted on weekends and holidays. Why is this significant?

Answer: Unusual timing of entries may indicate manipulation outside normal oversight periods

Journal entries posted outside normal business hours often indicate manipulation occurring when management oversight is reduced.

In analyzing financial statements for fraud, what does an unusually high 'days sales outstanding' (DSO) ratio suggest?

Answer: Possible fictitious revenue recognition or inflated receivables

A high DSO may indicate fictitious sales recorded near period-end or inflated receivables that cannot be collected because they represent fraudulent transactions.

What is the 'expenditures method' used to prove in a fraud investigation?

Answer: Unreported income by showing that spending exceeded known legitimate income

The expenditures method proves unreported income by documenting that a subject's total expenditures exceed their reported legitimate income sources.

Which technique involves selecting every nth item from a population for examination in a fraud audit?

Answer: Systematic sampling

Systematic sampling selects items at fixed intervals (every nth item) from an ordered population, providing broad coverage across the dataset.

A fraud examiner finds numerous debit entries to 'miscellaneous expense' in a company's general ledger. This most likely warrants investigation for:

Answer: Concealment of unauthorized disbursements through vague expense classifications

Vague expense categories like 'miscellaneous' are commonly used to conceal fraudulent disbursements by making the payments difficult to trace or scrutinize.

What does 'reasonableness testing' involve in a financial fraud investigation?

Answer: Comparing recorded amounts to independently calculated expected values based on related data

Reasonableness testing develops an independent estimate of what a figure should be (using related data) and compares it to the recorded amount to detect manipulation.