Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Solution and Answer Guide
ALBRECHT, FRAUD EXAMINATION , 7E, ©2025, 9780357721759;
CHAPTER 1: THE NATURE OF FRAUD
CONTENTS
Discussion Questions ................................................. 3
True/False ........................................................... 7
Multiple Choice ..................................................... 10
Short Cases ......................................................... 14
Case 1 ............................................................ 14
Case 2 ............................................................ 15
Case 3 ............................................................ 15
Case 4 ............................................................ 16
Case 5 ............................................................ 16
Case 6 ............................................................ 16
Case 7 ............................................................ 17
Case 8 ............................................................ 18
Case 9 ............................................................ 18
Case 10 ........................................................... 18
Case 11 ........................................................... 19
Case 12 ........................................................... 20
Case 13 ........................................................... 20
Case 14 ........................................................... 20
Case 15 ........................................................... 21
Case 16 ........................................................... 21
Case 17 ........................................................... 21
Case Studies ........................................................ 22
Case Study 1 ...................................................... 22
Case Study 2: Sweepstakes—legitimate or deceptive? ................ 24
Case Study 3: Trading after Hours ................................. 25
Case Study 4 ...................................................... 27
Debate ............................................................ 28
Answers to Stop and Think Questions: ................................ 28
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,Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
Internet Assignment ................................................. 29
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website, in whole or in part.
,Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
DISCUSSION QUESTIONS
1. What is fraud?
Answer: Fraud always involves deception, confidence, and trickery. The
following is one of the most common definitions of fraud:
a. ―Fraud is a generic term, and embraces all the multifarious means
that human ingenuity can devise, which are resorted to by one
individual, to get an advantage over another by false
representations. No definite and invariable rule can be laid down as
a general proposition in defining fraud, as it includes surprise,
trickery, cunning and unfair ways by which another is cheated. The
only boundaries defining it are those which limit human knavery.‖
Fraud is deception that includes the following elements:
1. A representation
2. About a material point
3. That is false
4. Intentionally or recklessly so
5. That is believed
6. And acted upon by the victim
7. To the victim‘s damage
2. How does fraud affect individuals, consumers, and organizations?
Answer: Fraud affects individuals, consumers, and organizations in
various ways. Fraud usually lowers organizations‘ net income dollar for
dollar. To recover these costs, consumers and individuals must pay more
for goods and services. For example, health care fraud and insurance
fraud increase premiums that individuals must pay. The cost of fraud
eventually reaches every part of the economy, including individuals,
consumers, and organizations.
The 2008 study by The Association of Certified Fraud Examiners
estimates that U.S. organizations lose roughly 7 percent of their
annual revenues to fraud. Applied to the U.S. gross domestic product
(GDP), this 7 percent figure translates to approximately $994 billion
in fraud losses.
3. List and describe the five different types of frauds.
Answer:
a. Employee embezzlement: In this type of fraud, employees deceive
their employers by taking company assets. Embezzlement can be either
direct or indirect.
b. Management fraud: Distinguished from other types of fraud both by
the nature of the perpetrators and by the method of deception. In
its most common form, management fraud is deception perpetrated by
top management‘s manipulation of financial statements. The victims
of management fraud are typically stockholders, lenders, and others
who rely on financial statement information.
c. Investment scams or consumer scams: A type of fraud that is
perpetrated when fraudulent and usually worthless investments are
sold to unsuspecting investors.
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, Solution and Answer Guide: Albrecht, Fraud Examination, 7e, 2025, 9780357721759; Chapter 1: The Nature of Fraud
d. Vendor fraud: Perpetrated by vendors; comes in two main varieties:
fraud perpetrated by vendors acting alone, and fraud perpetrated
through collusion between buyers and vendors. Vendor fraud usually
results in an overcharge for purchased goods, the shipment of
inferior goods, or the nonshipment of goods even though payment was
made.
e. Customer fraud: Usually involves customers not paying for goods
purchased, getting something for nothing, or deceiving organizations
into giving them something they should not have.
4. What is the difference between civil and criminal law?
Answer:
a. Criminal law is the branch of law that deals with offenses of a
public nature. Criminal laws generally deal with offenses against
society as a whole. Violators of criminal laws are prosecuted either
federally or by a state for violating a statute that prohibits some
type of activity.
b. Civil law is the body of law that provides remedies for violations
of private rights. Civil law deals with rights and duties between
individuals. The purpose of a civil lawsuit is to provide
compensation for harm done to an individual. Unlike criminal cases,
where juries consist of 12 jurors, juries in civil cases may have as
few as six jurors, and the verdict of the jury need not be
unanimous. Additionally, judges often hear civil cases instead of
juries. In civil lawsuits, plaintiffs must only prove their case by
the ―preponderance of the evidence.‖ In other words, there need be
only slightly more evidence supporting the plaintiff than supporting
the defendant.
5. For each of the following, indicate whether it is a characteristic of a
civil or a criminal case:
a. Jury may consist of fewer than 12 jurors.
b. Verdict must be unanimous.
c. Multiple claims may be joined in one action.
d. Proven ―beyond a reasonable doubt.‖
e. Purpose is to right a public wrong.
f. Purpose is to obtain remedy.
g. Consequences of jail and/or fines.
h. Juries may have a less than unanimous verdict.
Answer:
a. Civil
b. Criminal
c. Civil
d. Criminal
e. Criminal
f. Civil
g. Criminal
h. Civil
6. Why was Charles Ponzi so successful with his fraud scheme?
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